" HOUSE OF REPRESENTATIVES ! 108TH CONGRESS

1st Session 

REPT. 108–40 

Part 1

BANKRUPTCY ABUSE PREVENTION AND 

CONSUMER PROTECTION ACT OF 2003

R E P O R T

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

TO ACCOMPANY

H.R. 975

together with

DISSENTING AND ADDITIONAL DISSENTING VIEWS

MARCH 18, 2003.—Committed to the Committee of the Whole House on 

the State of the Union and ordered to be printed 


E:\Seals\Congress.#13
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2003

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1

85–733

" HOUSE OF REPRESENTATIVES ! 108TH CONGRESS

1st Session 

REPT. 108–40 

2003

Part 1

BANKRUPTCY ABUSE PREVENTION AND 

CONSUMER PROTECTION ACT OF 2003 

R E P O R T

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

TO ACCOMPANY

H.R. 975

together with

DISSENTING AND ADDITIONAL DISSENTING VIEWS

MARCH 18, 2003.—Committed to the Committee of the Whole House on 

the State of the Union and ordered to be printed 


E:\Seals\Congress.#13
108TH CONGRESS REPT. 108–40 " HOUSE OF REPRESENTATIVES ! 1st Session Part 1

BANKRUPTCY ABUSE PREVENTION AND CONSUMER 

PROTECTION ACT OF 2003

MARCH 18, 2003.—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 AND ADDITIONAL DISSENTING VIEWS 

[To accompany H.R. 975] 

[Including cost estimate of the Congressional Budget Office]

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

(H.R. 975) to amend title 11 of the United States Code, and for 

other purposes, having considered the same, reports favorably 

thereon with an amendment and recommends that the bill as 

amended do pass.

CONTENTS 

Page 

The Amendment ...................................................................................................... 2

Purpose and Summary ............................................................................................ 121

Background and Need for the Legislation ............................................................. 122

Hearings ................................................................................................................... 136

Committee Consideration ........................................................................................ 137

Vote of the Committee ............................................................................................. 137

Committee Oversight Findings ............................................................................... 145

Performance Goals and Objectives ......................................................................... 145

New Budget Authority and Tax Expenditures ...................................................... 145

Congressional Budget Office Cost Estimate .......................................................... 145

Constitutional Authority Statement ...................................................................... 156

Section-by-Section Analysis and Discussion .......................................................... 156

Changes in Existing Law Made by the Bill, as Reported ..................................... 256

Committee Jurisdiction Letters .............................................................................. 452

Markup Transcript .................................................................................................. 455

Dissenting Views ..................................................................................................... 557

Additional Dissenting Views ................................................................................... 595

2

The amendment is as follows: 

Strike all after the enacting clause and insert the following:

SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS. 

(a) SHORT TITLE.—This Act may be cited as the ‘‘Bankruptcy Abuse Prevention 

and Consumer Protection Act of 2003’’. (b) TABLE OF CONTENTS.—The table of contents for this Act is as follows:

Sec. 1. Short title; references; table of contents. 

TITLE I—NEEDS-BASED BANKRUPTCY 

Sec. 101. Conversion. 

Sec. 102. Dismissal or conversion. 

Sec. 103. Sense of Congress and study. 

Sec. 104. Notice of alternatives. 

Sec. 105. Debtor financial management training test program. 

Sec. 106. Credit counseling. 

Sec. 107. Schedules of reasonable and necessary expenses. 

TITLE II—ENHANCED CONSUMER PROTECTION 

Subtitle A—Penalties for Abusive Creditor Practices 

Sec. 201. Promotion of alternative dispute resolution. 

Sec. 202. Effect of discharge. 

Sec. 203. Discouraging abuse of reaffirmation agreement practices. 

Sec. 204. Preservation of claims and defenses upon sale of predatory loans. 

Sec. 205. GAO study and report on reaffirmation agreement process. 

Subtitle B—Priority Child Support 

Sec. 211. Definition of domestic support obligation. 

Sec. 212. Priorities for claims for domestic support obligations. 

Sec. 213. Requirements to obtain confirmation and discharge in cases involving domestic support obligations. 

Sec. 214. Exceptions to automatic stay in domestic support obligation proceedings. 

Sec. 215. Nondischargeability of certain debts for alimony, maintenance, and support. 

Sec. 216. Continued liability of property. 

Sec. 217. Protection of domestic support claims against preferential transfer motions. 

Sec. 218. Disposable income defined. 

Sec. 219. Collection of child support. 

Sec. 220. Nondischargeability of certain educational benefits and loans. 

Subtitle C—Other Consumer Protections 

Sec. 221. Amendments to discourage abusive bankruptcy filings. 

Sec. 222. Sense of Congress. 

Sec. 223. Additional amendments to title 11, United States Code. 

Sec. 224. Protection of retirement savings in bankruptcy. 

Sec. 225. Protection of education savings in bankruptcy. 

Sec. 226. Definitions. 

Sec. 227. Restrictions on debt relief agencies. 

Sec. 228. Disclosures. 

Sec. 229. Requirements for debt relief agencies. 

Sec. 230. GAO study. 

Sec. 231. Protection of personally identifiable information. 

Sec. 232. Consumer privacy ombudsman. 

Sec. 233. Prohibition on disclosure of name of minor children. 

TITLE III—DISCOURAGING BANKRUPTCY ABUSE 

Sec. 301. Reinforcement of the fresh start. 

Sec. 302. Discouraging bad faith repeat filings. 

Sec. 303. Curbing abusive filings. 

Sec. 304. Debtor retention of personal property security. 

Sec. 305. Relief from the automatic stay when the debtor does not complete intended surrender of consumer 

debt collateral. 

Sec. 306. Giving secured creditors fair treatment in chapter 13. 

Sec. 307. Domiciliary requirements for exemptions. 

Sec. 308. Reduction of homestead exemption for fraud. 

Sec. 309. Protecting secured creditors in chapter 13 cases. 

Sec. 310. Limitation on luxury goods. 

Sec. 311. Automatic stay. 

Sec. 312. Extension of period between bankruptcy discharges. 

Sec. 313. Definition of household goods and antiques. 

Sec. 314. Debt incurred to pay nondischargeable debts. 

Sec. 315. Giving creditors fair notice in chapters 7 and 13 cases. 

Sec. 316. Dismissal for failure to timely file schedules or provide required information. 

Sec. 317. Adequate time to prepare for hearing on confirmation of the plan. 

Sec. 318. Chapter 13 plans to have a 5-year duration in certain cases. 

Sec. 319. Sense of Congress regarding expansion of rule 9011 of the Federal Rules of Bankruptcy Procedure. 

Sec. 320. Prompt relief from stay in individual cases. 

Sec. 321. Chapter 11 cases filed by individuals. 

Sec. 322. Limitations on homestead exemption. 

Sec. 323. Excluding employee benefit plan participant contributions and other property from the estate. 

Sec. 324. Exclusive jurisdiction in matters involving bankruptcy professionals. 

Sec. 325. United States trustee program filing fee increase. 

Sec. 326. Sharing of compensation. 

Sec. 327. Fair valuation of collateral. 

Sec. 328. Defaults based on nonmonetary obligations. 

Sec. 329. Clarification of postpetition wages and benefits. 

Sec. 330. Delay of discharge during pendency of certain proceedings. 

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TITLE IV—GENERAL AND SMALL BUSINESS BANKRUPTCY PROVISIONS 

Subtitle A—General Business Bankruptcy Provisions 

Sec. 401. Adequate protection for investors. 

Sec. 402. Meetings of creditors and equity security holders. 

Sec. 403. Protection of refinance of security interest. 

Sec. 404. Executory contracts and unexpired leases. 

Sec. 405. Creditors and equity security holders committees. 

Sec. 406. Amendment to section 546 of title 11, United States Code. 

Sec. 407. Amendments to section 330(a) of title 11, United States Code. 

Sec. 408. Postpetition disclosure and solicitation. 

Sec. 409. Preferences. 

Sec. 410. Venue of certain proceedings. 

Sec. 411. Period for filing plan under chapter 11. 

Sec. 412. Fees arising from certain ownership interests. 

Sec. 413. Creditor representation at first meeting of creditors. 

Sec. 414. Definition of disinterested person. 

Sec. 415. Factors for compensation of professional persons. 

Sec. 416. Appointment of elected trustee. 

Sec. 417. Utility service. 

Sec. 418. Bankruptcy fees. 

Sec. 419. More complete information regarding assets of the estate. 

Subtitle B—Small Business Bankruptcy Provisions 

Sec. 431. Flexible rules for disclosure statement and plan. 

Sec. 432. Definitions. 

Sec. 433. Standard form disclosure statement and plan. 

Sec. 434. Uniform national reporting requirements. 

Sec. 435. Uniform reporting rules and forms for small business cases. 

Sec. 436. Duties in small business cases. 

Sec. 437. Plan filing and confirmation deadlines. 

Sec. 438. Plan confirmation deadline. 

Sec. 439. Duties of the United States trustee. 

Sec. 440. Scheduling conferences. 

Sec. 441. Serial filer provisions. 

Sec. 442. Expanded grounds for dismissal or conversion and appointment of trustee. 

Sec. 443. Study of operation of title 11, United States Code, with respect to small businesses. 

Sec. 444. Payment of interest. 

Sec. 445. Priority for administrative expenses. 

Sec. 446. Duties with respect to a debtor who is a plan administrator of an employee benefit plan. 

Sec. 447. Appointment of committee of retired employees. 

TITLE V—MUNICIPAL BANKRUPTCY PROVISIONS 

Sec. 501. Petition and proceedings related to petition. 

Sec. 502. Applicability of other sections to chapter 9. 

TITLE VI—BANKRUPTCY DATA 

Sec. 601. Improved bankruptcy statistics. 

Sec. 602. Uniform rules for the collection of bankruptcy data. 

Sec. 603. Audit procedures. 

Sec. 604. Sense of Congress regarding availability of bankruptcy data. 

TITLE VII—BANKRUPTCY TAX PROVISIONS 

Sec. 701. Treatment of certain liens. 

Sec. 702. Treatment of fuel tax claims. 

Sec. 703. Notice of request for a determination of taxes. 

Sec. 704. Rate of interest on tax claims. 

Sec. 705. Priority of tax claims. 

Sec. 706. Priority property taxes incurred. 

Sec. 707. No discharge of fraudulent taxes in chapter 13. 

Sec. 708. No discharge of fraudulent taxes in chapter 11. 

Sec. 709. Stay of tax proceedings limited to prepetition taxes. 

Sec. 710. Periodic payment of taxes in chapter 11 cases. 

Sec. 711. Avoidance of statutory tax liens prohibited. 

Sec. 712. Payment of taxes in the conduct of business. 

Sec. 713. Tardily filed priority tax claims. 

Sec. 714. Income tax returns prepared by tax authorities. 

Sec. 715. Discharge of the estate’s liability for unpaid taxes. 

Sec. 716. Requirement to file tax returns to confirm chapter 13 plans. 

Sec. 717. Standards for tax disclosure. 

Sec. 718. Setoff of tax refunds. 

Sec. 719. Special provisions related to the treatment of State and local taxes. 

Sec. 720. Dismissal for failure to timely file tax returns. 

TITLE VIII—ANCILLARY AND OTHER CROSS-BORDER CASES 

Sec. 801. Amendment to add chapter 15 to title 11, United States Code. 

Sec. 802. Other amendments to titles 11 and 28, United States Code. 

TITLE IX—FINANCIAL CONTRACT PROVISIONS 

Sec. 901. Treatment of certain agreements by conservators or receivers of insured depository institutions. 

Sec. 902. Authority of the corporation with respect to failed and failing institutions. 

Sec. 903. Amendments relating to transfers of qualified financial contracts. 

Sec. 904. Amendments relating to disaffirmance or repudiation of qualified financial contracts. 

Sec. 905. Clarifying amendment relating to master agreements. 

Sec. 906. Federal Deposit Insurance Corporation Improvement Act of 1991. 

Sec. 907. Bankruptcy law amendments. 

Sec. 908. Recordkeeping requirements. 

4

Sec. 909. Exemptions from contemporaneous execution requirement. 

Sec. 910. Damage measure. 

Sec. 911. SIPC stay. 

TITLE X—PROTECTION OF FAMILY FARMERS AND FAMILY FISHERMEN 

Sec. 1001. Permanent reenactment of chapter 12. 

Sec. 1002. Debt limit increase. 

Sec. 1003. Certain claims owed to governmental units. 

Sec. 1004. Definition of family farmer. 

Sec. 1005. Elimination of requirement that family farmer and spouse receive over 50 percent of income from 

farming operation in year prior to bankruptcy. 

Sec. 1006. Prohibition of retroactive assessment of disposable income. 

Sec. 1007. Family fishermen. 

TITLE XI—HEALTH CARE AND EMPLOYEE BENEFITS 

Sec. 1101. Definitions. 

Sec. 1102. Disposal of patient records. 

Sec. 1103. Administrative expense claim for costs of closing a health care business and other administrative 

expenses. Sec. 1104. Appointment of ombudsman to act as patient advocate. 

Sec. 1105. Debtor in possession; duty of trustee to transfer patients. 

Sec. 1106. Exclusion from program participation not subject to automatic stay. 

TITLE XII—TECHNICAL AMENDMENTS 

Sec. 1201. Definitions. 

Sec. 1202. Adjustment of dollar amounts. 

Sec. 1203. Extension of time. 

Sec. 1204. Technical amendments. 

Sec. 1205. Penalty for persons who negligently or fraudulently prepare bankruptcy petitions. 

Sec. 1206. Limitation on compensation of professional persons. 

Sec. 1207. Effect of conversion. 

Sec. 1208. Allowance of administrative expenses. 

Sec. 1209. Exceptions to discharge. 

Sec. 1210. Effect of discharge. 

Sec. 1211. Protection against discriminatory treatment. 

Sec. 1212. Property of the estate. 

Sec. 1213. Preferences. 

Sec. 1214. Postpetition transactions. 

Sec. 1215. Disposition of property of the estate. 

Sec. 1216. General provisions. 

Sec. 1217. Abandonment of railroad line. 

Sec. 1218. Contents of plan. 

Sec. 1219. Bankruptcy cases and proceedings. 

Sec. 1220. Knowing disregard of bankruptcy law or rule. 

Sec. 1221. Transfers made by nonprofit charitable corporations. 

Sec. 1222. Protection of valid purchase money security interests. 

Sec. 1223. Bankruptcy Judgeships. 

Sec. 1224. Compensating trustees. 

Sec. 1225. Amendment to section 362 of title 11, United States Code. 

Sec. 1226. Judicial education. 

Sec. 1227. Reclamation. 

Sec. 1228. Providing requested tax documents to the court. 

Sec. 1229. Encouraging creditworthiness. 

Sec. 1230. Property no longer subject to redemption. 

Sec. 1231. Trustees. 

Sec. 1232. Bankruptcy forms. 

Sec. 1233. Direct appeals of bankruptcy matters to courts of appeals. 

Sec. 1234. Involuntary cases. 

Sec. 1235. Federal election law fines and penalties as nondischargeable debt. 

TITLE XIII—CONSUMER CREDIT DISCLOSURE 

Sec. 1301. Enhanced disclosures under an open end credit plan. 

Sec. 1302. Enhanced disclosure for credit extensions secured by a dwelling. 

Sec. 1303. Disclosures related to ‘‘introductory rates’’. 

Sec. 1304. Internet-based credit card solicitations. 

Sec. 1305. Disclosures related to late payment deadlines and penalties. 

Sec. 1306. Prohibition on certain actions for failure to incur finance charges. 

Sec. 1307. Dual use debit card. 

Sec. 1308. Study of bankruptcy impact of credit extended to dependent students. 

Sec. 1309. Clarification of clear and conspicuous. 

TITLE XIV—GENERAL EFFECTIVE DATE; APPLICATION OF AMENDMENTS 

Sec. 1401. Effective date; application of amendments.

TITLE I—NEEDS-BASED BANKRUPTCY 

SEC. 101. CONVERSION. 

Section 706(c) of title 11, United States Code, is amended by inserting ‘‘or consents to’’ after ‘‘requests’’. 

SEC. 102. DISMISSAL OR CONVERSION. 

(a) IN GENERAL.—Section 707 of title 11, United States Code, is amended—

(1) by striking the section heading and inserting the following: 

5

‘‘§ 707. Dismissal of a case or conversion to a case under chapter 11 or 13’’; 

and 

(2) in subsection (b)—

(A) by inserting ‘‘(1)’’ after ‘‘(b)’’; 

(B) in paragraph (1), as so redesignated by subparagraph (A) of this 

paragraph—

(i) in the first sentence—

(I) by striking ‘‘but not at the request or suggestion of’’ and inserting ‘‘trustee (or bankruptcy administrator, if any), or’’; 

(II) by inserting ‘‘, or, with the debtor’s consent, convert such 

a case to a case under chapter 11 or 13 of this title,’’ after ‘‘consumer debts’’; and 

(III) by striking ‘‘a substantial abuse’’ and inserting ‘‘an 

abuse’’; and 

(ii) by striking the next to last sentence; and 

(C) by adding at the end the following: 

‘‘(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. Notwithstanding any other provision of this clause, the monthly 

expenses of the debtor shall not include any payments for debts. In addition, the 

debtor’s monthly expenses shall include the debtor’s reasonably necessary expenses 

incurred to maintain the safety of the debtor and the family of the debtor from family violence as identified under section 309 of the Family Violence Prevention and 

Services Act, or other applicable Federal law. The expenses included in the debtor’s 

monthly expenses described in the preceding sentence shall be kept confidential by 

the court. In addition, if it is demonstrated that it is reasonable and necessary, the 

debtor’s monthly expenses may also include an additional allowance for food and 

clothing of up to 5 percent of the food and clothing categories as specified by the 

National Standards issued by the Internal Revenue Service. 

‘‘(II) In addition, the debtor’s monthly expenses may include, if applicable, the 

continuation of actual expenses paid by the debtor that are reasonable and necessary for care and support of an elderly, chronically ill, or disabled household member or member of the debtor’s immediate family (including parents, grandparents, 

siblings, children, and grandchildren of the debtor, the dependents of the debtor, 

and the spouse of the debtor in a joint case who is not a dependent) and who is 

unable to pay for such reasonable and necessary expenses. 

‘‘(III) In addition, for a debtor eligible for chapter 13, the debtor’s monthly expenses may include the actual administrative expenses of administering a chapter 

13 plan for the district in which the debtor resides, up to an amount of 10 percent 

of the projected plan payments, as determined under schedules issued by the Executive Office for United States Trustees.

‘‘(IV) In addition, the debtor’s monthly expenses may include the actual expenses for each dependent child less than 18 years of age, not to exceed $1,500 per 

year per child, to attend a private or public elementary or secondary school if the 

debtor provides documentation of such expenses and a detailed explanation of why 

such expenses are reasonable and necessary, and why such expenses are not already 

accounted for in the National Standards, Local Standards, or Other Necessary Expenses referred to in subclause (I).

‘‘(V) In addition, the debtor’s monthly expenses may include an allowance for 

housing and utilities, in excess of the allowance specified by the Local Standards 

for housing and utilities issued by the Internal Revenue Service, based on the actual 

expenses for home energy costs if the debtor provides documentation of such actual 

expenses and demonstrates that such actual expenses are reasonable and necessary.

‘‘(iii) The debtor’s average monthly payments on account of secured debts shall 

be calculated as the sum of—

‘‘(I) the total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the petition; and 

6

‘‘(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 that justify additional expenses or adjustments of current monthly income for which there is no 

reasonable alternative. 

‘‘(ii) In order to establish special circumstances, the debtor shall be required to 

itemize each additional expense or adjustment of income and to provide—

‘‘(I) documentation for such expense or adjustment to income; and 

‘‘(II) a detailed explanation of the special circumstances that make such expenses or adjustment to income necessary and reasonable. 

‘‘(iii) The debtor shall attest under oath to the accuracy of any information provided to demonstrate that additional expenses or adjustments to income are required. 

‘‘(iv) The presumption of abuse may only be rebutted if the additional expenses 

or adjustments to income referred to in clause (i) cause the product of the debtor’s 

current monthly income reduced by the amounts determined under clauses (ii), (iii), 

and (iv) of subparagraph (A) when multiplied by 60 to be less than the lesser of—

‘‘(I) 25 percent of the debtor’s nonpriority unsecured claims, or $6,000, 

whichever is greater; or 

‘‘(II) $10,000. 

‘‘(C) As part of the schedule of current income and expenditures required under 

section 521, the debtor shall include a statement of the debtor’s current monthly income, and the calculations that determine whether a presumption arises under subparagraph (A)(i), that show how each such amount is calculated. 

‘‘(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 under 

this chapter violated rule 9011 of the Federal Rules of Bankruptcy Procedure. 

‘‘(B) If the court finds that the attorney for the debtor violated rule 9011 of the 

Federal Rules of Bankruptcy Procedure, the court, on its own initiative or on the 

motion of a party in interest, in accordance with such procedures, may order—

‘‘(i) the assessment of an appropriate civil penalty against the attorney for 

the debtor; and 

‘‘(ii) the payment of such civil penalty to the trustee, the United States 

trustee (or the bankruptcy administrator, if any). 

‘‘(C) The signature of an attorney on a petition, pleading, or written motion 

shall constitute a certification that the attorney has—

‘‘(i) performed a reasonable investigation into the circumstances that gave 

rise to the petition, pleading, or written motion; and 

‘‘(ii) determined that the petition, pleading, or written motion—

‘‘(I) is well grounded in fact; and 

‘‘(II) is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law and does not constitute an 

abuse under paragraph (1). 

7

‘‘(D) The signature of an attorney on the petition shall constitute a certification 

that the attorney has no knowledge after an inquiry that the information in the 

schedules filed with such petition is incorrect. ‘‘(5)(A) Except as provided in subparagraph (B) and subject to paragraph (6), the 

court, on its own initiative or on the motion of a party in interest, in accordance 

with the procedures described in rule 9011 of the Federal Rules of Bankruptcy Procedure, may award a debtor all reasonable costs (including reasonable attorneys’ fees) in contesting a motion filed by a party in interest (other than a trustee or 

United States trustee (or bankruptcy administrator, if any)) under this subsection 

if— ‘‘(i) the court does not grant the motion; and 

‘‘(ii) the court finds that— ‘‘(I) the position of the party that filed the motion violated rule 9011 

of the Federal Rules of Bankruptcy Procedure; or ‘‘(II) the attorney (if any) who filed the motion did not comply with the 

requirements of clauses (i) and (ii) of paragraph (4)(C), and the motion was 

made solely for the purpose of coercing a debtor into waiving a right guaranteed to the debtor under this title. ‘‘(B) A small business that has a claim of an aggregate amount less than $1,000 

shall not be subject to subparagraph (A)(ii)(I). ‘‘(C) For purposes of this paragraph—

‘‘(i) the term ‘small business’ means an unincorporated business, partnership, corporation, association, or organization that—

‘‘(I) has fewer than 25 full-time employees as determined on the date 

on which the motion is filed; and 

‘‘(II) is engaged in commercial or business activity; and 

‘‘(ii) the number of employees of a wholly owned subsidiary of a corporation 

includes the employees of—

‘‘(I) a parent corporation; and 

‘‘(II) any other subsidiary corporation of the parent corporation. 

‘‘(6) Only the judge or United States trustee (or bankruptcy administrator, if 

any) may file a motion under section 707(b), if the current monthly income of the 

debtor, or in a joint case, the debtor and the debtor’s spouse, as of the date of the 

order for relief, when multiplied by 12, is equal to or less than—

‘‘(A) in the case of a debtor in a household of 1 person, the median family 

income of the applicable State for 1 earner; 

‘‘(B) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or 

‘‘(C) in the case of a debtor in a household exceeding 4 individuals, the 

highest median family income of the applicable State for a family of 4 or fewer 

individuals, plus $525 per month for each individual in excess of 4.

‘‘(7)(A) No judge, United States trustee (or bankruptcy administrator, if any), 

trustee, or other party in interest may file a motion under paragraph (2) if the current monthly income of the debtor 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.’’.

(b) DEFINITION.—Section 101 of title 11, United States Code, is amended by inserting after paragraph (10) the following: 

‘‘(10A) ‘current monthly income’—

8

‘‘(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;’’. 

(c) UNITED STATES TRUSTEE AND BANKRUPTCY ADMINISTRATOR DUTIES.—Section 

704 of title 11, United States Code, is amended—

(1) by inserting ‘‘(a)’’ before ‘‘The trustee shall—’’; and 

(2) by adding at the end the following: 

‘‘(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.’’. 

(d) NOTICE.—Section 342 of title 11, United States Code, is amended by adding 

at the end the following: 

‘‘(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) NONLIMITATION OF INFORMATION.—Nothing in this title shall limit the ability of a creditor to provide information to a judge (except for information communicated ex parte, unless otherwise permitted by applicable law), United States trustee (or bankruptcy administrator, if any), or trustee. 

(f) DISMISSAL FOR CERTAIN CRIMES.—Section 707 of title 11, United States 

Code, is amended by adding at the end the following: 

‘‘(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. 

9

‘‘(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.’’. 

(g) CONFIRMATION OF PLAN.—Section 1325(a) of title 11, United States Code, is 

amended—

(1) in paragraph (5), by striking ‘‘and’’ at the end; 

(2) in paragraph (6), by striking the period and inserting a semicolon; and 

(3) by inserting after paragraph (6) the following: 

‘‘(7) the action of the debtor in filing the petition was in good faith;’’. 

(h) APPLICABILITY OF MEANS TEST TO CHAPTER 13.—Section 1325(b) of title 11, 

United States Code, is amended—

(1) in paragraph (1)(B), by inserting ‘‘to unsecured creditors’’ after ‘‘to make 

payments’’; and 

(2) by striking paragraph (2) and inserting the following: 

‘‘(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.’’.

(i) SPECIAL ALLOWANCE FOR HEALTH INSURANCE.—Section 1329(a) of title 11, 

United States Code, is amended—

(1) in paragraph (2) by striking ‘‘or’’ at the end; 

(2) in paragraph (3) by striking the period at the end and inserting ‘‘; or’’; 

and 

(3) by adding at the end the following: 

‘‘(4) 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.’’.

10

(j) ADJUSTMENT OF DOLLAR AMOUNTS.—Section 104(b) of title 11, United States 

Code, is amended by striking ‘‘and 523(a)(2)(C)’’ each place it appears and inserting ‘‘523(a)(2)(C), 707(b), and 1325(b)(3)’’. (k) DEFINITION OF ‘MEDIAN FAMILY INCOME’.—Section 101 of title 11, United 

States Code, is amended by inserting after paragraph (39) the following: ‘‘(39A) ‘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;’’. (k) CLERICAL AMENDMENT.—The table of sections for chapter 7 of title 11, 

United States Code, is amended by striking the item relating to section 707 and inserting the following:

‘‘707. Dismissal of a case or conversion to a case under chapter 11 or 13.’’.

SEC. 103. SENSE OF CONGRESS AND STUDY. 

(a) SENSE OF CONGRESS.—It is the sense of Congress that the Secretary of the 

Treasury has the authority to alter the Internal Revenue Service standards established to set guidelines for repayment plans as needed to accommodate their use 

under section 707(b) of title 11, United States Code. 

(b) STUDY.— (1) IN GENERAL.—Not later than 2 years after the date of enactment of this 

Act, the Director of the Executive Office for United States Trustees shall submit 

a report to the Committee on the Judiciary of the Senate and the Committee 

on the Judiciary of the House of Representatives containing the findings of the 

Director regarding the utilization of Internal Revenue Service standards for determining—

(A) the current monthly expenses of a debtor under section 707(b) of 

title 11, United States Code; and 

(B) the impact that the application of such standards has had on debtors and on the bankruptcy courts. 

(2) RECOMMENDATION.—The report under paragraph (1) may include recommendations for amendments to title 11, United States Code, that are consistent with the findings of the Director under paragraph (1). 

SEC. 104. NOTICE OF ALTERNATIVES. 

Section 342(b) of title 11, United States Code, is amended to read as follows: 

‘‘(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.’’. 

SEC. 105. DEBTOR FINANCIAL MANAGEMENT TRAINING TEST PROGRAM. 

(a) DEVELOPMENT OF FINANCIAL MANAGEMENT AND TRAINING CURRICULUM AND

MATERIALS.—The Director of the Executive Office for United States Trustees (in this 

section referred to as the ‘‘Director’’) shall consult with a wide range of individuals 

who are experts in the field of debtor education, including trustees who serve in 

cases under chapter 13 of title 11, United States Code, and who operate financial 

management education programs for debtors, and shall develop a financial management training curriculum and materials that can be used to educate debtors who 

are individuals on how to better manage their finances. 

(b) TEST.—

(1) SELECTION OF DISTRICTS.—The Director shall select 6 judicial districts 

of the United States in which to test the effectiveness of the financial management training curriculum and materials developed under subsection (a). 

(2) USE.—For an 18-month period beginning not later than 270 days after 

the date of the enactment of this Act, such curriculum and materials shall be, 

11

for the 6 judicial districts selected under paragraph (1), used as the instructional course concerning personal financial management for purposes of section 

111 of title 11, United States Code. 

(c) EVALUATION.—

(1) IN GENERAL.—During the 18-month period referred to in subsection (b), 

the Director shall evaluate the effectiveness of—

(A) the financial management training curriculum and materials developed under subsection (a); and 

(B) a sample of existing consumer education programs such as those described in the Report of the National Bankruptcy Review Commission (October 20, 1997) that are representative of consumer education programs 

carried out by the credit industry, by trustees serving under chapter 13 of 

title 11, United States Code, and by consumer counseling groups. 

(2) REPORT.—Not later than 3 months after concluding such evaluation, the 

Director shall submit a report to the Speaker of the House of Representatives 

and the President pro tempore of the Senate, for referral to the appropriate 

committees of the Congress, containing the findings of the Director regarding 

the effectiveness of such curriculum, such materials, and such programs and 

their costs. 

SEC. 106. CREDIT COUNSELING. 

(a) WHO MAY BE A DEBTOR.—Section 109 of title 11, United States Code, is 

amended by adding at the end the following: 

‘‘(h)(1) Subject to paragraphs (2) and (3), and notwithstanding any other provision of this section, an individual may not be a debtor under this title unless such 

individual has, during the 180-day period preceding the date of filing of the petition 

by such individual, received from an approved nonprofit budget and credit counseling agency described in section 111(a) an individual or group briefing (including 

a briefing conducted by telephone or on the Internet) that outlined the opportunities 

for available credit counseling and assisted such individual in performing a related 

budget analysis. 

‘‘(2)(A) Paragraph (1) shall not apply with respect to a debtor who resides in 

a district for which the United States trustee (or the bankruptcy administrator, if 

any) determines that the approved nonprofit budget and credit counseling agencies 

for such district are not reasonably able to provide adequate services to the additional individuals who would otherwise seek credit counseling from such agencies 

by reason of the requirements of paragraph (1). 

‘‘(B) The United States trustee (or the bankruptcy administrator, if any) who 

makes a determination described in subparagraph (A) shall review such determination not later than 1 year after the date of such determination, and not less frequently than annually thereafter. Notwithstanding the preceding sentence, a nonprofit budget and credit counseling agency may be disapproved by the United States 

trustee (or the bankruptcy administrator, if any) at any time. 

‘‘(3)(A) Subject to subparagraph (B), the requirements of paragraph (1) shall not 

apply with respect to a debtor who submits to the court a certification that—

‘‘(i) describes exigent circumstances that merit a waiver of the requirements 

of paragraph (1); 

‘‘(ii) states that the debtor requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain 

the services referred to in paragraph (1) during the 5-day period beginning on 

the date on which the debtor made that request; and 

‘‘(iii) is satisfactory to the court.

‘‘(B) With respect to a debtor, an exemption under subparagraph (A) shall cease 

to apply to that debtor on the date on which the debtor meets the requirements of 

paragraph (1), but in no case may the exemption apply to that debtor after the date 

that is 30 days after the debtor files a petition, except that the court, for cause, may 

order an additional 15 days.’’.

(b) CHAPTER 7 DISCHARGE.—Section 727(a) of title 11, United States Code, is 

amended—

(1) in paragraph (9), by striking ‘‘or’’ at the end; 

(2) in paragraph (10), by striking the period and inserting ‘‘; or’’; and 

(3) by adding at the end the following: 

‘‘(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 resides 

in a district for which the United States trustee (or the bankruptcy administrator, if any) determines that the approved instructional courses are not adequate to service the additional individuals who would otherwise be required to 

complete such instructional courses under this section (The United States trustVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00015 Fmt 6659 Sfmt 6621 E:\HR\OC\HR40P1.XXX HR40P1
12

ee (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.).’’. 

(c) CHAPTER 13 DISCHARGE.—Section 1328 of title 11, United States Code, is 

amended by adding at the end the following: 

‘‘(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 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.’’. 

(d) DEBTOR’S DUTIES.—Section 521 of title 11, United States Code, is amended—

(1) by inserting ‘‘(a)’’ before ‘‘The debtor shall—’’; and 

(2) by adding at the end the following: 

‘‘(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).’’. 

(e) GENERAL PROVISIONS.—

(1) IN GENERAL.—Chapter 1 of title 11, United States Code, is amended by 

adding at the end the following: 

‘‘§ 111. Nonprofit budget and credit counseling agencies; financial management instructional courses 

‘‘(a) The clerk shall maintain a publicly available list of—

‘‘(1) nonprofit budget and credit counseling agencies that provide 1 or more 

services described in section 109(h) currently approved by the United States 

trustee (or the bankruptcy administrator, if any); and 

‘‘(2) instructional courses concerning personal financial management currently approved by the United States trustee (or the bankruptcy administrator, 

if any), as applicable. 

‘‘(b) The United States trustee (or bankruptcy administrator, if any) shall only 

approve a nonprofit budget and credit counseling agency or an instructional course 

concerning personal financial management as follows: 

‘‘(1) The United States trustee (or bankruptcy administrator, if any) shall 

have thoroughly reviewed the qualifications of the nonprofit budget and credit 

counseling agency or of the provider of the instructional course under the standards set forth in this section, and the services or instructional courses that will 

be offered by such agency or such provider, and may require such agency or 

such provider that has sought approval to provide information with respect to 

such review. 

‘‘(2) The United States trustee (or bankruptcy administrator, if any) shall 

have determined that such agency or such instructional course fully satisfies 

the applicable standards set forth in this section. 

‘‘(3) If a nonprofit budget and credit counseling agency or instructional 

course did not appear on the approved list for the district under subsection (a) 

immediately before approval under this section, approval under this subsection 

of such agency or such instructional course shall be for a probationary period 

not to exceed 6 months. 

‘‘(4) At the conclusion of the applicable probationary period under paragraph (3), the United States trustee (or bankruptcy administrator, if any) may 

only approve for an additional 1-year period, and for successive 1-year periods 

thereafter, an agency or instructional course that has demonstrated during the 

probationary or applicable subsequent period of approval that such agency or 

instructional course—

‘‘(A) has met the standards set forth under this section during such period; and 

13

‘‘(B) can satisfy such standards in the future. ‘‘(5) Not later than 30 days after any final decision under paragraph (4), an 

interested person may seek judicial review of such decision in the appropriate 

district court of the United States. 

‘‘(c)(1) The United States trustee (or the bankruptcy administrator, if any) shall 

only approve a nonprofit budget and credit counseling agency that demonstrates 

that it will provide qualified counselors, maintain adequate provision for safekeeping and payment of client funds, provide adequate counseling with respect to 

client credit problems, and deal responsibly and effectively with other matters relating to the quality, effectiveness, and financial security of the services it provides. ‘‘(2) To be approved by the United States trustee (or the bankruptcy administrator, if any), a nonprofit budget and credit counseling agency shall, at a minimum— ‘‘(A) have a board of directors the majority of which— ‘‘(i) are not employed by such agency; and 

‘‘(ii) will not directly or indirectly benefit financially from the outcome 

of the counseling services provided by such agency; 

‘‘(B) if a fee is charged for counseling services, charge a reasonable fee, and 

provide services without regard to ability to pay the fee; ‘‘(C) provide for safekeeping and payment of client funds, including an annual audit of the trust accounts and appropriate employee bonding; 

‘‘(D) provide full disclosures to a client, including funding sources, counselor 

qualifications, possible impact on credit reports, and any costs of such program 

that will be paid by such client and how such costs will be paid;

‘‘(E) provide adequate counseling with respect to a client’s credit problems 

that includes an analysis of such client’s current financial condition, factors that 

caused such financial condition, and how such client can develop a plan to respond to the problems without incurring negative amortization of debt; 

‘‘(F) provide trained counselors who receive no commissions or bonuses 

based on the outcome of the counseling services provided by such agency, and 

who have adequate experience, and have been adequately trained to provide 

counseling services to individuals in financial difficulty, including the matters 

described in subparagraph (E); 

‘‘(G) demonstrate adequate experience and background in providing credit 

counseling; and 

‘‘(H) have adequate financial resources to provide continuing support services for budgeting plans over the life of any repayment plan. 

‘‘(d) The United States trustee (or the bankruptcy administrator, if any) shall 

only approve an instructional course concerning personal financial management—

‘‘(1) for an initial probationary period under subsection (b)(3) if the course 

will provide at a minimum—

‘‘(A) trained personnel with adequate experience and training in providing effective instruction and services; 

‘‘(B) learning materials and teaching methodologies designed to assist 

debtors in understanding personal financial management and that are consistent with stated objectives directly related to the goals of such instructional course; 

‘‘(C) adequate facilities situated in reasonably convenient locations at 

which such instructional course is offered, except that such facilities may 

include the provision of such instructional course by telephone or through 

the Internet, if such instructional course is effective; and 

‘‘(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 

‘‘(2) for any 1-year period if the provider thereof has demonstrated that the 

course meets the standards of paragraph (1) and, in addition—

‘‘(A) has been effective in assisting a substantial number of debtors to 

understand personal financial management; and 

‘‘(B) is otherwise likely to increase substantially the debtor’s understanding of personal financial management. 

‘‘(e) The district court may, at any time, investigate the qualifications of a nonprofit budget and credit counseling agency referred to in subsection (a), and request 

production of documents to ensure the integrity and effectiveness of such agency. 

The district court may, at any time, remove from the approved list under subsection 

14

(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.’’. (2) CLERICAL AMENDMENT.—The table of sections for chapter 1 of title 11, 

United States Code, is amended by adding at the end the following:

‘‘111. Nonprofit budget and credit counseling agencies; financial management instructional courses.’’.

(f) LIMITATION.—Section 362 of title 11, United States Code, is amended by adding at the end the following: ‘‘(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.’’. 

SEC. 107. SCHEDULES OF REASONABLE AND NECESSARY EXPENSES. 

For purposes of section 707(b) of title 11, United States Code, as amended by 

this Act, the Director of the Executive Office for United States Trustees shall, not 

later than 180 days after the date of enactment of this Act, issue schedules of reasonable and necessary administrative expenses of administering a chapter 13 plan 

for each judicial district of the United States. 

TITLE II—ENHANCED CONSUMER 

PROTECTION 

Subtitle A—Penalties for Abusive Creditor 

Practices 

SEC. 201. PROMOTION OF ALTERNATIVE DISPUTE RESOLUTION. 

(a) REDUCTION OF CLAIM.—Section 502 of title 11, United States Code, is 

amended by adding at the end the following: 

‘‘(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).’’. 

(b) LIMITATION ON AVOIDABILITY.—Section 547 of title 11, United States Code, 

is amended by adding at the end the following: 

15

‘‘(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.’’. 

SEC. 202. EFFECT OF DISCHARGE. 

Section 524 of title 11, United States Code, is amended by adding at the end 

the following: 

‘‘(i) The willful failure of a creditor to credit payments received under a plan 

confirmed under this title, unless the order confirming the plan is revoked, the plan 

is in default, or the creditor has not received payments required to be made under 

the plan in the manner required by the plan (including crediting the amounts required under the plan), shall constitute a violation of an injunction under subsection 

(a)(2) if the act of the creditor to collect and failure to credit payments in the manner required by the plan caused material injury to the debtor. 

‘‘(j) Subsection (a)(2) does not operate as an injunction against an act by a creditor that is the holder of a secured claim, if—

‘‘(1) such creditor retains a security interest in real property that is the 

principal residence of the debtor; 

‘‘(2) such act is in the ordinary course of business between the creditor and 

the debtor; and 

‘‘(3) such act is limited to seeking or obtaining periodic payments associated 

with a valid security interest in lieu of pursuit of in rem relief to enforce the 

lien.’’. 

SEC. 203. DISCOURAGING ABUSE OF REAFFIRMATION AGREEMENT PRACTICES. 

(a) IN GENERAL.—Section 524 of title 11, United States Code, as amended section 202, is amended—

(1) in subsection (c), by striking paragraph (2) and inserting the following: 

‘‘(2) the debtor received the disclosures described in subsection (k) at or before the time at which the debtor signed the agreement;’’; and 

(2) by adding at the end the following: 

‘‘(k)(1) The disclosures required under subsection (c)(2) shall consist of the disclosure statement described in paragraph (3), completed as required in that paragraph, together with the agreement specified in subsection (c), statement, declaration, motion and order described, respectively, in paragraphs (4) through (8), and 

shall be the only disclosures required in connection with entering into such agreement. 

‘‘(2) Disclosures made under paragraph (1) shall be made clearly and conspicuously and in writing. The terms ‘Amount Reaffirmed’ and ‘Annual Percentage Rate’

shall be disclosed more conspicuously than other terms, data or information provided in connection with this disclosure, except that the phrases ‘Before agreeing 

to reaffirm a debt, review these important disclosures’ and ‘Summary of Reaffirmation Agreement’ may be equally conspicuous. Disclosures may be made in a different 

order and may use terminology different from that set forth in paragraphs (2) 

through (8), except that the terms ‘Amount Reaffirmed’ and ‘Annual Percentage 

Rate’ must be used where indicated. 

‘‘(3) The disclosure statement required under this paragraph shall consist of the 

following: 

‘‘(A) The statement: ‘Part A: Before agreeing to reaffirm a debt, review 

these important disclosures:’; 

‘‘(B) Under the heading ‘Summary of Reaffirmation Agreement’, the statement: ‘This Summary is made pursuant to the requirements of the Bankruptcy 

Code’; 

‘‘(C) The ‘Amount Reaffirmed’, using that term, which shall be—

‘‘(i) the total amount of debt that the debtor agrees to reaffirm by entering into an agreement of the kind specified in subsection (c), and 

‘‘(ii) the total of any fees and costs accrued as of the date of the disclosure statement, related to such total amount. 

‘‘(D) In conjunction with the disclosure of the ‘Amount Reaffirmed’, the 

statements—

‘‘(i) ‘The amount of debt you have agreed to reaffirm’; and 

‘‘(ii) ‘Your credit agreement may obligate you to pay additional amounts 

which may come due after the date of this disclosure. Consult your credit 

agreement.’. 

‘‘(E) The ‘Annual Percentage Rate’, using that term, which shall be disclosed as—

‘‘(i) if, at the time the petition is filed, the debt is an extension of credit 

under an open end credit plan, as the terms ‘credit’ and ‘open end credit 

plan’ are defined in section 103 of the Truth in Lending Act, then—

16

‘‘(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); 

‘‘(ii) if, at the time the petition is filed, the debt is an extension of credit 

other than under an open end credit plan, as the terms ‘credit’ and ‘open 

end credit plan’ are defined in section 103 of the Truth in Lending Act, 

then—

‘‘(I) the annual percentage rate under section 128(a)(4) of the Truth 

in Lending Act, as disclosed to the debtor in the most recent disclosure 

statement given to the debtor prior to the entering into an agreement 

of the kind specified in subsection (c) with respect to the debt, or, if no 

such disclosure statement was given to the debtor, the annual percentage rate as it would have been so disclosed at the time the disclosure 

statement is given to the debtor, or to the extent this annual percentage rate is not readily available or not applicable, then 

‘‘(II) the simple interest rate applicable to the amount reaffirmed 

as of the date the disclosure statement is given to the debtor, or if different simple interest rates apply to different balances, the simple interest rate applicable to each such balance, identifying the amount of 

such balance included in the amount reaffirmed, or 

‘‘(III) if the entity making the disclosure elects, to disclose the annual percentage rate under (I) and the simple interest rate under (II). 

‘‘(F) If the underlying debt transaction was disclosed as a variable rate 

transaction on the most recent disclosure given under the Truth in Lending Act, 

by stating ‘The interest rate on your loan may be a variable interest rate which 

changes from time to time, so that the annual percentage rate disclosed here 

may be higher or lower.’. 

‘‘(G) If the debt is secured by a security interest which has not been waived 

in whole or in part or determined to be void by a final order of the court at 

the time of the disclosure, by disclosing that a security interest or lien in goods 

or property is asserted over some or all of the debts the debtor is reaffirming 

and listing the items and their original purchase price that are subject to the 

asserted security interest, or if not a purchase-money security interest then listing by items or types and the original amount of the loan. 

‘‘(H) At the election of the creditor, a statement of the repayment schedule 

using 1 or a combination of the following—

‘‘(i) by making the statement: ‘Your first payment in the amount of 

$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.’.

17

‘‘(J)(i) The following additional statements: ‘‘ ‘Reaffirming a debt is a serious financial decision. The law requires you to take 

certain steps to make sure the decision is in your best interest. If these steps are 

not completed, the reaffirmation agreement is not effective, even though you have 

signed it. ‘‘ ‘1. Read the disclosures in this Part A carefully. Consider the decision to 

reaffirm carefully. Then, if you want to reaffirm, sign the reaffirmation agreement in Part B (or you may use a separate agreement you and your creditor 

agree on). ‘‘ ‘2. Complete and sign Part D and be sure you can afford to make the payments you are agreeing to make and have received a copy of the disclosure 

statement and a completed and signed reaffirmation agreement. ‘‘ ‘3. If you were represented by an attorney during the negotiation of your 

reaffirmation agreement, the attorney must have signed the certification in Part 

C. ‘‘ ‘4. If you were not represented by an attorney during the negotiation of 

your reaffirmation agreement, you must have completed and signed Part E. ‘‘ ‘5. The original of this disclosure must be filed with the court by you or 

your creditor. If a separate reaffirmation agreement (other than the one in Part 

B) has been signed, it must be attached. ‘‘ ‘6. If you were represented by an attorney during the negotiation of your 

reaffirmation agreement, your reaffirmation agreement becomes effective upon 

filing with the court unless the reaffirmation is presumed to be an undue hardship as explained in Part D. 

‘‘ ‘7. If you were not represented by an attorney during the negotiation of 

your reaffirmation agreement, it will not be effective unless the court approves 

it. The court will notify you of the hearing on your reaffirmation agreement. 

You must attend this hearing in bankruptcy court where the judge will review 

your reaffirmation agreement. The bankruptcy court must approve your reaffirmation agreement as consistent with your best interests, except that no court 

approval is required if your reaffirmation agreement is for a consumer debt secured by a mortgage, deed of trust, security deed, or other lien on your real 

property, like your home. 

‘‘ ‘Your right to rescind (cancel) your reaffirmation agreement. You may rescind 

(cancel) your reaffirmation agreement at any time before the bankruptcy court enters a discharge order, or before the expiration of the 60-day period that begins on 

the date your reaffirmation agreement is filed with the court, whichever occurs 

later. To rescind (cancel) your reaffirmation agreement, you must notify the creditor 

that your reaffirmation agreement is rescinded (or canceled). 

‘‘ ‘What are your obligations if you reaffirm the debt? A reaffirmed debt remains 

your personal legal obligation. It is not discharged in your bankruptcy case. That 

means that if you default on your reaffirmed debt after your bankruptcy case is 

over, your creditor may be able to take your property or your wages. Otherwise, 

your obligations will be determined by the reaffirmation agreement which may have 

changed the terms of the original agreement. For example, if you are reaffirming 

an open end credit agreement, the creditor may be permitted by that agreement or 

applicable law to change the terms of that agreement in the future under certain 

conditions. 

‘‘ ‘Are you required to enter into a reaffirmation agreement by any law? No, you 

are not required to reaffirm a debt by any law. Only agree to reaffirm a debt if it 

is in your best interest. Be sure you can afford the payments you agree to make. 

‘‘ ‘What if your creditor has a security interest or lien? Your bankruptcy discharge does not eliminate any lien on your property. A ‘‘lien’’ is often referred to 

as a security interest, deed of trust, mortgage or security deed. Even if you do not 

reaffirm and your personal liability on the debt is discharged, because of the lien 

your creditor may still have the right to take the security property if you do not 

pay the debt or default on it. If the lien is on an item of personal property that is 

exempt under your State’s law or that the trustee has abandoned, you may be able 

to redeem the item rather than reaffirm the debt. To redeem, you make a single 

payment to the creditor equal to the current value of the security property, as 

agreed by the parties or determined by the court.’. 

‘‘(ii) In the case of a reaffirmation under subsection (m)(2), numbered paragraph 6 in the disclosures required by clause (i) of this subparagraph shall read 

as follows: 

‘‘ ‘6. If you were represented by an attorney during the negotiation of your 

reaffirmation agreement, your reaffirmation agreement becomes effective upon 

filing with the court.’. 

‘‘(4) The form of such agreement required under this paragraph shall consist of 

the following: 

18

‘‘ ‘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 

post-bankruptcy 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.’. 

‘‘(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. 

19

‘‘(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 com- pleted and signed statement in support of such agreement required under subsection (k)(6)(A) is less than the scheduled payments on the reaffirmed debt. This 

presumption shall be reviewed by the court. The presumption may be rebutted in 

writing by the debtor if the statement includes an explanation that identifies additional sources of funds to make the payments as agreed upon under the terms of 

such agreement. If the presumption is not rebutted to the satisfaction of the court, 

the court may disapprove such agreement. No agreement shall be disapproved without notice and a hearing to the debtor and creditor, and such hearing shall be concluded before the entry of the debtor’s discharge. ‘‘(2) This subsection does not apply to reaffirmation agreements where the creditor is a credit union, as defined in section 19(b)(1)(A)(iv) of the Federal Reserve 

Act.’’. 

(b) LAW ENFORCEMENT.—

(1) IN GENERAL.—Chapter 9 of title 18, United States Code, is amended by 

adding at the end the following: 

‘‘F 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.’’. 

(2) CLERICAL AMENDMENT.—The table of sections for chapter 9 of title 18, 

United States Code, is amended by adding at the end the following:

‘‘158. Designation of United States attorneys and agents of the Federal Bureau of Investigation to address abusive reaffirmations of debt and materially fraudulent statements in bankruptcy schedules.’’.

SEC. 204. PRESERVATION OF CLAIMS AND DEFENSES UPON SALE OF PREDATORY LOANS. 

Section 363 of title 11, United States Code, is amended—

(1) by redesignating subsection (o) as subsection (p), and 

(2) by inserting after subsection (n) the following: 

‘‘(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, 2002), 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.’’.

SEC. 205. GAO STUDY AND REPORT ON REAFFIRMATION AGREEMENT PROCESS. 

(a) STUDY.—The Comptroller General of the United States shall conduct a study 

of the reaffirmation agreement process that occurs under title 11 of the United 

20

States Code, to determine the overall treatment of consumers within the context of 

such process, and shall include in such study consideration of— (1) the policies and activities of creditors with respect to reaffirmation 

agreements; and 

(2) whether consumers are fully, fairly, and consistently informed of their 

rights pursuant to such title. 

(b) REPORT TO THE CONGRESS.—Not later than 18 months after the date of the 

enactment of this Act, the Comptroller General shall submit to the President pro 

tempore of the Senate and the Speaker of the House of Representatives a report on 

the results of the study conducted under subsection (a), together with recommendations for legislation (if any) to address any abusive or coercive tactics found in connection with the reaffirmation agreement process that occurs under title 11 of the 

United States Code.

Subtitle B—Priority Child Support 

SEC. 211. DEFINITION OF DOMESTIC SUPPORT OBLIGATION. 

Section 101 of title 11, United States Code, is amended— (1) by striking paragraph (12A); and 

(2) by inserting after paragraph (14) the following: 

‘‘(14A) ‘domestic support obligation’ means a debt that accrues before 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 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;’’.

SEC. 212. PRIORITIES FOR CLAIMS FOR DOMESTIC SUPPORT OBLIGATIONS. 

Section 507(a) of title 11, United States Code, is amended—

(1) by striking paragraph (7); 

(2) by redesignating paragraphs (1) through (6) as paragraphs (2) through 

(7), respectively; 

(3) in paragraph (2), as so redesignated, by striking ‘‘First’’ and inserting 

‘‘Second’’;

(4) in paragraph (3), as so redesignated, by striking ‘‘Second’’ and inserting 

‘‘Third’’; 

(5) in paragraph (4), as so redesignated—

(A) by striking ‘‘Third’’ and inserting ‘‘Fourth’’; and 

(B) by striking the semicolon at the end and inserting a period; 

(6) in paragraph (5), as so redesignated, by striking ‘‘Fourth’’ and inserting 

‘‘Fifth’’; 

(7) in paragraph (6), as so redesignated, by striking ‘‘Fifth’’ and inserting 

‘‘Sixth’’; 

(8) in paragraph (7), as so redesignated, by striking ‘‘Sixth’’ and inserting 

‘‘Seventh’’; and 

(9) by inserting before paragraph (2), as so redesignated, the following: 

‘‘(1) First: 

‘‘(A) Allowed unsecured claims for domestic support obligations that, as 

of the date of the filing of the petition in a case under this title, are owed 

to or recoverable by a spouse, former spouse, or child of the debtor, or such 

21

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.’’. 

SEC. 213. REQUIREMENTS TO OBTAIN CONFIRMATION AND DISCHARGE IN CASES INVOLVING 

DOMESTIC SUPPORT OBLIGATIONS. 

Title 11, United States Code, is amended— (1) in section 1129(a), by adding at the end the following: 

‘‘(14) If the debtor is required by a judicial or administrative order, 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.’’; 

(2) in section 1208(c)— (A) in paragraph (8), by striking ‘‘or’’ at the end; 

(B) in paragraph (9), by striking the period at the end and inserting ‘‘; and’’; and 

(C) by adding at the end the following: ‘‘(10) failure of the debtor to pay any domestic support obligation that first 

becomes payable after the date of the filing of the petition.’’; 

(3) in section 1222(a)— (A) in paragraph (2), by striking ‘‘and’’ at the end; 

(B) in paragraph (3), by striking the period at the end and inserting ‘‘; and’’; and 

(C) by adding at the end the following: ‘‘(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.’’; 

(4) in section 1222(b)— (A) by redesignating paragraph (11) as paragraph (12); and 

(B) by inserting after paragraph (10) the following: ‘‘(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;’’; 

(5) in section 1225(a)— (A) in paragraph (5), by striking ‘‘and’’ at the end; 

(B) in paragraph (6), by striking the period at the end and inserting ‘‘; and’’; and 

(C) by adding at the end the following: 

‘‘(7) the debtor 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.’’; 

(6) in section 1228(a), in the matter preceding paragraph (1), by inserting 

‘‘, 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 cerVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00025 Fmt 6659 Sfmt 6621 E:\HR\OC\HR40P1.XXX HR40P1
22

tifies 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’’

after ‘‘completion by the debtor of all payments under the plan’’; 

(7) in section 1307(c)—

(A) in paragraph (9), by striking ‘‘or’’ at the end; 

(B) in paragraph (10), by striking the period at the end and inserting 

‘‘; or’’; and 

(C) by adding at the end the following: 

‘‘(11) failure of the debtor to pay any domestic support obligation that first 

becomes payable after the date of the filing of the petition.’’; 

(8) in section 1322(a)—

(A) in paragraph (2), by striking ‘‘and’’ at the end; 

(B) in paragraph (3), by striking the period at the end and inserting 

‘‘; and’’; and 

(C) by adding at the end the following: 

‘‘(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.’’;

(9) in section 1322(b)—

(A) in paragraph (9), by striking ‘‘; and’’ and inserting a semicolon; 

(B) by redesignating paragraph (10) as paragraph (11); and 

(C) inserting after paragraph (9) the following: 

‘‘(10) provide for the payment of interest accruing after the date of the filing 

of the petition on unsecured claims that are nondischargeable under section 

1328(a), except that such interest may be paid only to the extent that the debtor 

has disposable income available to pay such interest after making provision for 

full payment of all allowed claims; and’’; 

(10) in section 1325(a), as amended by section 102, by inserting after paragraph (7) the following: 

‘‘(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’’; 

(11) in section 1328(a), in the matter preceding paragraph (1), by inserting 

‘‘, 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’’

after ‘‘completion by the debtor of all payments under the plan’’. 

SEC. 214. EXCEPTIONS TO AUTOMATIC STAY IN DOMESTIC SUPPORT OBLIGATION PROCEEDINGS. 

Section 362(b) of title 11, United States Code, is amended by striking paragraph 

(2) and inserting the following: 

‘‘(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; 

23

‘‘(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;’’. 

SEC. 215. NONDISCHARGEABILITY OF CERTAIN DEBTS FOR ALIMONY, MAINTENANCE, AND 

SUPPORT. 

Section 523 of title 11, United States Code, is amended— (1) in subsection (a)—

(A) by striking paragraph (5) and inserting the following: 

‘‘(5) for a domestic support obligation;’’; and 

(B) by striking paragraph (18); 

(2) in subsection (c), by striking ‘‘(6), or (15)’’ each place it appears and inserting ‘‘or (6)’’; and 

(3) in paragraph (15), as added by Public Law 103–394 (108 Stat. 4133)— (A) by inserting ‘‘to a spouse, former spouse, or child of the debtor and’’

before ‘‘not of the kind’’; 

(B) by inserting ‘‘or’’ after ‘‘court of record,’’; and 

(C) by striking ‘‘unless—’’ and all that follows through the end of the 

paragraph and inserting a semicolon. 

SEC. 216. CONTINUED LIABILITY OF PROPERTY. 

Section 522 of title 11, United States Code, is amended—

(1) in subsection (c), by striking paragraph (1) and inserting the following: 

‘‘(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));’’; 

(2) in subsection (f)(1)(A), by striking the dash and all that follows through 

the end of the subparagraph and inserting ‘‘of a kind that is specified in section 

523(a)(5); or’’; and 

(3) in subsection (g)(2), by striking ‘‘subsection (f)(2)’’ and inserting ‘‘subsection (f)(1)(B)’’. 

SEC. 217. PROTECTION OF DOMESTIC SUPPORT CLAIMS AGAINST PREFERENTIAL TRANSFER 

MOTIONS. 

Section 547(c)(7) of title 11, United States Code, is amended to read as follows: 

‘‘(7) to the extent such transfer was a bona fide payment of a debt for a 

domestic support obligation;’’. 

SEC. 218. DISPOSABLE INCOME DEFINED. 

Section 1225(b)(2)(A) of title 11, United States Code, is amended by inserting 

‘‘or for a domestic support obligation that first becomes payable after the date of the 

filing of the petition’’ after ‘‘dependent of the debtor’’.

SEC. 219. COLLECTION OF CHILD SUPPORT. 

(a) DUTIES OF TRUSTEE UNDER CHAPTER 7.—Section 704 of title 11, United 

States Code, as amended by section 102, is amended—

(1) in subsection (a)—

(A) in paragraph (8), by striking ‘‘and’’ at the end; 

(B) in paragraph (9), by striking the period and inserting a semicolon; 

and 

(C) by adding at the end the following: 

‘‘(10) if with respect to the debtor there is a claim for a domestic support 

obligation, provide the applicable notice specified in subsection (c); and’’; and 

(2) by adding at the end the following: 

‘‘(c)(1) In a case described in subsection (a)(10) to which subsection (a)(10) applies, the trustee shall—

‘‘(A)(i) provide written notice to the holder of the claim described in subsection (a)(10) of such claim and of the right of such holder to use the services 

of the State child support enforcement agency established under sections 464 

and 466 of the Social Security Act for the State in which such holder resides, 

for assistance in collecting child support during and after the case under this 

title; 

‘‘(ii) include in the notice provided under clause (i) the address and telephone number of such State child support enforcement agency; and 

‘‘(iii) include in the notice provided under clause (i) an explanation of the 

rights of such holder to payment of such claim under this chapter; 

24

‘‘(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.’’. 

(b) DUTIES OF TRUSTEE UNDER CHAPTER 11.—Section 1106 of title 11, United 

States Code, is amended—

(1) in subsection (a)—

(A) in paragraph (6), by striking ‘‘and’’ at the end; 

(B) in paragraph (7), by striking the period and inserting ‘‘; and’’; and 

(C) by adding at the end the following: 

‘‘(8) if with respect to the debtor there is a claim for a domestic support obligation, provide the applicable notice specified in subsection (c).’’; and 

(2) by adding at the end the following: 

‘‘(c)(1) In a case described in subsection (a)(8) to which subsection (a)(8) applies, 

the trustee shall—

‘‘(A)(i) provide written notice to the holder of the claim described in subsection (a)(8) of such claim and of the right of such holder to use the services 

of the State child support enforcement agency established under sections 464 

and 466 of the Social Security Act for the State in which such holder resides, 

for assistance in collecting child support during and after the case under this 

title; and 

‘‘(ii) include in the notice required by clause (i) the address and telephone 

number of such State child support enforcement agency; 

‘‘(B)(i) provide written notice to such State child support enforcement agency of such claim; and 

‘‘(ii) include in the notice required by clause (i) the name, address, and telephone number of such holder; and 

‘‘(C) at such time as the debtor is granted a discharge under section 1141, 

provide written notice to such holder and to such State child support enforcement agency of—

‘‘(i) the granting of the discharge; 

‘‘(ii) the last recent known address of the debtor; 

‘‘(iii) the last recent known name and address of the debtor’s employer; 

and 

‘‘(iv) the name of each creditor that holds a claim that—

‘‘(I) is not discharged under paragraph (2), (4), or (14A) of section 

523(a); or 

‘‘(II) was reaffirmed by the debtor under section 524(c). 

‘‘(2)(A) The holder of a claim described in subsection (a)(8) or the State child 

enforcement support agency of the State in which such holder resides may request 

from a creditor described in paragraph (1)(C)(iv) the last known address of the debtor. 

‘‘(B) Notwithstanding any other provision of law, a creditor that makes a disclosure of a last known address of a debtor in connection with a request made under 

subparagraph (A) shall not be liable by reason of making such disclosure.’’. 

(c) DUTIES OF TRUSTEE UNDER CHAPTER 12.—Section 1202 of title 11, United 

States Code, is amended—

(1) in subsection (b)—

(A) in paragraph (4), by striking ‘‘and’’ at the end; 

(B) in paragraph (5), by striking the period and inserting ‘‘; and’’; and 

(C) by adding at the end the following: 

25

‘‘(6) if with respect to the debtor there is a claim for a domestic support obligation, provide the applicable notice specified in subsection (c).’’; and 

(2) by adding at the end the following: ‘‘(c)(1) In a case described in subsection (b)(6) to which subsection (b)(6) applies, 

the trustee shall— ‘‘(A)(i) provide written notice to the holder of the claim described in subsection (b)(6) of such claim and of the right of such holder to use the services 

of the State child support enforcement agency established under sections 464 

and 466 of the Social Security Act for the State in which such holder resides, 

for assistance in collecting child support during and after the case under this 

title; and ‘‘(ii) include in the notice provided under clause (i) the address and telephone number of such State child support enforcement agency; ‘‘(B)(i) provide written notice to such State child support enforcement agency of such claim; and ‘‘(ii) include in the notice provided under clause (i) the name, address, and 

telephone number of such holder; and ‘‘(C) at such time as the debtor is granted a discharge under section 1228, 

provide written notice to such holder and to such State child support enforcement agency of— ‘‘(i) the granting of the discharge; 

‘‘(ii) the last recent known address of the debtor; 

‘‘(iii) the last recent known name and address of the debtor’s employer; 

and 

‘‘(iv) the name of each creditor that holds a claim that—

‘‘(I) is not discharged under paragraph (2), (4), or (14A) of section 

523(a); or 

‘‘(II) was reaffirmed by the debtor under section 524(c). 

‘‘(2)(A) The holder of a claim described in subsection (b)(6) or the State child 

support enforcement agency of the State in which such holder resides may request 

from a creditor described in paragraph (1)(C)(iv) the last known address of the debtor. 

‘‘(B) Notwithstanding any other provision of law, a creditor that makes a disclosure of a last known address of a debtor in connection with a request made under 

subparagraph (A) shall not be liable by reason of making that disclosure.’’. 

(d) DUTIES OF TRUSTEE UNDER CHAPTER 13.—Section 1302 of title 11, United 

States Code, is amended—

(1) in subsection (b)—

(A) in paragraph (4), by striking ‘‘and’’ at the end; 

(B) in paragraph (5), by striking the period and inserting ‘‘; and’’; and 

(C) by adding at the end the following: 

‘‘(6) if with respect to the debtor there is a claim for a domestic support obligation, provide the applicable notice specified in subsection (d).’’; and 

(2) by adding at the end the following: 

‘‘(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). 

26

‘‘(2)(A) The holder of a claim described in subsection (b)(6) or the State child 

support enforcement agency of the State in which such holder resides may request 

from a creditor described in paragraph (1)(C)(iv) the last known address of the debtor. ‘‘(B) Notwithstanding any other provision of law, a creditor that makes a disclosure of a last known address of a debtor in connection with a request made under 

subparagraph (A) shall not be liable by reason of making that disclosure.’’. 

SEC. 220. NONDISCHARGEABILITY OF CERTAIN EDUCATIONAL BENEFITS AND LOANS. 

Section 523(a) of title 11, United States Code, is amended by striking paragraph 

(8) and inserting the following: ‘‘(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;’’. 

Subtitle C—Other Consumer Protections 

SEC. 221. AMENDMENTS TO DISCOURAGE ABUSIVE BANKRUPTCY FILINGS. 

Section 110 of title 11, United States Code, is amended— (1) in subsection (a)(1), by striking ‘‘or an employee of an attorney’’ and inserting ‘‘for the debtor or an employee of such attorney under the direct supervision of such attorney’’; 

(2) in subsection (b)— (A) in paragraph (1), by adding at the end the following: ‘‘If a bankruptcy petition preparer is not an individual, then an officer, principal, responsible person, or partner of the bankruptcy petition preparer shall be required to—

‘‘(A) sign the document for filing; and 

‘‘(B) print on the document the name and address of that officer, principal, 

responsible person, or partner.’’; and 

(B) by striking paragraph (2) and inserting the following: 

‘‘(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.’’; 

(3) in subsection (c)—

(A) in paragraph (2)—

(i) by striking ‘‘(2) For purposes’’ and inserting ‘‘(2)(A) Subject to 

subparagraph (B), for purposes’’; and 

(ii) by adding at the end the following: 

‘‘(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.’’; and 

(B) by striking paragraph (3); 

(4) in subsection (d)—

(A) by striking ‘‘(d)(1)’’ and inserting ‘‘(d)’’; and 

(B) by striking paragraph (2); 

(5) in subsection (e)—

(A) by striking paragraph (2); and 

27

(B) by adding at the end the following: ‘‘(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 debt- or— ‘‘(i) whether— ‘‘(I) to file a petition under this title; or 

‘‘(II) commencing a case under chapter 7, 11, 12, or 13 is appropriate; ‘‘(ii) whether the debtor’s debts will be discharged in a case under this title; ‘‘(iii) whether the debtor will be able to retain the debtor’s home, car, or 

other property after commencing a case under this title; ‘‘(iv) concerning— ‘‘(I) the tax consequences of a case brought under this title; or 

‘‘(II) the dischargeability of tax claims; ‘‘(v) whether the debtor may or should promise to repay debts to a creditor 

or enter into a reaffirmation agreement with a creditor to reaffirm a debt; ‘‘(vi) concerning how to characterize the nature of the debtor’s interests in 

property or the debtor’s debts; or ‘‘(vii) concerning bankruptcy procedures and rights.’’; 

(6) in subsection (f)— (A) by striking ‘‘(f)(1)’’ and inserting ‘‘(f)’’; and 

(B) by striking paragraph (2); 

(7) in subsection (g)—

(A) by striking ‘‘(g)(1)’’ and inserting ‘‘(g)’’; and 

(B) by striking paragraph (2); 

(8) in subsection (h)—

(A) by redesignating paragraphs (1) through (4) as paragraphs (2) 

through (5), respectively; 

(B) by inserting before paragraph (2), as so redesignated, the following: 

‘‘(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.’’; 

(C) in paragraph (2), as so redesignated—

(i) by striking ‘‘Within 10 days after the date of the filing of a petition, a bankruptcy petition preparer shall file a’’ and inserting ‘‘A’’; 

(ii) by inserting ‘‘by the bankruptcy petition preparer shall be filed 

together with the petition,’’ after ‘‘perjury’’; and 

(iii) by adding at the end the following: ‘‘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).’’; 

(D) by striking paragraph (3), as so redesignated, and inserting the following: 

‘‘(3)(A) The court shall disallow and order the immediate turnover to the bankruptcy trustee any fee referred to in paragraph (2) found to be in excess of the value 

of any services—

‘‘(i) rendered by the bankruptcy petition preparer during the 12-month period immediately preceding the date of the filing of the petition; or 

‘‘(ii) found to be in violation of any rule or guideline promulgated or prescribed under paragraph (1). 

‘‘(B) All fees charged by a bankruptcy petition preparer may be forfeited in any 

case in which the bankruptcy petition preparer fails to comply with this subsection 

or subsection (b), (c), (d), (e), (f), or (g). 

‘‘(C) An individual may exempt any funds recovered under this paragraph under 

section 522(b).’’; and 

(E) in paragraph (4), as so redesignated, by striking ‘‘or the United 

States trustee’’ and inserting ‘‘the United States trustee (or the bankruptcy 

administrator, if any) or the court, on the initiative of the court,’’; 

(9) in subsection (i)(1), by striking the matter preceding subparagraph (A) 

and inserting the following: 

‘‘(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—’’; 

28

(10) in subsection (j)—

(A) in paragraph (2)—

(i) in subparagraph (A)(i)(I), by striking ‘‘a violation of which subjects a person to criminal penalty’’; 

(ii) in subparagraph (B)—

(I) by striking ‘‘or has not paid a penalty’’ and inserting ‘‘has 

not paid a penalty’’; and 

(II) by inserting ‘‘or failed to disgorge all fees ordered by the 

court’’ after ‘‘a penalty imposed under this section,’’; 

(B) by redesignating paragraph (3) as paragraph (4); and 

(C) by inserting after paragraph (2) the following: 

‘‘(3) The court, as part of its contempt power, may enjoin a bankruptcy petition 

preparer that has failed to comply with a previous order issued under this section. 

The injunction under this paragraph may be issued on the motion of the court, the 

trustee, or the United States trustee (or the bankruptcy administrator, if any).’’; and 

(11) by adding at the end the following: 

‘‘(l)(1) A bankruptcy petition preparer who fails to comply with any provision 

of subsection (b), (c), (d), (e), (f), (g), or (h) may be fined not more than $500 for 

each such failure. 

‘‘(2) The court shall triple the amount of a fine assessed under paragraph (1) 

in any case in which the court finds that a bankruptcy petition preparer—

‘‘(A) advised the debtor to exclude assets or income that should have been 

included on applicable schedules; 

‘‘(B) advised the debtor to use a false Social Security account number; 

‘‘(C) failed to inform the debtor that the debtor was filing for relief under 

this title; or 

‘‘(D) prepared a document for filing in a manner that failed to disclose the 

identity of the bankruptcy petition preparer. 

‘‘(3) A debtor, trustee, creditor, or United States trustee (or the bankruptcy administrator, if any) may file a motion for an order imposing a fine on the bankruptcy petition preparer for any violation of this section. 

‘‘(4)(A) Fines imposed under this subsection in judicial districts served by 

United States trustees shall be paid to the United States trustee, who shall deposit 

an amount equal to such fines in a special account of the United States Trustee System Fund referred to in section 586(e)(2) of title 28. Amounts deposited under this 

subparagraph shall be available to fund the enforcement of this section on a national basis. 

‘‘(B) Fines imposed under this subsection in judicial districts served by bankruptcy administrators shall be deposited as offsetting receipts to the fund established under section 1931 of title 28, and shall remain available until expended to 

reimburse any appropriation for the amount paid out of such appropriation for expenses of the operation and maintenance of the courts of the United States.’’. 

SEC. 222. SENSE OF CONGRESS. 

It is the sense of Congress that States should develop curricula relating to the 

subject of personal finance, designed for use in elementary and secondary schools. 

SEC. 223. ADDITIONAL AMENDMENTS TO TITLE 11, UNITED STATES CODE. 

Section 507(a) of title 11, United States Code, as amended by section 212, is 

amended by inserting after paragraph (9) the following: 

‘‘(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.’’. 

SEC. 224. PROTECTION OF RETIREMENT SAVINGS IN BANKRUPTCY. 

(a) IN GENERAL.—Section 522 of title 11, United States Code, is amended—

(1) in subsection (b)—

(A) in paragraph (2)—

(i) in subparagraph (A), by striking ‘‘and’’ at the end; 

(ii) in subparagraph (B), by striking the period at the end and inserting ‘‘; and’’; 

(iii) by adding at the end the following: 

‘‘(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.’’; and 

(iv) by striking ‘‘(2)(A) any property’’ and inserting: 

‘‘(3) Property listed in this paragraph is—

‘‘(A) any property’’;

(B) by striking paragraph (1) and inserting: 

29

‘‘(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.’’; 

(C) by striking ‘‘(b) Notwithstanding’’ and inserting ‘‘(b)(1) Notwithstanding’’; 

(D) by striking ‘‘paragraph (2)’’ each place it appears and inserting 

‘‘paragraph (3)’’; 

(E) by striking ‘‘paragraph (1)’’ each place it appears and inserting 

‘‘paragraph (2)’’; 

(F) by striking ‘‘Such property is—’’; and 

(G) by adding at the end the following: 

‘‘(4) For purposes of paragraph (3)(C) and subsection (d)(12), the following shall 

apply: 

‘‘(A) If the retirement funds are in a retirement fund that has received a 

favorable determination under section 7805 of the Internal Revenue Code of 

1986, and that determination is in effect as of the date of the filing of the petition in a case under this title, those funds shall be presumed to be exempt from 

the estate. 

‘‘(B) If the retirement funds are in a retirement fund that has not received 

a favorable determination under such section 7805, those funds are exempt 

from the estate if the debtor demonstrates that—

‘‘(i) no prior determination to the contrary has been made by a court 

or the Internal Revenue Service; and 

‘‘(ii)(I) the retirement fund is in substantial compliance with the applicable requirements of the Internal Revenue Code of 1986; or 

‘‘(II) the retirement fund fails to be in substantial compliance with the 

applicable requirements of the Internal Revenue Code of 1986 and the debtor is not materially responsible for that failure. 

‘‘(C) A direct transfer of retirement funds from 1 fund or account that is 

exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of 

the Internal Revenue Code of 1986, under section 401(a)(31) of the Internal 

Revenue Code of 1986, or otherwise, shall not cease to qualify for exemption 

under paragraph (3)(C) or subsection (d)(12) by reason of such direct transfer. 

‘‘(D)(i) Any distribution that qualifies as an eligible rollover distribution 

within the meaning of section 402(c) of the Internal Revenue Code of 1986 or 

that is described in clause (ii) shall not cease to qualify for exemption under 

paragraph (3)(C) or subsection (d)(12) by reason of such distribution. 

‘‘(ii) A distribution described in this clause is an amount that—

‘‘(I) has been distributed from a fund or account that is exempt from 

taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986; and 

‘‘(II) to the extent allowed by law, is deposited in such a fund or account not later than 60 days after the distribution of such amount.’’; and 

(2) in subsection (d)—

(A) in the matter preceding paragraph (1), by striking ‘‘subsection 

(b)(1)’’ and inserting ‘‘subsection (b)(2)’’; and 

(B) by adding at the end the following: 

‘‘(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.’’. 

(b) AUTOMATIC STAY.—Section 362(b) of title 11, United States Code, is amended—

(1) in paragraph (17), by striking ‘‘or’’ at the end; 

(2) in paragraph (18), by striking the period and inserting a semicolon; and 

(3) by inserting after paragraph (18) the following: 

‘‘(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; 

30

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;’’. 

(c) EXCEPTIONS TO DISCHARGE.—Section 523(a) of title 11, United States Code, 

as amended by section 215, is amended by inserting after paragraph (17) the following: 

‘‘(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’’. 

(d) PLAN CONTENTS.—Section 1322 of title 11, United States Code, is amended 

by adding at the end the following: 

‘‘(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.’’. 

(e) ASSET LIMITATION.—

(1) LIMITATION.—Section 522 of title 11, United States Code, is amended by 

adding at the end the following: 

‘‘(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.’’. 

(2) ADJUSTMENT OF DOLLAR AMOUNTS.—Paragraphs (1) and (2) of section 

104(b) of title 11, United States Code, are amended by inserting ‘‘522(n),’’ after 

‘‘522(d),’’. 

SEC. 225. PROTECTION OF EDUCATION SAVINGS IN BANKRUPTCY. 

(a) EXCLUSIONS.—Section 541 of title 11, United States Code, is amended—

(1) in subsection (b)—

(A) in paragraph (4), by striking ‘‘or’’ at the end; 

(B) by redesignating paragraph (5) as paragraph (9); and 

(C) by inserting after paragraph (4) the following: 

‘‘(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 

31

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;’’; and 

(2) by adding at the end the following: ‘‘(e) In determining whether any of the relationships specified in paragraph 

(5)(A) or (6)(A) of subsection (b) exists, a legally adopted child of an individual (and 

a child who is a member of an individual’s household, if placed with such individual 

by an authorized placement agency for legal adoption by such individual), or a foster 

child of an individual (if such child has as the child’s principal place of abode the 

home of the debtor and is a member of the debtor’s household) shall be treated as 

a child of such individual by blood.’’. 

(b) DEBTOR’S DUTIES.—Section 521 of title 11, United States Code, as amended 

by section 106, is amended by adding at the end the following: 

‘‘(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).’’. 

SEC. 226. DEFINITIONS. 

(a) DEFINITIONS.—Section 101 of title 11, United States Code, is amended—

(1) by inserting after paragraph (2) the following: 

‘‘(3) ‘assisted person’ means any person whose debts consist primarily of 

consumer debts and the value of whose nonexempt property is less than 

$150,000;’’; 

(2) by inserting after paragraph (4) the following: 

‘‘(4A) ‘bankruptcy assistance’ means any goods or services sold or otherwise 

provided to an assisted person with the express or implied purpose of providing 

information, advice, counsel, document preparation, or filing, or attendance at 

a creditors’ meeting or appearing in a proceeding on behalf of another or providing legal representation with respect to a case or proceeding under this 

title;’’; and 

(3) by inserting after paragraph (12) the following: 

‘‘(12A) ‘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.’’. 

(b) CONFORMING AMENDMENT.—Section 104(b) of title 11, United States Code, 

is amended by inserting ‘‘101(3),’’ after ‘‘sections’’ each place it appears. 

SEC. 227. RESTRICTIONS ON DEBT RELIEF AGENCIES. 

(a) ENFORCEMENT.—Subchapter II of chapter 5 of title 11, United States Code, 

is amended by adding at the end the following: 

‘‘§ 526. Restrictions on debt relief agencies 

‘‘(a) A debt relief agency shall not—

32

‘‘(1) fail to perform any service that such agency informed an assisted person or prospective assisted person it would provide in connection with a case 

or proceeding under this title; 

‘‘(2) make any statement, or counsel or advise any assisted person or prospective assisted person to make a statement in a document filed in a case or 

proceeding under this title, that is untrue and misleading, or that upon the exercise of reasonable care, should have been known by such agency to be untrue 

or misleading; 

‘‘(3) misrepresent to any assisted person or prospective assisted person, directly or indirectly, affirmatively or by material omission, with respect to—

‘‘(A) the services that such agency will provide to such person; or 

‘‘(B) the benefits and risks that may result if such person becomes a 

debtor in a case under this title; or 

‘‘(4) advise an assisted person or prospective assisted person to incur more 

debt in contemplation of such person filing a case under this title or to pay an 

attorney or bankruptcy petition preparer fee or charge for services performed 

as part of preparing for or representing a debtor in a case under this title.

‘‘(b) Any waiver by any assisted person of any protection or right provided under 

this section shall not be enforceable against the debtor by any Federal or State court 

or any other person, but may be enforced against a debt relief agency. 

‘‘(c)(1) Any contract for bankruptcy assistance between a debt relief agency and 

an assisted person that does not comply with the material requirements of this section, section 527, or section 528 shall be void and may not be enforced by any Federal or State court or by any other person, other than such assisted person. 

‘‘(2) Any debt relief agency shall be liable to an assisted person in the amount 

of any fees or charges in connection with providing bankruptcy assistance to such 

person that such debt relief agency has received, for actual damages, and for reasonable attorneys’ fees and costs if such agency is found, after notice and a hearing, 

to have—

‘‘(A) intentionally or negligently failed to comply with any provision of this 

section, section 527, or section 528 with respect to a case or proceeding under 

this title for such assisted person; 

‘‘(B) provided bankruptcy assistance to an assisted person in a case or proceeding under this title that is dismissed or converted to a case under another 

chapter of this title because of such agency’s intentional or negligent failure to 

file any required document including those specified in section 521; or 

‘‘(C) intentionally or negligently disregarded the material requirements of 

this title or the Federal Rules of Bankruptcy Procedure applicable to such agency. 

‘‘(3) In addition to such other remedies as are provided under State law, whenever the chief law enforcement officer of a State, or an official or agency designated 

by a State, has reason to believe that any person has violated or is violating this 

section, the State—

‘‘(A) may bring an action to enjoin such violation; 

‘‘(B) may bring an action on behalf of its residents to recover the actual 

damages of assisted persons arising from such violation, including any liability 

under paragraph (2); and 

‘‘(C) in the case of any successful action under subparagraph (A) or (B), 

shall be awarded the costs of the action and reasonable attorneys’ fees as determined by the court. 

‘‘(4) The district courts of the United States for districts located in the State 

shall have concurrent jurisdiction of any action under subparagraph (A) or (B) of 

paragraph (3). 

‘‘(5) Notwithstanding any other provision of Federal law and in addition to any 

other remedy provided under Federal or State law, if the court, on its own motion 

or on the motion of the United States trustee or the debtor, finds that a person intentionally violated this section, or engaged in a clear and consistent pattern or 

practice of violating this section, the court may—

‘‘(A) enjoin the violation of such section; or 

‘‘(B) impose an appropriate civil penalty against such person. 

‘‘(d) No provision of this section, section 527, or section 528 shall—

‘‘(1) annul, alter, affect, or exempt any person subject to such sections from 

complying with any law of any State except to the extent that such law is inconsistent with those sections, and then only to the extent of the inconsistency; or 

‘‘(2) be deemed to limit or curtail the authority or ability—

‘‘(A) of a State or subdivision or instrumentality thereof, to determine 

and enforce qualifications for the practice of law under the laws of that 

State; or 

33

‘‘(B) of a Federal court to determine and enforce the qualifications for 

the practice of law before that court.’’. 

(b) CONFORMING AMENDMENT.—The table of sections for chapter 5 of title 11, 

United States Code, is amended by inserting after the item relating to section 525, 

the following:

‘‘526. Restrictions on debt relief agencies.’’.

SEC. 228. DISCLOSURES. 

(a) DISCLOSURES.—Subchapter II of chapter 5 of title 11, United States Code, 

as amended by section 227, is amended by adding at the end the following: 

‘‘§ 527. Disclosures 

‘‘(a) A debt relief agency providing bankruptcy assistance to an assisted person 

shall provide—

‘‘(1) the written notice required under section 342(b)(1); and 

‘‘(2) to the extent not covered in the written notice described in paragraph 

(1), and not later than 3 business days after the first date on which a debt relief 

agency first offers to provide any bankruptcy assistance services to an assisted 

person, a clear and conspicuous written notice advising assisted persons that—

‘‘(A) all information that the assisted person is required to provide with 

a petition and thereafter during a case under this title is required to be 

complete, accurate, and truthful; 

‘‘(B) all assets and all liabilities are required to be completely and accurately disclosed in the documents filed to commence the case, and the replacement value of each asset as defined in section 506 must be stated in 

those documents where requested after reasonable inquiry to establish such 

value; 

‘‘(C) current monthly income, the amounts specified in section 707(b)(2), 

and, in a case under chapter 13 of this title, disposable income (determined 

in accordance with section 707(b)(2)), are required to be stated after reasonable inquiry; and 

‘‘(D) information that an assisted person provides during their case may 

be audited pursuant to this title, and that failure to provide such information may result in dismissal of the case under this title or other sanction, 

including a criminal sanction. 

‘‘(b) A debt relief agency providing bankruptcy assistance to an assisted person 

shall provide each assisted person at the same time as the notices required under 

subsection (a)(1) the following statement, to the extent applicable, or one substantially similar. The statement shall be clear and conspicuous and shall be in a single 

document separate from other documents or notices provided to the assisted person: 

‘‘ ‘IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER. 

‘‘ ‘If you decide to seek bankruptcy relief, you can represent yourself, you can 

hire an attorney to represent you, or you can get help in some localities from a 

bankruptcy petition preparer who is not an attorney. THE LAW REQUIRES AN 

ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN CONTRACT SPECIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND HOW MUCH IT WILL COST. Ask 

to see the contract before you hire anyone. 

‘‘ ‘The following information helps you understand what must be done in a routine bankruptcy case to help you evaluate how much service you need. Although 

bankruptcy can be complex, many cases are routine. 

‘‘ ‘Before filing a bankruptcy case, either you or your attorney should analyze 

your eligibility for different forms of debt relief available under the Bankruptcy 

Code and which form of relief is most likely to be beneficial for you. Be sure you 

understand the relief you can obtain and its limitations. To file a bankruptcy case, 

documents called a Petition, Schedules and Statement of Financial Affairs, as well 

as in some cases a Statement of Intention need to be prepared correctly and filed 

with the bankruptcy court. You will have to pay a filing fee to the bankruptcy court. 

Once your case starts, you will have to attend the required first meeting of creditors 

where you may be questioned by a court official called a ‘trustee’ and by creditors. 

‘‘ ‘If you choose to file a chapter 7 case, you may be asked by a creditor to reaffirm a debt. You may want help deciding whether to do so. A creditor is not permitted to coerce you into reaffirming your debts. 

‘‘ ‘If you choose to file a chapter 13 case in which you repay your creditors what 

you can afford over 3 to 5 years, you may also want help with preparing your chapter 13 plan and with the confirmation hearing on your plan which will be before 

a bankruptcy judge. 

34

‘‘ ‘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.’’. 

(b) CONFORMING AMENDMENT.—The table of sections for chapter 5 of title 11, 

United States Code, as amended by section 227, is amended by inserting after the 

item relating to section 526 the following:

‘‘527. Disclosures.’’.

SEC. 229. REQUIREMENTS FOR DEBT RELIEF AGENCIES. 

(a) ENFORCEMENT.—Subchapter II of chapter 5 of title 11, United States Code, 

as amended by sections 227 and 228, is amended by adding at the end the following: 

‘‘§ 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—

35

‘‘(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.’’. 

(b) CONFORMING AMENDMENT.—The table of sections for chapter 5 of title 11, 

United States Code, as amended by section 227 and 228, is amended by inserting 

after the item relating to section 527, the following:

‘‘528. Requirements for debt relief agencies.’’.

SEC. 230. GAO STUDY. 

(a) STUDY.—Not later than 270 days after the date of enactment of this Act, the 

Comptroller General of the United States shall conduct a study of the feasibility, 

effectiveness, and cost of requiring trustees appointed under title 11, United States 

Code, or the bankruptcy courts, to provide to the Office of Child Support Enforcement promptly after the commencement of cases by debtors who are individuals 

under such title, the names and social security account numbers of such debtors for 

the purposes of allowing such Office to determine whether such debtors have outstanding obligations for child support (as determined on the basis of information in 

the Federal Case Registry or other national database). 

(b) REPORT.—Not later than 300 days after the date of enactment of this Act, 

the Comptroller General shall submit to the President pro tempore of the Senate 

and the Speaker of the House of Representatives a report containing the results of 

the study required by subsection (a).

SEC. 231. PROTECTION OF PERSONALLY IDENTIFIABLE INFORMATION. 

(a) LIMITATION.—Section 363(b)(1) of title 11, United States Code, is amended 

by striking the period at the end and inserting the following: 

‘‘, 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.’’.

(b) DEFINITION.—Section 101 of title 11, United States Code, is amended by inserting after paragraph (41) the following: 

‘‘(41A) ‘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;’’.

36

SEC. 232. CONSUMER PRIVACY OMBUDSMAN. 

(a) CONSUMER PRIVACY OMBUDSMAN.—Title 11 of the United States Code is 

amended by inserting after section 331 the following: 

‘‘§ 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.’’. (b) COMPENSATION OF CONSUMER PRIVACY OMBUDSMAN.—Section 330(a)(1) of 

title 11, United States Code, is amended in the matter preceding subparagraph (A), 

by inserting ‘‘a consumer privacy ombudsman appointed under section 332,’’ before ‘‘an examiner’’. (c) CONFORMING AMENDMENT.—The table of sections for subchapter II of chapter 3 of title 11, United States Code, is amended by adding at the end the following:

‘‘332. Consumer privacy ombudsman.’’.

SEC. 233. PROHIBITION ON DISCLOSURE OF NAME OF MINOR CHILDREN. 

(a) PROHIBITION.—Title 11 of the United States Code, as amended by section 

106, is amended by inserting after section 111 the following: 

‘‘§ 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.’’. 

(b) CLERICAL AMENDMENT.—The table of sections for chapter 1 of title 11, 

United States Code, as amended by section 106, is amended by inserting after the 

item relating to section 111 the following:

‘‘112. Prohibition on disclosure of name of minor children.’’.

(c) CONFORMING AMENDMENT.—Section 107(a) of title 11, United States Code, 

is amended by inserting ‘‘and subject to section 112’’ after ‘‘section’’. 

TITLE III —DISCOURAGING BANKRUPTCY 

ABUSE 

SEC. 301. TECHNICAL AMENDMENTS. 

Section 523(a)(17) of title 11, United States Code, is amended—

(1) by striking ‘‘by a court’’ and inserting ‘‘on a prisoner by any court’’; 

(2) by striking ‘‘section 1915(b) or (f)’’ and inserting ‘‘subsection (b) or (f)(2) 

of section 1915’’; and 

(3) by inserting ‘‘(or a similar non-Federal law)’’ after ‘‘title 28’’ each place 

it appears. 

SEC. 302. DISCOURAGING BAD FAITH REPEAT FILINGS. 

Section 362(c) of title 11, United States Code, is amended—

(1) in paragraph (1), by striking ‘‘and’’ at the end; 

(2) in paragraph (2), by striking the period at the end and inserting a semicolon; and 

37

(3) by adding at the end the following: 

‘‘(3) if a single or joint case is filed by or against debtor who is an individual 

in a case under chapter 7, 11, or 13, and if a single or joint case of the debtor 

was pending within the preceding 1-year period but was dismissed, other than 

a case refiled under a chapter other than chapter 7 after dismissal under section 707(b)—

‘‘(A) the stay under subsection (a) with respect to any action taken with 

respect to a debt or property securing such debt or with respect to any lease 

shall terminate with respect to the debtor on the 30th day after the filing 

of the later case; 

‘‘(B) on the motion of a party in interest for continuation of the automatic stay and upon notice and a hearing, the court may extend the stay 

in particular cases as to any or all creditors (subject to such conditions or 

limitations as the court may then impose) after notice and a hearing completed before the expiration of the 30-day period only if the party in interest 

demonstrates that the filing of the later case is in good faith as to the creditors to be stayed; and 

‘‘(C) for purposes of subparagraph (B), a case is presumptively filed not 

in good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary)—

‘‘(i) as to all creditors, if—

‘‘(I) more than 1 previous case under any of chapters 7, 11, and 

13 in which the individual was a debtor was pending within the 

preceding 1-year period; 

‘‘(II) a previous case under any of chapters 7, 11, and 13 in 

which the individual was a debtor was dismissed within such 1-

year period, after the debtor failed to—

‘‘(aa) file or amend the petition or other documents as required by this title or the court without substantial excuse (but 

mere inadvertence or negligence shall not be a substantial excuse unless the dismissal was caused by the negligence of the 

debtor’s attorney); 

‘‘(bb) provide adequate protection as ordered by the court; 

or 

‘‘(cc) perform the terms of a plan confirmed by the court; 

or 

‘‘(III) there has not been a substantial change in the financial 

or personal affairs of the debtor since the dismissal of the next 

most previous case under chapter 7, 11, or 13 or any other reason 

to conclude that the later case will be concluded—

‘‘(aa) if a case under chapter 7, with a discharge; or 

‘‘(bb) if a case under chapter 11 or 13, with a confirmed 

plan that will be fully performed; and 

‘‘(ii) as to any creditor that commenced an action under subsection 

(d) in a previous case in which the individual was a debtor if, as of the 

date of dismissal of such case, that action was still pending or had been 

resolved by terminating, conditioning, or limiting the stay as to actions 

of such creditor; and 

‘‘(4)(A)(i) if a single or joint case is filed by or against a debtor who is an 

individual under this title, and if 2 or more single or joint cases of the debtor 

were pending within the previous year but were dismissed, other than a case 

refiled under section 707(b), the stay under subsection (a) shall not go into effect upon the filing of the later case; and 

‘‘(ii) on request of a party in interest, the court shall promptly enter an 

order confirming that no stay is in effect; 

‘‘(B) if, within 30 days after the filing of the later case, a party in interest 

requests the court may order the stay to take effect in the case as to any or 

all creditors (subject to such conditions or limitations as the court may impose), 

after notice and a hearing, only if the party in interest demonstrates that the 

filing of the later case is in good faith as to the creditors to be stayed; 

‘‘(C) a stay imposed under subparagraph (B) shall be effective on the date 

of the entry of the order allowing the stay to go into effect; and 

‘‘(D) for purposes of subparagraph (B), a case is presumptively filed not in 

good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary)—

‘‘(i) as to all creditors if—

‘‘(I) 2 or more previous cases under this title in which the individual was a debtor were pending within the 1-year period; 

38

‘‘(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.’’. 

SEC. 303. CURBING ABUSIVE FILINGS. 

(a) IN GENERAL.—Section 362(d) of title 11, United States Code, is amended— (1) in paragraph (2), by striking ‘‘or’’ at the end; 

(2) in paragraph (3), by striking the period at the end and inserting ‘‘; or’’; 

and 

(3) by adding at the end the following: 

‘‘(4) with respect to a stay of an act against 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.’’. 

(b) AUTOMATIC STAY.—Section 362(b) of title 11, United States Code, as amended by section 224, is amended by inserting after paragraph (19), the following: 

‘‘(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;’’. 

SEC. 304. DEBTOR RETENTION OF PERSONAL PROPERTY SECURITY. 

Title 11, United States Code, is amended—

(1) in section 521(a), as so designated by section 106—

(A) in paragraph (4), by striking ‘‘, and’’ at the end and inserting a 

semicolon; 

(B) in paragraph (5), by striking the period at the end and inserting 

‘‘; and’’; and 

(C) by adding at the end the following: 

‘‘(6) in 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 

39

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. 

If the debtor fails to so act within the 45-day period referred to in paragraph (6), 

the stay under section 362(a) is terminated with respect to the personal property 

of the estate or of the debtor which is affected, such property shall no longer be 

property of the estate, and the creditor may take whatever action as to such property as is permitted by applicable nonbankruptcy law, unless the court determines 

on the motion of the trustee filed before the expiration of such 45-day period, and 

after notice and a hearing, that such property is of consequential value or benefit 

to the estate, orders appropriate adequate protection of the creditor’s interest, and 

orders the debtor to deliver any collateral in the debtor’s possession to the trustee.’’; 

and 

(2) in section 722, by inserting ‘‘in full at the time of redemption’’ before 

the period at the end. 

SEC. 305. RELIEF FROM THE AUTOMATIC STAY WHEN THE DEBTOR DOES NOT COMPLETE INTENDED SURRENDER OF CONSUMER DEBT COLLATERAL. 

Title 11, United States Code, is amended— (1) in section 362, as amended by section 106— (A) in subsection (c), by striking ‘‘(e), and (f)’’ and inserting ‘‘(e), (f), and 

(h)’’; 

(B) by redesignating subsection (h) as subsection (k) and transferring 

such subsection so as to insert it after subjection (j) as added by section 

106; and 

(C) by inserting after subsection (g) the following: ‘‘(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.’’; and 

(2) in section 521, as amended by sections 106 and 225— (A) in subsection (a)(2) by striking ‘‘consumer’’; 

(B) in subsection (a)(2)(B)— (i) by striking ‘‘forty-five days after the filing of a notice of intent 

under this section’’ and inserting ‘‘30 days after the first date set for 

the meeting of creditors under section 341(a)’’; and 

(ii) by striking ‘‘forty-five day’’ and inserting ‘‘30-day’’; 

(C) in subsection (a)(2)(C) by inserting ‘‘, except as provided in section 

362(h)’’ before the semicolon; and 

(D) by adding at the end the following: 

‘‘(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 occurVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00043 Fmt 6659 Sfmt 6621 E:\HR\OC\HR40P1.XXX HR40P1
40

rence, pendency, or existence of a proceeding under this title or the insolvency of 

the debtor. Nothing in this subsection shall be deemed to justify limiting such a provision in any other circumstance.’’. 

SEC. 306. GIVING SECURED CREDITORS FAIR TREATMENT IN CHAPTER 13. 

(a) IN GENERAL.—Section 1325(a)(5)(B)(i) of title 11, United States Code, is 

amended to read as follows: ‘‘(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; and’’.

(b) RESTORING THE FOUNDATION FOR SECURED CREDIT.—Section 1325(a) of title 

11, United States Code, is amended by adding at the end the following: 

‘‘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.’’. 

(c) DEFINITIONS.—Section 101 of title 11, United States Code, is amended—

(1) by inserting after paragraph (13) the following: 

‘‘(13A) ‘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;’’; and 

(2) by inserting after paragraph (27), the following: 

‘‘(27A) ‘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;’’. 

SEC. 307. DOMICILIARY REQUIREMENTS FOR EXEMPTIONS. 

Section 522(b)(3) of title 11, United States Code, as so designated by section 

106, is amended—

(1) in subparagraph (A)—

(A) by striking ‘‘180 days’’ and inserting ‘‘730 days’’; and 

(B) by striking ‘‘, or for a longer portion of such 180-day period than 

in any other place’’ and inserting ‘‘or if the debtor’s domicile has not been 

located at a single State for such 730-day period, the place in which the 

debtor’s domicile was located for 180 days immediately preceding the 730-

day period or for a longer portion of such 180-day period than in any other 

place’’; and 

(2) by adding at the end the following: 

‘‘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).’’.

SEC. 308. REDUCTION OF HOMESTEAD EXEMPTION FOR FRAUD. 

Section 522 of title 11, United States Code, as amended by section 224, is 

amended—

(1) in subsection (b)(3)(A), as so designated by this Act, by inserting ‘‘subject 

to subsections (o) and (p),’’ before ‘‘any property’’; and 

(2) by adding at the end the following: 

‘‘(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; 

41

‘‘(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.’’. 

SEC. 309. PROTECTING SECURED CREDITORS IN CHAPTER 13 CASES. 

(a) STOPPING ABUSIVE CONVERSIONS FROM CHAPTER 13.—Section 348(f)(1) of 

title 11, United States Code, is amended—

(1) in subparagraph (A), by striking ‘‘and’’ at the end; 

(2) in subparagraph (B)—

(A) by striking ‘‘in the converted case, with allowed secured claims’’ and 

inserting ‘‘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’’; and 

(B) by striking the period and inserting ‘‘; and’’; and 

(3) by adding at the end the following: 

‘‘(C) with respect to cases converted from chapter 13—

‘‘(i) the claim of any creditor holding security as of the date of the petition shall continue to be secured by that security unless the full amount 

of such claim determined under applicable nonbankruptcy law has been 

paid in full as of the date of conversion, notwithstanding any valuation or 

determination of the amount of an allowed secured claim made for the purposes of the case under chapter 13; and 

‘‘(ii) unless a prebankruptcy default has been fully cured under the plan 

at the time of conversion, in any proceeding under this title or otherwise, 

the default shall have the effect given under applicable nonbankruptcy 

law.’’. 

(b) GIVING DEBTORS THE ABILITY TO KEEP LEASED PERSONAL PROPERTY BY ASSUMPTION.—Section 365 of title 11, United States Code, is amended by adding at 

the end the following: 

‘‘(p)(1) If a lease of personal property is rejected or not timely assumed by the 

trustee under subsection (d), the leased property is no longer property of the estate 

and the stay under section 362(a) 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.’’. 

(c) ADEQUATE PROTECTION OF LESSORS AND PURCHASE MONEY SECURED CREDITORS.—

(1) CONFIRMATION OF PLAN.—Section 1325(a)(5)(B) of title 11, United States 

Code, as amended by section 306, is amended—

(A) in clause (i), by striking ‘‘and’’ at the end; 

(B) in clause (ii), by striking ‘‘or’’ at the end and inserting ‘‘and’’; and 

(C) by adding at the end the following: 

‘‘(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’’. 

42

(2) PAYMENTS.—Section 1326(a) of title 11, United States Code, is amended 

to read as follows: 

‘‘(a)(1) Unless the court orders otherwise, the debtor shall commence making 

payments not later than 30 days after the date of the filing of the plan or the order 

for relief, whichever is earlier, in the amount— ‘‘(A) proposed by the plan to the trustee; 

‘‘(B) scheduled in a lease of personal property directly to the lessor for that 

portion of the obligation that becomes due after the order for relief, reducing 

the payments under subparagraph (A) by the amount so paid and providing the 

trustee with evidence of such payment, including the amount and date of payment; and ‘‘(C) that provides adequate protection directly to a creditor holding an allowed claim secured by personal property to the extent the claim is attributable 

to the purchase of such property by the debtor for that portion of the obligation 

that becomes due after the order for relief, reducing the payments under subparagraph (A) by the amount so paid and providing the trustee with evidence 

of such payment, including the amount and date of payment. 

‘‘(2) A payment made under paragraph (1)(A) shall be retained by the trustee 

until confirmation or denial of confirmation. If a plan is confirmed, the trustee shall 

distribute any such payment in accordance with the plan as soon as is practicable. 

If a plan is not confirmed, the trustee shall return any such payments not previously paid and not yet due and owing to creditors pursuant to paragraph (3) to 

the debtor, after deducting any unpaid claim allowed under section 503(b). ‘‘(3) Subject to section 363, the court may, upon notice and a hearing, modify, 

increase, or reduce the payments required under this subsection pending confirmation of a plan. ‘‘(4) Not later than 60 days after the date of filing of a case under this chapter, 

a debtor retaining possession of personal property subject to a lease or securing a 

claim attributable in whole or in part to the purchase price of such property shall 

provide the lessor or secured creditor reasonable evidence of the maintenance of any 

required insurance coverage with respect to the use or ownership of such property 

and continue to do so for so long as the debtor retains possession of such property.’’.

SEC. 310. LIMITATION ON LUXURY GOODS. 

Section 523(a)(2)(C) of title 11, United States Code, is amended to read as follows: ‘‘(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.’’.

SEC. 311. AUTOMATIC STAY. 

(a) IN GENERAL.—Section 362(b) of title 11, United States Code, as amended by 

sections 224 and 303, is amended by inserting after paragraph (21), the following: 

‘‘(22) subject to subsection (n), under subsection (a)(3), of the continuation 

of any eviction, unlawful detainer action, or similar proceeding by a lessor 

against a debtor involving residential property in which the debtor resides as 

a tenant under a lease or rental agreement and with respect to which the lessor 

has obtained before the date of the filing of the bankruptcy petition, a judgment 

for possession of such property against the debtor; 

‘‘(23) subject to subsection (o), 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;

43

‘‘(24) under subsection (a), of any transfer that is not avoidable under section 544 and that is not avoidable under section 549;’’. (b) LIMITATIONS.—Section 362 of title 11, United States Code, as amended by 

sections 106 and 305, is amended by adding at the end the following: ‘‘(l)(1) Except as otherwise provided in this subsection, subsection (b)(22) shall 

apply on the date that is 30 days after the date on which the bankruptcy petition 

is filed, if the debtor files with the petition and serves upon the lessor a certification 

under penalty of perjury that— ‘‘(A) under nonbankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession, after that judgment 

for possession was entered; and ‘‘(B) the debtor (or an adult dependent of the debtor) has deposited with the 

clerk of the court, any rent that would become due during the 30-day period 

after the filing of the bankruptcy petition. 

‘‘(2) If, within the 30-day period after the filing of the bankruptcy petition, the 

debtor (or an adult dependent of the debtor) complies with paragraph (1) and files 

with the court and serves upon the lessor a further certification under penalty of 

perjury that the debtor (or an adult dependent of the debtor) has cured, under 

nonbankrupcty law applicable in the jurisdiction, the entire monetary default that 

gave rise to the judgment under which possession is sought by the lessor, subsection 

(b)(22) shall not apply, unless ordered to apply by the court under paragraph (3). 

‘‘(3)(A) If the lessor files an objection to any certification filed by the debtor 

under paragraph (1) or (2), and serves such objection upon the debtor, the court 

shall hold a hearing within 10 days after the filing and service of such objection to 

determine if the certification filed by the debtor under paragraph (1) or (2) is true. 

‘‘(B) If the court upholds the objection of the lessor filed under subparagraph 

(A)—

‘‘(i) subsection (b)(22) shall apply immediately and relief from the stay provided under subsection (a)(3) shall not be required to enable the lessor to complete the process to recover full possession of the property; and 

‘‘(ii) the clerk of the court shall immediately serve upon the lessor and the 

debtor a certified copy of the court’s order upholding the lessor’s objection. 

‘‘(4) If a debtor, in accordance with paragraph (5), indicates on the petition that 

there was a judgment for possession of the residential rental property in which the 

debtor resides and does not file a certification under paragraph (1) or (2)—

‘‘(A) subsection (b)(22) shall apply immediately upon failure to file such certification, and relief from the stay provided under subsection (a)(3) shall not be 

required to enable the lessor to complete the process to recover full possession 

of the property; and 

‘‘(B) the clerk of the court shall immediately serve upon the lessor and the 

debtor a certified copy of the docket indicating the absence of a filed certification and the applicability of the exception to the stay under subsection (b)(22). 

‘‘(5)(A) Where a judgment for possession of residential property in which the 

debtor resides as a tenant under a lease or rental agreement has been obtained by 

the lessor, the debtor shall so indicate on the bankruptcy petition and shall provide 

the name and address of the lessor that obtained that pre-petition judgment on the 

petition and on any certification filed under this subsection. 

‘‘(B) The form of certification filed with the petition, as specified in this subsection, shall provide for the debtor to certify, and the debtor shall certify—

‘‘(i) whether a judgment for possession of residential rental housing in 

which the debtor resides has been obtained against the debtor before the date 

of the filing of the petition; and 

‘‘(ii) whether the debtor is claiming under paragraph (1) that under nonbankruptcy law applicable in the jurisdiction, there are circumstances under 

which the debtor would be permitted to cure the entire monetary default that 

gave rise to the judgment for possession, after that judgment of possession was 

entered, and has made the appropriate deposit with the court. 

‘‘(C) The standard forms (electronic and otherwise) used in a bankruptcy proceeding shall be amended to reflect the requirements of this subsection. 

‘‘(D) The clerk of the court shall arrange for the prompt transmittal of the rent 

deposited in accordance with paragraph (1)(B) to the lessor. 

‘‘(m)(1) Except as otherwise provided in this subsection, subsection (b)(23) shall 

apply on the date that is 15 days after the date on which the lessor files and serves 

a certification described in subsection (b)(23). 

‘‘(2)(A) If the debtor files with the court an objection to the truth or legal sufficiency of the certification described in subsection (b)(23) and serves such objection 

upon the lessor, subsection (b)(23) shall not apply, unless ordered to apply by the 

court under this subsection. 

44

‘‘(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.’’. 

SEC. 312. EXTENSION OF PERIOD BETWEEN BANKRUPTCY DISCHARGES. 

Title 11, United States Code, is amended— (1) in section 727(a)(8), by striking ‘‘six’’ and inserting ‘‘8’’; and 

(2) in section 1328, by inserting after subsection (e) the following: ‘‘(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.’’. 

SEC. 313. DEFINITION OF HOUSEHOLD GOODS AND ANTIQUES. 

(a) DEFINITION.—Section 522(f) of title 11, United States Code, is amended by 

adding at the end the following: ‘‘(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.’’. 

45

(b) STUDY.—Not later than 2 years after the date of enactment of this Act, the 

Director of the Executive Office for United States Trustees shall submit a report to 

the Committee on the Judiciary of the Senate and the Committee on the Judiciary 

of the House of Representatives containing its findings regarding utilization of the 

definition of household goods, as defined in section 522(f)(4) of title 11, United 

States Code, as added by subsection (a), with respect to the avoidance of 

nonpossessory, nonpurchase money security interests in household goods under section 522(f)(1)(B) of title 11, United States Code, and the impact such section 

522(f)(4) has had on debtors and on the bankruptcy courts. Such report may include 

recommendations for amendments to such section 522(f)(4) consistent with the Director’s findings.

SEC. 314. DEBT INCURRED TO PAY NONDISCHARGEABLE DEBTS. 

(a) IN GENERAL.—Section 523(a) of title 11, United States Code, is amended by 

inserting after paragraph (14) the following: ‘‘(14A) incurred to pay a tax to a governmental unit, other than the United 

States, that would be nondischargeable under paragraph (1);’’. (b) DISCHARGE UNDER CHAPTER 13.—Section 1328(a) of title 11, United States 

Code, is amended by striking paragraphs (1) through (3) and inserting the following: ‘‘(1) provided for under section 1322(b)(5); 

‘‘(2) of the kind specified in paragraph (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.’’.

SEC. 315. GIVING CREDITORS FAIR NOTICE IN CHAPTERS 7 AND 13 CASES. 

(a) NOTICE.—Section 342 of title 11, United States Code, as amended by section 

102, is amended— (1) in subsection (c)— (A) by inserting ‘‘(1)’’ after ‘‘(c)’’; 

(B) by striking ‘‘, but the failure of such notice to contain such information shall not invalidate the legal effect of such notice’’; and 

(C) by adding at the end the following: ‘‘(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.’’; and 

(2) by adding at the end the following: 

‘‘(e)(1) In a case under chapter 7 or 13 of this title of a debtor who is an individual, a creditor at any time may both file with the court and serve on the debtor 

a notice of address to be used to provide notice in such case to such creditor. 

‘‘(2) Any notice in such case required to be provided to such creditor by the debtor or the court later than 5 days after the court and the debtor receive such creditor’s notice of address, shall be provided to such address.

‘‘(f)(1) An entity may file with any bankruptcy court a notice of address to be 

used by all the bankruptcy courts or by particular bankruptcy courts, as so specified 

by such entity at the time such notice is filed, to provide notice to such entity in 

all cases under chapters 7 and 13 pending in the courts with respect to which such 

notice is filed, in which such entity is a creditor. 

‘‘(2) In any case filed under chapter 7 or 13, any notice required to be provided 

by a court with respect to which a notice is filed under paragraph (1), to such entity 

later than 30 days after the filing of such notice under paragraph (1) shall be provided to such address unless with respect to a particular case a different address 

is specified in a notice filed and served in accordance with subsection (e). 

‘‘(3) A notice filed under paragraph (1) may be withdrawn by such entity. 

‘‘(g)(1) Notice provided to a creditor by the debtor or the court other than in accordance with this section (excluding this subsection) shall not be effective notice 

until such notice is brought to the attention of such creditor. If such creditor designates a person or an organizational subdivision of such creditor to be responsible 

46

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.’’. (b) DEBTOR’S DUTIES.—Section 521 of title 11, United States Code, as amended 

by sections 106, 225, and 305, is amended— (1) in subsection (a), as so designated by section 106, by amending paragraph (1) to read as follows: ‘‘(1) file— ‘‘(A) a list of creditors; and 

‘‘(B) unless the court orders otherwise— ‘‘(i) a schedule of assets and liabilities; 

‘‘(ii) a schedule of current income and current expenditures; 

‘‘(iii) a statement of the debtor’s financial affairs and, if section 

342(b) applies, a certificate—

‘‘(I) of an attorney whose name is indicated on the petition as 

the attorney for the debtor, or a bankruptcy petition preparer signing the petition under section 110(b)(1), indicating that such attorney or the bankruptcy petition preparer delivered to the debtor the 

notice required by section 342(b); or 

‘‘(II) if no attorney is so indicated, and no bankruptcy petition 

preparer signed the petition, of the debtor that such notice was received and read by the debtor; 

‘‘(iv) copies of all payment advices or other evidence of payment received within 60 days before the date of the filing of the petition, by 

the debtor from any employer of the debtor; 

‘‘(v) a statement of the amount of monthly net income, itemized to 

show how the amount is calculated; and 

‘‘(vi) a statement disclosing any reasonably anticipated increase in 

income or expenditures over the 12-month period following the date of 

the filing of the petition;’’; and 

(2) by adding at the end the following: 

‘‘(e)(1) If the debtor in a case under chapter 7 or 13 is an individual and if a 

creditor files with the court at any time a request to receive a copy of the petition, 

schedules, and statement of financial affairs filed by the debtor, then the court shall 

make such petition, such schedules, and such statement available to such creditor.

‘‘(2)(A) The debtor shall provide—

‘‘(i) not later than 7 days before the date first set for the first meeting of 

creditors, to the trustee a copy of the Federal income tax return required under 

applicable law (or at the election of the debtor, a transcript of such return) for 

the most recent tax year ending immediately before the commencement of the 

case and for which a Federal income tax return was filed; and 

‘‘(ii) at the same time the debtor complies with clause (i), a copy of such 

return (or if elected under clause (i), such transcript) to any creditor that timely 

requests such copy. 

‘‘(B) If the debtor fails to comply with clause (i) or (ii) of subparagraph (A), the 

court shall dismiss the case unless the debtor demonstrates that the failure to so 

comply is due to circumstances beyond the control of the debtor. 

‘‘(C) If a creditor requests a copy of such tax return or such transcript and if 

the debtor fails to provide a copy of such tax return or such transcript to such creditor at the time the debtor provides such tax return or such transcript to the trustee, then the court shall dismiss the case unless the debtor demonstrates that the 

failure to provide a copy of such tax return or such transcript is due to circumstances beyond the control of the debtor. 

‘‘(3) If a creditor in a case under chapter 13 files with the court at any time 

a request to receive a copy of the plan filed by the debtor, then the court shall make 

available to such creditor a copy of the plan—

‘‘(A) at a reasonable cost; and 

‘‘(B) not later than 5 days after such request is filed. 

‘‘(f) At the request of the court, the United States trustee, or any party in interest in a case under chapter 7, 11, or 13, a debtor who is an individual shall file 

with the court—

47

‘‘(1) at the same time filed with the taxing authority, a copy of each Federal 

income tax return required under applicable law (or at the election of the debtor, a transcript of such tax return) with respect to each tax year of the debtor 

ending while the case is pending under such chapter; 

‘‘(2) at the same time filed with the taxing authority, each Federal income 

tax return required under applicable law (or at the election of the debtor, a 

transcript of such tax return) that had not been filed with such authority as 

of the date of the commencement of the case and that was subsequently filed 

for any tax year of the debtor ending in the 3-year period ending on the date 

of the commencement of the case; 

‘‘(3) a copy of each amendment to any Federal income tax return or transcript filed with the court under paragraph (1) or (2); and 

‘‘(4) in a case under chapter 13—

‘‘(A) on the date that is either 90 days after the end of such tax year 

or 1 year after the date of the commencement of the case, whichever is 

later, if a plan is not confirmed before such later date; and 

‘‘(B) annually after the plan is confirmed and until the case is closed, 

not later than the date that is 45 days before the anniversary of the confirmation of the plan; 

a statement, under penalty of perjury, of the income and expenditures of the 

debtor during the tax year of the debtor most recently concluded before such 

statement is filed under this paragraph, and of the monthly income of the debtor, that shows how income, expenditures, and monthly income are calculated. 

‘‘(g)(1) A statement referred to in subsection (f)(4) shall disclose—

‘‘(A) the amount and sources of the income of the debtor; 

‘‘(B) the identity of any person responsible with the debtor for the support 

of any dependent of the debtor; and 

‘‘(C) the identity of any person who contributed, and the amount contributed, to the household in which the debtor resides. 

‘‘(2) The tax returns, amendments, and statement of income and expenditures 

described in subsections (e)(2)(A) and (f) shall be available to the United States 

trustee (or the bankruptcy administrator, if any), the trustee, and any party in interest for inspection and copying, subject to the requirements of section 315(c) of the 

Bankruptcy Abuse Prevention and Consumer Protection Act of 2003. 

‘‘(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.’’. 

(c)(1) Not later than 180 days after the date of the enactment of this Act, the 

Director of the Administrative Office of the United States Courts shall establish procedures for safeguarding the confidentiality of any tax information required to be 

provided under this section. 

(2) The procedures under paragraph (1) shall include restrictions on creditor access to tax information that is required to be provided under this section. 

(3) Not later than 540 days after the date of enactment of this Act, the Director 

of the Administrative Office of the United States Courts shall prepare and submit 

to the President pro tempore of the Senate and the Speaker of the House of Representatives a report that—

(A) assesses the effectiveness of the procedures established under paragraph (1); and 

(B) if appropriate, includes proposed legislation to—

(i) further protect the confidentiality of tax information; and 

(ii) provide penalties for the improper use by any person of the tax information required to be provided under this section.

SEC. 316. DISMISSAL FOR FAILURE TO TIMELY FILE SCHEDULES OR PROVIDE REQUIRED INFORMATION. 

Section 521 of title 11, United States Code, as amended by sections 106, 225, 

305, and 315, is amended by adding at the end the following: 

‘‘(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 

48

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.’’.

SEC. 317. ADEQUATE TIME TO PREPARE FOR HEARING ON CONFIRMATION OF THE PLAN. 

Section 1324 of title 11, United States Code, is amended— (1) by striking ‘‘After’’ and inserting the following: ‘‘(a) Except as provided in subsection (b) and after’’; and 

(2) by adding at the end the following: ‘‘(b) The hearing on confirmation of the plan may be held not earlier than 20 

days and not later than 45 days after the date of the meeting of creditors under 

section 341(a), unless the court determines that it would be in the best interests of 

the creditors and the estate to hold such hearing at an earlier date and there is 

no objection to such earlier date.’’. 

SEC. 318. CHAPTER 13 PLANS TO HAVE A 5-YEAR DURATION IN CERTAIN CASES. 

Title 11, United States Code, is amended— (1) by amending section 1322(d) to read as follows: ‘‘(d)(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.’’; 

(2) in section 1325(b)(1)(B), by striking ‘‘three-year period’’ and inserting 

‘‘applicable commitment period’’; and 

(3) in section 1325(b), as amended by section 102, by adding at the end the 

following: 

‘‘(4) For purposes of this subsection, the ‘applicable commitment period’—

‘‘(A) subject to subparagraph (B), shall be—

‘‘(i) 3 years; or 

‘‘(ii) not less than 5 years, if the current monthly income of the debtor 

and the debtor’s spouse combined, when multiplied by 12, is not less than—

‘‘(I) in the case of a debtor in a household of 1 person, the median 

family income of the applicable State for 1 earner; 

‘‘(II) in the case of a debtor in a household of 2, 3, or 4 individuals, 

the highest median family income of the applicable State for a family 

of the same number or fewer individuals; or 

‘‘(III) in the case of a debtor in a household exceeding 4 individuals, 

the highest median family income of the applicable State for a family 

of 4 or fewer individuals, plus $525 per month for each individual in 

excess of 4; and 

49

‘‘(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.’’; and 

(4) in section 1329(c), by striking ‘‘three years’’ and inserting ‘‘the applicable 

commitment period under section 1325(b)(1)(B)’’. 

SEC. 319. SENSE OF CONGRESS REGARDING EXPANSION OF RULE 9011 OF THE FEDERAL 

RULES OF BANKRUPTCY PROCEDURE. 

It is the sense of Congress that rule 9011 of the Federal Rules of Bankruptcy 

Procedure (11 U.S.C. App.) should be modified to include a requirement that all documents (including schedules), signed and unsigned, submitted to the court or to a 

trustee by debtors who represent themselves and debtors who are represented by 

attorneys be submitted only after the debtors or the debtors’ attorneys have made 

reasonable inquiry to verify that the information contained in such documents is—

(1) well grounded in fact; and 

(2) 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 362(e) of title 11, United States Code, is amended—

(1) by inserting ‘‘(1)’’ after ‘‘(e)’’; and 

(2) by adding at the end the following: 

‘‘(2) Notwithstanding paragraph (1), in a case under chapter 7, 11, or 13 in 

which the debtor is an individual, the stay under subsection (a) shall terminate on 

the date that is 60 days after a request is made by a party in interest under subsection (d), unless—

‘‘(A) a final decision is rendered by the court during the 60-day period beginning on the date of the request; or 

‘‘(B) such 60-day period is extended—

‘‘(i) by agreement of all parties in interest; or 

‘‘(ii) by the court for such specific period of time as the court finds is 

required for good cause, as described in findings made by the court.’’.

SEC. 321. CHAPTER 11 CASES FILED BY INDIVIDUALS. 

(a) PROPERTY OF THE ESTATE.—

(1) IN GENERAL.—Subchapter I of chapter 11 of title 11, United States Code, 

is amended by adding at the end the following: 

‘‘§ 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.’’. 

(2) CLERICAL AMENDMENT.—The table of sections for subchapter I of chapter 

11 of title 11, United States Code, is amended by adding at the end the following:

‘‘1115. Property of the estate.’’.

(b) CONTENTS OF PLAN.—Section 1123(a) of title 11, United States Code, is 

amended—

(1) in paragraph (6), by striking ‘‘and’’ at the end; 

(2) in paragraph (7), by striking the period and inserting ‘‘; and’’; and 

(3) by adding at the end the following: 

‘‘(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.’’. 

(c) CONFIRMATION OF PLAN.—

(1) REQUIREMENTS RELATING TO VALUE OF PROPERTY.—Section 1129(a) of 

title 11, United States Code, as amended by section 213, is amended by adding 

at the end the following: 

‘‘(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—

50

‘‘(A) the value, as of the effective date of the plan, of the property to 

be distributed under the plan on account of such claim is not less than the 

amount of such claim; or 

‘‘(B) the value of the property to be distributed under the plan is not 

less than the projected disposable income of the debtor (as defined in section 1325(b)(2)) to be received during the 5-year period beginning on the 

date that the first payment is due under the plan, or during the period for 

which the plan provides payments, whichever is longer.’’.

(2) REQUIREMENT RELATING TO INTERESTS IN PROPERTY.—Section 

1129(b)(2)(B)(ii) of title 11, United States Code, is amended by inserting before 

the period at the end the following: ‘‘, 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’’.

(d) EFFECT OF CONFIRMATION.—Section 1141(d) of title 11, United States Code, 

is amended—

(1) in paragraph (2), by striking ‘‘The confirmation of a plan does not discharge an individual debtor’’ and inserting ‘‘A discharge under this chapter does 

not discharge a debtor who is an individual’’; and 

(2) by adding at the end the following: 

‘‘(5) In a case in which the debtor is an individual—

‘‘(A) unless after notice and a hearing the court orders otherwise for cause, 

confirmation of the plan does not discharge any debt provided for in the plan 

until the court grants a discharge on completion of all payments under the plan; 

‘‘(B) at any time after the confirmation of the plan, and after notice and a 

hearing, the court may grant a discharge to the debtor who has not completed 

payments under the plan if—

‘‘(i) the value, as of the effective date of the plan, of property actually 

distributed under the plan on account of each allowed unsecured claim is 

not less than the amount that would have been paid on such claim if the 

estate of the debtor had been liquidated under chapter 7 on such date; and 

‘‘(ii) modification of the plan under section 1127 is not practicable; and’’. 

(e) MODIFICATION OF PLAN.—Section 1127 of title 11, United States Code, is 

amended by adding at the end the following: 

‘‘(e) If the debtor is an individual, the plan may be modified at any time after 

confirmation of the plan but before the completion of payments under the plan, 

whether or not the plan has been substantially consummated, upon request of the 

debtor, the trustee, the United States trustee, or the holder of an allowed unsecured 

claim, to—

‘‘(1) increase or reduce the amount of payments on claims of a particular 

class provided for by the plan; 

‘‘(2) extend or reduce the time period for such payments; or 

‘‘(3) alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment 

of such claim made other than under the plan. 

‘‘(f)(1) Sections 1121 through 1128 and the requirements of section 1129 apply 

to any modification under subsection (a). 

‘‘(2) The plan, as modified, shall become the plan only after there has been disclosure under section 1125 as the court may direct, notice and a hearing, and such 

modification is approved.’’.

SEC. 322. LIMITATIONS ON HOMESTEAD EXEMPTION. 

(a) EXEMPTIONS.—Section 522 of title 11, United States Code, as amended by 

sections 224 and 308, is amended by adding at the end the following: 

‘‘(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. 

51

‘‘(B) For purposes of paragraph (1), any amount of such interest does not include 

any interest transferred from a debtor’s previous principal residence (which was acquired prior to the beginning of such 1215-day period) into the debtor’s current principal residence, if the debtor’s previous and current residences are located in the 

same State. 

‘‘(q)(1) As a result of electing under subsection (b)(3)(A) to exempt property 

under State or local law, a debtor may not exempt any amount of an interest in 

property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) which 

exceeds in the aggregate $125,000 if—

‘‘(A) the court determines, after notice and a hearing, that the debtor has 

been convicted of a felony (as defined in section 3156 of title 18), which under 

the circumstances, demonstrates that the filing of the case was an abuse of the 

provisions of this title; or 

‘‘(B) the debtor owes a debt arising from—

‘‘(i) any violation of the Federal securities laws (as defined in section 

3(a)(47) of the Securities Exchange Act of 1934), any State securities laws, 

or any regulation or order issued under Federal securities laws or State securities laws; 

‘‘(ii) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 

or 15(d) of the Securities Exchange Act of 1934 or under section 6 of the 

Securities Act of 1933; 

‘‘(iii) any civil remedy under section 1964 of title 18; or 

‘‘(iv) any criminal act, intentional tort, or willful or reckless misconduct 

that caused serious physical injury or death to another individual in the 

preceding 5 years. 

‘‘(2) Paragraph (1) shall not apply to the extent the amount of an interest in 

property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) is reasonably necessary for the support of the debtor and any dependent of the debtor.’’. 

(b) ADJUSTMENT OF DOLLAR AMOUNTS.—Paragraphs (1) and (2) of section 104(b) 

of title 11, United States Code, as amended by section 224, are amended by inserting ‘‘522(p), 522(q),’’ after ‘‘522(n),’’.

SEC. 323. EXCLUDING EMPLOYEE BENEFIT PLAN PARTICIPANT CONTRIBUTIONS AND OTHER 

PROPERTY FROM THE ESTATE. 

Section 541(b) of title 11, United States Code, as amended by section 225, is 

amended by adding after paragraph (6), as added by section 225(a)(1)(C), the following: 

‘‘(7) any amount—

‘‘(A) withheld by an employer from the wages of employees for payment 

as contributions—

‘‘(i) to—

‘‘(I) an employee benefit plan that is subject to title I of the 

Employee Retirement Income Security Act of 1974 or under an employee benefit plan which is a governmental plan under section 

414(d) of the Internal Revenue Code of 1986; 

‘‘(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or 

‘‘(III) a tax-deferred annuity under section 403(b) of the Internal Revenue Code of 1986; 

except that such amount under this subparagraph shall not constitute 

disposable income as defined in section 1325(b)(2); or 

‘‘(ii) to a health insurance plan regulated by State law whether or 

not subject to such title; or 

‘‘(B) received by an employer from employees for payment as contributions—

‘‘(i) to—

‘‘(I) an employee benefit plan that is subject to title I of the 

Employee Retirement Income Security Act of 1974 or under an employee benefit plan which is a governmental plan under section 

414(d) of the Internal Revenue Code of 1986; 

‘‘(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or 

‘‘(III) a tax-deferred annuity under section 403(b) of the Internal Revenue Code of 1986; 

except that such amount under this subparagraph shall not constitute 

disposable income, as defined in section 1325(b)(2); or 

‘‘(ii) to a health insurance plan regulated by State law whether or 

not subject to such title;’’. 

52

SEC. 324. EXCLUSIVE JURISDICTION IN MATTERS INVOLVING BANKRUPTCY PROFESSIONALS. 

(a) IN GENERAL.—Section 1334 of title 28, United States Code, is amended— (1) in subsection (b), by striking ‘‘Notwithstanding’’ and inserting ‘‘Except 

as provided in subsection (e)(2), and notwithstanding’’; and 

(2) by striking subsection (e) and inserting the following: ‘‘(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.’’. (b) APPLICABILITY.—This section shall only apply to cases filed after the date of 

enactment of this Act. 

SEC. 325. UNITED STATES TRUSTEE PROGRAM FILING FEE INCREASE. 

(a) ACTIONS UNDER CHAPTER 7 OR 13 OF TITLE 11, UNITED STATES CODE.—Section 1930(a) of title 28, United States Code, is amended by striking paragraph (1) 

and inserting the following: ‘‘(1) For a case commenced— ‘‘(A) under chapter 7 of title 11, $160; or 

‘‘(B) under chapter 13 of title 11, $150.’’. (b) UNITED STATES TRUSTEE SYSTEM FUND.—Section 589a(b) of title 28, United 

States Code, is amended— (1) by striking paragraph (1) and inserting the following: 

‘‘(1)(A) 40.63 percent of the fees collected under section 1930(a)(1)(A) of this 

title in cases commenced under chapter 7 of title 11; and ‘‘(B) 70.00 percent of the fees collected under section 1930(a)(1)(B) of this 

title in cases commenced under chapter 13 of title 11;’’; 

(2) in paragraph (2), by striking ‘‘one-half’’ and inserting ‘‘three-fourths’’; 

and 

(3) in paragraph (4), by striking ‘‘one-half’’ and inserting ‘‘100 percent’’. (c) COLLECTION AND DEPOSIT OF MISCELLANEOUS BANKRUPTCY FEES.—Section 

406(b) of the Judiciary Appropriations Act, 1990 (28 U.S.C. 1931 note) is amended 

by striking ‘‘pursuant to 28 U.S.C. section 1930(b)’’ and all that follows through ‘‘28 

U.S.C. section 1931’’ and inserting ‘‘under section 1930(b) of title 28, United States 

Code, and 31.25 percent 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’’. 

SEC. 326. SHARING OF COMPENSATION. 

Section 504 of title 11, United States Code, is amended by adding at the end 

the following: ‘‘(c) This section shall not apply with respect to sharing, or agreeing to share, 

compensation with a bona fide public service attorney referral program that operates 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 506(a) of title 11, United States Code, is amended by— (1) inserting ‘‘(1)’’ after ‘‘(a)’’; and 

(2) by adding at the end the following: ‘‘(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.’’. 

SEC. 328. DEFAULTS BASED ON NONMONETARY OBLIGATIONS. 

(a) EXECUTORY CONTRACTS AND UNEXPIRED LEASES.—Section 365 of title 11, 

United States Code, is amended—

(1) in subsection (b)—

(A) in paragraph (1)(A), by striking the semicolon at the end and inserting the following: ‘‘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 imVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00056 Fmt 6659 Sfmt 6621 E:\HR\OC\HR40P1.XXX HR40P1
53

possible 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;’’; and 

(B) in paragraph (2)(D), by striking ‘‘penalty rate or provision’’ and inserting ‘‘penalty rate or penalty provision’’; 

(2) in subsection (c)— (A) in paragraph (2), by inserting ‘‘or’’ at the end; 

(B) in paragraph (3), by striking ‘‘; or’’ at the end and inserting a period; and 

(C) by striking paragraph (4); 

(3) in subsection (d)— (A) by striking paragraphs (5) through (9); and 

(B) by redesignating paragraph (10) as paragraph (5); and 

(4) in subsection (f)(1) by striking ‘‘; except that’’ and all that follows 

through the end of the paragraph and inserting a period. 

(b) IMPAIRMENT OF CLAIMS OR INTERESTS.—Section 1124(2) of title 11, United 

States Code, is amended— (1) in subparagraph (A), by inserting ‘‘or of a kind that section 365(b)(2) expressly does not require to be cured’’ before the semicolon at the end; 

(2) in subparagraph (C), by striking ‘‘and’’ at the end; 

(3) by redesignating subparagraph (D) as subparagraph (E); and 

(4) by inserting after subparagraph (C) the following: ‘‘(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’’.

SEC. 329. CLARIFICATION OF POSTPETITION WAGES AND BENEFITS. 

Section 503(b)(1)(A) of title 11, United States Code, is amended to read as follows: ‘‘(A) the actual, necessary costs and expenses of preserving the estate including— ‘‘(i) wages, salaries, and commissions for services rendered after the 

commencement of the case; and ‘‘(ii) wages and benefits awarded pursuant to a judicial proceeding or 

a proceeding of the National Labor Relations Board as back pay attributable to any period of time occurring after commencement of the case 

under this title, as a result of a violation of Federal or State law by the 

debtor, without regard to the time of the occurrence of unlawful conduct on 

which such award is based or to whether any services were rendered, if the 

court determines that payment of wages and benefits by reason of the operation of this clause will not substantially increase the probability of layoff 

or termination of current employees, or of nonpayment of domestic support 

obligations, during the case under this title;’’.

SEC. 330. DELAY OF DISCHARGE DURING PENDENCY OF CERTAIN PROCEEDINGS. 

(a) CHAPTER 7.—Section 727(a) of title 11, United States Code, as amended by 

section 106, is amended—

(1) in paragraph (10), by striking ‘‘or’’ at the end; 

(2) in paragraph (11) by striking the period at the end and inserting ‘‘; or’’; 

and 

(3) by inserting after paragraph (11) the following: 

‘‘(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).’’. 

(b) CHAPTER 11.—Section 1141(d) of title 11, United States Code, as amended 

by section 321, is amended by adding at the end the following: 

‘‘(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—

54

‘‘(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).’’. 

(c) CHAPTER 12.—Section 1228 of title 11, United States Code, is amended—

(1) in subsection (a) by striking ‘‘As’’ and inserting ‘‘Subject to subsection 

(d), as’’, 

(2) in subsection (b) by striking ‘‘At’’ and inserting ‘‘Subject to subsection 

(d), at’’, and 

(3) by adding at the end the following: 

‘‘(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).’’. 

(d) CHAPTER 13.—Section 1328 of title 11, United States Code, as amended by 

section 106, is amended—

(1) in subsection (a) by striking ‘‘As’’ and inserting ‘‘Subject to subsection 

(d), as’’, 

(2) in subsection (b) by striking ‘‘At’’ and inserting ‘‘Subject to subsection 

(d), at’’, and 

(3) by adding at the end the following: 

‘‘(h) The court may not grant a discharge under this chapter unless the court 

after notice and a hearing held not more than 10 days before the date of the entry 

of the order granting the discharge finds that there is no reasonable cause to believe 

that—

‘‘(1) section 522(q)(1) may be applicable to the debtor; and 

‘‘(2) there is pending any proceeding in which the debtor may be found 

guilty of a felony of the kind described in section 522(q)(1)(A) or liable for a debt 

of the kind described in section 522(q)(1)(B).’’.

TITLE IV—GENERAL AND SMALL BUSINESS 

BANKRUPTCY PROVISIONS 

Subtitle A—General Business Bankruptcy 

Provisions 

SEC. 401. ADEQUATE PROTECTION FOR INVESTORS. 

(a) DEFINITION.—Section 101 of title 11, United States Code, is amended by inserting after paragraph (48) the following: 

‘‘(48A) ‘securities self regulatory organization’ means either a securities association registered with the Securities and Exchange Commission 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;’’. 

(b) AUTOMATIC STAY.—Section 362(b) of title 11, United States Code, as amended by sections 224, 303, and 311, is amended by inserting after paragraph (24) the 

following: 

‘‘(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;’’. 

SEC. 402. MEETINGS OF CREDITORS AND EQUITY SECURITY HOLDERS. 

Section 341 of title 11, United States Code, is amended by adding at the end 

the following: 

55

‘‘(e) Notwithstanding subsections (a) and (b), the court, on the request of a party 

in interest and after notice and a hearing, for cause may order that the United 

States trustee not convene a meeting of creditors or equity security holders if the 

debtor has filed a plan as to which the debtor solicited acceptances prior to the commencement of the case.’’. 

SEC. 403. PROTECTION OF REFINANCE OF SECURITY INTEREST. 

Subparagraphs (A), (B), and (C) of section 547(e)(2) of title 11, United States 

Code, are each amended by striking ‘‘10’’ each place it appears and inserting ‘‘30’’. 

SEC. 404. EXECUTORY CONTRACTS AND UNEXPIRED LEASES. 

(a) IN GENERAL.—Section 365(d)(4) of title 11, United States Code, is amended 

to read as follows: ‘‘(4)(A) Subject to subparagraph (B), an unexpired lease of nonresidential real 

property under which the debtor is the lessee shall be deemed rejected, and the 

trustee shall immediately surrender that nonresidential real property to the lessor, 

if the trustee does not assume or reject the unexpired lease by the earlier of— ‘‘(i) the date that is 120 days after the date of the order for relief; or 

‘‘(ii) the date of the entry of an order confirming a plan. ‘‘(B)(i) The court may extend the period determined under subparagraph (A), 

prior to the expiration of the 120-day period, for 90 days on the motion of the trustee or lessor for cause. ‘‘(ii) If the court grants an extension under clause (i), the court may grant a subsequent extension only upon prior written consent of the lessor in each instance.’’. (b) EXCEPTION.—Section 365(f)(1) of title 11, United States Code, is amended by 

striking ‘‘subsection’’ the first place it appears and inserting ‘‘subsections (b) and’’. 

SEC. 405. CREDITORS AND EQUITY SECURITY HOLDERS COMMITTEES. 

(a) APPOINTMENT.—Section 1102(a) of title 11, United States Code, is amended 

by adding at the end the following: ‘‘(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) INFORMATION.—Section 1102(b) of title 11, United States Code, is amended 

by adding at the end the following: 

‘‘(3) A committee appointed under subsection (a) shall—

‘‘(A) provide access to information for creditors who—

‘‘(i) hold claims of the kind represented by that committee; and 

‘‘(ii) are not appointed to the committee; 

‘‘(B) solicit and receive comments from the creditors described in subparagraph (A); and 

‘‘(C) be subject to a court order that compels any additional report or disclosure to be made to the creditors described in subparagraph (A).’’.

SEC. 406. AMENDMENT TO SECTION 546 OF TITLE 11, UNITED STATES CODE. 

Section 546 of title 11, United States Code, is amended—

(1) by redesignating the second subsection (g) (as added by section 222(a) 

of Public Law 103–394) as subsection (h); 

(2) in subsection (h), as so redesignated, by inserting ‘‘and subject to the 

prior rights of holders of security interests in such goods or the proceeds of such 

goods’’ after ‘‘consent of a creditor’’; and 

(3) by adding at the end the following: 

‘‘(i)(1) Notwithstanding paragraphs (2) and (3) of section 545, the trustee may 

not avoid a warehouseman’s lien for storage, transportation, or other costs incidental to the storage and handling of goods. 

‘‘(2) The prohibition under paragraph (1) shall be applied in a manner consistent with any State statute applicable to such lien that is similar to section 7–

209 of the Uniform Commercial Code, as in effect on the date of enactment of the 

Bankruptcy Abuse Prevention and Consumer Protection Act of 2003, or any successor to such section 7–209.’’. 

SEC. 407. AMENDMENTS TO SECTION 330(a) OF TITLE 11, UNITED STATES CODE. 

Section 330(a) of title 11, United States Code, is amended—

(1) in paragraph (3)—

56

(A) by striking ‘‘(A) In’’ and inserting ‘‘In’’; and 

(B) by inserting ‘‘to an examiner, trustee under chapter 11, or professional person’’ after ‘‘awarded’’; and 

(2) by adding at the end the following: ‘‘(7) In determining the amount of reasonable compensation to be awarded to 

a trustee, the court shall treat such compensation as a commission, based on section 

326.’’. 

SEC. 408. POSTPETITION DISCLOSURE AND SOLICITATION. 

Section 1125 of title 11, United States Code, is amended by adding at the end 

the following: ‘‘(g) Notwithstanding subsection (b), an acceptance or rejection of the plan may 

be solicited from a holder of a claim or interest if such solicitation complies with 

applicable nonbankruptcy law and if such holder was solicited before the commencement of the case in a manner complying with applicable nonbankruptcy law.’’. 

SEC. 409. PREFERENCES. 

Section 547(c) of title 11, United States Code, is amended— (1) by striking paragraph (2) and inserting the following: 

‘‘(2) to the extent that such transfer was in payment of a debt incurred by 

the debtor in the ordinary course of business or financial affairs of the debtor 

and the transferee, and such transfer was— ‘‘(A) made in the ordinary course of business or financial affairs of the 

debtor and the transferee; or ‘‘(B) made according to ordinary business terms;’’; 

(2) in paragraph (8), by striking the period at the end and inserting ‘‘; or’’; 

and 

(3) by adding at the end the following: 

‘‘(9) if, in a case filed by a debtor whose debts are not primarily consumer 

debts, the aggregate value of all property that constitutes or is affected by such 

transfer is less than $5,000.’’. 

SEC. 410. VENUE OF CERTAIN PROCEEDINGS. 

Section 1409(b) of title 28, United States Code, is amended by inserting ‘‘, or 

a debt (excluding a consumer debt) against a noninsider of less than $10,000,’’ after ‘‘$5,000’’. 

SEC. 411. PERIOD FOR FILING PLAN UNDER CHAPTER 11. 

Section 1121(d) of title 11, United States Code, is amended— (1) by striking ‘‘On’’ and inserting ‘‘(1) Subject to paragraph (2), on’’; and 

(2) by adding at the end the following: ‘‘(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.’’. 

SEC. 412. FEES ARISING FROM CERTAIN OWNERSHIP INTERESTS. 

Section 523(a)(16) of title 11, United States Code, is amended— (1) by striking ‘‘dwelling’’ the first place it appears; 

(2) by striking ‘‘ownership or’’ and inserting ‘‘ownership,’’; 

(3) by striking ‘‘housing’’ the first place it appears; and 

(4) by striking ‘‘but only’’ and all that follows through ‘‘such period,’’ and 

inserting ‘‘or a lot in a homeowners association, for as long as the debtor or the 

trustee has a legal, equitable, or possessory ownership interest in such unit, 

such corporation, or such lot,’’. 

SEC. 413. CREDITOR REPRESENTATION AT FIRST MEETING OF CREDITORS. 

Section 341(c) of title 11, United States Code, is amended by inserting at the 

end the following: ‘‘Notwithstanding any local court rule, provision of a State constitution, any other Federal or State law that is not a bankruptcy law, or other requirement that representation at the meeting of creditors under subsection (a) be 

by an attorney, a creditor holding a consumer debt or 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.’’. 

SEC. 414. DEFINITION OF DISINTERESTED PERSON. 

Section 101(14) of title 11, United States Code, is amended to read as follows: 

57

‘‘(14) ‘disinterested person’ means a person that—

‘‘(A) is not a creditor, an equity security holder, or an insider; 

‘‘(B) is not and was not, within 2 years before the date of the filing of 

the petition, a director, officer, or employee of the debtor; and 

‘‘(C) does not have an interest materially adverse to the interest of the 

estate or of any class of creditors or equity security holders, by reason of 

any direct or indirect relationship to, connection with, or interest in, the 

debtor, or for any other reason;’’. 

SEC. 415. FACTORS FOR COMPENSATION OF PROFESSIONAL PERSONS. 

Section 330(a)(3) of title 11, United States Code, is amended—

(1) in subparagraph (D), by striking ‘‘and’’ at the end; 

(2) by redesignating subparagraph (E) as subparagraph (F); and 

(3) by inserting after subparagraph (D) the following: 

‘‘(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’’. 

SEC. 416. APPOINTMENT OF ELECTED TRUSTEE. 

Section 1104(b) of title 11, United States Code, is amended—

(1) by inserting ‘‘(1)’’ after ‘‘(b)’’; and 

(2) by adding at the end the following: 

‘‘(2)(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).’’. 

SEC. 417. UTILITY SERVICE. 

Section 366 of title 11, United States Code, is amended—

(1) in subsection (a), by striking ‘‘subsection (b)’’ and inserting ‘‘subsections 

(b) and (c)’’; and 

(2) by adding at the end the following: 

‘‘(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.’’. 

SEC. 418. BANKRUPTCY FEES. 

Section 1930 of title 28, United States Code, is amended—

58

(1) in subsection (a), by striking ‘‘Notwithstanding section 1915 of this title, 

the’’ and inserting ‘‘The’’; and 

(2) by adding at the end the following: ‘‘(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 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.’’. 

SEC. 419. MORE COMPLETE INFORMATION REGARDING ASSETS OF THE ESTATE. 

(a) IN GENERAL.— (1) DISCLOSURE.—The Judicial Conference of the United States, in accordance with section 2075 of title 28 of the United States Code and after consideration of the views of the Director of the Executive Office for United States 

Trustees, shall propose amended Federal Rules of Bankruptcy Procedure and in 

accordance with rule 9009 of the Federal Rules of Bankruptcy Procedure shall 

prescribe official bankruptcy forms directing debtors under chapter 11 of title 

11 of United States Code, to disclose the information described in paragraph (2) 

by filing and serving periodic financial and other reports designed to provide 

such information. 

(2) INFORMATION.—The information referred to in paragraph (1) is the 

value, operations, and profitability of any closely held corporation, partnership, 

or of any other entity in which the debtor holds a substantial or controlling interest. 

(b) PURPOSE.—The purpose of the rules and reports under subsection (a) shall 

be to assist parties in interest taking steps to ensure that the debtor’s interest in 

any entity referred to in subsection (a)(2) 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 1125 of title 11, United States Code, is amended—

(1) in subsection (a)(1), by inserting before the semicolon ‘‘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 

(2) by striking subsection (f), and inserting the following: 

‘‘(f) Notwithstanding subsection (b), in a small business case—

‘‘(1) the court may determine that the plan itself provides adequate information and that a separate disclosure statement is not necessary; 

‘‘(2) the court may approve a disclosure statement submitted on standard 

forms approved by the court or adopted under section 2075 of title 28; and 

‘‘(3)(A) the court may conditionally approve a disclosure statement subject 

to final approval after notice and a hearing; 

‘‘(B) acceptances and rejections of a plan may be solicited based on a conditionally approved disclosure statement if the debtor provides adequate information to each holder of a claim or interest that is solicited, but a conditionally 

approved disclosure statement shall be mailed not later than 25 days before the 

date of the hearing on confirmation of the plan; and 

‘‘(C) the hearing on the disclosure statement may be combined with the 

hearing on confirmation of a plan.’’.

SEC. 432. DEFINITIONS. 

(a) DEFINITIONS.—Section 101 of title 11, United States Code, is amended by 

striking paragraph (51C) and inserting the following: 

59

‘‘(51C) ‘small business case’ means a case filed under chapter 11 of this title 

in which the debtor is a small business debtor; ‘‘(51D) ‘small business debtor’— ‘‘(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);’’. (b) CONFORMING AMENDMENT.—Section 1102(a)(3) of title 11, United States 

Code, is amended by inserting ‘‘debtor’’ after ‘‘small business’’. (c) ADJUSTMENT OF DOLLAR AMOUNTS.—Section 104(b) of title 11, United States 

Code, as amended by section 226, is amended by inserting ‘‘101(51D),’’ after ‘‘101(3),’’ each place it appears. 

SEC. 433. STANDARD FORM DISCLOSURE STATEMENT AND PLAN. 

Within a reasonable period of time after the date of enactment of this Act, the 

Judicial Conference of the United States shall prescribe in accordance with rule 

9009 of the Federal Rules of Bankruptcy Procedure official standard form disclosure 

statements and plans of reorganization for small business debtors (as defined in section 101 of title 11, United States Code, as amended by this Act), designed to 

achieve a practical balance between— (1) the reasonable needs of the courts, the United States trustee, creditors, 

and other parties in interest for reasonably complete information; and 

(2) economy and simplicity for debtors. 

SEC. 434. UNIFORM NATIONAL REPORTING REQUIREMENTS. 

(a) REPORTING REQUIRED.— (1) IN GENERAL.—Chapter 3 of title 11, United States Code, is amended by 

inserting after section 307 the following: 

‘‘§ 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.’’. 

(2) CLERICAL AMENDMENT.—The table of sections for chapter 3 of title 11, 

United States Code, is amended by inserting after the item relating to section 

307 the following:

‘‘308. Debtor reporting requirements.’’.

60

(b) EFFECTIVE DATE.—The amendments made by subsection (a) shall take effect 

60 days after the date on which rules are prescribed under section 2075 of title 28, 

United States Code, to establish forms to be used to comply with section 308 of title 

11, United States Code, as added by subsection (a). 

SEC. 435. UNIFORM REPORTING RULES AND FORMS FOR SMALL BUSINESS CASES. 

(a) PROPOSAL OF RULES AND FORMS.—The Judicial Conference of the United 

States shall propose in accordance with section 2073 of title 28 of the United States 

Code amended Federal Rules of Bankruptcy Procedure, and shall prescribe in accordance with rule 9009 of the Federal Rules of Bankruptcy Procedure official bankruptcy forms, directing small business debtors to file periodic financial and other reports containing information, including information relating to—

(1) the debtor’s profitability; 

(2) the debtor’s cash receipts and disbursements; and 

(3) whether the debtor is timely filing tax returns and paying taxes and 

other administrative expenses when due. 

(b) PURPOSE.—The rules and forms proposed under subsection (a) shall be designed to achieve a practical balance among—

(1) the reasonable needs of the bankruptcy court, the United States trustee, 

creditors, and other parties in interest for reasonably complete information; 

(2) a small business debtor’s interest that required reports be easy and inexpensive to complete; and 

(3) the interest of all parties that the required reports help such debtor to 

understand such debtor’s financial condition and plan the such debtor’s future. 

SEC. 436. DUTIES IN SMALL BUSINESS CASES. 

(a) DUTIES IN CHAPTER 11 CASES.—Subchapter I of chapter 11 of title 11, 

United States Code, as amended by section 321, is amended by adding at the end 

the following: 

‘‘§ 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, Federal income tax return; or 

‘‘(B) a statement made under penalty of perjury that no balance sheet, 

statement of operations, or cash-flow statement has been prepared and no 

Federal tax return has been filed; 

‘‘(2) attend, through its senior management personnel and counsel, meetings scheduled by the court or the United States trustee, including initial debtor 

interviews, scheduling conferences, and meetings of creditors convened under 

section 341 unless the court, after notice and a hearing, waives that requirement upon a finding of extraordinary and compelling circumstances; 

‘‘(3) timely file all schedules and statements of financial affairs, unless the 

court, after notice and a hearing, grants an extension, which shall not extend 

such time period to a date later than 30 days after the date of the order for 

relief, absent extraordinary and compelling circumstances; 

‘‘(4) file all postpetition financial and other reports required by the Federal 

Rules of Bankruptcy Procedure or by local rule of the district court; 

‘‘(5) subject to section 363(c)(2), maintain insurance customary and appropriate to the industry; 

‘‘(6)(A) timely file tax returns and other required government filings; and 

‘‘(B) subject to section 363(c)(2), timely pay all taxes entitled to administrative expense priority except those being contested by appropriate proceedings 

being diligently prosecuted; and 

‘‘(7) allow the United States trustee, or a designated representative of the 

United States trustee, to inspect the debtor’s business premises, books, and 

records at reasonable times, after reasonable prior written notice, unless notice 

is waived by the debtor.’’. 

(b) CLERICAL AMENDMENT.—The table of sections for chapter 11 of title 11, 

United States Code, as amended by section 321, is amended by inserting after the 

item relating to section 1115 the following:

‘‘1116. Duties of trustee or debtor in possession in small business cases.’’.

SEC. 437. PLAN FILING AND CONFIRMATION DEADLINES. 

Section 1121 of title 11, United States Code, is amended by striking subsection 

(e) and inserting the following: 

‘‘(e) In a small business case—

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‘‘(1) only the debtor may file a plan until after 180 days after the date of 

the order for relief, unless that period is— ‘‘(A) extended as provided by this subsection, after notice and a hearing; or ‘‘(B) the court, for cause, orders otherwise; ‘‘(2) the plan and a disclosure statement (if any) shall be filed not later than 

300 days after the date of the order for relief; and ‘‘(3) the time periods specified in paragraphs (1) and (2), and the time fixed 

in section 1129(e) within which the plan shall be confirmed, may be extended 

only if—‘‘(A) the debtor, after providing notice to parties in interest (including 

the United States trustee), demonstrates by a preponderance of the evidence that it is more likely than not that the court will confirm a plan within a reasonable period of time; ‘‘(B) a new deadline is imposed at the time the extension is granted; 

and ‘‘(C) the order extending time is signed before the existing deadline has 

expired.’’.

SEC. 438. PLAN CONFIRMATION DEADLINE. 

Section 1129 of title 11, United States Code, is amended by adding at the end 

the following: ‘‘(e) In a small business case, the 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).’’. 

SEC. 439. DUTIES OF THE UNITED STATES TRUSTEE. 

Section 586(a) of title 28, United States Code, is amended— (1) in paragraph (3)— (A) in subparagraph (G), by striking ‘‘and’’ at the end; 

(B) by redesignating subparagraph (H) as subparagraph (I); and 

(C) by inserting after subparagraph (G) the following: 

‘‘(H) in small business cases (as defined in section 101 of title 11), performing the additional duties specified in title 11 pertaining to such cases; 

and’’; 

(2) in paragraph (5), by striking ‘‘and’’ at the end; 

(3) in paragraph (6), by striking the period at the end and inserting a semicolon; and 

(4) by adding at the end the following: 

‘‘(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.’’. 

SEC. 440. SCHEDULING CONFERENCES. 

Section 105(d) of title 11, United States Code, is amended— (1) in the matter preceding paragraph (1), by striking ‘‘, may’’; and 

(2) by striking paragraph (1) and inserting the following: 

‘‘(1) shall hold such status conferences as are necessary to further the expeditious and economical resolution of the case; and’’.

SEC. 441. SERIAL FILER PROVISIONS. 

Section 362 of title 11, United States Code, as amended by sections 106, 305, 

and 311, is amended—

(1) in subsection (k), as so redesignated by section 305—

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(A) by striking ‘‘An’’ and inserting ‘‘(1) Except as provided in paragraph 

(2), an’’; and 

(B) by adding at the end the following: 

‘‘(2) If such violation is based on an action taken by an entity in the good faith 

belief that subsection (h) applies to the debtor, the recovery under paragraph (1) of 

this subsection against such entity shall be limited to actual damages.’’; and 

(2) by adding at the end the following: 

‘‘(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.’’.

SEC. 442. EXPANDED GROUNDS FOR DISMISSAL OR CONVERSION AND APPOINTMENT OF 

TRUSTEE. 

(a) EXPANDED GROUNDS FOR DISMISSAL OR CONVERSION.—Section 1112 of title 

11, United States Code, is amended by striking subsection (b) and inserting the following: 

‘‘(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; 

63

‘‘(D) unauthorized use of cash collateral substantially harmful to 1 or more 

creditors; 

‘‘(E) failure to comply with an order of the court; 

‘‘(F) unexcused failure to satisfy timely any filing or reporting requirement 

established by this title or by any rule applicable to a case under this chapter; 

‘‘(G) failure to attend the meeting of creditors convened under section 341(a) 

or an examination ordered under rule 2004 of the Federal Rules of Bankruptcy 

Procedure without good cause shown by the debtor; 

‘‘(H) failure timely to provide information or attend meetings reasonably requested by the United States trustee (or the bankruptcy administrator, if any); 

‘‘(I) failure timely to pay taxes owed after the date of the order for relief 

or to file tax returns due after the date of the order for relief; 

‘‘(J) failure to file a disclosure statement, or to file or confirm a plan, within 

the time fixed by this title or by order of the court; 

‘‘(K) failure to pay any fees or charges required under chapter 123 of title 

28; 

‘‘(L) revocation of an order of confirmation under section 1144; 

‘‘(M) inability to effectuate substantial consummation of a confirmed plan; 

‘‘(N) material default by the debtor with respect to a confirmed plan; 

‘‘(O) termination of a confirmed plan by reason of the occurrence of a condition specified in the plan; and 

‘‘(P) failure of the debtor to pay any domestic support obligation that first 

becomes payable after the date of the filing of the petition. 

‘‘(5) 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.’’. 

(b) ADDITIONAL GROUNDS FOR APPOINTMENT OF TRUSTEE.—Section 1104(a) of 

title 11, United States Code, is amended—

(1) in paragraph (1), by striking ‘‘or’’ at the end; 

(2) in paragraph (2), by striking the period at the end and inserting ‘‘; or’’; 

and 

(3) by adding at the end the following: 

‘‘(3) if grounds exist to convert or dismiss the case under section 1112, but 

the court determines that the appointment of a trustee or an examiner is in the 

best interests of creditors and the estate.’’. 

SEC. 443. STUDY OF OPERATION OF TITLE 11, UNITED STATES CODE, WITH RESPECT TO 

SMALL BUSINESSES. 

Not later than 2 years after the date of enactment of this Act, 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, shall—

(1) conduct a study to determine—

(A) the internal and external factors that cause small businesses, especially sole proprietorships, to become debtors in cases under title 11, United 

States Code, and that cause certain small businesses to successfully complete cases under chapter 11 of such title; and 

(B) how Federal laws relating to bankruptcy may be made more effective and efficient in assisting small businesses to remain viable; and 

(2) submit to the President pro tempore of the Senate and the Speaker of 

the House of Representatives a report summarizing that study. 

SEC. 444. PAYMENT OF INTEREST. 

Section 362(d)(3) of title 11, United States Code, is amended—

(1) by inserting ‘‘or 30 days after the court determines that the debtor is 

subject to this paragraph, whichever is later’’ after ‘‘90-day period)’’; and 

(2) by striking subparagraph (B) and inserting the following: 

‘‘(B) the debtor has commenced monthly payments that—

‘‘(i) may, in the debtor’s sole discretion, notwithstanding section 

363(c)(2), be made from rents or other income generated before or after 

the commencement of the case by or from the property to each creditor 

whose claim is secured by such real estate (other than a claim secured 

by a judgment lien or by an unmatured statutory lien); 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’’. 

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SEC. 445. PRIORITY FOR ADMINISTRATIVE EXPENSES. 

Section 503(b) of title 11, United States Code, is amended—

(1) in paragraph (5), by striking ‘‘and’’ at the end; 

(2) in paragraph (6), by striking the period at the end and inserting a semicolon; and 

(3) by adding at the end the following: 

‘‘(7) with respect to a nonresidential real property lease previously assumed 

under section 365, and subsequently rejected, a sum equal to all monetary obligations due, excluding those arising from or relating to a failure to operate or 

a penalty provision, for the period of 2 years following the later of the rejection 

date or the date of actual turnover of the premises, without reduction or setoff 

for any reason whatsoever except for sums actually received or to be received 

from an entity other than the debtor, and the claim for remaining sums due 

for the balance of the term of the lease shall be a claim under section 

502(b)(6);’’.

SEC. 446. DUTIES WITH RESPECT TO A DEBTOR WHO IS A PLAN ADMINISTRATOR OF AN EMPLOYEE BENEFIT PLAN. 

(a) IN GENERAL.—Section 521(a) of title 11, United States Code, as amended by 

sections 106 and 304, is amended—

(1) in paragraph (5), by striking ‘‘and’’ at the end; 

(2) in paragraph (6), by striking the period at the end and inserting ‘‘; and’’; 

and 

(3) by adding after paragraph (6) the following: 

‘‘(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.’’. 

(b) DUTIES OF TRUSTEES.—Section 704(a) of title 11, United States Code, as 

amended by sections 102 and 219, is amended—

(1) in paragraph (10), by striking ‘‘and’’ at the end; and 

(2) by adding at the end the following: 

‘‘(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’’. 

(c) CONFORMING AMENDMENT.—Section 1106(a)(1) of title 11, United States 

Code, is amended to read as follows: 

‘‘(1) perform the duties of the trustee, as specified in paragraphs (2), (5), 

(7), (8), (9), (10), and (11) of section 704;’’.

SEC. 447. APPOINTMENT OF COMMITTEE OF RETIRED EMPLOYEES. 

Section 1114(d) of title 11, United States Code, is amended—

(1) by striking ‘‘appoint’’ and inserting ‘‘order the appointment of’’, and 

(2) by adding at the end the following: ‘‘The United States trustee shall appoint any such committee.’’. 

TITLE V—MUNICIPAL BANKRUPTCY 

PROVISIONS 

SEC. 501. PETITION AND PROCEEDINGS RELATED TO PETITION. 

(a) TECHNICAL AMENDMENT RELATING TO MUNICIPALITIES.—Section 921(d) of 

title 11, United States Code, is amended by inserting ‘‘notwithstanding section 

301(b)’’ before the period at the end. 

(b) CONFORMING AMENDMENT.—Section 301 of title 11, United States Code, is 

amended—

(1) by inserting ‘‘(a)’’ before ‘‘A voluntary’’; and 

(2) by striking the last sentence and inserting the following: 

‘‘(b) The commencement of a voluntary case under a chapter of this title constitutes an order for relief under such chapter.’’. 

SEC. 502. APPLICABILITY OF OTHER SECTIONS TO CHAPTER 9. 

Section 901(a) of title 11, United States Code, is amended—

(1) by inserting ‘‘555, 556,’’ after ‘‘553,’’; and 

(2) by inserting ‘‘559, 560, 561, 562,’’ after ‘‘557,’’. 

65

TITLE VI—BANKRUPTCY DATA 

SEC. 601. IMPROVED BANKRUPTCY STATISTICS. 

(a) IN GENERAL.—Chapter 6 of title 28, United States Code, is amended by adding at the end the following: 

‘‘§ 159. Bankruptcy statistics 

‘‘(a) The clerk of the district court, or the clerk of the bankruptcy court if one 

is certified pursuant to section 156(b) of this title, shall collect statistics regarding 

debtors who are individuals with primarily consumer debts seeking relief under 

chapters 7, 11, and 13 of title 11. Those statistics shall be in a standardized format 

prescribed by the Director of the Administrative Office of the United States Courts 

(referred to in this section as the ‘Director’). 

‘‘(b) The Director shall—

‘‘(1) compile the statistics referred to in subsection (a); 

‘‘(2) make the statistics available to the public; and 

‘‘(3) not later than July 1, 2006, and annually thereafter, prepare, and submit to Congress a report concerning the information collected under subsection 

(a) that contains an analysis of the information. 

‘‘(c) The compilation required under subsection (b) shall—

‘‘(1) be itemized, by chapter, with respect to title 11; 

‘‘(2) be presented in the aggregate and for each district; and 

‘‘(3) include information concerning—

‘‘(A) the total assets and total liabilities of the debtors described in subsection (a), and in each category of assets and liabilities, as reported in the 

schedules prescribed pursuant to section 2075 of this title and filed by debtors; 

‘‘(B) the current monthly income, average income, and average expenses of debtors as reported on the schedules and statements that each 

such debtor files under sections 521 and 1322 of title 11; 

‘‘(C) the aggregate amount of debt discharged in cases filed during the 

reporting period, determined as the difference between the total amount of 

debt and obligations of a debtor reported on the schedules and the amount 

of such debt reported in categories which are predominantly nondischargeable; 

‘‘(D) the average period of time between the date of the filing of the petition and the closing of the case for cases closed during the reporting period; 

‘‘(E) for cases closed during the reporting period—

‘‘(i) the number of cases in which a reaffirmation agreement was 

filed; and 

‘‘(ii)(I) the total number of reaffirmation agreements filed; 

‘‘(II) of those cases in which a reaffirmation agreement was filed, 

the number of cases in which the debtor was not represented by an attorney; and 

‘‘(III) of those cases in which a reaffirmation agreement was filed, 

the number of cases in which the reaffirmation agreement was approved by the court;

‘‘(F) with respect to cases filed under chapter 13 of title 11, for the reporting

period—

‘‘(i)(I) the number of cases in which a final order was entered determining the value of property securing a claim in an amount less than 

the amount of the claim; and 

‘‘(II) the number of final orders entered determining the value of 

property securing a claim; 

‘‘(ii) the number of cases dismissed, the number of cases dismissed 

for failure to make payments under the plan, the number of cases 

refiled after dismissal, and the number of cases in which the plan was 

completed, separately itemized with respect to the number of modifications made before completion of the plan, if any; and 

‘‘(iii) the number of cases in which the debtor filed another case 

during the 6-year period preceding the filing; 

‘‘(G) the number of cases in which creditors were fined for misconduct 

and any amount of punitive damages awarded by the court for creditor misconduct; and 

66

‘‘(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.’’. 

(b) CLERICAL AMENDMENT.—The table of sections for chapter 6 of title 28, 

United States Code, is amended by adding at the end the following:

‘‘159. Bankruptcy statistics.’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall take effect 

18 months after the date of enactment of this Act. 

SEC. 602. UNIFORM RULES FOR THE COLLECTION OF BANKRUPTCY DATA. 

(a) AMENDMENT.—Chapter 39 of title 28, United States Code, is amended by 

adding at the end the following: 

‘‘§ 589b. Bankruptcy data 

‘‘(a) RULES.—The Attorney General shall, within a reasonable time after the effective date of this section, issue rules requiring uniform forms for (and from time 

to time thereafter to appropriately modify and approve)—

‘‘(1) final reports by trustees in cases under chapters 7, 12, and 13 of title 

11; and 

‘‘(2) periodic reports by debtors in possession or trustees in cases under 

chapter 11 of title 11. 

‘‘(b) REPORTS.—Each report referred to in subsection (a) shall be designed (and 

the requirements as to place and manner of filing shall be established) so as to facilitate compilation of data and maximum possible access of the public, both by 

physical inspection at one or more central filing locations, and by electronic access 

through the Internet or other appropriate media. 

‘‘(c) REQUIRED INFORMATION.—The information required to be filed in the reports referred to in subsection (b) shall be that which is in the best interests of debtors and creditors, and in the public interest in reasonable and adequate information 

to evaluate the efficiency and practicality of the Federal bankruptcy system. In 

issuing rules proposing the forms referred to in subsection (a), the Attorney General 

shall strike the best achievable practical balance between—

‘‘(1) the reasonable needs of the public for information about the operational 

results of the Federal bankruptcy system; 

‘‘(2) economy, simplicity, and lack of undue burden on persons with a duty 

to file reports; and 

‘‘(3) appropriate privacy concerns and safeguards. 

‘‘(d) FINAL REPORTS.—The uniform forms for final reports required under subsection (a) for use by trustees under chapters 7, 12, and 13 of title 11 shall, in addition to such other matters as are required by law or as the Attorney General in the 

discretion of the Attorney General shall propose, include with respect to a case 

under such title—

‘‘(1) information about the length of time the case was pending; 

‘‘(2) assets abandoned; 

‘‘(3) assets exempted; 

‘‘(4) receipts and disbursements of the estate; 

‘‘(5) expenses of administration, including for use under section 707(b), actual costs of administering cases under chapter 13 of title 11; 

‘‘(6) claims asserted; 

‘‘(7) claims allowed; and 

‘‘(8) distributions to claimants and claims discharged without payment, 

in each case by appropriate category and, in cases under chapters 12 and 13 of title 

11, date of confirmation of the plan, each modification thereto, and defaults by the 

debtor in performance under the plan. 

‘‘(e) PERIODIC REPORTS.—The uniform forms for periodic reports required under 

subsection (a) for use by trustees or debtors in possession under chapter 11 of title 

11 shall, in addition to such other matters as are required by law or as the Attorney 

General in the discretion of the Attorney General shall propose, include—

‘‘(1) information about the industry classification, published by the Department of Commerce, for the businesses conducted by the debtor; 

‘‘(2) length of time the case has been pending; 

‘‘(3) number of full-time employees as of the date of the order for relief and 

at the end of each reporting period since the case was filed; 

‘‘(4) cash receipts, cash disbursements and profitability of the debtor for the 

most recent period and cumulatively since the date of the order for relief; 

‘‘(5) compliance with title 11, whether or not tax returns and tax payments 

since the date of the order for relief have been timely filed and made; 

‘‘(6) all professional fees approved by the court in the case for the most recent period and cumulatively since the date of the order for relief (separately 

67

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.’’. (b) CLERICAL AMENDMENT.—The table of sections for chapter 39 of title 28, 

United States Code, is amended by adding at the end the following:

‘‘589b. Bankruptcy data.’’.

SEC. 603. AUDIT PROCEDURES. 

(a) IN GENERAL.—

(1) ESTABLISHMENT OF PROCEDURES.—The Attorney General (in judicial districts served by United States trustees) and the Judicial Conference of the 

United States (in judicial districts served by bankruptcy administrators) shall 

establish procedures to determine the accuracy, veracity, and completeness of 

petitions, schedules, and other information that the debtor is required to provide under sections 521 and 1322 of title 11, United States Code, and, if applicable, section 111 of such title, in cases filed under chapter 7 or 13 of such title 

in which the debtor is an individual. Such audits shall be in accordance with 

generally accepted auditing standards and performed by independent certified 

public accountants or independent licensed public accountants, provided that 

the Attorney General and the Judicial Conference, as appropriate, may develop 

alternative auditing standards not later than 2 years after the date of enactment of this Act. 

(2) PROCEDURES.—Those procedures required by paragraph (1) shall—

(A) establish a method of selecting appropriate qualified persons to contract to perform those audits; 

(B) establish a method of randomly selecting cases to be audited, except 

that not less than 1 out of every 250 cases in each Federal judicial district 

shall be selected for audit; 

(C) require audits of schedules of income and expenses that reflect 

greater than average variances from the statistical norm of the district in 

which the schedules were filed if those variances occur by reason of higher 

income or higher expenses than the statistical norm of the district in which 

the schedules were filed; and 

(D) establish procedures for providing, not less frequently than annually, public information concerning the aggregate results of such audits including the percentage of cases, by district, in which a material 

misstatement of income or expenditures is reported. 

(b) AMENDMENTS.—Section 586 of title 28, United States Code, is amended—

(1) in subsection (a), by striking paragraph (6) and inserting the following: 

‘‘(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 2003;’’; and 

(2) by adding at the end the following: 

‘‘(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 2003. 

‘‘(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.’’. 

(c) AMENDMENTS TO SECTION 521 OF TITLE 11, U.S.C.—Section 521(a) of title 

11, United States Code, as so designated by section 106, is amended in each of paragraphs (3) and (4) by inserting ‘‘or an auditor serving under section 586(f) of title 

28’’ after ‘‘serving in the case’’. 

68

(d) AMENDMENTS TO SECTION 727 OF TITLE 11, U.S.C.—Section 727(d) of title 

11, United States Code, is amended— (1) in paragraph (2), by striking ‘‘or’’ at the end; 

(2) in paragraph (3), by striking the period at the end and inserting ‘‘; or’’; 

and 

(3) by adding at the end the following: 

‘‘(4) 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.’’. (e) EFFECTIVE DATE.—The amendments made by this section shall take effect 

18 months after the date of enactment of this Act. 

SEC. 604. SENSE OF CONGRESS REGARDING AVAILABILITY OF BANKRUPTCY DATA. 

It is the sense of Congress that— (1) the national policy of the United States should be that all data held by 

bankruptcy clerks in electronic form, to the extent such data reflects only public 

records (as defined in section 107 of title 11, United States Code), should be released in a usable electronic form in bulk to the public, subject to such appropriate privacy concerns and safeguards as Congress and the Judicial Conference 

of the United States may determine; and 

(2) there should be established a bankruptcy data system in which— (A) a single set of data definitions and forms are used to collect data 

nationwide; and 

(B) data for any particular bankruptcy case are aggregated in the same 

electronic record. 

TITLE VII—BANKRUPTCY TAX PROVISIONS 

SEC. 701. TREATMENT OF CERTAIN LIENS. 

(a) TREATMENT OF CERTAIN LIENS.—Section 724 of title 11, United States Code, 

is amended—

(1) in subsection (b), in the matter preceding paragraph (1), by inserting 

‘‘(other than to the extent that there is a properly perfected unavoidable tax lien 

arising in connection with an ad valorem tax on real or personal property of 

the estate)’’ after ‘‘under this title’’; 

(2) in subsection (b)(2), by inserting ‘‘(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)’’ after 

‘‘507(a)(1)’’; and 

(3) by adding at the end the following: 

‘‘(e) Before subordinating a tax lien on real or personal property of the estate, 

the trustee shall—

‘‘(1) exhaust the unencumbered assets of the estate; and 

‘‘(2) in a manner consistent with section 506(c), 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).’’. 

(b) DETERMINATION OF TAX LIABILITY.—Section 505(a)(2) of title 11, United 

States Code, is amended—

(1) in subparagraph (A), by striking ‘‘or’’ at the end; 

(2) in subparagraph (B), by striking the period at the end and inserting ‘‘; 

or’’; and 

(3) by adding at the end the following: 

‘‘(C) the amount or legality of any amount arising in connection with an ad 

valorem tax on real or personal property of the estate, if the applicable period 

for contesting or redetermining that amount under any law (other than a bankruptcy law) has expired.’’. 

69

SEC. 702. TREATMENT OF FUEL TAX CLAIMS. 

Section 501 of title 11, United States Code, is amended by adding at the end 

the following: ‘‘(e) A claim arising from the liability of a debtor for fuel use tax assessed consistent with the requirements of section 31705 of title 49 may be filed by the base 

jurisdiction designated pursuant to the International Fuel Tax Agreement (as defined in section 31701 of title 49) and, if so filed, shall be allowed as a single claim.’’. 

SEC. 703. NOTICE OF REQUEST FOR A DETERMINATION OF TAXES. 

Section 505(b) of title 11, United States Code, is amended— (1) in the first sentence, by inserting ‘‘at the address and in the manner 

designated in paragraph (1)’’ after ‘‘determination of such tax’’; 

(2) by striking ‘‘(1) upon payment’’ and inserting ‘‘(A) upon payment’’; 

(3) by striking ‘‘(A) such governmental unit’’ and inserting ‘‘(i) such governmental unit’’; 

(4) by striking ‘‘(B) such governmental unit’’ and inserting ‘‘(ii) such governmental unit’’; 

(5) by striking ‘‘(2) upon payment’’ and inserting ‘‘(B) upon payment’’; 

(6) by striking ‘‘(3) upon payment’’ and inserting ‘‘(C) upon payment’’; 

(7) by striking ‘‘(b)’’ and inserting ‘‘(2)’’; and 

(8) by inserting before paragraph (2), as so designated, the following: 

‘‘(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.’’. 

SEC. 704. RATE OF INTEREST ON TAX CLAIMS. 

(a) IN GENERAL.—Subchapter I of chapter 5 of title 11, United States Code, is 

amended by adding at the end the following: 

‘‘§ 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.’’. 

(b) CLERICAL AMENDMENT.—The table of sections for subchapter I of chapter 5 

of title 11, United States Code, is amended by adding at the end the following:

‘‘511. Rate of interest on tax claims.’’.

SEC. 705. PRIORITY OF TAX CLAIMS. 

Section 507(a)(8) of title 11, United States Code, is amended—

(1) in subparagraph (A)—

(A) in the matter preceding clause (i), by inserting ‘‘for a taxable year 

ending on or before the date of the filing of the petition’’ after ‘‘gross receipts’’; 

(B) in clause (i), by striking ‘‘for a taxable year ending on or before the 

date of the filing of the petition’’; and 

(C) by striking clause (ii) and inserting the following: 

‘‘(ii) assessed within 240 days before the date of the filing of the 

petition, exclusive of—

‘‘(I) any time during which an offer in compromise with respect 

to that tax was pending or in effect during that 240-day period, 

plus 30 days; and 

‘‘(II) any time during which a stay of proceedings against collections was in effect in a prior case under this title during that 

240-day period, plus 90 days.’’; and 

(2) by adding at the end the following: 

‘‘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 proVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00073 Fmt 6659 Sfmt 6621 E:\HR\OC\HR40P1.XXX HR40P1
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ceedings 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.’’. 

SEC. 706. PRIORITY PROPERTY TAXES INCURRED. 

Section 507(a)(8)(B) of title 11, United States Code, is amended by striking ‘‘assessed’’ and inserting ‘‘incurred’’. 

SEC. 707. NO DISCHARGE OF FRAUDULENT TAXES IN CHAPTER 13. 

Section 1328(a)(2) of title 11, United States Code, as amended by section 314, 

is amended by striking ‘‘paragraph’’ and inserting ‘‘section 507(a)(8)(C) or in paragraph (1)(B), (1)(C),’’.

SEC. 708. NO DISCHARGE OF FRAUDULENT TAXES IN CHAPTER 11. 

Section 1141(d) of title 11, United States Code, as amended by sections 321 and 

330, is amended by adding at the end the following: 

‘‘(6) Notwithstanding paragraph (1), the confirmation of a plan does not discharge a debtor that is a corporation from any debt—

‘‘(A) of a kind specified in paragraph (2)(A) or (2)(B) of section 523(a) that 

is owed to a domestic governmental unit, or owed to a person as the result of 

an action filed under subchapter III of chapter 37 of title 31 or any similar 

State statute; or 

‘‘(B) for a tax or customs duty with respect to which the debtor—

‘‘(i) made a fraudulent return; or 

‘‘(ii) willfully attempted in any manner to evade or to defeat such tax 

or such customs duty.’’. 

SEC. 709. STAY OF TAX PROCEEDINGS LIMITED TO PREPETITION TAXES. 

Section 362(a)(8) of title 11, United States Code, is amended by striking ‘‘the 

debtor’’ and inserting ‘‘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’’. 

SEC. 710. PERIODIC PAYMENT OF TAXES IN CHAPTER 11 CASES. 

Section 1129(a)(9) of title 11, United States Code, is amended—

(1) in subparagraph (B), by striking ‘‘and’’ at the end; 

(2) in subparagraph (C), by striking ‘‘deferred cash payments,’’ and all that 

follows through the end of the subparagraph, and inserting ‘‘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’’; and 

(3) by adding at the end the following: 

‘‘(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).’’. 

SEC. 711. AVOIDANCE OF STATUTORY TAX LIENS PROHIBITED. 

Section 545(2) of title 11, United States Code, is amended by inserting before 

the semicolon at the end the following: ‘‘, except in any case in which a purchaser 

is a purchaser described in section 6323 of the Internal Revenue Code of 1986, or 

in any other similar provision of State or local law’’. 

SEC. 712. PAYMENT OF TAXES IN THE CONDUCT OF BUSINESS. 

(a) PAYMENT OF TAXES REQUIRED.—Section 960 of title 28, United States Code, 

is amended—

(1) by inserting ‘‘(a)’’ before ‘‘Any’’; and 

(2) by adding at the end the following: 

‘‘(b) 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. 

71

‘‘(c) In a case pending under chapter 7 of title 11, payment of a tax may be deferred until final distribution is made under section 726 of title 11, if—

‘‘(1) the tax was not incurred by a trustee duly appointed under chapter 7 

of title 11; or 

‘‘(2) before the due date of the tax, an order of the court makes a finding 

of probable insufficiency of funds of the estate to pay in full the administrative 

expenses allowed under section 503(b) of title 11 that have the same priority 

in distribution under section 726(b) of title 11 as the priority of that tax.’’. 

(b) PAYMENT OF AD VALOREM TAXES REQUIRED.—Section 503(b)(1)(B)(i) of title 

11, United States Code, is amended by inserting ‘‘whether secured or unsecured, including property taxes for which liability is in rem, in personam, or both,’’ before 

‘‘except’’. 

(c) REQUEST FOR PAYMENT OF ADMINISTRATIVE EXPENSE TAXES ELIMINATED.—

Section 503(b)(1) of title 11, United States Code, is amended—

(1) in subparagraph (B), by striking ‘‘and’’ at the end; 

(2) in subparagraph (C), by adding ‘‘and’’ at the end; and 

(3) by adding at the end the following: 

‘‘(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;’’. 

(d) PAYMENT OF TAXES AND FEES AS SECURED CLAIMS.—Section 506 of title 11, 

United States Code, is amended—

(1) in subsection (b), by inserting ‘‘or State statute’’ after ‘‘agreement’’; and 

(2) in subsection (c), by inserting ‘‘, including the payment of all ad valorem 

property taxes with respect to the property’’ before the period at the end. 

SEC. 713. TARDILY FILED PRIORITY TAX CLAIMS. 

Section 726(a)(1) of title 11, United States Code, is amended by striking ‘‘before 

the date on which the trustee commences distribution under this section;’’ and inserting the following: ‘‘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;’’. 

SEC. 714. INCOME TAX RETURNS PREPARED BY TAX AUTHORITIES. 

Section 523(a) of title 11, United States Code, as amended by sections 215 and 

224, is amended—

(1) in paragraph (1)(B)—

(A) in the matter preceding clause (i), by inserting ‘‘or equivalent report 

or notice,’’ after ‘‘a return,’’; 

(B) in clause (i), by inserting ‘‘or given’’ after ‘‘filed’’; and 

(C) in clause (ii)—

(i) by inserting ‘‘or given’’ after ‘‘filed’’; and 

(ii) by inserting ‘‘, report, or notice’’ after ‘‘return’’; and 

(2) by adding at the end the following: 

‘‘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.’’. 

SEC. 715. DISCHARGE OF THE ESTATE’S LIABILITY FOR UNPAID TAXES. 

Section 505(b)(2) of title 11, United States Code, as amended by section 703, is 

amended by inserting ‘‘the estate,’’ after ‘‘misrepresentation,’’. 

SEC. 716. REQUIREMENT TO FILE TAX RETURNS TO CONFIRM CHAPTER 13 PLANS. 

(a) FILING OF PREPETITION TAX RETURNS REQUIRED FOR PLAN CONFIRMATION.—

Section 1325(a) of title 11, United States Code, as amended by sections 102, 213, 

and 306, is amended by inserting after paragraph (8) the following: 

‘‘(9) the debtor has filed all applicable Federal, State, and local tax returns 

as required by section 1308.’’. 

(b) ADDITIONAL TIME PERMITTED FOR FILING TAX RETURNS.—

(1) IN GENERAL.—Subchapter I of chapter 13 of title 11, United States Code, 

is amended by adding at the end the following: 

72

‘‘§ 1308. Filing of prepetition tax returns 

‘‘(a) Not later than the day before the date on which the meeting of the creditors 

is first scheduled to be held under section 341(a), if the debtor was required to file 

a tax return under applicable nonbankruptcy law, the debtor shall file with appropriate tax authorities all tax returns for all taxable periods ending during the 4-

year period ending on the date of the filing of the petition. 

‘‘(b)(1) Subject to paragraph (2), if the tax returns required by subsection (a) 

have not been filed by the date on which the meeting of creditors is first scheduled 

to be held under section 341(a), the trustee may hold open that meeting for a reasonable period of time to allow the debtor an additional period of time to file any 

unfiled returns, but such additional period of time shall not extend beyond—

‘‘(A) for any return that is past due as of the date of the filing of the petition, the date that is 120 days after the date of that meeting; or 

‘‘(B) for any return that is not past due as of the date of the filing of the 

petition, the later of—

‘‘(i) the date that is 120 days after the date of that meeting; or 

‘‘(ii) the date on which the return is due under the last automatic extension of time for filing that return to which the debtor is entitled, and 

for which request is timely made, in accordance with applicable nonbankruptcy law. 

‘‘(2) After notice and a hearing, and order entered before the tolling of any applicable filing period determined under this subsection, if the debtor demonstrates 

by a preponderance of the evidence that the failure to file a return as required 

under this subsection is attributable to circumstances beyond the control of the 

debtor, the court may extend the filing period established by the trustee under this 

subsection for—

‘‘(A) a period of not more than 30 days for returns described in paragraph 

(1); and 

‘‘(B) a period not to extend after the applicable extended due date for a return described in paragraph (2). 

‘‘(c) For purposes of this section, the term ‘return’ includes a return prepared 

pursuant to subsection (a) or (b) of section 6020 of the Internal Revenue Code of 

1986, or a similar State or local law, or a written stipulation to a judgment or a 

final order entered by a nonbankruptcy tribunal.’’. 

(2) CONFORMING AMENDMENT.—The table of sections for subchapter I of 

chapter 13 of title 11, United States Code, is amended by adding at the end 

the following:

‘‘1308. Filing of prepetition tax returns.’’.

(c) DISMISSAL OR CONVERSION ON FAILURE TO COMPLY.—Section 1307 of title 

11, United States Code, is amended—

(1) by redesignating subsections (e) and (f) as subsections (f) and (g), respectively; and 

(2) by inserting after subsection (d) the following: 

‘‘(e) Upon the failure of the debtor to file 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.’’. 

(d) TIMELY FILED CLAIMS.—Section 502(b)(9) of title 11, United States Code, is 

amended by inserting before the period at the end the following: ‘‘, and except that 

in a case under chapter 13, a claim of a governmental unit for a tax with respect 

to a return filed under section 1308 shall be timely if the claim is filed on or before 

the date that is 60 days after the date on which such return was filed as required’’. 

(e) RULES FOR OBJECTIONS TO CLAIMS AND TO CONFIRMATION.—It is the sense 

of Congress that the Judicial Conference of the United States should, as soon as 

practicable after the date of enactment of this Act, propose amended Federal Rules 

of Bankruptcy Procedure that provide—

(1) notwithstanding the provisions of Rule 3015(f), in cases under chapter 

13 of title 11, United States Code, that an objection to the confirmation of a 

plan filed by a governmental unit on or before the date that is 60 days after 

the date on which the debtor files all tax returns required under sections 1308 

and 1325(a)(7) of title 11, United States Code, shall be treated for all purposes 

as if such objection had been timely filed before such confirmation; and 

(2) in addition to the provisions of Rule 3007, in a case under chapter 13 

of title 11, United States Code, that no objection to a claim for a tax with respect to which a return is required to be filed under section 1308 of title 11, 

United States Code, shall be filed until such return has been filed as required. 

73

SEC. 717. STANDARDS FOR TAX DISCLOSURE. 

Section 1125(a)(1) of title 11, United States Code, is amended—

(1) by inserting ‘‘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,’’ after 

‘‘records,’’; and 

(2) by striking ‘‘a hypothetical reasonable investor typical of holders of 

claims or interests’’ and inserting ‘‘such a hypothetical investor’’. 

SEC. 718. SETOFF OF TAX REFUNDS. 

Section 362(b) of title 11, United States Code, as amended by sections 224, 303, 

311, and 401, is amended by inserting after paragraph (25) the following: 

‘‘(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);’’. 

SEC. 719. SPECIAL PROVISIONS RELATED TO THE TREATMENT OF STATE AND LOCAL TAXES. 

(a) IN GENERAL.—

(1) SPECIAL PROVISIONS.—Section 346 of title 11, United States Code, is 

amended to read as follows: 

‘‘§ 346. Special provisions related to the treatment of State and local taxes 

‘‘(a) Whenever the Internal Revenue Code of 1986 provides that a separate taxable estate or entity is created in a case concerning a debtor under this title, and 

the income, gain, loss, deductions, and credits of such estate shall be taxed to or 

claimed by the estate, a separate taxable estate is also created for purposes of any 

State and local law imposing a tax on or measured by income and such income, 

gain, loss, deductions, and credits shall be taxed to or claimed by the estate and 

may not be taxed to or claimed by the debtor. The preceding sentence shall not 

apply if the case is dismissed. The trustee shall make tax returns of income required 

under any such State or local law. 

‘‘(b) Whenever the Internal Revenue Code of 1986 provides that no separate taxable estate shall be created in a case concerning a debtor under this title, and the 

income, gain, loss, deductions, and credits of an estate shall be taxed to or claimed 

by the debtor, such income, gain, loss, deductions, and credits shall be taxed to or 

claimed by the debtor under a State or local law imposing a tax on or measured 

by income and may not be taxed to or claimed by the estate. The trustee shall make 

such tax returns of income of corporations and of partnerships as are required under 

any State or local law, but with respect to partnerships, shall make such returns 

only to the extent such returns are also required to be made under such Code. The 

estate shall be liable for any tax imposed on such corporation or partnership, but 

not for any tax imposed on partners or members. 

‘‘(c) With respect to a partnership or any entity treated as a partnership under 

a State or local law imposing a tax on or measured by income that is a debtor in 

a case under this title, any gain or loss resulting from a distribution of property 

from such partnership, or any distributive share of any income, gain, loss, deduction, or credit of a partner or member that is distributed, or considered distributed, 

from such partnership, after the commencement of the case, is gain, loss, income, 

deduction, or credit, as the case may be, of the partner or member, and if such partner or member is a debtor in a case under this title, shall be subject to tax in accordance with subsection (a) or (b). 

‘‘(d) For purposes of any State or local law imposing a tax on or measured by 

income, the taxable period of a debtor in a case under this title shall terminate only 

if and to the extent that the taxable period of such debtor terminates under the Internal Revenue Code of 1986. 

‘‘(e) The estate in any case described in subsection (a) shall use the same accounting method as the debtor used immediately before the commencement of the 

case, if such method of accounting complies with applicable nonbankruptcy tax law. 

‘‘(f) For purposes of any State or local law imposing a tax on or measured by 

income, a transfer of property from the debtor to the estate or from the estate to 

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ing tax consequences to a disposition, except to the extent that such transfer is 

treated as a disposition under the Internal Revenue Code of 1986. ‘‘(g) Whenever a tax is imposed pursuant to a State or local law imposing a tax 

on or measured by income pursuant to subsection (a) or (b), such tax shall be imposed at rates generally applicable to the same types of entities under such State 

or local law. ‘‘(h) The trustee shall withhold from any payment of claims for wages, salaries, 

commissions, dividends, interest, or other payments, or collect, any amount required 

to be withheld or collected under applicable State or local tax law, and shall pay 

such withheld or collected amount to the appropriate governmental unit at the time 

and in the manner required by such tax law, and with the same priority as the 

claim from which such amount was withheld or collected was paid. 

‘‘(i)(1) To the extent that any State or local law imposing a tax on or measured 

by income provides for the carryover of any tax attribute from one taxable period 

to a subsequent taxable period, the estate shall succeed to such tax attribute in any 

case in which such estate is subject to tax under subsection (a). 

‘‘(2) After such a case is closed or dismissed, the debtor shall succeed to any 

tax attribute to which the estate succeeded under paragraph (1) to the extent consistent with the Internal Revenue Code of 1986. 

‘‘(3) The estate may carry back any loss or tax attribute to a taxable period of 

the debtor that ended before the date of the order for relief under this title to the 

extent that—

‘‘(A) applicable State or local tax law provides for a carryback in the case 

of the debtor; and 

‘‘(B) the same or a similar tax attribute may be carried back by the estate 

to such a taxable period of the debtor under the Internal Revenue Code of 1986. 

‘‘(j)(1) For purposes of any State or local law imposing a tax on or measured 

by income, income is not realized by the estate, the debtor, or a successor to the 

debtor by reason of discharge of indebtedness in a case under this title, except to 

the extent, if any, that such income is subject to tax under the Internal Revenue 

Code of 1986. 

‘‘(2) Whenever the Internal Revenue Code of 1986 provides that the amount excluded from gross income in respect of the discharge of indebtedness in a case under 

this title shall be applied to reduce the tax attributes of the debtor or the estate, 

a similar reduction shall be made under any State or local law imposing a tax on 

or measured by income to the extent such State or local law recognizes such attributes. Such State or local law may also provide for the reduction of other attributes to the extent that the full amount of income from the discharge of indebtedness has not been applied. 

‘‘(k)(1) Except as provided in this section and section 505, the time and manner 

of filing tax returns and the items of income, gain, loss, deduction, and credit of any 

taxpayer shall be determined under applicable nonbankruptcy law. 

‘‘(2) For Federal tax purposes, the provisions of this section are subject to the 

Internal Revenue Code of 1986 and other applicable Federal nonbankruptcy law.’’. 

(2) CLERICAL AMENDMENT.—The table of sections for chapter 3 of title 11, 

United States Code, is amended by striking the item relating to section 346 and 

inserting the following:

‘‘346. Special provisions related to the treatment of State and local taxes.’’.

(b) CONFORMING AMENDMENTS.—Title 11 of the United States Code is amended—

(1) by striking section 728; 

(2) in the table of sections for chapter 7 by striking the item relating to section 728; 

(3) in section 1146—

(A) by striking subsections (a) and (b); and 

(B) by redesignating subsections (c) and (d) as subsections (a) and (b), 

respectively; and 

(4) in section 1231—

(A) by striking subsections (a) and (b); and 

(B) by redesignating subsections (c) and (d) as subsections (a) and (b), 

respectively. 

SEC. 720. DISMISSAL FOR FAILURE TO TIMELY FILE TAX RETURNS. 

Section 521 of title 11, United States Code, as amended by sections 106, 225, 

305, 315, and 316, is amended by adding at the end the following: 

‘‘(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. 

75

‘‘(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.’’. 

TITLE VIII—ANCILLARY AND OTHER CROSSBORDER CASES 

SEC. 801. AMENDMENT TO ADD CHAPTER 15 TO TITLE 11, UNITED STATES CODE. 

(a) IN GENERAL.—Title 11, United States Code, is amended by inserting after 

chapter 13 the following: 

‘‘CHAPTER 15—ANCILLARY AND OTHER CROSS-BORDER CASES

‘‘Sec. 

‘‘1501. Purpose and scope of application. 

‘‘SUBCHAPTER I—GENERAL PROVISIONS 

‘‘1502. Definitions. 

‘‘1503. International obligations of the United States. 

‘‘1504. Commencement of ancillary case. 

‘‘1505. Authorization to act in a foreign country. 

‘‘1506. Public policy exception. 

‘‘1507. Additional assistance. 

‘‘1508. Interpretation. 

‘‘SUBCHAPTER II—ACCESS OF FOREIGN REPRESENTATIVES AND CREDITORS TO THE COURT 

‘‘1509. Right of direct access. 

‘‘1510. Limited jurisdiction. 

‘‘1511. Commencement of case under section 301 or 303. 

‘‘1512. Participation of a foreign representative in a case under this title. 

‘‘1513. Access of foreign creditors to a case under this title. 

‘‘1514. Notification to foreign creditors concerning a case under this title. 

‘‘SUBCHAPTER III—RECOGNITION OF A FOREIGN PROCEEDING AND RELIEF 

‘‘1515. Application for recognition. 

‘‘1516. Presumptions concerning recognition. 

‘‘1517. Order granting recognition. 

‘‘1518. Subsequent information. 

‘‘1519. Relief that may be granted upon filing petition for recognition. 

‘‘1520. Effects of recognition of a foreign main proceeding. 

‘‘1521. Relief that may be granted upon recognition. 

‘‘1522. Protection of creditors and other interested persons. 

‘‘1523. Actions to avoid acts detrimental to creditors. 

‘‘1524. Intervention by a foreign representative. 

‘‘SUBCHAPTER IV—COOPERATION WITH FOREIGN COURTS AND FOREIGN REPRESENTATIVES 

‘‘1525. Cooperation and direct communication between the court and foreign courts or foreign representatives. 

‘‘1526. Cooperation and direct communication between the trustee and foreign courts or foreign representatives. 

‘‘1527. Forms of cooperation. 

‘‘SUBCHAPTER V—CONCURRENT PROCEEDINGS 

‘‘1528. Commencement of a case under this title after recognition of a foreign main proceeding. 

‘‘1529. Coordination of a case under this title and a foreign proceeding. 

‘‘1530. Coordination of more than 1 foreign proceeding. 

‘‘1531. Presumption of insolvency based on recognition of a foreign main proceeding. 

‘‘1532. Rule of payment in concurrent proceedings.

‘‘§ 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 crossborder insolvency with the objectives of—

‘‘(1) cooperation between—

‘‘(A) courts of the United States, United States trustees, trustees, examiners, debtors, and debtors in possession; and 

‘‘(B) the courts and other competent authorities of foreign countries involved in cross-border insolvency cases; 

‘‘(2) greater legal certainty for trade and investment; 

‘‘(3) fair and efficient administration of cross-border insolvencies that protects the interests of all creditors, and other interested entities, including the 

debtor; 

‘‘(4) protection and maximization of the value of the debtor’s assets; and 

‘‘(5) facilitation of the rescue of financially troubled businesses, thereby protecting investment and preserving employment. 

‘‘(b) This chapter applies where—

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‘‘(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 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. 

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‘‘§ 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 debt- or’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. 

‘‘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 1515, 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. 

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‘‘§ 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; ‘‘(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—

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‘‘(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. 

‘‘§ 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; 

‘‘(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. 

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‘‘(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. 

‘‘(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. 

81

‘‘§ 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. 

‘‘§ 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 as- sets 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. 

‘‘(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 

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‘‘(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 

creditors of the same class is proportionately less than the payment the creditor has 

already received.’’. 

(b) CLERICAL AMENDMENT.—The table of chapters for title 11, United States 

Code, is amended by inserting after the item relating to chapter 13 the following:

‘‘15. Ancillary and Other Cross-Border Cases ............................................................................................ 1501’’.

SEC. 802. OTHER AMENDMENTS TO TITLES 11 AND 28, UNITED STATES CODE. 

(a) APPLICABILITY OF CHAPTERS.—Section 103 of title 11, United States Code, 

is amended—

(1) in subsection (a), by inserting before the period the following: ‘‘, and this 

chapter, sections 307, 362(n), 555 through 557, and 559 through 562 apply in 

a case under chapter 15’’; and 

(2) by adding at the end the following: 

‘‘(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.’’. 

(b) DEFINITIONS.—Section 101 of title 11, United States Code, is amended by 

striking paragraphs (23) and (24) and inserting the following: 

‘‘(23) ‘foreign proceeding’ means a collective judicial or administrative proceeding in a foreign 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) ‘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;’’. 

(c) AMENDMENTS TO TITLE 28, UNITED STATES CODE.—

(1) PROCEDURES.—Section 157(b)(2) of title 28, United States Code, is 

amended—

(A) in subparagraph (N), by striking ‘‘and’’ at the end; 

83

(B) in subparagraph (O), by striking the period at the end and inserting ‘‘; and’’; and 

(C) by adding at the end the following: 

‘‘(P) recognition of foreign proceedings and other matters under chapter 

15 of title 11.’’. (2) BANKRUPTCY CASES AND PROCEEDINGS.—Section 1334(c) of title 28, 

United States Code, is amended by striking ‘‘Nothing in’’ and inserting ‘‘Except 

with respect to a case under chapter 15 of title 11, nothing in’’. (3) DUTIES OF TRUSTEES.—Section 586(a)(3) of title 28, United States Code, 

is amended by striking ‘‘or 13’’ and inserting ‘‘13, or 15’’. (4) VENUE OF CASES ANCILLARY TO FOREIGN PROCEEDINGS.—Section 1410 of 

title 28, United States Code, is amended to read as follows: 

‘‘§ 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.’’. (d) OTHER SECTIONS OF TITLE 11.—Title 11 of the United States Code is amended— (1) in section 109(b), by striking paragraph (3) and inserting the following: 

‘‘(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.’’; 

(2) in section 303, by striking subsection (k); 

(3) by striking section 304; 

(4) in the table of sections for chapter 3 by striking the item relating to section 304; 

(5) in section 306 by striking ‘‘, 304,’’ each place it appears; 

(6) in section 305(a) by striking paragraph (2) and inserting the following: 

‘‘(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.’’; and 

(7) in section 508—

(A) by striking subsection (a); and 

(B) in subsection (b), by striking ‘‘(b)’’.

TITLE IX—FINANCIAL CONTRACT PROVISIONS 

SEC. 901. TREATMENT OF CERTAIN AGREEMENTS BY CONSERVATORS OR RECEIVERS OF INSURED DEPOSITORY INSTITUTIONS. 

(a) DEFINITION OF QUALIFIED FINANCIAL CONTRACT.—Section 11(e)(8)(D) of the 

Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)) is amended—

(1) by striking ‘‘subsection—’’ and inserting ‘‘subsection, the following definitions shall apply:’’; and 

(2) in clause (i), by inserting ‘‘, resolution, or order’’ after ‘‘any similar 

agreement that the Corporation determines by regulation’’. 

(b) DEFINITION OF SECURITIES CONTRACT.—Section 11(e)(8)(D)(ii) of the Federal 

Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)(ii)) is amended to read as follows: 

‘‘(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 

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transaction on any such security, certificate of deposit, mortgage 

loan, interest, group or index, or option; ‘‘(II) does not include any purchase, sale, or repurchase obligation under a participation in a commercial mortgage loan unless 

the Corporation determines by regulation, resolution, or order to 

include any such agreement within the meaning of such term; ‘‘(III) means any option entered into on a national securities 

exchange relating to foreign currencies; ‘‘(IV) means the guarantee by or to any securities clearing 

agency of any settlement of cash, securities, certificates of deposit, 

mortgage loans or interests therein, group or index of securities, 

certificates of deposit, or mortgage loans or interests therein (including any interest therein or based on the value thereof) or option on any of the foregoing, including any option to purchase or 

sell any such security, certificate of deposit, mortgage loan, interest, group or index, or option; ‘‘(V) means any margin loan; 

‘‘(VI) means any other agreement or transaction that is similar 

to any agreement or transaction referred to in this clause; ‘‘(VII) means any combination of the agreements or transactions referred to in this clause; 

‘‘(VIII) means any option to enter into any agreement or transaction referred to in this clause; 

‘‘(IX) means a master agreement that provides for an agreement or transaction referred to in subclause (I), (III), (IV), (V), (VI), 

(VII), or (VIII), together with all supplements to any such master 

agreement, without regard to whether the master agreement provides for an agreement or transaction that is not a securities contract under this clause, except that the master agreement shall be 

considered to be a securities contract under this clause only with 

respect to each agreement or transaction under the master agreement that is referred to in subclause (I), (III), (IV), (V), (VI), (VII), 

or (VIII); and

‘‘(X) means any security agreement or arrangement or other 

credit enhancement related to any agreement or transaction referred to in this clause, including any guarantee or reimbursement 

obligation in connection with any agreement or transaction referred to in this clause.’’. 

(c) DEFINITION OF COMMODITY CONTRACT.—Section 11(e)(8)(D)(iii) of the Federal 

Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)(iii)) is amended to read as follows: 

‘‘(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 

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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.’’. (d) DEFINITION OF FORWARD CONTRACT.—Section 11(e)(8)(D)(iv) of the Federal 

Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)(iv)) is amended to read as follows: ‘‘(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.’’. 

(e) DEFINITION OF REPURCHASE AGREEMENT.—Section 11(e)(8)(D)(v) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)(v)) is amended to read as follows: 

‘‘(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 

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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).’’. (f) DEFINITION OF SWAP AGREEMENT.—Section 11(e)(8)(D)(vi) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)(vi)) is amended to read as follows: ‘‘(vi) SWAP AGREEMENT.—The term ‘swap agreement’ means—

‘‘(I) any agreement, including the terms and conditions incorporated by reference in any such agreement, which is an interest 

rate swap, option, future, or forward agreement, including a rate 

floor, rate cap, rate collar, cross-currency rate swap, and basis 

swap; a spot, same day-tomorrow, tomorrow-next, forward, or other 

foreign exchange or precious metals agreement; a currency swap, 

option, future, or forward agreement; an equity index or equity 

swap, option, future, or forward agreement; a debt index or debt 

swap, option, future, or forward agreement; a total return, credit 

spread or credit swap, option, future, or forward agreement; a commodity index or commodity swap, option, future, or forward agreement; or a weather swap, weather derivative, or weather option; 

‘‘(II) any agreement or transaction that is similar to any other 

agreement or transaction referred to in this clause and that is of 

a type that has been, is presently, or in the future becomes, the 

subject of recurrent dealings in the swap markets (including terms 

and conditions incorporated by reference in such agreement) and 

that is a forward, swap, future, or option on one or more rates, currencies, commodities, equity securities or other equity instruments, 

debt securities or other debt instruments, quantitative measures 

associated with an occurrence, extent of an occurrence, or contingency associated with a financial, commercial, or economic consequence, or economic or financial indices or measures of economic 

or financial risk or value; 

‘‘(III) any combination of agreements or transactions referred 

to in this clause; 

‘‘(IV) any option to enter into any agreement or transaction referred to in this clause; 

‘‘(V) a master agreement that provides for an agreement or 

transaction referred to in subclause (I), (II), (III), or (IV), together 

with all supplements to any such master agreement, without regard to whether the master agreement contains an agreement or 

transaction that is not a swap agreement under this clause, except 

that the master agreement shall be considered to be a swap agreement under this clause only with respect to each agreement or 

transaction under the master agreement that is referred to in subclause (I), (II), (III), or (IV); and 

‘‘(VI) any security agreement or arrangement or other credit 

enhancement related to any agreements or transactions referred to 

in subclause (I), (II), (III), (IV), or (V), including any guarantee or 

reimbursement obligation in connection with any agreement or 

transaction referred to in any such subclause. 

Such term is applicable for purposes of this subsection only and shall 

not be construed or applied so as to challenge or affect the characterization, definition, or treatment of any swap agreement under any other 

statute, regulation, or rule, including the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act 

of 1935, the Trust Indenture Act of 1939, the Investment Company Act 

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of 1940, the Investment Advisers Act of 1940, the Securities Investor 

Protection Act of 1970, the Commodity Exchange Act, the GrammLeach-Bliley Act, and the Legal Certainty for Bank Products Act of 

2000.’’. 

(g) DEFINITION OF TRANSFER.—Section 11(e)(8)(D)(viii) of the Federal Deposit 

Insurance Act (12 U.S.C. 1821(e)(8)(D)(viii)) is amended to read as follows: 

‘‘(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.’’. 

(h) TREATMENT OF QUALIFIED FINANCIAL CONTRACTS.—Section 11(e)(8) of the 

Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)) is amended—

(1) in subparagraph (A)—

(A) by striking ‘‘paragraph (10)’’ and inserting ‘‘paragraphs (9) and 

(10)’’; 

(B) in clause (i), by striking ‘‘to cause the termination or liquidation’’

and inserting ‘‘such person has to cause the termination, liquidation, or acceleration’’; and 

(C) by striking clause (ii) and inserting the following: 

‘‘(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);’’; and 

(2) in subparagraph (E), by striking clause (ii) and inserting the following: 

‘‘(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);’’. 

(i) AVOIDANCE OF TRANSFERS.—Section 11(e)(8)(C)(i) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(C)(i)) is amended by inserting ‘‘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,’’ before ‘‘the Corporation’’. 

SEC. 902. AUTHORITY OF THE CORPORATION WITH RESPECT TO FAILED AND FAILING INSTITUTIONS. 

(a) IN GENERAL.—Section 11(e)(8) of the Federal Deposit Insurance Act (12 

U.S.C. 1821(e)(8)) is amended—

(1) in subparagraph (E), by striking ‘‘other than paragraph (12) of this subsection, subsection (d)(9)’’ and inserting ‘‘other than subsections (d)(9) and 

(e)(10)’’; and 

(2) by adding at the end the following new subparagraphs: 

‘‘(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.’’. 

(b) TECHNICAL AND CONFORMING AMENDMENT.—Section 11(e)(12)(A) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(12)(A)) is amended by inserting ‘‘or 

the exercise of rights or powers by’’ after ‘‘the appointment of’’. 

SEC. 903. AMENDMENTS RELATING TO TRANSFERS OF QUALIFIED FINANCIAL CONTRACTS. 

(a) TRANSFERS OF QUALIFIED FINANCIAL CONTRACTS TO FINANCIAL INSTITU- TIONS.—Section 11(e)(9) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(9)) 

is amended to read as follows: 

‘‘(9) TRANSFER OF QUALIFIED FINANCIAL CONTRACTS.—

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‘‘(A) IN GENERAL.—In making any transfer of assets or liabilities of a 

depository institution in default which includes any qualified financial contract, the conservator or receiver for such depository institution shall either— ‘‘(i) transfer to one financial institution, other than a financial institution for which a conservator, receiver, trustee in bankruptcy, or 

other legal custodian has been appointed or which is otherwise the subject of a bankruptcy or insolvency proceeding— ‘‘(I) all qualified financial contracts between any person or any 

affiliate of such person and the depository institution in default; ‘‘(II) all claims of such person or any affiliate of such person 

against such depository institution under any such contract (other 

than any claim which, under the terms of any such contract, is 

subordinated to the claims of general unsecured creditors of such 

institution); ‘‘(III) all claims of such depository institution against such person or any affiliate of such person under any such contract; and ‘‘(IV) all property securing or any other credit enhancement for 

any contract described in subclause (I) or any claim described in 

subclause (II) or (III) under any such contract; or 

‘‘(ii) transfer none of the qualified financial contracts, claims, property or other credit enhancement referred to in clause (i) (with respect 

to such person and any affiliate of such person).

‘‘(B) TRANSFER TO FOREIGN BANK, FOREIGN FINANCIAL INSTITUTION, OR

BRANCH OR AGENCY OF A FOREIGN BANK OR FINANCIAL INSTITUTION.—In 

transferring any qualified financial contracts and related claims and property under subparagraph (A)(i), the conservator or receiver for the depository institution shall not make such transfer to a foreign bank, financial institution organized under the laws of a foreign country, or a branch or 

agency of a foreign bank or financial institution unless, under the law applicable to such bank, financial institution, branch or agency, to the qualified financial contracts, and to any netting contract, any security agreement 

or arrangement or other credit enhancement related to one or more qualified financial contracts, the contractual rights of the parties to such qualified financial contracts, netting contracts, security agreements or arrangements, or other credit enhancements are enforceable substantially to the 

same extent as permitted under this section. 

‘‘(C) TRANSFER OF CONTRACTS SUBJECT TO THE RULES OF A CLEARING

ORGANIZATION.—In the event that a conservator or receiver transfers any 

qualified financial contract and related claims, property, and credit enhancements pursuant to subparagraph (A)(i) and such contract is cleared 

by or subject to the rules of a clearing organization, the clearing organization shall not be required to accept the transferee as a member by virtue 

of the transfer. 

‘‘(D) DEFINITIONS.—For purposes of this paragraph, the term ‘financial 

institution’ means a broker or dealer, a depository institution, a futures 

commission merchant, or any other institution, as determined by the Corporation by regulation to be a financial institution, and the term ‘clearing 

organization’ has the same meaning as in section 402 of the Federal Deposit Insurance Corporation Improvement Act of 1991.’’. 

(b) NOTICE TO QUALIFIED FINANCIAL CONTRACT COUNTERPARTIES.—Section 

11(e)(10)(A) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(10)(A)) is 

amended in the material immediately following clause (ii) by striking ‘‘the conservator’’ and all that follows through the period and inserting the following: ‘‘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.’’. 

(c) RIGHTS AGAINST RECEIVER AND TREATMENT OF BRIDGE BANKS.—Section 

11(e)(10) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(10)) is amended—

(1) by redesignating subparagraph (B) as subparagraph (D); and 

(2) by inserting after subparagraph (A) the following new subparagraphs: 

‘‘(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 deVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00092 Fmt 6659 Sfmt 6621 E:\HR\OC\HR40P1.XXX HR40P1
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pository institution (or the insolvency or financial condition of the depository institution for which the receiver has been appointed)— ‘‘(I) until 5:00 p.m. (eastern time) on the business day following 

the date of the appointment of the receiver; or ‘‘(II) after the person has received notice that the contract has 

been transferred pursuant to paragraph (9)(A). 

‘‘(ii) CONSERVATORSHIP.—A person who is a party to a qualified financial contract with an insured depository institution may not exercise any right that such person has to terminate, liquidate, or net such 

contract under paragraph (8)(E) of this subsection or section 403 or 404 

of the Federal Deposit Insurance Corporation Improvement Act of 1991, 

solely by reason of or incidental to the appointment of a conservator for 

the depository institution (or the insolvency or financial condition of the 

depository institution for which the conservator has been appointed). ‘‘(iii) NOTICE.—For purposes of this paragraph, the Corporation as 

receiver or conservator of an insured depository institution shall be 

deemed to have notified a person who is a party to a qualified financial 

contract with such depository institution if the Corporation has taken 

steps reasonably calculated to provide notice to such person by the time 

specified in subparagraph (A). 

‘‘(C) TREATMENT OF BRIDGE BANKS.—The following institutions shall not 

be considered to be a financial institution for which a conservator, receiver, 

trustee in bankruptcy, or other legal custodian has been appointed or which 

is otherwise the subject of a bankruptcy or insolvency proceeding for purposes of paragraph (9): ‘‘(i) A bridge bank. 

‘‘(ii) A depository institution organized by the Corporation, for 

which a conservator is appointed either— ‘‘(I) immediately upon the organization of the institution; or 

‘‘(II) at the time of a purchase and assumption transaction between the depository institution and the Corporation as receiver for 

a depository institution in default.’’. 

SEC. 904. AMENDMENTS RELATING TO DISAFFIRMANCE OR REPUDIATION OF QUALIFIED FINANCIAL CONTRACTS. 

Section 11(e) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)) is amended—

(1) by redesignating paragraphs (11) through (15) as paragraphs (12) 

through (16), respectively; 

(2) by inserting after paragraph (10) the following new paragraph: 

‘‘(11) DISAFFIRMANCE OR REPUDIATION OF QUALIFIED FINANCIAL CONTRACTS.—In exercising the rights of disaffirmance or repudiation of a conservator or receiver with respect to any qualified financial contract to which an insured depository institution is a party, the conservator or receiver for such institution shall either—

‘‘(A) disaffirm or repudiate all qualified financial contracts between—

‘‘(i) any person or any affiliate of such person; and 

‘‘(ii) the depository institution in default; or 

‘‘(B) disaffirm or repudiate none of the qualified financial contracts referred to in subparagraph (A) (with respect to such person or any affiliate 

of such person).’’; and 

(3) by adding at the end the following new paragraph: 

‘‘(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. 905. CLARIFYING AMENDMENT RELATING TO MASTER AGREEMENTS. 

Section 11(e)(8)(D)(vii) of the Federal Deposit Insurance Act (12 U.S.C. 

1821(e)(8)(D)(vii)) is amended to read as follows: 

‘‘(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 

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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.’’.

SEC. 906. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. 

(a) DEFINITIONS.—Section 402 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. 4402) is amended—

(1) in paragraph (2)—

(A) in subparagraph (A)(ii), by inserting before the semicolon ‘‘, or is exempt from such registration by order of the Securities and Exchange Commission’’; and 

(B) in subparagraph (B), by inserting before the period ‘‘, 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)’’; 

(2) in paragraph (6)—

(A) by redesignating subparagraphs (B) through (D) as subparagraphs 

(C) through (E), respectively; 

(B) by inserting after subparagraph (A) the following new subparagraph: 

‘‘(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;’’; and 

(C) by amending subparagraph (C), so redesignated, to read as follows: 

‘‘(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;’’; 

(3) in paragraph (11), by inserting before the period ‘‘and any other clearing 

organization with which such clearing organization has a netting contract’’; 

(4) by amending paragraph (14)(A)(i) to read as follows: 

‘‘(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’’; and 

(5) by adding at the end the following new paragraph: 

‘‘(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.’’. 

(b) ENFORCEABILITY OF BILATERAL NETTING CONTRACTS.—Section 403 of the 

Federal Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. 4403) 

is amended—

(1) by striking subsection (a) and inserting the following: 

‘‘(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 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).’’; and 

(2) by adding at the end the following new subsection: 

‘‘(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 and section 5(b)(2) of the Securities Investor Protection Act of 1970).’’. 

(c) ENFORCEABILITY OF CLEARING ORGANIZATION NETTING CONTRACTS.—Section 

404 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (12 

U.S.C. 4404) is amended—

(1) by striking subsection (a) and inserting the following: 

‘‘(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 and any order authorized under section 5(b)(2) of the SecuriVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00094 Fmt 6659 Sfmt 6621 E:\HR\OC\HR40P1.XXX HR40P1
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ties 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).’’; and 

(2) by adding at the end the following new subsection: 

‘‘(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 and section 5(b)(2) of the Securities Investor Protection Act of 1970).’’. 

(d) ENFORCEABILITY OF CONTRACTS WITH UNINSURED NATIONAL BANKS, UNINSURED FEDERAL BRANCHES AND AGENCIES, CERTAIN UNINSURED STATE MEMBER

BANKS, AND EDGE ACT CORPORATIONS.—The Federal Deposit Insurance Corporation 

Improvement Act of 1991 (12 U.S.C. 4401 et seq.) is amended—

(1) by redesignating section 407 as section 407A; and 

(2) by inserting after section 406 the following new section: 

‘‘SEC. 407. TREATMENT OF CONTRACTS WITH UNINSURED NATIONAL BANKS, UNINSURED 

FEDERAL BRANCHES AND AGENCIES, CERTAIN UNINSURED STATE MEMBER 

BANKS, AND EDGE ACT CORPORATIONS. 

‘‘(a) IN GENERAL.—Notwithstanding any other provision of law, paragraphs (8), 

(9), (10), and (11) of section 11(e) of the Federal Deposit Insurance Act shall apply 

to an uninsured national bank or uninsured Federal branch or Federal agency, a 

corporation chartered under section 25A of the Federal Reserve Act, or an uninsured 

State member bank which operates, or operates as, a multilateral clearing organization pursuant to section 409 of this Act, except that for such purpose—

‘‘(1) any reference to the ‘Corporation as receiver’ or ‘the receiver or the Corporation’ shall refer to the receiver appointed by the Comptroller of the Currency in the case of an uninsured national bank or uninsured Federal branch 

or agency, or to the receiver appointed by the Board of Governors of the Federal 

Reserve System in the case of a corporation chartered under section 25A of the 

Federal Reserve Act or an uninsured State member bank; 

‘‘(2) any reference to the ‘Corporation’ (other than in section 11(e)(8)(D) of 

such Act), the ‘Corporation, whether acting as such or as conservator or receiver’, a ‘receiver’, or a ‘conservator’ shall refer to the receiver or conservator 

appointed by the Comptroller of the Currency in the case of an uninsured national bank or uninsured Federal branch or agency, or to the receiver or conservator appointed by the Board of Governors of the Federal Reserve System in 

the case of a corporation chartered under section 25A of the Federal Reserve 

Act or an uninsured State member bank; and 

‘‘(3) any reference to an ‘insured depository institution’ or ‘depository institution’ shall refer to an uninsured national bank, an uninsured Federal branch 

or Federal agency, a corporation chartered under section 25A of the Federal Reserve Act, or an uninsured State member bank which operates, or operates as, 

a multilateral clearing organization pursuant to section 409 of this Act. 

‘‘(b) LIABILITY.—The liability of a receiver or conservator of an uninsured national bank, uninsured Federal branch or agency, a corporation chartered under section 25A of the Federal Reserve Act, or an uninsured State member bank which operates, or operates as, a multilateral clearing organization pursuant to section 409 

of this Act, shall be determined in the same manner and subject to the same limitations that apply to receivers and conservators of insured depository institutions 

under section 11(e) of the Federal Deposit Insurance Act. 

‘‘(c) REGULATORY AUTHORITY.—

‘‘(1) IN GENERAL.—The Comptroller of the Currency in the case of an uninsured national bank or uninsured Federal branch or agency and the Board of 

Governors of the Federal Reserve System in the case of a corporation chartered 

under section 25A of the Federal Reserve Act, or an uninsured State member 

bank that operates, or operates as, a multilateral clearing organization pursuant to section 409 of this Act, in consultation with the Federal Deposit Insurance Corporation, may each promulgate regulations solely to implement this 

section. 

‘‘(2) SPECIFIC REQUIREMENT.—In promulgating regulations, limited solely to 

implementing paragraphs (8), (9), (10), and (11) of section 11(e) of the Federal 

Deposit Insurance Act, the Comptroller of the Currency and the Board of Governors of the Federal Reserve System each shall ensure that the regulations 

92

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. 907. BANKRUPTCY LAW AMENDMENTS. 

(a) DEFINITIONS OF FORWARD CONTRACT, REPURCHASE AGREEMENT, SECURITIES

CLEARING AGENCY, SWAP AGREEMENT, COMMODITY CONTRACT, AND SECURITIES CONTRACT.—Title 11, United States Code, is amended—

(1) in section 101—

(A) in paragraph (25)—

(i) by striking ‘‘means a contract’’ and inserting ‘‘means—

‘‘(A) a contract’’; 

(ii) by striking ‘‘, or any combination thereof or option thereon;’’

and inserting ‘‘, or any other similar agreement;’’; and 

(iii) by adding at the end the following: 

‘‘(B) any combination of agreements or transactions referred to in subparagraphs (A) and (C); 

‘‘(C) any option to enter into an agreement or transaction referred to 

in subparagraph (A) or (B); 

‘‘(D) a master agreement that provides for an agreement or transaction 

referred to in subparagraph (A), (B), or (C), together with all supplements 

to any such master agreement, without regard to whether such master 

agreement provides for an agreement or transaction that is not a forward 

contract under this paragraph, except that such master agreement shall be 

considered to be a forward contract under this paragraph only with respect 

to each agreement or transaction under such master agreement that is referred to in subparagraph (A), (B), or (C); or 

‘‘(E) any security agreement or arrangement, or other credit enhancement related to any agreement or transaction referred to in subparagraph 

(A), (B), (C), or (D), including any guarantee or reimbursement obligation 

by or to a forward contract merchant or financial participant in connection 

with any agreement or transaction referred to in any such subparagraph, 

but not to exceed the damages in connection with any such agreement or 

transaction, measured in accordance with section 562;’’; 

(B) in paragraph (46), by striking ‘‘on any day during the period beginning 90 days before the date of’’ and inserting ‘‘at any time before’’; 

(C) by amending paragraph (47) to read as follows: 

‘‘(47) ‘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 

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paragraph only with respect to each agreement or transaction under 

the master agreement that is referred to in clause (i), (ii), or (iii); or ‘‘(v) any security agreement or arrangement or other credit enhancement related to any agreement or transaction referred to in 

clause (i), (ii), (iii), or (iv), including any guarantee or reimbursement 

obligation by or to a repo participant or financial participant in connection with any agreement or transaction referred to in any such clause, 

but not to exceed the damages in connection with any such agreement 

or transaction, measured in accordance with section 562 of this title; 

and 

‘‘(B) does not include a repurchase obligation under a participation in 

a commercial mortgage loan;’’; 

(D) in paragraph (48), by inserting ‘‘, or exempt from such registration 

under such section pursuant to an order of the Securities and Exchange 

Commission,’’ after ‘‘1934’’; and 

(E) by amending paragraph (53B) to read as follows: ‘‘(53B) ‘swap agreement’— ‘‘(A) means— ‘‘(i) any agreement, including the terms and conditions incorporated by reference in such agreement, which is— ‘‘(I) an interest rate swap, option, future, or forward agreement, including a rate floor, rate cap, rate collar, cross-currency 

rate swap, and basis swap; 

‘‘(II) a spot, same day-tomorrow, tomorrow-next, forward, or 

other foreign exchange or precious metals agreement; 

‘‘(III) a currency swap, option, future, or forward agreement; 

‘‘(IV) an equity index or equity swap, option, future, or forward 

agreement;

‘‘(V) a debt index or debt swap, option, future, or forward 

agreement; 

‘‘(VI) a total return, credit spread or credit swap, option, future, or forward agreement; 

‘‘(VII) a commodity index or a commodity swap, option, future, 

or forward agreement; or 

‘‘(VIII) a weather swap, weather derivative, or weather option; 

‘‘(ii) any agreement or transaction that is similar to any other 

agreement or transaction referred to in this paragraph and that—

‘‘(I) is of a type that has been, is presently, or in the future becomes, the subject of recurrent dealings in the swap markets (including terms and conditions incorporated by reference therein); 

and 

‘‘(II) is a forward, swap, future, or option on one or more rates, 

currencies, commodities, equity securities, or other equity instruments, debt securities or other debt instruments, quantitative 

measures associated with an occurrence, extent of an occurrence, 

or contingency associated with a financial, commercial, or economic 

consequence, or economic or financial indices or measures of economic or financial risk or value; 

‘‘(iii) any combination of agreements or transactions referred to in 

this subparagraph; 

‘‘(iv) any option to enter into an agreement or transaction referred 

to in this subparagraph; 

‘‘(v) a master agreement that provides for an agreement or transaction referred to in clause (i), (ii), (iii), or (iv), together with all supplements to any such master agreement, and without regard to whether 

the master agreement contains an agreement or transaction that is not 

a swap agreement under this paragraph, except that the master agreement shall be considered to be a swap agreement under this paragraph 

only with respect to each agreement or transaction under the master 

agreement that is referred to in clause (i), (ii), (iii), or (iv); or 

‘‘(vi) any security agreement or arrangement or other credit enhancement related to any agreements or transactions referred to in 

clause (i) through (v), including any guarantee or reimbursement obligation by or to a swap participant or financial participant in connection 

with any agreement or transaction referred to in any such clause, but 

not to exceed the damages in connection with any such agreement or 

transaction, measured in accordance with section 562; and 

‘‘(B) is applicable for purposes of this title only, and shall not be construed or applied so as to challenge or affect the characterization, definiVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00097 Fmt 6659 Sfmt 6621 E:\HR\OC\HR40P1.XXX HR40P1
94

tion, 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;’’; 

(2) in section 741(7), by striking paragraph (7) and inserting the following: 

‘‘(7) ‘securities contract’— ‘‘(A) means— ‘‘(i) a contract for the purchase, sale, or loan of a security, a certificate of deposit, a mortgage loan or any interest in a mortgage loan, a 

group or index of securities, certificates of deposit, or mortgage loans 

or interests therein (including an interest therein or based on the value 

thereof), or option on any of the foregoing, including an option to purchase or sell any such security, certificate of deposit, mortgage loan, interest, group or index, or option, and including any repurchase or reverse repurchase transaction on any such security, certificate of deposit, mortgage loan, interest, group or index, or option; ‘‘(ii) any option entered into on a national securities exchange relating to foreign currencies; 

‘‘(iii) the guarantee by or to any securities clearing agency of a settlement of cash, securities, certificates of deposit, mortgage loans or interests therein, group or index of securities, or mortgage loans or interests therein (including any interest therein or based on the value thereof), or option on any of the foregoing, including an option to purchase 

or sell any such security, certificate of deposit, mortgage loan, interest, 

group or index, or option; 

‘‘(iv) any margin loan; 

‘‘(v) any other agreement or transaction that is similar to an agreement or transaction referred to in this subparagraph; 

‘‘(vi) any combination of the agreements or transactions referred to 

in this subparagraph; 

‘‘(vii) any option to enter into any agreement or transaction referred to in this subparagraph; 

‘‘(viii) a master agreement that provides for an agreement or transaction referred to in clause (i), (ii), (iii), (iv), (v), (vi), or (vii), together 

with all supplements to any such master agreement, without regard to 

whether the master agreement provides for an agreement or transaction that is not a securities contract under this subparagraph, except 

that such master agreement shall be considered to be a securities contract under this subparagraph only with respect to each agreement or 

transaction under such master agreement that is referred to in clause 

(i), (ii), (iii), (iv), (v), (vi), or (vii); or 

‘‘(ix) any security agreement or arrangement or other credit enhancement related to any agreement or transaction referred to in this 

subparagraph, including any guarantee or reimbursement obligation by 

or to a stockbroker, securities clearing agency, financial institution, or 

financial participant in connection with any agreement or transaction 

referred to in this subparagraph, but not to exceed the damages in connection with any such agreement or transaction, measured in accordance with section 562; and 

‘‘(B) does not include any purchase, sale, or repurchase obligation under 

a participation in a commercial mortgage loan;’’; and 

(3) in section 761(4)—

(A) by striking ‘‘or’’ at the end of subparagraph (D); and 

(B) by adding at the end the following: 

‘‘(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 

95

only with respect to each agreement or transaction under the master agreement that is referred to in subparagraph (A), (B), (C), (D), (E), (F), (G), or 

(H); or ‘‘(J) any security agreement or arrangement or other credit enhancement related to any agreement or transaction referred to in this paragraph, 

including any guarantee or reimbursement obligation by or to a commodity 

broker or financial participant in connection with any agreement or transaction referred to in this paragraph, but not to exceed the damages in connection with any such agreement or transaction, measured in accordance 

with section 562;’’. (b) DEFINITIONS OF FINANCIAL INSTITUTION, FINANCIAL PARTICIPANT, AND FOR- WARD CONTRACT MERCHANT.—Section 101 of title 11, United States Code, is amended— (1) by striking paragraph (22) and inserting the following: 

‘‘(22) ‘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, 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) 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;’’; 

(2) by inserting after paragraph (22) the following: 

‘‘(22A) ‘financial participant’ means—

‘‘(A) an entity that, at the time it enters into a securities contract, commodity contract, swap agreement, repurchase agreement, or forward contract, or at the time of the date of the filing of the petition, has one or more 

agreements or transactions described in paragraph (1), (2), (3), (4), (5), or 

(6) of section 561(a) with the debtor or any other entity (other than an affiliate) of a total gross dollar value of not less than $1,000,000,000 in notional 

or actual principal amount outstanding on any day during the previous 15-

month period, or has gross mark-to-market positions of not less than 

$100,000,000 (aggregated across counterparties) in one or more such agreements or transactions with the debtor or any other entity (other than an 

affiliate) on any day during the previous 15-month period; or 

‘‘(B) a clearing organization (as defined in section 402 of the Federal 

Deposit Insurance Corporation Improvement Act of 1991);’’; and 

(3) by striking paragraph (26) and inserting the following: 

‘‘(26) ‘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;’’. 

(c) DEFINITION OF MASTER NETTING AGREEMENT AND MASTER NETTING AGREEMENT PARTICIPANT.—Section 101 of title 11, United States Code, is amended by inserting after paragraph (38) the following new paragraphs: 

‘‘(38A) ‘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) ‘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;’’. 

(d) SWAP AGREEMENTS, SECURITIES CONTRACTS, COMMODITY CONTRACTS, FOR- WARD CONTRACTS, REPURCHASE AGREEMENTS, AND MASTER NETTING AGREEMENTS

UNDER THE AUTOMATIC-STAY.—

(1) IN GENERAL.—Section 362(b) of title 11, United States Code, as amended 

by sections 224, 303, 311, 401, and 718, is amended—

96

(A) in paragraph (6), by inserting ‘‘, pledged to, under the control of,’’

after ‘‘held by’’; 

(B) in paragraph (7), by inserting ‘‘, pledged to, under the control of,’’

after ‘‘held by’’; 

(C) by striking paragraph (17) and inserting the following: 

‘‘(17) under subsection (a), of the setoff by a swap participant or financial 

participant of a mutual debt and claim under or in connection with one or more 

swap agreements that constitutes the setoff of a claim against the debtor for 

any payment or other transfer of property due from the debtor under or in connection with any swap agreement against any payment due to the debtor from 

the swap participant or financial participant under or in connection with any 

swap agreement or against cash, securities, or other property held by, pledged 

to, under the control of, or due from such swap participant or financial participant to margin, guarantee, secure, or settle any swap agreement;’’; and 

(D) by inserting after paragraph (26) the following: 

‘‘(27) under subsection (a), of the setoff by a master netting agreement participant of a mutual debt and claim under or in connection with one or more 

master netting agreements or any contract or agreement subject to such agreements that constitutes the setoff of a claim against the debtor for any payment 

or other transfer of property due from the debtor under or in connection with 

such agreements or any contract or agreement subject to such agreements 

against any payment due to the debtor from such master netting agreement 

participant under or in connection with such agreements or any contract or 

agreement subject to such agreements or against cash, securities, or other property held by, pledged to, under the control of, or due from such master netting 

agreement participant to margin, guarantee, secure, or settle such agreements 

or any contract or agreement subject to such agreements, to the extent that 

such participant is eligible to exercise such offset rights under paragraph (6), 

(7), or (17) for each individual contract covered by the master netting agreement 

in issue; and’’. 

(2) LIMITATION.—Section 362 of title 11, United States Code, as amended 

by sections 106, 305, 311, and 441, is amended by adding at the end the following: 

‘‘(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.’’. 

(e) LIMITATION OF AVOIDANCE POWERS UNDER MASTER NETTING AGREEMENT.—

Section 546 of title 11, United States Code, is amended—

(1) in subsection (g) (as added by section 103 of Public Law 101–311)—

(A) by striking ‘‘under a swap agreement’’; 

(B) by striking ‘‘in connection with a swap agreement’’ and inserting 

‘‘under or in connection with any swap agreement’’; and 

(C) by inserting ‘‘or financial participant’’ after ‘‘swap participant’’; and 

(2) by adding at the end the following: 

‘‘(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.’’. 

(f) FRAUDULENT TRANSFERS OF MASTER NETTING AGREEMENTS.—Section 

548(d)(2) of title 11, United States Code, is amended—

(1) in subparagraph (C), by striking ‘‘and’’ at the end; 

(2) in subparagraph (D), by striking the period and inserting ‘‘; and’’; and 

(3) by adding at the end the following new subparagraph: 

‘‘(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.’’. 

(g) TERMINATION OR ACCELERATION OF SECURITIES CONTRACTS.—Section 555 of 

title 11, United States Code, is amended—

(1) by amending the section heading to read as follows: 

‘‘§ 555. Contractual right to liquidate, terminate, or accelerate a securities 

contract’’; 

and 

97

(2) in the first sentence, by striking ‘‘liquidation’’ and inserting ‘‘liquidation, 

termination, or acceleration’’. 

(h) TERMINATION OR ACCELERATION OF COMMODITIES OR FORWARD CONTRACTS.—Section 556 of title 11, United States Code, is amended—

(1) by amending the section heading to read as follows: 

‘‘§ 556. Contractual right to liquidate, terminate, or accelerate a commodities contract or forward contract’’; 

(2) in the first sentence, by striking ‘‘liquidation’’ and inserting ‘‘liquidation, 

termination, or acceleration’’; and 

(3) in the second sentence, by striking ‘‘As used’’ and all that follows 

through ‘‘right,’’ and inserting ‘‘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,’’. 

(i) TERMINATION OR ACCELERATION OF REPURCHASE AGREEMENTS.—Section 559 

of title 11, United States Code, is amended—

(1) by amending the section heading to read as follows: 

‘‘§ 559. Contractual right to liquidate, terminate, or accelerate a repurchase 

agreement’’; 

(2) in the first sentence, by striking ‘‘liquidation’’ and inserting ‘‘liquidation, 

termination, or acceleration’’; and 

(3) in the third sentence, by striking ‘‘As used’’ and all that follows through 

‘‘right,’’ and inserting ‘‘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,’’. 

(j) LIQUIDATION, TERMINATION, OR ACCELERATION OF SWAP AGREEMENTS.—Section 560 of title 11, United States Code, is amended—

(1) by amending the section heading to read as follows: 

‘‘§ 560. Contractual right to liquidate, terminate, or accelerate a swap agreement’’; 

(2) in the first sentence, by striking ‘‘termination of a swap agreement’’ and 

inserting ‘‘liquidation, termination, or acceleration of one or more swap agreements’’; 

(3) by striking ‘‘in connection with any swap agreement’’ and inserting ‘‘in 

connection with the termination, liquidation, or acceleration of one or more 

swap agreements’’; and 

(4) in the second sentence, by striking ‘‘As used’’ and all that follows 

through ‘‘right,’’ and inserting ‘‘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,’’. 

(k) LIQUIDATION, TERMINATION, ACCELERATION, OR OFFSET UNDER A MASTER

NETTING AGREEMENT AND ACROSS CONTRACTS.—

(1) IN GENERAL.—Title 11, United States Code, is amended by inserting 

after section 560 the following: 

98

‘‘§ 561. Contractual right to terminate, liquidate, accelerate, or offset under 

a master netting agreement and across contracts; proceedings 

under chapter 15

‘‘(a) Subject to subsection (b), the exercise of any contractual right, because of 

a condition of the kind specified in section 365(e)(1), to cause the termination, liquidation, or acceleration of or to offset or net termination values, payment amounts, 

or other transfer obligations arising under or in connection with one or more (or the 

termination, liquidation, or acceleration of one or more)— ‘‘(1) securities contracts, as defined in section 741(7); 

‘‘(2) commodity contracts, as defined in section 761(4); 

‘‘(3) forward contracts; 

‘‘(4) repurchase agreements; 

‘‘(5) swap agreements; or 

‘‘(6) master netting agreements, 

shall not be stayed, avoided, or otherwise limited by operation of any provision of 

this title or by any order of a court or administrative agency in any proceeding 

under this title. ‘‘(b)(1) A party may exercise a contractual right described in subsection (a) to 

terminate, liquidate, or accelerate only to the extent that such party could exercise 

such a right under section 555, 556, 559, or 560 for each individual contract covered 

by the master netting agreement in issue. ‘‘(2) If a debtor is a commodity broker subject to subchapter IV of chapter 7— ‘‘(A) a party may not net or offset an obligation to the debtor arising under, 

or in connection with, a commodity contract traded on or subject to the rules 

of a contract market designated under the Commodity Exchange Act or a derivatives transaction execution facility registered under the Commodity Exchange Act against any claim arising under, or in connection with, other instruments, contracts, or agreements listed in subsection (a) except to the extent that 

the party has positive net equity in the commodity accounts at the debtor, as 

calculated under such subchapter; and ‘‘(B) another commodity broker may not net or offset an obligation to the 

debtor arising under, or in connection with, a commodity contract entered into 

or held on behalf of a customer of the debtor and traded on or subject to the 

rules of a contract market designated under the Commodity Exchange Act or 

a derivatives transaction execution facility registered under the Commodity Exchange Act against any claim arising under, or in connection with, other instruments, contracts, or agreements listed in subsection (a). 

‘‘(3) No provision of subparagraph (A) or (B) of paragraph (2) shall prohibit the 

offset of claims and obligations that arise under— ‘‘(A) a cross-margining agreement or similar arrangement that has been approved by the Commodity Futures Trading Commission or submitted to the 

Commodity Futures Trading Commission under paragraph (1) or (2) of section 

5c(c) of the Commodity Exchange Act and has not been abrogated or rendered 

ineffective by the Commodity Futures Trading Commission; or 

‘‘(B) any other netting agreement between a clearing organization (as defined in section 761) and another entity that has been approved by the Commodity Futures Trading Commission. 

‘‘(c) As used in this section, the term ‘contractual right’ includes a right set forth 

in a rule or bylaw of a derivatives clearing organization (as defined in the Commodity Exchange Act), a multilateral clearing organization (as defined in the Federal Deposit Insurance Corporation Improvement Act of 1991), a national securities 

exchange, a national securities association, a securities clearing agency, a contract 

market designated under the Commodity Exchange Act, a derivatives transaction 

execution facility registered under the Commodity Exchange Act, or a board of trade 

(as defined in the Commodity Exchange Act) or in a resolution of the governing 

board thereof, and a right, whether or not evidenced in writing, arising under common law, under law merchant, or by reason of normal business practice. 

‘‘(d) Any provisions of this title relating to securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements, or master netting agreements shall apply in a case under chapter 15, so that enforcement of contractual provisions of such contracts and agreements in accordance with their terms 

will not be stayed or otherwise limited by operation of any provision of this title 

or by order of a court in any case under this title, and to limit avoidance powers 

to the same extent as in a proceeding under chapter 7 or 11 of this title (such enforcement not to be limited based on the presence or absence of assets of the debtor 

in the United States).’’. 

(2) CONFORMING AMENDMENT.—The table of sections for chapter 5 of title 

11, United States Code, is amended by inserting after the item relating to section 560 the following:

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‘‘561. Contractual right to terminate, liquidate, accelerate, or offset under a master netting agreement and 

across contracts; proceedings under chapter 15.’’.

(l) COMMODITY BROKER LIQUIDATIONS.—Title 11, United States Code, is amended by inserting after section 766 the following:

‘‘§ 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.’’. (m) STOCKBROKER LIQUIDATIONS.—Title 11, United States Code, is amended by 

inserting after section 752 the following: 

‘‘§ 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.’’. 

(n) SETOFF.—Section 553 of title 11, United States Code, is amended—

(1) in subsection (a)(2)(B)(ii), by inserting before the semicolon the following: ‘‘(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)’’; 

(2) in subsection (a)(3)(C), by inserting before the period the following: ‘‘(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)’’; and 

(3) in subsection (b)(1), by striking ‘‘362(b)(14),’’ and inserting ‘‘362(b)(17), 

362(b)(27), 555, 556, 559, 560, 561,’’. 

(o) SECURITIES CONTRACTS, COMMODITY CONTRACTS, AND FORWARD CONTRACTS.—Title 11, United States Code, is amended—

(1) in section 362(b)(6), by striking ‘‘financial institutions,’’ each place such 

term appears and inserting ‘‘financial institution, financial participant,’’; 

(2) in sections 362(b)(7) and 546(f), by inserting ‘‘or financial participant’’

after ‘‘repo participant’’ each place such term appears; 

(3) in section 546(e), by inserting ‘‘financial participant,’’ after ‘‘financial institution,’’; 

(4) in section 548(d)(2)(B), by inserting ‘‘financial participant,’’ after ‘‘financial institution,’’; 

(5) in section 548(d)(2)(C), by inserting ‘‘or financial participant’’ after ‘‘repo 

participant’’; 

(6) in section 548(d)(2)(D), by inserting ‘‘or financial participant’’ after 

‘‘swap participant’’; 

(7) in section 555—

(A) by inserting ‘‘financial participant,’’ after ‘‘financial institution,’’; 

and 

(B) by striking the second sentence and inserting the following: ‘‘As 

used in this section, the term ‘contractual right’ includes a right set forth 

in a rule or bylaw of a derivatives clearing organization (as defined in the 

Commodity Exchange Act), a multilateral clearing organization (as defined 

in the Federal Deposit Insurance Corporation Improvement Act of 1991), a 

national securities exchange, a national securities association, a securities 

clearing agency, a contract market designated under the Commodity Exchange Act, a derivatives transaction execution facility registered under the 

Commodity Exchange Act, or a board of trade (as defined in the Commodity 

Exchange Act), or in a resolution of the governing board thereof, and a 

right, whether or not in writing, arising under common law, under law merchant, or by reason of normal business practice.’’; 

(8) in section 556, by inserting ‘‘, financial participant,’’ after ‘‘commodity 

broker’’; 

(9) in section 559, by inserting ‘‘or financial participant’’ after ‘‘repo participant’’ each place such term appears; and 

(10) in section 560, by inserting ‘‘or financial participant’’ after ‘‘swap participant’’. 

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(p) CONFORMING AMENDMENTS.—Title 11, United States Code, is amended—

(1) in the table of sections for chapter 5—

(A) by amending the items relating to sections 555 and 556 to read as 

follows:

‘‘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.’’;

and 

(B) by amending the items relating to sections 559 and 560 to read as 

follows:

‘‘559. Contractual right to liquidate, terminate, or accelerate a repurchase agreement. 

‘‘560. Contractual right to liquidate, terminate, or accelerate a swap agreement.’’;

and 

(2) in the table of sections for chapter 7—

(A) by inserting after the item relating to section 766 the following:

‘‘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.’’;

and 

(B) by inserting after the item relating to section 752 the following:

‘‘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.’’.

SEC. 908. RECORDKEEPING REQUIREMENTS. 

Section 11(e)(8) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)) is 

amended by adding at the end the following new subparagraph: 

‘‘(H) RECORDKEEPING REQUIREMENTS.—The Corporation, in consultation 

with the appropriate Federal banking agencies, 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).’’. 

SEC. 909. EXEMPTIONS FROM CONTEMPORANEOUS EXECUTION REQUIREMENT. 

Section 13(e)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1823(e)(2)) is 

amended to read as follows: 

‘‘(2) EXEMPTIONS FROM CONTEMPORANEOUS EXECUTION REQUIREMENT.—An 

agreement to provide for the lawful collateralization of—

‘‘(A) deposits of, or other credit extension by, a Federal, State, or local 

governmental entity, or of any depositor referred to in section 11(a)(2), including an agreement to provide collateral in lieu of a surety bond; 

‘‘(B) bankruptcy estate funds pursuant to section 345(b)(2) of title 11, 

United States Code; 

‘‘(C) extensions of credit, including any overdraft, from a Federal reserve bank or Federal home loan bank; or 

‘‘(D) one or more qualified financial contracts, as defined in section 

11(e)(8)(D),

shall not be deemed invalid pursuant to paragraph (1)(B) solely because such 

agreement was not executed contemporaneously with the acquisition of the collateral or because of pledges, delivery, or substitution of the collateral made in 

accordance with such agreement.’’. 

SEC. 910. DAMAGE MEASURE. 

(a) IN GENERAL.—Title 11, United States Code, is amended—

(1) by inserting after section 561, as added by section 907, the following: 

‘‘§ 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 

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measured as of the earliest subsequent date or dates on which there are commercially reasonable determinants of value. 

‘‘(c) For the purposes of subsection (b), if damages are not measured as of the 

date or dates of rejection, liquidation, termination, or acceleration, and the forward 

contract merchant, stockbroker, financial institution, securities clearing agency, repo 

participant, financial participant, master netting agreement participant, or swap 

participant or the trustee objects to the timing of the measurement of damages—

‘‘(1) the trustee, in the case of an objection by a forward contract merchant, 

stockbroker, financial institution, securities clearing agency, repo participant, financial participant, master netting agreement participant, or swap participant; 

or 

‘‘(2) the forward contract merchant, stockbroker, financial institution, securities clearing agency, repo participant, financial participant, master netting 

agreement participant, or swap participant, in the case of an objection by the 

trustee, 

has the burden of proving that there were no commercially reasonable determinants 

of value as of such date or dates.’’; and 

(2) in the table of sections for chapter 5, by inserting after the item relating 

to section 561 (as added by section 907) the following new item:

‘‘562. Timing of damage measure in connection with swap agreements, securities contracts, forward contracts, 

commodity contracts, repurchase agreements, or master netting agreements.’’.

(b) CLAIMS ARISING FROM REJECTION.—Section 502(g) of title 11, United States 

Code, is amended—

(1) by inserting ‘‘(1)’’ after ‘‘(g)’’; and 

(2) by adding at the end the following: 

‘‘(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.’’. 

SEC. 911. SIPC STAY. 

Section 5(b)(2) of the Securities Investor Protection Act of 1970 (15 U.S.C. 

78eee(b)(2)) is amended by adding at the end the following new subparagraph: 

‘‘(C) EXCEPTION FROM STAY.—

‘‘(i) Notwithstanding section 362 of title 11, United States Code, 

neither the filing of an application under subsection (a)(3) nor any 

order or decree obtained by SIPC from the court shall operate as a stay 

of any contractual rights of a creditor to liquidate, terminate, or accelerate a securities contract, commodity contract, forward contract, repurchase agreement, swap agreement, or master netting agreement, as 

those terms are defined in sections 101, 741, and 761 of title 11, United 

States Code, to offset or net termination values, payment amounts, or 

other transfer obligations arising under or in connection with one or 

more of such contracts or agreements, or to foreclose on any cash collateral pledged by the debtor, whether or not with respect to one or more 

of such contracts or agreements. 

‘‘(ii) Notwithstanding clause (i), such application, order, or decree 

may operate as a stay of the foreclosure on, or disposition of, securities 

collateral pledged by the debtor, whether or not with respect to one or 

more of such contracts or agreements, securities sold by the debtor 

under a repurchase agreement, or securities lent under a securities 

lending agreement. 

‘‘(iii) As used in this subparagraph, the term ‘contractual right’ includes a right set forth in a rule or bylaw of a national securities exchange, a national securities association, or a securities clearing agency, a right set forth in a bylaw of a clearing organization or contract 

market or in a resolution of the governing board thereof, and a right, 

whether or not in writing, arising under common law, under law merchant, or by reason of normal business practice.’’.

TITLE X—PROTECTION OF FAMILY FARMERS 

AND FAMILY FISHERMEN 

SEC. 1001. PERMANENT REENACTMENT OF CHAPTER 12. 

(a) REENACTMENT.—

(1) IN GENERAL.—Chapter 12 of title 11, United States Code, as reenacted 

by section 149 of division C of the Omnibus Consolidated and Emergency SupVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00105 Fmt 6659 Sfmt 6621 E:\HR\OC\HR40P1.XXX HR40P1
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plemental Appropriations Act, 1999 (Public Law 105–277), is hereby reenacted, 

and as here reenacted is amended by this Act. 

(2) EFFECTIVE DATE.—Subsection (a) shall take effect on the date of the enactment of this Act. 

(b) CONFORMING AMENDMENT.—Section 302 of the Bankruptcy Judges, United 

States Trustees, and Family Farmer Bankruptcy Act of 1986 (28 U.S.C. 581 note) 

is amended by striking subsection (f).

SEC. 1002. DEBT LIMIT INCREASE. 

Section 104(b) of title 11, United States Code, as amended by section 226, is 

amended by inserting ‘‘101(18),’’ after ‘‘101(3),’’ each place it appears. 

SEC. 1003. CERTAIN CLAIMS OWED TO GOVERNMENTAL UNITS. 

(a) CONTENTS OF PLAN.—Section 1222(a)(2) of title 11, United States Code, as 

amended by section 213, is amended to read as follows: 

‘‘(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;’’. 

(b) SPECIAL NOTICE PROVISIONS.—Section 1231(b) of title 11, United States 

Code, as so designated by section 719, is amended by striking ‘‘a State or local governmental unit’’ and inserting ‘‘any governmental unit’’. 

(c) EFFECTIVE DATE; APPLICATION OF AMENDMENTS.—This section and the 

amendments made by this section shall take effect on the date of the enactment of 

this Act and shall not apply with respect to cases commenced under title 11 of the 

United States Code before such date.

SEC. 1004. DEFINITION OF FAMILY FARMER. 

Section 101(18) of title 11, United States Code, is amended—

(1) in subparagraph (A)—

(A) by striking ‘‘$1,500,000’’ and inserting ‘‘$3,237,000’’; and 

(B) by striking ‘‘80’’ and inserting ‘‘50’’; and 

(2) in subparagraph (B)(ii)—

(A) by striking ‘‘$1,500,000’’ and inserting ‘‘$3,237,000’’; and 

(B) by striking ‘‘80’’ and inserting ‘‘50’’.

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 101(18)(A) of title 11, United States Code, is amended by striking ‘‘for 

the taxable year preceding the taxable year’’ and inserting the following: 

‘‘for—

‘‘(i) the taxable year preceding; or 

‘‘(ii) each of the 2d and 3d taxable years preceding; 

the taxable year’’.

SEC. 1006. PROHIBITION OF RETROACTIVE ASSESSMENT OF DISPOSABLE INCOME. 

(a) CONFIRMATION OF PLAN.—Section 1225(b)(1) of title 11, United States Code, 

is amended—

(1) in subparagraph (A) by striking ‘‘or’’ at the end; 

(2) in subparagraph (B) by striking the period at the end and inserting ‘‘; 

or’’; and 

(3) by adding at the end the following: 

‘‘(C) the 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.’’. 

(b) MODIFICATION OF PLAN.—Section 1229 of title 11, United States Code, is 

amended by adding at the end the following: 

‘‘(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 reVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00106 Fmt 6659 Sfmt 6621 E:\HR\OC\HR40P1.XXX HR40P1
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quired for a particular month so that the aggregate of such payments exceeds 

the debtor’s disposable income for such month; or 

‘‘(3) in the last year of the plan by anyone except the debtor, to require payments that would leave the debtor with insufficient funds to carry on the farming operation after the plan is completed.’’.

SEC. 1007. FAMILY FISHERMEN. 

(a) DEFINITIONS.—Section 101 of title 11, United States Code, is amended—

(1) by inserting after paragraph (7) the following: 

‘‘(7A) ‘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) ‘commercial fishing vessel’ means a vessel used by a family fisherman 

to carry out a commercial fishing operation;’’; and 

(2) by inserting after paragraph (19) the following: 

‘‘(19A) ‘family fisherman’ means—

‘‘(A) an individual or individual and spouse engaged in a commercial 

fishing operation—

‘‘(i) whose aggregate debts do not exceed $1,500,000 and not less 

than 80 percent of whose aggregate noncontingent, liquidated debts (excluding a debt for the principal residence of such individual or such individual and spouse, unless such debt arises out of a commercial fishing operation), on the date the case is filed, arise out of a commercial 

fishing operation owned or operated by such individual or such individual and spouse; and 

‘‘(ii) who receive from such commercial fishing operation more than 

50 percent of such individual’s or such individual’s and spouse’s gross 

income for the taxable year preceding the taxable year in which the 

case concerning such individual or such individual and spouse was 

filed; or 

‘‘(B) a corporation or partnership—

‘‘(i) in which more than 50 percent of the outstanding stock or equity is held by—

‘‘(I) 1 family that conducts the commercial fishing operation; or 

‘‘(II) 1 family and the relatives of the members of such family, 

and such family or such relatives conduct the commercial fishing 

operation; and 

‘‘(ii)(I) more than 80 percent of the value of its assets consists of 

assets related to the commercial fishing operation; 

‘‘(II) its aggregate debts do not exceed $1,500,000 and not less than 

80 percent of its aggregate noncontingent, liquidated debts (excluding 

a debt for 1 dwelling which is owned by such corporation or partnership 

and which a shareholder or partner maintains as a principal residence, 

unless such debt arises out of a commercial fishing operation), on the 

date the case is filed, arise out of a commercial fishing operation owned 

or operated by such corporation or such partnership; and 

‘‘(III) if such corporation issues stock, such stock is not publicly 

traded; 

‘‘(19B) ‘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;’’. 

(b) WHO MAY BE A DEBTOR.—Section 109(f) of title 11, United States Code, is 

amended by inserting ‘‘or family fisherman’’ after ‘‘family farmer’’. 

(c) CHAPTER 12.—Chapter 12 of title 11, United States Code, is amended—

(1) in the chapter heading, by inserting ‘‘OR FISHERMAN’’ after ‘‘FAMILY FARMER’’; 

(2) in section 1203, by inserting ‘‘or commercial fishing operation’’ after 

‘‘farm’’; and 

(3) in section 1206, by striking ‘‘if the property is farmland or farm equipment’’ and inserting ‘‘if the property is farmland, farm equipment, or property 

used to carry out a commercial fishing operation (including a commercial fishing 

vessel)’’. 

(d) CLERICAL AMENDMENT.—In the table of chapters for title 11, United States 

Code, the item relating to chapter 12, is amended to read as follows:

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‘‘12. Adjustments of Debts of a Family Farmer or Family Fisherman with Regular Annual Income ........................................................................................................................... 1201’’.

(e) APPLICABILITY.—Nothing in this section shall change, affect, or amend the 

Fishery Conservation and Management Act of 1976 (16 U.S.C. 1801, et seq.). 

TITLE XI—HEALTH CARE AND EMPLOYEE 

BENEFITS 

SEC. 1101. DEFINITIONS. 

(a) HEALTH CARE BUSINESS DEFINED.—Section 101 of title 11, United States 

Code, as amended by section 306, is amended— (1) by redesignating paragraph (27A) as paragraph (27B); and 

(2) by inserting after paragraph (27) the following: 

‘‘(27A) ‘health care business’—

‘‘(A) means any public or private entity (without regard to whether that 

entity is organized for profit or not for profit) that is primarily engaged in 

offering to the general public facilities and services for—

‘‘(i) the diagnosis or treatment of injury, deformity, or disease; and 

‘‘(ii) surgical, drug treatment, psychiatric, or obstetric care; and 

‘‘(B) includes—

‘‘(i) any—

‘‘(I) general or specialized hospital; 

‘‘(II) ancillary ambulatory, emergency, or surgical treatment facility; 

‘‘(III) hospice; 

‘‘(IV) home health agency; and 

‘‘(V) other health care institution that is similar to an entity 

referred to in subclause (I), (II), (III), or (IV); and 

‘‘(ii) any long-term care facility, including any—

‘‘(I) skilled nursing facility; 

‘‘(II) intermediate care facility; 

‘‘(III) assisted living facility; 

‘‘(IV) home for the aged; 

‘‘(V) domiciliary care facility; and 

‘‘(VI) health care institution that is related to a facility referred 

to in subclause (I), (II), (III), (IV), or (V), if that institution is primarily engaged in offering room, board, laundry, or personal assistance with activities of daily living and incidentals to activities of 

daily living;’’. 

(b) PATIENT AND PATIENT RECORDS DEFINED.—Section 101 of title 11, United 

States Code, is amended by inserting after paragraph (40) the following: 

‘‘(40A) ‘patient’ means any individual who obtains or receives services from 

a health care business; 

‘‘(40B) ‘patient records’ means any written document relating to a patient 

or a record recorded in a magnetic, optical, or other form of electronic medium;’’. 

(c) RULE OF CONSTRUCTION.—The amendments made by subsection (a) of this 

section shall not affect the interpretation of section 109(b) of title 11, United States 

Code. 

SEC. 1102. DISPOSAL OF PATIENT RECORDS. 

(a) IN GENERAL.—Subchapter III of chapter 3 of title 11, United States Code, 

is amended by adding at the end the following: 

‘‘§ 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 paVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00108 Fmt 6659 Sfmt 6621 E:\HR\OC\HR40P1.XXX HR40P1
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tient, or a family member or contact person for that patient, and to the appropriate insurance carrier an appropriate notice regarding the claiming or 

disposing of patient records. 

‘‘(2) If, after providing the notification under paragraph (1), patient records 

are not claimed during the 365-day period described under that paragraph, the 

trustee shall mail, by certified mail, at the end of such 365-day period a written 

request to each appropriate Federal agency to request permission from that 

agency to deposit the patient records with that agency, except that no Federal 

agency is required to accept patient records under this paragraph. 

‘‘(3) If, following the 365-day period described in paragraph (2) and after 

providing the notification under paragraph (1), patient records are not claimed 

by a patient or insurance provider, or request is not granted by a Federal agency to deposit such records with that agency, the trustee shall destroy those 

records by—

‘‘(A) if the records are written, shredding or burning the records; or 

‘‘(B) if the records are magnetic, optical, or other electronic records, by 

otherwise destroying those records so that those records cannot be retrieved.’’. 

(b) CLERICAL AMENDMENT.—The table of sections for subchapter III of chapter 

3 of title 11, United States Code, is amended by adding at the end the following:

‘‘351. Disposal of patient records.’’.

SEC. 1103. ADMINISTRATIVE EXPENSE CLAIM FOR COSTS OF CLOSING A HEALTH CARE BUSINESS AND OTHER ADMINISTRATIVE EXPENSES. 

Section 503(b) of title 11, United States Code, as amended by section 445, is 

amended by adding at the end the following: 

‘‘(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’’.

SEC. 1104. APPOINTMENT OF OMBUDSMAN TO ACT AS PATIENT ADVOCATE. 

(a) OMBUDSMAN TO ACT AS PATIENT ADVOCATE.—

(1) APPOINTMENT OF OMBUDSMAN.—Title 11, United States Code, as amended by section 232, is amended by inserting after section 332 the following: 

‘‘§ 333. Appointment of patient care ombudsman 

‘‘(a)(1) If the debtor in a case under chapter 7, 9, or 11 is a health care business, 

the court shall order, not later than 30 days after the commencement of the case, 

the appointment of an ombudsman to monitor the quality of patient care and to represent the interests of the patients of the health care business unless the court finds 

that the appointment of such ombudsman is not necessary for the protection of patients under the specific facts of the case. 

‘‘(2)(A) If the court orders the appointment of an ombudsman under paragraph 

(1), the United States trustee shall appoint 1 disinterested person (other than the 

United States trustee) to serve as such ombudsman. 

‘‘(B) If the debtor is a health care business that provides long-term care, then 

the United States trustee may appoint the State Long-Term Care Ombudsman appointed under the Older Americans Act of 1965 for the State in which the case is 

pending to serve as the ombudsman required by paragraph (1). 

‘‘(C) If the United States trustee does not appoint a State Long-Term Care Ombudsman under subparagraph (B), the court shall notify the State Long-Term Care 

Ombudsman appointed under the Older Americans Act of 1965 for the State in 

which the case is pending, of the name and address of the person who is appointed 

under subparagraph (A). 

‘‘(b) An ombudsman appointed under subsection (a) shall—

‘‘(1) monitor the quality of patient care provided to patients of the debtor, 

to the extent necessary under the circumstances, including interviewing patients and physicians; 

‘‘(2) not later than 60 days after the date of appointment, and not less frequently than at 60-day intervals thereafter, report to the court after notice to 

the parties in interest, at a hearing or in writing, regarding the quality of patient care provided to patients of the debtor; and 

‘‘(3) if such ombudsman determines that the quality of patient care provided 

to patients of the debtor is declining significantly or is otherwise being materiVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00109 Fmt 6659 Sfmt 6621 E:\HR\OC\HR40P1.XXX HR40P1
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ally compromised, file with the court a motion or a written report, with notice 

to the parties in interest immediately upon making such determination. 

‘‘(c)(1) An ombudsman appointed under subsection (a) shall maintain any information obtained by such ombudsman under this section that relates to patients (including information relating to patient records) as confidential information. Such 

ombudsman may not review confidential patient records unless the court approves 

such review in advance and imposes restrictions on such ombudsman to protect the 

confidentiality of such records. ‘‘(2) An ombudsman appointed under subsection (a)(2)(B) shall have access to 

patient records consistent with authority of such ombudsman under the Older 

Americans Act of 1965 and under non-Federal laws governing the State Long-Term 

Care Ombudsman program.’’. (2) CLERICAL AMENDMENT.—The table of sections for subchapter II of chapter 3 of title 11, United States Code, as amended by section 232, is amended 

by adding at the end the following:

‘‘333. Appointment of ombudsman.’’.

(b) COMPENSATION OF OMBUDSMAN.—Section 330(a)(1) of title 11, United States 

Code, is amended— (1) in the matter preceding subparagraph (A), by inserting ‘‘an ombudsman 

appointed under section 333, or’’ before ‘‘a professional person’’; and 

(2) in subparagraph (A), by inserting ‘‘ombudsman,’’ before ‘‘professional 

person’’. 

SEC. 1105. DEBTOR IN POSSESSION; DUTY OF TRUSTEE TO TRANSFER PATIENTS. 

(a) IN GENERAL.—Section 704(a) of title 11, United States Code, as amended by 

sections 102, 219, and 446, is amended by adding at the end the following: ‘‘(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) CONFORMING AMENDMENT.—Section 1106(a)(1) of title 11, United States 

Code, as amended by section 446, is amended by striking ‘‘and (11)’’ and inserting ‘‘(11), and (12)’’. 

SEC. 1106. EXCLUSION FROM PROGRAM PARTICIPATION NOT SUBJECT TO AUTOMATIC STAY. 

Section 362(b) of title 11, United States Code, is amended by inserting after 

paragraph (27), as amended by sections 224, 303, 311, 401, 718, and 907, the following: ‘‘(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).’’. 

TITLE XII—TECHNICAL AMENDMENTS 

SEC. 1201. DEFINITIONS. 

Section 101 of title 11, United States Code, as hereinbefore amended by this 

Act, is amended—

(1) by striking ‘‘In this title—’’ and inserting ‘‘In this title the following definitions shall apply:’’; 

(2) in each paragraph, by inserting ‘‘The term’’ after the paragraph designation; 

(3) in paragraph (35)(B), by striking ‘‘paragraphs (21B) and (33)(A)’’ and inserting ‘‘paragraphs (23) and (35)’’; 

(4) in each of paragraphs (35A), (38), and (54A), by striking ‘‘; and’’ at the 

end and inserting a period; 

(5) in paragraph (51B)—

(A) by inserting ‘‘who is not a family farmer’’ after ‘‘debtor’’ the first 

place it appears; and 

(B) by striking ‘‘thereto having aggregate’’ and all that follows through 

the end of the paragraph and inserting a semicolon; 

(6) by striking paragraph (54) and inserting the following: 

‘‘(54) The term ‘transfer’ means—

‘‘(A) the creation of a lien; 

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‘‘(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;’’; 

(7) by indenting the left margin of paragraph (54A) 2 ems to the right; and 

(8) in each of paragraphs (1) through (35), in each of paragraphs (36), (37), 

(38A), (38B) and (39A), and in each of paragraphs (40) through (55), by striking 

the semicolon at the end and inserting a period. 

SEC. 1202. ADJUSTMENT OF DOLLAR AMOUNTS. 

Section 104 of title 11, United States Code, is amended by inserting ‘‘522(f)(3),’’ after ‘‘522(d),’’ each place it appears. 

SEC. 1203. EXTENSION OF TIME. 

Section 108(c)(2) of title 11, United States Code, is amended by striking ‘‘922’’ and all that follows through ‘‘or’’, and inserting ‘‘922, 1201, or’’. 

SEC. 1204. TECHNICAL AMENDMENTS. 

Title 11, United States Code, is amended— (1) in section 109(b)(2), by striking ‘‘subsection (c) or (d) of’’; and 

(2) in section 552(b)(1), by striking ‘‘product’’ each place it appears and inserting ‘‘products’’. 

SEC. 1205. PENALTY FOR PERSONS WHO NEGLIGENTLY OR FRAUDULENTLY PREPARE BANKRUPTCY PETITIONS. 

Section 110(j)(4) of title 11, United States Code, as so redesignated by section 

221, is amended by striking ‘‘attorney’s’’ and inserting ‘‘attorneys’ ’’. 

SEC. 1206. LIMITATION ON COMPENSATION OF PROFESSIONAL PERSONS. 

Section 328(a) of title 11, United States Code, is amended by inserting ‘‘on a fixed or percentage fee basis,’’ after ‘‘hourly basis,’’. 

SEC. 1207. EFFECT OF CONVERSION. 

Section 348(f)(2) of title 11, United States Code, is amended by inserting ‘‘of the 

estate’’ after ‘‘property’’ the first place it appears. 

SEC. 1208. ALLOWANCE OF ADMINISTRATIVE EXPENSES. 

Section 503(b)(4) of title 11, United States Code, is amended by inserting ‘‘subparagraph (A), (B), (C), (D), or (E) of’’ before ‘‘paragraph (3)’’. 

SEC. 1209. EXCEPTIONS TO DISCHARGE. 

Section 523 of title 11, United States Code, as amended by sections 215 and 

314, is amended— (1) by transferring paragraph (15), as added by section 304(e) of Public Law 

103–394 (108 Stat. 4133), so as to insert such paragraph after subsection 

(a)(14A); 

(2) in subsection (a)(9), by striking ‘‘motor vehicle’’ and inserting ‘‘motor vehicle, vessel, or aircraft’’; and 

(3) in subsection (e), by striking ‘‘a insured’’ and inserting ‘‘an insured’’. 

SEC. 1210. EFFECT OF DISCHARGE. 

Section 524(a)(3) of title 11, United States Code, is amended by striking ‘‘section 

523’’ and all that follows through ‘‘or that’’ and inserting ‘‘section 523, 1228(a)(1), 

or 1328(a)(1), or that’’. 

SEC. 1211. PROTECTION AGAINST DISCRIMINATORY TREATMENT. 

Section 525(c) of title 11, United States Code, is amended— (1) in paragraph (1), by inserting ‘‘student’’ before ‘‘grant’’ the second place 

it appears; and 

(2) in paragraph (2), by striking ‘‘the program operated under part B, D, 

or E of’’ and inserting ‘‘any program operated under’’. 

SEC. 1212. PROPERTY OF THE ESTATE. 

Section 541(b)(4)(B)(ii) of title 11, United States Code, is amended by inserting 

‘‘365 or’’ before ‘‘542’’. 

SEC. 1213. PREFERENCES. 

(a) IN GENERAL.—Section 547 of title 11, United States Code, as amended by 

section 201, is amended—

(1) in subsection (b), by striking ‘‘subsection (c)’’ and inserting ‘‘subsections 

(c) and (i)’’; and 

(2) by adding at the end the following: 

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‘‘(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.’’. (b) APPLICABILITY.—The amendments made by this section shall apply to any 

case that is pending or commenced on or after the date of enactment of this Act. 

SEC. 1214. POSTPETITION TRANSACTIONS. 

Section 549(c) of title 11, United States Code, is amended— (1) by inserting ‘‘an interest in’’ after ‘‘transfer of’’ each place it appears; 

(2) by striking ‘‘such property’’ and inserting ‘‘such real property’’; and 

(3) by striking ‘‘the interest’’ and inserting ‘‘such interest’’. 

SEC. 1215. DISPOSITION OF PROPERTY OF THE ESTATE. 

Section 726(b) of title 11, United States Code, is amended by striking ‘‘1009,’’. 

SEC. 1216. GENERAL PROVISIONS. 

Section 901(a) of title 11, United States Code, is amended by inserting ‘‘1123(d),’’ after ‘‘1123(b),’’. 

SEC. 1217. ABANDONMENT OF RAILROAD LINE. 

Section 1170(e)(1) of title 11, United States Code, is amended by striking ‘‘sec- tion 11347’’ and inserting ‘‘section 11326(a)’’. 

SEC. 1218. CONTENTS OF PLAN. 

Section 1172(c)(1) of title 11, United States Code, is amended by striking ‘‘section 11347’’ and inserting ‘‘section 11326(a)’’. 

SEC. 1219. BANKRUPTCY CASES AND PROCEEDINGS. 

Section 1334(d) of title 28, United States Code, is amended—

(1) by striking ‘‘made under this subsection’’ and inserting ‘‘made under 

subsection (c)’’; and 

(2) by striking ‘‘This subsection’’ and inserting ‘‘Subsection (c) and this subsection’’. 

SEC. 1220. KNOWING DISREGARD OF BANKRUPTCY LAW OR RULE. 

Section 156(a) of title 18, United States Code, is amended—

(1) in the first undesignated paragraph—

(A) by inserting ‘‘(1) the term’’ before ‘‘ ‘bankruptcy’’; and 

(B) by striking the period at the end and inserting ‘‘; and’’; and 

(2) in the second undesignated paragraph—

(A) by inserting ‘‘(2) the term’’ before ‘‘ ‘document’’; and 

(B) by striking ‘‘this title’’ and inserting ‘‘title 11’’. 

SEC. 1221. TRANSFERS MADE BY NONPROFIT CHARITABLE CORPORATIONS. 

(a) SALE OF PROPERTY OF ESTATE.—Section 363(d) of title 11, United States 

Code, is amended by striking ‘‘only’’ and all that follows through the end of the subsection and inserting ‘‘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.’’. 

(b) CONFIRMATION OF PLAN OF REORGANIZATION.—Section 1129(a) of title 11, 

United States Code, as amended by sections 213 and 321, is amended by adding at 

the end the following: 

‘‘(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.’’. 

(c) TRANSFER OF PROPERTY.—Section 541 of title 11, United States Code, as 

amended by section 225, is amended by adding at the end the following: 

‘‘(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.’’. 

(d) APPLICABILITY.—The amendments made by this section shall apply to a case 

pending under title 11, United States Code, on the date of enactment of this Act, 

or filed under that title on or after that date of enactment, except that the court 

shall not confirm a plan under chapter 11 of title 11, United States Code, without 

109

considering whether this section would substantially affect the rights of a party in 

interest who first acquired rights with respect to the debtor after the date of the 

filing of the petition. The parties who may appear and be heard in a proceeding 

under this section include the attorney general of the State in which the debtor is 

incorporated, was formed, or does business. 

(e) RULE OF CONSTRUCTION.—Nothing in this section shall be construed to require the court in which a case under chapter 11 of title 11, United States Code, 

is pending 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 547(c)(3)(B) of title 11, United States Code, is amended by striking ‘‘20’’ and inserting ‘‘30’’.

SEC. 1223. BANKRUPTCY JUDGESHIPS. 

(a) SHORT TITLE.—This section may be cited as the ‘‘Bankruptcy Judgeship Act 

of 2003’’. (b) TEMPORARY JUDGESHIPS.— (1) APPOINTMENTS.—The following bankruptcy judges shall be appointed in 

the manner prescribed in section 152(a)(1) of title 28, United States Code, for 

the appointment of bankruptcy judges provided for in section 152(a)(2) of such 

title: 

(A) One additional bankruptcy judge for the eastern district of California. 

(B) Three additional bankruptcy judges for the central district of California. 

(C) Four additional bankruptcy judges for the district of Delaware. 

(D) Two additional bankruptcy judges for the southern district of Florida. 

(E) One additional bankruptcy judge for the southern district of Georgia. 

(F) Three additional bankruptcy judges for the district of Maryland.

(G) One additional bankruptcy judge for the eastern district of Michigan. 

(H) One additional bankruptcy judge for the southern district of Mississippi. 

(I) One additional bankruptcy judge for the district of New Jersey. 

(J) One additional bankruptcy judge for the eastern district of New 

York. 

(K) One additional bankruptcy judge for the northern district of New 

York. 

(L) One additional bankruptcy judge for the southern district of New 

York. 

(M) One additional bankruptcy judge for the eastern district of North 

Carolina. 

(N) One additional bankruptcy judge for the eastern district of Pennsylvania. 

(O) One additional bankruptcy judge for the middle district of Pennsylvania. 

(P) One additional bankruptcy judge for the district of Puerto Rico. 

(Q) One additional bankruptcy judge for the western district of Tennessee. 

(R) One additional bankruptcy judge for the eastern district of Virginia. 

(S) One additional bankruptcy judge for the district of South Carolina. 

(T) One additional bankruptcy judge for the district of Nevada. 

(2) VACANCIES.—

(A) DISTRICTS WITH SINGLE APPOINTMENTS.—Except as provided in subparagraphs (B), (C), (D), and (E), the first vacancy occurring in the office 

of bankruptcy judge in each of the judicial districts set forth in paragraph 

(1)—

(i) occurring 5 years or more after the appointment date of the 

bankruptcy judge appointed under paragraph (1) to such office; and 

(ii) resulting from the death, retirement, resignation, or removal of 

a bankruptcy judge; 

shall not be filled. 

(B) CENTRAL DISTRICT OF CALIFORNIA.—The 1st, 2d, and 3d vacancies 

in the office of bankruptcy judge in the central district of California—

(i) occurring 5 years or more after the respective 1st, 2d, and 3d 

appointment dates of the bankruptcy judges appointed under paragraph (1)(B); and 

110

(ii) resulting from the death, retirement, resignation, or removal of 

a bankruptcy judge; 

shall not be filled. 

(C) DISTRICT OF DELAWARE.—The 1st, 2d, 3d, and 4th vacancies in the 

office of bankruptcy judge in the district of Delaware—

(i) occurring 5 years or more after the respective 1st, 2d, 3d, and 

4th appointment dates of the bankruptcy judges appointed under paragraph (1)(F); and 

(ii) resulting from the death, retirement, resignation, or removal of 

a bankruptcy judge; 

shall not be filled. 

(D) SOUTHERN DISTRICT OF FLORIDA.—The 1st and 2d vacancies in the 

office of bankruptcy judge in the southern district of Florida—

(i) occurring 5 years or more after the respective 1st and 2d appointment dates of the bankruptcy judges appointed under paragraph 

(1)(D); and 

(ii) resulting from the death, retirement, resignation, or removal of 

a bankruptcy judge; 

shall not be filled. 

(E) DISTRICT OF MARYLAND.—The 1st, 2d, and 3d vacancies in the office 

of bankruptcy judge in the district of Maryland—

(i) occurring 5 years or more after the respective 1st, 2d, and 3d 

appointment dates of the bankruptcy judges appointed under paragraph (1)(F); and 

(ii) resulting from the death, retirement, resignation, or removal of 

a bankruptcy judge; 

shall not be filled. 

(c) EXTENSIONS.—

(1) IN GENERAL.—The temporary office of bankruptcy judges authorized for 

the northern district of Alabama, the district of Delaware, the district of Puerto 

Rico, and the eastern district of Tennessee under paragraphs (1), (3), (7), and 

(9) of section 3(a) of the Bankruptcy Judgeship Act of 1992 (28 U.S.C. 152 note) 

are extended until the first vacancy occurring in the office of a bankruptcy 

judge in the applicable district resulting from the death, retirement, resignation, or removal of a bankruptcy judge and occurring 5 years after the date of 

the enactment of this Act. 

(2) APPLICABILITY OF OTHER PROVISIONS.—All other provisions of section 3 

of the Bankruptcy Judgeship Act of 1992 (28 U.S.C. 152 note) remain applicable 

to the temporary office of bankruptcy judges referred to in this subsection. 

(d) TECHNICAL AMENDMENTS.—Section 152(a) of title 28, United States Code, is 

amended—

(1) in paragraph (1), by striking the first sentence and inserting the following: ‘‘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.’’; and 

(2) in paragraph (2)—

(A) in the item relating to the middle district of Georgia, by striking 

‘‘2’’ and inserting ‘‘3’’; and 

(B) in the collective item relating to the middle and southern districts 

of Georgia, by striking ‘‘Middle and Southern . . . . . . 1’’.

(e) EFFECTIVE DATE.—The amendments made by this section shall take effect 

on the date of the enactment of this Act. 

SEC. 1224. COMPENSATING TRUSTEES. 

Section 1326 of title 11, United States Code, is amended—

(1) in subsection (b)—

(A) in paragraph (1), by striking ‘‘and’’; 

(B) in paragraph (2), by striking the period at the end and inserting 

‘‘; and’’; and 

(C) by adding at the end the following: 

‘‘(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 

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‘‘(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.’’; and 

(2) by adding at the end the following: ‘‘(d) Notwithstanding any other provision of this title— ‘‘(1) compensation referred to in subsection (b)(3) is payable and may be collected by the trustee under that paragraph, even if such amount has been discharged in a prior case under this title; and ‘‘(2) such compensation is payable in a case under this chapter only to the 

extent permitted by subsection (b)(3).’’. 

SEC. 1225. AMENDMENT TO SECTION 362 OF TITLE 11, UNITED STATES CODE. 

Section 362(b)(18) of title 11, United States Code, is amended to read as follows: ‘‘(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;’’. 

SEC. 1226. JUDICIAL EDUCATION. 

The Director of the Federal Judicial Center, in consultation with the Director 

of the Executive Office for United States Trustees, shall develop materials and conduct such training as may be useful to courts in implementing this Act and the 

amendments made by this Act, including the requirements relating to the means 

test under section 707(b), and reaffirmation agreements under section 524, of title 

11 of the United States Code, as amended by this Act. 

SEC. 1227. RECLAMATION. 

(a) RIGHTS AND POWERS OF THE TRUSTEE.—Section 546(c) of title 11, United 

States Code, is amended to read as follows: ‘‘(c)(1) Except as provided in subsection (d) of this section and in section 507(c), 

and subject to the prior rights of a holder of a security interest in such goods or 

the proceeds thereof, the rights and powers of the trustee under sections 544(a), 

545, 547, and 549 are subject to the right of a seller of goods that has sold goods 

to the debtor, in the ordinary course of such seller’s business, to reclaim such goods 

if the debtor has received such goods while insolvent, within 45 days before the date 

of the commencement of a case under this title, but such seller may not reclaim 

such goods unless such seller demands in writing reclamation of such goods—

‘‘(A) not later than 45 days after the date of receipt of such goods by the 

debtor; or 

‘‘(B) not later than 20 days after the date of commencement of the case, if 

the 45-day period expires after the commencement of the case. 

‘‘(2) If a seller of goods fails to provide notice in the manner described in paragraph (1), the seller still may assert the rights contained in section 503(b)(9).’’. 

(b) ADMINISTRATIVE EXPENSES.—Section 503(b) of title 11, United States Code, 

as amended by sections 445 and 1103, is amended by adding at the end the following: 

‘‘(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.’’. 

SEC. 1228. PROVIDING REQUESTED TAX DOCUMENTS TO THE COURT. 

(a) CHAPTER 7 CASES.—The court shall not grant a discharge in the case of an 

individual who is a debtor in a case under chapter 7 of title 11, United States Code, 

unless requested tax documents have been provided to the court. 

(b) CHAPTER 11 AND CHAPTER 13 CASES.—The court shall not confirm a plan 

of reorganization in the case of an individual under chapter 11 or 13 of title 11, 

United States Code, unless requested tax documents have been filed with the court. 

(c) DOCUMENT RETENTION.—The court shall destroy documents submitted in 

support of a bankruptcy claim not sooner than 3 years after the date of the conclusion of a case filed by an individual under chapter 7, 11, or 13 of title 11, United 

States Code. 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. 

(a) SENSE OF THE CONGRESS.—It is the sense of the Congress that—

(1) certain lenders may sometimes offer credit to consumers indiscriminately, without taking steps to ensure that consumers are capable of repaying 

the resulting debt, and in a manner which may encourage certain consumers 

to accumulate additional debt; and 

(2) resulting consumer debt may increasingly be a major contributing factor 

to consumer insolvency. 

112

(b) STUDY REQUIRED.—The Board of Governors of the Federal Reserve System 

(hereafter in this section referred to as the ‘‘Board’’) shall conduct a study of—

(1) consumer credit industry practices of soliciting and extending credit—

(A) indiscriminately; 

(B) without taking steps to ensure that consumers are capable of repaying the resulting debt; and 

(C) in a manner that encourages consumers to accumulate additional 

debt; and 

(2) the effects of such practices on consumer debt and insolvency. 

(c) REPORT AND REGULATIONS.—Not later than 12 months after the date of enactment of this Act, the Board—

(1) shall make public a report on its findings with respect to the indiscriminate solicitation and extension of credit by the credit industry; 

(2) may issue regulations that would require additional disclosures to consumers; and 

(3) may take any other actions, consistent with its existing statutory authority, that the Board finds necessary to ensure responsible industrywide practices and to prevent resulting consumer debt and insolvency. 

SEC. 1230. PROPERTY NO LONGER SUBJECT TO REDEMPTION. 

Section 541(b) of title 11, United States Code, as amended by sections 225 and 

323, is amended by adding after paragraph (7), as added by section 323, the following: 

‘‘(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’’. 

SEC. 1231. TRUSTEES. 

(a) SUSPENSION AND TERMINATION OF PANEL TRUSTEES AND STANDING TRUSTEES.—Section 586(d) of title 28, United States Code, is amended—

(1) by inserting ‘‘(1)’’ after ‘‘(d)’’; and 

(2) by adding at the end the following: 

‘‘(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.’’. 

(b) EXPENSES OF STANDING TRUSTEES.—Section 586(e) of title 28, United States 

Code, is amended by adding at the end the following: 

‘‘(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.’’. 

113

SEC. 1232. BANKRUPTCY FORMS. 

Section 2075 of title 28, United States Code, is amended by adding at the end 

the following: 

‘‘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.’’.

SEC. 1233. DIRECT APPEALS OF BANKRUPTCY MATTERS TO COURTS OF APPEALS. 

(a) APPEALS.—Section 158 of title 28, United States Code, is amended—

(1) in subsection (c)(1), by striking ‘‘Subject to subsection (b),’’ and inserting 

‘‘Subject to subsections (b) and (d)(2),’’; and 

(2) in subsection (d)—

(A) by inserting ‘‘(1)’’ after ‘‘(d)’’; and 

(B) by adding at the end the following: 

‘‘(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.’’. 

(b) PROCEDURAL RULES.—

(1) TEMPORARY APPLICATION.—A provision of this subsection shall apply to 

appeals under section 158(d)(2) of title 28, United States Code, until a rule of 

practice and procedure relating to such provision and such appeals is promulgated or amended under chapter 131 of such title. 

(2) CERTIFICATION.—A district court, a bankruptcy court, or a bankruptcy 

appellate panel may make a certification under section 158(d)(2) of title 28, 

United States Code, only with respect to matters pending in the respective 

bankruptcy court, district court, or bankruptcy appellate panel. 

(3) PROCEDURE.—Subject to any other provision of this subsection, an appeal authorized by the court of appeals under section 158(d)(2)(A) of title 28, 

United States Code, shall be taken in the manner prescribed in subdivisions 

(a)(1), (b), (c), and (d) of rule 5 of the Federal Rules of Appellate Procedure. For 

purposes of subdivision (a)(1) of rule 5—

(A) a reference in such subdivision to a district court shall be deemed 

to include a reference to a bankruptcy court and a bankruptcy appellate 

panel, as appropriate; and 

(B) a reference in such subdivision to the parties requesting permission 

to appeal to be served with the petition shall be deemed to include a reference to the parties to the judgment, order, or decree from which the appeal is taken. 

(4) FILING OF PETITION WITH ATTACHMENT.—A petition requesting permission to appeal, that is based on a certification made under subparagraph (A) 

or (B) of section 158(d)(2) shall—

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(A) be filed with the circuit clerk not later than 10 days after the certification is entered on the docket of the bankruptcy court, the district 

court, or the bankruptcy appellate panel from which the appeal is taken; 

and 

(B) have attached a copy of such certification. 

(5) REFERENCES IN RULE 5.—For purposes of rule 5 of the Federal Rules of 

Appellate Procedure—

(A) a reference in such rule to a district court shall be deemed to include a reference to a bankruptcy court and to a bankruptcy appellate 

panel; and 

(B) a reference in such rule to a district clerk shall be deemed to include a reference to a clerk of a bankruptcy court and to a clerk of a bankruptcy appellate panel. 

(6) APPLICATION OF RULES.—The Federal Rules of Appellate Procedure shall 

apply in the courts of appeals with respect to appeals authorized under section 

158(d)(2)(A), to the extent relevant and as if such appeals were taken from final 

judgments, orders, or decrees of the district courts or bankruptcy appellate panels exercising appellate jurisdiction under subsection (a) or (b) of section 158 of 

title 28, United States Code.

SEC. 1234. INVOLUNTARY CASES. 

(a) AMENDMENTS.—Section 303 of title 11, United States Code, is amended—

(1) in subsection (b)(1), by—

(A) inserting ‘‘as to liability or amount’’ after ‘‘bona fide dispute’’; and 

(B) striking ‘‘if such claims’’ and inserting ‘‘if such noncontingent, undisputed claims’’; and 

(2) in subsection (h)(1), by inserting ‘‘as to liability or amount’’ before the 

semicolon at the end. 

(b) EFFECTIVE DATE; APPLICATION OF AMENDMENTS.—This section and the 

amendments made by this section shall take effect on the date of the enactment of 

this Act and shall not apply with respect to cases commenced under title 11 of the 

United States Code before such date. 

SEC. 1235. FEDERAL ELECTION LAW FINES AND PENALTIES AS NONDISCHARGEABLE DEBT. 

Section 523(a) of title 11, United States Code, as amended by section 314, is 

amended by inserting after paragraph (14A) the following: 

‘‘(14B) incurred to pay fines or penalties imposed under Federal election 

law;’’. 

TITLE XIII—CONSUMER CREDIT DISCLOSURE 

SEC. 1301. ENHANCED DISCLOSURES UNDER AN OPEN END CREDIT PLAN. 

(a) MINIMUM PAYMENT DISCLOSURES.—Section 127(b) of the Truth in Lending 

Act (15 U.S.C. 1637(b)) is amended by adding at the end the following: 

‘‘(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 

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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 tollfree number: llllll.’ (the blank space to be filled in by the creditor). A 

creditor who is subject to this subparagraph shall not be subject to subparagraph (A) or (B). ‘‘(D) Notwithstanding subparagraph (A), (B), or (C), in complying with any 

such subparagraph, a creditor may substitute an example based on an interest 

rate that is greater than 17 percent. Any creditor that is subject to subparagraph (B) may elect to provide the disclosure required under subparagraph (A) 

in lieu of the disclosure required under subparagraph (B). ‘‘(E) The Board shall, by rule, periodically recalculate, as necessary, the interest rate and repayment period under subparagraphs (A), (B), and (C). ‘‘(F)(i) The toll-free telephone number disclosed by a creditor or the Federal 

Trade Commission under subparagraph (A), (B), or (G), as appropriate, may be 

a toll-free telephone number established and maintained by the creditor or the 

Federal Trade Commission, as appropriate, or may be a toll-free telephone number established and maintained by a third party for use by the creditor or multiple creditors or the Federal Trade Commission, as appropriate. The toll-free 

telephone number may connect consumers to an automated device through 

which consumers may obtain information described in subparagraph (A), (B), or 

(C), by inputting information using a touch-tone telephone or similar device, if 

consumers whose telephones are not equipped to use such automated device are 

provided the opportunity to be connected to an individual from whom the information described in subparagraph (A), (B), or (C), as applicable, may be obtained. A person that receives a request for information described in subparagraph (A), (B), or (C) from an obligor through the toll-free telephone number 

disclosed under subparagraph (A), (B), or (C), as applicable, shall disclose in response to such request only the information set forth in the table promulgated 

by the Board under subparagraph (H)(i). 

‘‘(ii)(I) The Board shall establish and maintain for a period not to exceed 

24 months following the effective date of the Bankruptcy Abuse Prevention and 

Consumer Protection Act of 2003, a toll-free telephone number, or provide a tollfree telephone number established and maintained by a third party, for use by 

creditors that are depository institutions (as defined in section 3 of the Federal 

Deposit Insurance Act), including a Federal credit union or State credit union 

(as defined in section 101 of the Federal Credit Union Act), with total assets 

not exceeding $250,000,000. The toll-free telephone number may connect consumers to an automated device through which consumers may obtain information described in subparagraph (A) or (B), as applicable, by inputting information using a touch-tone telephone or similar device, if consumers whose telephones are not equipped to use such automated device are provided the opportunity to be connected to an individual from whom the information described 

in subparagraph (A) or (B), as applicable, may be obtained. A person that receives a request for information described in subparagraph (A) or (B) from an 

obligor through the toll-free telephone number disclosed under subparagraph 

(A) or (B), as applicable, shall disclose in response to such request only the information set forth in the table promulgated by the Board under subparagraph 

(H)(i). The dollar amount contained in this subclause shall be adjusted according to an indexing mechanism established by the Board. 

‘‘(II) Not later than 6 months prior to the expiration of the 24-month period 

referenced in subclause (I), the Board shall submit to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial 

Services of the House of Representatives a report on the program described in 

subclause (I). 

‘‘(G) The Federal Trade Commission shall establish and maintain a toll-free 

number for the purpose of providing to consumers the information required to 

be disclosed under subparagraph (C). 

‘‘(H) The Board shall—

‘‘(i) establish a detailed table illustrating the approximate number of 

months that it would take to repay an outstanding balance if a consumer 

pays only the required minimum monthly payments and if no other advances are made, which table shall clearly present standardized information to be used to disclose the information required to be disclosed under 

subparagraph (A), (B), or (C), as applicable; 

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‘‘(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).’’. 

(b) REGULATORY IMPLEMENTATION.—

(1) IN GENERAL.—The Board of Governors of the Federal Reserve System 

(hereafter in this title referred to as the ‘‘Board’’) shall promulgate regulations 

implementing the requirements of section 127(b)(11) of the Truth in Lending 

Act, as added by subsection (a) of this section. 

(2) EFFECTIVE DATE.—Section 127(b)(11) of the Truth in Lending Act, as 

added by subsection (a) of this section, and the regulations issued under paragraph (1) of this subsection shall not take effect until the later of—

(A) 18 months after the date of enactment of this Act; or 

(B) 12 months after the publication of such final regulations by the 

Board. 

(c) STUDY OF FINANCIAL DISCLOSURES.—

(1) IN GENERAL.—The Board may 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. 

(2) FACTORS FOR CONSIDERATION.—In conducting a study under paragraph 

(1), the Board should, in consultation with the other Federal banking agencies 

(as defined in section 3 of the Federal Deposit Insurance Act), the National 

Credit Union Administration, and the Federal Trade Commission, consider the 

extent to which—

(A) consumers, in establishing new credit arrangements, are aware of 

their existing payment obligations, the need to consider those obligations in 

deciding to take on new credit, and how taking on excessive credit can result in financial difficulty; 

(B) minimum periodic payment features offered in connection with open 

end credit plans impact consumer default rates; 

(C) consumers make only the required minimum payment under open 

end credit plans; 

(D) consumers are aware that making only required minimum payments will increase the cost and repayment period of an open end credit 

obligation; and 

(E) the availability of low minimum payment options is a cause of consumers experiencing financial difficulty. 

(3) REPORT TO CONGRESS.—Findings of the Board in connection with any 

study conducted under this subsection shall be submitted to Congress. Such report shall also include recommendations for legislative initiatives, if any, of the 

Board, based on its findings. 

SEC. 1302. ENHANCED DISCLOSURE FOR CREDIT EXTENSIONS SECURED BY A DWELLING. 

(a) OPEN END CREDIT EXTENSIONS.—

(1) CREDIT APPLICATIONS.—Section 127A(a)(13) of the Truth in Lending Act 

(15 U.S.C. 1637a(a)(13)) is amended—

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(A) by striking ‘‘CONSULTATION OF TAX ADVISER.—A statement that the’’

and inserting the following: ‘‘TAX DEDUCTIBILITY.—A statement that—

‘‘(A) the’’; and 

(B) by striking the period at the end and inserting the following: ‘‘; 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.’’. 

(2) CREDIT ADVERTISEMENTS.—Section 147(b) of the Truth in Lending Act 

(15 U.S.C. 1665b(b)) is amended—

(A) by striking ‘‘If any’’ and inserting the following: 

‘‘(1) IN GENERAL.—If any’’; and 

(B) by adding at the end the following: 

‘‘(2) CREDIT IN EXCESS OF FAIR MARKET VALUE.—Each advertisement described in subsection (a) that relates to an extension of credit that may exceed 

the fair market value of the dwelling, and which advertisement is disseminated 

in paper form to the public or through the Internet, as opposed to by radio or 

television, shall include a clear and conspicuous statement that—

‘‘(A) the interest on the portion of the credit extension that is greater 

than the fair market value of the dwelling is not tax deductible for Federal 

income tax purposes; and 

‘‘(B) the consumer should consult a tax adviser for further information 

regarding the deductibility of interest and charges.’’. 

(b) NON-OPEN END CREDIT EXTENSIONS.—

(1) CREDIT APPLICATIONS.—Section 128 of the Truth in Lending Act (15 

U.S.C. 1638) is amended—

(A) in subsection (a), by adding at the end the following: 

‘‘(15) In the case of a consumer credit transaction that is secured by the 

principal dwelling of the consumer, in which the extension of credit may exceed 

the fair market value of the dwelling, a clear and conspicuous statement that—

‘‘(A) the interest on the portion of the credit extension that is greater 

than the fair market value of the dwelling is not tax deductible for Federal 

income tax purposes; and 

‘‘(B) the consumer should consult a tax adviser for further information 

regarding the deductibility of interest and charges.’’; and 

(B) in subsection (b), by adding at the end the following: 

‘‘(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.’’. 

(2) CREDIT ADVERTISEMENTS.—Section 144 of the Truth in Lending Act (15 

U.S.C. 1664) is amended by adding at the end the following: 

‘‘(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.’’. 

(c) REGULATORY IMPLEMENTATION.—

(1) IN GENERAL.—The Board shall promulgate regulations implementing the 

amendments made by this section.

(2) EFFECTIVE DATE.—Regulations issued under paragraph (1) shall not 

take effect until the later of—

(A) 12 months after the date of enactment of this Act; or 

(B) 12 months after the date of publication of such final regulations by 

the Board. 

SEC. 1303. DISCLOSURES RELATED TO ‘‘INTRODUCTORY RATES’’. 

(a) INTRODUCTORY RATE DISCLOSURES.—Section 127(c) of the Truth in Lending 

Act (15 U.S.C. 1637(c)) is amended by adding at the end the following: 

‘‘(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 

118

required under paragraph (1), and that offers a temporary annual percentage rate of interest, shall—

‘‘(i) use the term ‘introductory’ in immediate proximity to each listing of the temporary annual percentage rate applicable to such account, 

which term shall appear clearly and conspicuously; 

‘‘(ii) if the annual percentage rate of interest that will apply after 

the end of the temporary rate period will be a fixed rate, state in a 

clear and conspicuous manner in a prominent location closely proximate to the first listing of the temporary annual percentage rate (other 

than a listing of the temporary annual percentage rate in the tabular 

format described in section 122(c)), the time period in which the introductory period will end and the annual percentage rate that will apply 

after the end of the introductory period; and 

‘‘(iii) if the annual percentage rate that will apply after the end of 

the temporary rate period will vary in accordance with an index, state 

in a clear and conspicuous manner in a prominent location closely proximate to the first listing of the temporary annual percentage rate (other 

than a listing in the tabular format prescribed by section 122(c)), the 

time period in which the introductory period will end and the rate that 

will apply after that, based on an annual percentage rate that was in 

effect within 60 days before the date of mailing the application or solicitation. 

‘‘(B) EXCEPTION.—Clauses (ii) and (iii) of subparagraph (A) do not apply 

with respect to any listing of a temporary annual percentage rate on an envelope or other enclosure in which an application or solicitation to open a 

credit card account is mailed. 

‘‘(C) CONDITIONS FOR INTRODUCTORY RATES.—An application or solicitation to open a credit card account for which a disclosure is required under 

paragraph (1), and that offers a temporary annual percentage rate of interest shall, if that rate of interest is revocable under any circumstance or 

upon any event, clearly and conspicuously disclose, in a prominent manner 

on or with such application or solicitation—

‘‘(i) a general description of the circumstances that may result in 

the revocation of the temporary annual percentage rate; and 

‘‘(ii) if the annual percentage rate that will apply upon the revocation of the temporary annual percentage rate—

‘‘(I) will be a fixed rate, the annual percentage rate that will 

apply upon the revocation of the temporary annual percentage 

rate; or 

‘‘(II) will vary in accordance with an index, the rate that will 

apply after the temporary rate, based on an annual percentage rate 

that was in effect within 60 days before the date of mailing the application or solicitation. 

‘‘(D) DEFINITIONS.—In this paragraph—

‘‘(i) the terms ‘temporary annual percentage rate of interest’ and 

‘temporary annual percentage rate’ mean any rate of interest applicable 

to a credit card account for an introductory period of less than 1 year, 

if that rate is less than an annual percentage rate that was in effect 

within 60 days before the date of mailing the application or solicitation; 

and 

‘‘(ii) the term ‘introductory period’ means the maximum time period 

for which the temporary annual percentage rate may be applicable. 

‘‘(E) RELATION TO OTHER DISCLOSURE REQUIREMENTS.—Nothing in this 

paragraph may be construed to supersede subsection (a) of section 122, or 

any disclosure required by paragraph (1) or any other provision of this subsection.’’. 

(b) REGULATORY IMPLEMENTATION.—

(1) IN GENERAL.—The Board shall promulgate regulations implementing the 

requirements of section 127(c)(6) of the Truth in Lending Act, as added by this 

section. 

(2) EFFECTIVE DATE.—Section 127(c)(6) of the Truth in Lending Act, as 

added by this section, and regulations issued under paragraph (1) of this subsection shall not take effect until the later of—

(A) 12 months after the date of enactment of this Act; or 

(B) 12 months after the date of publication of such final regulations by 

the Board. 

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SEC. 1304. INTERNET-BASED CREDIT CARD SOLICITATIONS. 

(a) INTERNET-BASED SOLICITATIONS.—Section 127(c) of the Truth in Lending Act 

(15 U.S.C. 1637(c)) is amended by adding at the end the following: ‘‘(7) INTERNET-BASED SOLICITATIONS.— ‘‘(A) IN GENERAL.—In any solicitation to open a credit card account for 

any person under an open end consumer credit plan using the Internet or 

other interactive computer service, the person making the solicitation shall 

clearly and conspicuously disclose— ‘‘(i) the information described in subparagraphs (A) and (B) of paragraph (1); and ‘‘(ii) the information described in paragraph (6). ‘‘(B) FORM OF DISCLOSURE.—The disclosures required by subparagraph 

(A) shall be— ‘‘(i) readily accessible to consumers in close proximity to the solicitation to open a credit card account; and ‘‘(ii) updated regularly to reflect the current policies, terms, and fee 

amounts applicable to the credit card account. 

‘‘(C) DEFINITIONS.—For purposes of this paragraph— ‘‘(i) the term ‘Internet’ means the international computer network 

of both Federal and non-Federal interoperable packet switched data 

networks; and ‘‘(ii) the term ‘interactive computer service’ means any information 

service, system, or access software provider that provides or enables 

computer access by multiple users to a computer server, including specifically a service or system that provides access to the Internet and 

such systems operated or services offered by libraries or educational institutions.’’. (b) REGULATORY IMPLEMENTATION.— (1) IN GENERAL.—The Board shall promulgate regulations implementing the 

requirements of section 127(c)(7) of the Truth in Lending Act, as added by this 

section. 

(2) EFFECTIVE DATE.—The amendment made by subsection (a) and the regulations issued under paragraph (1) of this subsection shall not take effect until 

the later of— (A) 12 months after the date of enactment of this Act; or 

(B) 12 months after the date of publication of such final regulations by 

the Board. 

SEC. 1305. DISCLOSURES RELATED TO LATE PAYMENT DEADLINES AND PENALTIES. 

(a) DISCLOSURES RELATED TO LATE PAYMENT DEADLINES AND PENALTIES.—Section 127(b) of the Truth in Lending Act (15 U.S.C. 1637(b)) is amended by adding 

at the end the following: 

‘‘(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.’’. 

(b) REGULATORY IMPLEMENTATION.—

(1) IN GENERAL.—The Board shall promulgate regulations implementing the 

requirements of section 127(b)(12) of the Truth in Lending Act, as added by this 

section. 

(2) EFFECTIVE DATE.—The amendment made by subsection (a) and regulations issued under paragraph (1) of this subsection shall not take effect until 

the later of—

(A) 12 months after the date of enactment of this Act; or 

(B) 12 months after the date of publication of such final regulations by 

the Board. 

SEC. 1306. PROHIBITION ON CERTAIN ACTIONS FOR FAILURE TO INCUR FINANCE CHARGES. 

(a) PROHIBITION ON CERTAIN ACTIONS FOR FAILURE TO INCUR FINANCE

CHARGES.—Section 127 of the Truth in Lending Act (15 U.S.C. 1637) is amended 

by adding at the end the following: 

‘‘(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.’’. 

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(b) REGULATORY IMPLEMENTATION.—

(1) IN GENERAL.—The Board shall promulgate regulations implementing the 

requirements of section 127(h) of the Truth in Lending Act, as added by this 

section. 

(2) EFFECTIVE DATE.—The amendment made by subsection (a) and regulations issued under paragraph (1) of this subsection shall not take effect until 

the later of—

(A) 12 months after the date of enactment of this Act; or 

(B) 12 months after the date of publication of such final regulations by 

the Board. 

SEC. 1307. DUAL USE DEBIT CARD. 

(a) REPORT.—The Board may conduct a study of, and present to Congress a report 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. 

Such report, if submitted, shall include recommendations for legislative initiatives, 

if any, of the Board, based on its findings. 

(b) CONSIDERATIONS.—In preparing a report under subsection (a), the Board 

may include—

(1) the extent to which section 909 of the Electronic Fund Transfer Act (15 

U.S.C. 1693g), as in effect at the time of the report, and the implementing regulations promulgated by the Board to carry out that section provide adequate unauthorized use liability protection for consumers; 

(2) the extent to which any voluntary industry rules have enhanced or may 

enhance the level of protection afforded consumers in connection with such unauthorized use liability; and 

(3) whether amendments to the Electronic Fund Transfer Act (15 U.S.C. 

1693 et seq.), or revisions to regulations promulgated by the Board to carry out 

that Act, 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. 

(a) STUDY.—

(1) IN GENERAL.—The Board shall conduct a study regarding the impact 

that the extension of credit described in paragraph (2) has on the rate of cases 

filed under title 11 of the United States Code. 

(2) EXTENSION OF CREDIT.—The extension of credit described in this paragraph is the extension of credit to individuals who are—

(A) claimed as dependents for purposes of the Internal Revenue Code 

of 1986; and 

(B) enrolled within 1 year of successfully completing all required secondary education requirements and on a full-time basis, in postsecondary 

educational institutions. 

(b) REPORT.—Not later than 1 year after the date of enactment of this Act, the 

Board shall submit to the Senate and the House of Representatives a report summarizing the results of the study conducted under subsection (a). 

SEC. 1309. CLARIFICATION OF CLEAR AND CONSPICUOUS. 

(a) REGULATIONS.—Not later than 6 months after the date of enactment of this 

Act, the Board, in consultation with the other Federal banking agencies (as defined 

in section 3 of the Federal Deposit Insurance Act), the National Credit Union Administration Board, and the Federal Trade Commission, shall promulgate regulations to provide guidance regarding the meaning of the term ‘‘clear and conspicuous’’, as used in subparagraphs (A), (B), and (C) of section 127(b)(11) and 

clauses (ii) and (iii) of section 127(c)(6)(A) of the Truth in Lending Act. 

(b) EXAMPLES.—Regulations promulgated under subsection (a) shall include examples of clear and conspicuous model disclosures for the purposes of disclosures 

required by the provisions of the Truth in Lending Act referred to in subsection (a). 

(c) STANDARDS.—In promulgating regulations under this section, the Board 

shall ensure that the clear and conspicuous standard required for disclosures made 

under the provisions of the Truth in Lending Act referred to in subsection (a) can 

be implemented in a manner which results in disclosures which are reasonably understandable and designed to call attention to the nature and significance of the information in the notice. 

121

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).

TITLE XIV—GENERAL EFFECTIVE DATE; 

APPLICATION OF AMENDMENTS 

SEC. 1401. EFFECTIVE DATE; APPLICATION OF AMENDMENTS. 

(a) EFFECTIVE DATE.—Except as otherwise provided in this Act, this Act and the 

amendments made by this Act shall take effect 180 days after the date of enactment 

of this Act. 

(b) APPLICATION OF AMENDMENTS.— (1) IN GENERAL.—Except as otherwise provided in this Act and paragraph 

(2), the amendments made by this Act shall not apply with respect to cases commenced under title 11, United States Code, before the effective date of this Act. 

(2) CERTAIN LIMITATIONS APPLICABLE TO DEBTORS.—The amendments made 

by sections 308, 322, and 330 shall apply with respect to cases commenced 

under title 11, United States Code, on or after the date of the enactment of this 

Act.

PURPOSE AND SUMMARY

H.R. 975, the ‘‘Bankruptcy Abuse Prevention and Consumer Protection Act of 2003,’’ 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 by ensuring 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. H.R. 

975 also establishes new eligibility standards for consumer bankruptcy relief and includes provisions intended to crackdown on 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.

H.R. 975 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 

122

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 Committee). 3 H. REP. NO. 107–617 (2002). 4The 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). 

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. 

H.R. 975 allows debtors to shelter from the claims of creditors certain education IRA plans and retirement pension funds. It requires 

debtors to receive credit counseling before they can be eligible for 

bankruptcy relief so that they will make an informed choice about 

bankruptcy, its alternatives, and consequences. The bill also requires debtors, after they have filed for bankruptcy, to participate 

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

With respect to business bankruptcy, H.R. 975 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. 

H.R. 975, the ‘‘Bankruptcy Abuse Prevention and Consumer Protection Act of 2003,’’ as ordered reported in the form of a single 

amendment in the nature of a substitute, incorporates technical revisions adopted by unanimous consent. These revisions correct, for 

example, various grammatical, punctuation and spacing errors as 

well as other drafting errors. 

BACKGROUND AND NEED FOR THE LEGISLATION

Chairman F. James Sensenbrenner, Jr. (for himself and 50 original cosponsors) introduced H.R. 975 on February 27, 2003. Except 

for the deletion of a controversial provision dealing with unlawful 

protest activities, H.R. 975, as introduced, is virtually identical to 

the conference report on H.R. 333, the ‘‘Bankruptcy Abuse Prevention and Consumer Protection Act of 2001,’’ considered in the last 

Congress.3 A modified version of this conference report 4 was substituted for the text for H.R. 333 and the House, on the last day 

of the 107th Congress, passed H.R. 333, as amended, by a vote of 

123

5 148 Cong. Rec. H8876–77 (daily ed. Nov. 14, 2002). 6 144 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). 7 145 Cong. Rec. H2771 (daily ed. May 5, 1999). 

8 H. REP. NO. 106–970 (2000). 9 146 Cong. Rec. H9840 (daily ed. Oct. 12, 2000). 

10 146 Cong. Rec. S11730 (daily ed. Dec. 7, 2000). 11 147 Cong. Rec. H600–01 (daily ed. Mar. 1, 2001). 12See supra text accompanying notes 4–5. 13Press 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’’). 14 Id. In the Eastern District of Michigan alone, bankruptcy filings for 2002 increased by 22 

percent over the prior year. 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. 15See, e.g., Tami Luhby, Briefcase, NEWSDAY, Mar. 3, 2003, at F2 (noting, based on a recent 

report by Fitch Ratings, that ‘‘consumer bankruptcies should hit a record high in 2003’’ and ‘‘should rise by 7% to 1.65 million in 2003’’). 16See, 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’’). 

244 to 116.5 The Senate did not consider H.R. 333, as passed by 

the House, prior to the conclusion of the last Congress. 

Proposed reforms to bankruptcy law have been under consideration by Congress for nearly 6 years 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 the last three Congresses, support for bankruptcy reform legislation has been overwhelming and bipartisan. The House, in fact, 

has passed bankruptcy reform legislation on six separate occasions 

over the course of the preceding three Congresses. In the 105th 

Congress, for example, the House passed both H.R. 3150, the 

‘‘Bankruptcy Reform Act of 1998,’’ and the conference report on 

that bill by veto-proof margins.6 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 7 and agreed to the conference report 8 by voice vote.9

Although the Senate subsequently passed this legislation by a vote 

of 70 to 28,10 President Clinton pocket-vetoed it. 

During the last Congress, the House, again, registered its overwhelming support for bankruptcy reform on two 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 

108.11 The House thereafter passed a modified version of the conference report on H.R. 333, as previously noted.12

Representing the most comprehensive set of reforms in nearly 25 

years, H.R 975’s consumer bankruptcy provisions respond to several factors. First, consumer bankruptcy filings have in recent 

years generally escalated and their proliferation does not appear to 

be just a temporary event, but part of a fairly consistent upward 

trend.13 In 1998, for example, bankruptcy filings exceeded one million for the first time in our nation’s history. Just 4 years later, 

however, the number of bankruptcy filings increased by 150% to 

1.5 million cases in 2002.14 And, the upward trend is expected to 

continue.15 As a result, there is a growing perception that bankruptcy relief may be too readily available and that it sometimes is 

used as a first resort, rather than as a last resort.16

124

17 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). 18 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). 19 Id.; 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). 20 Bankruptcy Losses on Cards, THE NILSON REPORT, Jan. 2003, at 1. 21 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). 22 Antonia G. Darling & Mark A. Redmiles, Protecting the Integrity of the System: the Civil 

Enforcement Initiative, AM. BANKR. INSTITUTE J. 12 (Sept. 2002). 23 J. Christopher Marshall, Civil Enforcement: An Early Report, JOURNAL OF THE NAT’L ASS’N

OF BANKR. TRUSTEES (NABTALK) 39 (Fall 2002). 24See, 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’’). 

Second, there are significant losses asserted to be associated with 

bankruptcy filings. According to some analyses, the increase in consumer bankruptcy filings has adverse financial consequences for 

our nation’s economy. For instance, it has been estimated that in 

1997 alone, more than $44 billion of debt was discharged by debtors who filed for bankruptcy relief.17 The Committee has previously 

received testimony stating that this figure, when amortized on a 

daily basis, amounts to a loss of ‘‘at least $110 million every 

day.’’ 18 These losses, according to one estimate, translate into a $400 annual ‘‘tax’’ on every household in our nation.19 Earlier this 

year, the Nilson Report (a credit industry newsletter) announced 

that issuers of proprietary and general purpose credit cards ‘‘lost 

$18.9 billion in 2002 from consumer bankruptcy filings last year,’’ an increase of 15.1 percent over the prior year.20 The Credit Union 

National Association (CUNA) reported last year that credit unions 

have lost ‘‘nearly $3 billion from bankruptcies’’ since Congress 

began considering bankruptcy reform legislation in 1998.21

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 recently undertaken 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.’’ 22

According to the United States Trustee Program, ‘‘Abuse of the system is more widespread than many would have estimated.’’ 23 Such 

abuse ultimately hurts consumers as well as creditors. 

A fourth factor relates to the fact that some bankruptcy debtors 

can repay a significant portion of their debts, according to several 

studies.24 Current law, however, has no clear mandate requiring 

these debtors to repay these debts. Accordingly, ‘‘[w]hile there is a 

125

25 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). 26Operation of the Bankruptcy System and Status Report from the National Bankruptcy Review Commission: Hearing Before the Subcomm. on Commercial and Administrative Law of the 

House Comm. on the Judiciary, 105th Cong. (1997). 27The dates and subject matters of these hearings were 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. 28 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). 29Senators 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. The March 16, 1999 hearing provided an opportunity for the 

Subcommittee to hear divergent historical perspectives of consumer bankruptcy reform. Specific 

topics included an analysis of the history and significance of the ‘‘fresh start’’ discharge under 

Continued

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.’’ 25

The Committee commenced its consideration of bankruptcy reform early in 105th Congress. On April 16, 1997, the Subcommittee 

on Commercial and Administrative Law (Subcommittee) conducted 

a hearing on the operation of the bankruptcy system that was combined with a status report from the National Bankruptcy Review 

Commission.26 This would be the first of 18 hearings held on the 

subject of bankruptcy reform over the ensuing 6 years.27 Eleven of 

these hearings were devoted solely to consideration of H.R. 975 and 

its predecessors, H.R. 3150 (105th Congress), H.R. 833 (106th Congress), and H.R. 333 (107th Congress). Over the course of these 

hearings, more than 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. In fact, the Subcommittee’s inaugural 

hearing on H.R. 833 was held jointly with the Senate Subcommittee on Administrative Oversight and the Courts on March 

11, 1999,28 which marked the first time in more than 60 years that 

a bicameral hearing was held on the subject of bankruptcy reform.29

126

American bankruptcy law, the impact of the Bankruptcy Reform Act of 1978, the historical 

underpinnings of needs-based bankruptcy relief, and how bankruptcy affects the rights of creditors. Another panel examined the need for consumer bankruptcy reform from various perspectives. Bankruptcy Reform Act of 1999 (Pt. I): Hearings Before the Subcomm. on Commercial and 

Administrative Law of the House Comm. on the Judiciary, 106th Cong. (1999). At its third hearing, on March 17, 1999, the Subcommittee heard from many of the major organizations in the 

bankruptcy community, including the American Bankruptcy Institute, the American Financial 

Services Association, the National Association of Consumer Bankruptcy Attorneys, the National 

Bankruptcy Conference, the National Consumer Bankruptcy Coalition, the National Governors’ Association, and the National Retail Federation, on the topic of consumer bankruptcy reform. 

A separate panel was devoted to judicial and administrative aspects of consumer bankruptcy 

reform. The hearing concluded with a statistical analysis of the needs-based reforms in H.R. 

833. Bankruptcy Reform Act of 1999 (Pt. II): Hearings Before the Subcomm. on Commercial and 

Administrative Law of the House Comm. on the Judiciary, 106th Cong. (1999). The fourth and 

final hearing on H.R. 833 was held on March 18, 1999. One panel focused on the treatment of 

domestic support obligations under the bill. Another panel offered various perspectives on business bankruptcy reform provisions in the bill from some of the major organizations in the bankruptcy community, including the AFL-CIO, American Bankers Association, American Bar Association/Business Bankruptcy Section, Commercial Law League of America, National Association 

of Credit Managers, and the Office of Chief Counsel for Advocacy at the Small Business Administration. The final panel examined a variety of other provisions in H.R. 833, including the treatment of tax claims in bankruptcy cases, international insolvencies, financial contracts, and chapter 12 (family farmer bankruptcy relief). Bankruptcy Reform Act of 1999 (Pt. III): Hearings Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary, 106th Cong. (1999). 

30 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). 31 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). 32 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).

It is also important to note that bankruptcy reform legislation is 

the product of extensive negotiation and compromise. For example, 

conferees during the 106th Congress spent nearly 7 months engaged in what was initially 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.30

HIGHLIGHTS OF CONSUMER CREDITOR PROTECTIONS

Means test 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.31 This ‘‘unconditional discharge’’ in chapter 7 contrasts with the ‘‘conditional discharge’’ provisions of chapter 13, under which a debtor commits to repay some 

portion of his or her financial obligations in exchange for retaining 

nonexempt assets and receiving a broader discharge of debt than 

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

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

Bankruptcy Act of 1898.32

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

127

33President’s Special Message to the Congress on Reform of Judicial Procedure, 69 Pub. Papers 83, 90 (Feb. 29, 1932). 34 Chandler Act of 1938, 52 Stat. 840 (1938). 35See, 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’’). 36 Hearings on H.R. 1057 and H.R. 5771 Before the Subcomm. No. 4 of the House Comm. on 

the Judiciary, 90th Cong. (1967). 37See, 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). 38Pub. L. No. 95–598, 92 Stat. 2549 (1978). 39 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’’). 40 Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98–353, § 312, 98 

Stat. 333, 335 (1984). 41 11 U.S.C. § 707(b). 42 6 LAWRENCE P. KING ET AL., COLLIER ON BANKRUPTCY § 707.LH[2], at 707–30 (15th ed. rev. 

2002). 43 Id. at § 707.04. 44 Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, 

Pub. L. No. 99–554, § 219, 100 Stat. 3088, 3101 (1986). 

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.’’ 33 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.34

Over the ensuing years, there continued to be repeated expressions of support for and opposition to means-testing bankruptcy reform.35 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.36

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.’’ 37 The Bankruptcy Reform Act of 

1978 38 retained the principle that a debtor’s decision to choose relief premised on repayment to creditors should be ‘‘completely voluntary.’’ 39

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.’’ 40 This provision, codified in section 

707(b) of the Bankruptcy Code,41 was added ‘‘as part of a package 

of consumer credit amendments designed to reduce perceived 

abuses in the use of chapter 7.’’ 42 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.’’ 43 In 1986, section 707(b) was further amended to allow a United States trustee 

(a Department of Justice official) to move for dismissal.44

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

current law, neither the court nor the United States trustee is reVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00131 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
128

45 11 U.S.C. § 707(b). 46See, 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). 47See, 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’’). 48See, 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. 

49Section 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). 

quired 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.’’ 45 The standard for dismissal—substantial 

abuse—is inherently vague, which has lead to its disparate interpretation and application by the bankruptcy bench.46 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; 47 others require some 

evidence of moral turpitude.48 A fourth reason militating against 

filing section 707(b) motions is that the Bankruptcy Code codifies 

a presumption that favors granting a debtor a discharge.49

Over the course of its hearings in the last three Congresses, the 

Committee received testimony explaining that if means-test 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). 

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

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

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

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

13 on consent of the debtor. 

In addition, these reforms contemplate replacing the current 

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

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

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

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

129

50Section 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 6-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.

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

• reasonably necessary expenses 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;

• an additional 5 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 10 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.

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

ch. 5.15.1 (rev. July 31, 2002). 53The Internal Revenue Manual defines the term ‘‘necessary expenses’’ as expenses:

that meet the necessary expense test: they must provide for a taxpayer’s and his or her 

family’s health and welfare and/or the production of income. The expenses must be reasonable. The total necessary expenses establish the minimum a taxpayer and family 

need to live.

Id. at ch. 5.15.1.3

54The Internal Revenue Manual’s ‘‘National Standards’’ establish standards for five types of 

expenses: food, housekeeping supplies, apparel and services, personal care products and services, 

and miscellaneous. 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 ch. 5.15.1.3.2.1. 55 ‘‘Local Standards,’’ under the Internal Revenue Manual, establish expense standards for 

housing and transportation expenditures. Utilities 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 ch. 5.15.1.3.2.2. 56The Internal Revenue Manual does not establish monetary amounts with regard to necessary expenses that it characterizes as ‘‘Other.’’ Rather, it provides a non-exclusive list of these 

expenses. The list includes expenditures for child care, dependent care for an elderly or disabled 

person, taxes, health care, court-ordered payments, life insurance, disability insurance for a selfemployed person, union dues, professional association dues, charitable contributions, and certain 

education expenses. Id. at ch. 5.15.1.3.2.3. 

defined term) 50 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. In addition to other 

specified expenses,51 the debtor’s monthly expenses—exclusive of 

any payments for debts (unless otherwise permitted)—must be the 

applicable monthly amounts set forth in the Internal Revenue 

Service Financial Analysis Handbook 52 as Necessary Expenses 53

under the National 54 and Local Standards 55 categories and the 

debtor’s actual monthly expenditures for items categorized as 

Other Necessary Expenses.56

The means test permits the mandatory presumption of abuse to 

be rebutted only if: (1) the debtor demonstrates special cirVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00133 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
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57The 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. 58Fed. R. Bankr. P. 9011. This rule is the bankruptcy analog to Federal Rule of Civil Procedure 11, which authorizes a court to impose sanctions against an attorney or party who commences a frivolous action or files other inappropriate documents in violation of this Rule’s re- quirements. 59Section 102(a) of H.R. 975 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. 60 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. 

cumstances 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) $10,000.57 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 debtor’s counsel in filing the chapter 7 

case violated Federal Rule of Bankruptcy Procedure 9011,58 H.R. 

975 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.59

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 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.60

131

61See 11 U.S.C. § 522(b)(2)(2)(A). 62 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. 

Other reforms dealing with abuse. H.R. 975 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, H.R. 

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

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

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

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

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

faith. 

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

current bankruptcy law, debtors living in certain states can shield 

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

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

take advantage of their ‘‘mansion loophole’’ laws. H.R. 975 closes 

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

the state for at least 2 years before he or she can claim that state’s 

homestead exemption; the current requirement can as little as 91 

days.61 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.62 H.R. 975 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 10-year period preceding the filing of the bankruptcy case, H.R. 975 requires such exemption to be reduced by the amount attributable to the debtor’s 

fraud. 

Protections for creditors—in general. H.R. 975 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 parVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00135 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
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63 11 U.S.C. § 507(a)(7). 64 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. 

ticipate without counsel at the section 341 meeting of creditors 

(which provides an opportunity for creditors to examine the debtor 

under oath). 

Protection of family support obligations. H.R. 975 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),63 with allowance for the payment of trustee administrative expenses, under certain conditions. In addition, the 

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

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

Bankruptcy Code (which enjoin many forms of creditor collection 

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

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

in addition, mandates that spousal and child support claimants as 

well as state child support agencies receive specified information 

and notices relevant to pending bankruptcy cases. 

Protections for secured creditors. H.R. 975’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, H.R. 975 prohibits bifurcation of specified secured 

debts if incurred during the 1-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.64 H.R. 975 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, 

H.R. 975 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.’’

133

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

report for 10 years. 15 U.S.C. § 1681c (2002). 

Consumer debtor protections. The bill’s consumer protections include provisions strengthening the professionalism standards for 

attorneys and others who assist consumer debtors with their bankruptcy cases. H.R. 975 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, H.R. 975 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. 

H.R. 975 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 IRA and state tuition plans for his or her child’s postsecondary education from the claims of creditors. 

Most importantly, H.R. 975 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 65—and guidance about how to 

manage their finances, so that they can avoid future financial difficulties. 

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

H.R. 975 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. H.R. 975 establishes a new form 

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

134

66See generally REPORT OF THE NATIONAL BANKRUPTCY REVIEW COMMISSION, at 303–706 (Oct. 

20, 1997). 67 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. 68The report on H.R. 4393, a bill substantially similar to title IX of H.R. 975 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. REP. NO. 105–688, pt. 1, at 2 (1998).

provisions concerning the treatment of certain financial contracts 

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

H.R. 975 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. 

Small business/single asset real estate debtors. H.R. 975 includes 

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

Bankruptcy Review Commission.66

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. H.R. 975 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, H.R. 975 makes several amendments. First, it 

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

small business reforms. Third, H.R. 975 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. H.R. 975 contains a series of provisions pertaining to the treatment of certain financial transactions under the 

Bankruptcy Code and relevant banking laws.67 These provisions 

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

financial marketplace.68 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 netVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00138 Fmt 6659 Sfmt 5602 E:\HR\OC\HR40P1.XXX HR40P1
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69The 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. 70 REPORT OF THE NATIONAL BANKRUPTCY REVIEW COMMISSION, at 351–70 (Oct. 20, 1997). 71 Id. at 793–803. 

ting of certain types of financial transactions. Many of these provisions are derived from recommendations issued by the President’s 

Working Group on Financial Markets 69 and revisions espoused by 

the financial industry. 

Family farmers. H.R. 975 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. H.R. 975 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, H.R. 975 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, H.R. 975 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.70

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. H.R. 975 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.71

Health care providers. H.R. 975 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 

136

72Districts authorized additional bankruptcy judgeships under H.R. 975 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). 73Press 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’’). 

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 supplied by a debtor in connection with his or her bankruptcy case is made available to the public. H.R. 975 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. In addition, H.R. 975 prohibits the sale of customers’ personally identifiable information by a business debtor unless certain conditions are satisfied. 

Protections for employees. H.R. 975 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. 

Additional bankruptcy judgeships. H.R. 975 authorizes 28 additional bankruptcy judgeships on a temporary basis and extends 

three currently existing temporary judgeships.72 This provision responds to the 59 percent increase in the caseload of bankruptcy 

judges since 1992, reported by the Administrative Office of the 

United States Courts.73

Miscellaneous provisions. Under current law, appeals from bankruptcy court decisions must be filed in and determined by Federal 

district courts or bankruptcy appellate panels before such appeals 

may be heard by a Federal court of appeals. H.R. 975 authorizes 

direct appeals from bankruptcy court decisions to the court of appeals, under certain circumstances. 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. 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. 

HEARINGS

The Committee’s Subcommittee on Commercial and Administrative Law held 1 day of hearings on H.R. 975, the ‘‘Bankruptcy 

Abuse Prevention and Consumer Protection Act of 2003,’’ on March 

4, 2003. The hearing provided an opportunity to review the reasons 

137

why the current bankruptcy system needs reform and how H.R. 

975 would implement those reforms. 

Testimony was received from four witnesses, representing three 

organizations and the United States Department of Justice, with 

additional material submitted by 44 individuals and organizations. 

Witnesses at the hearing included a representative from the Executive Office for United States Trustees (a component of the United 

States Department of Justice charged with administrative oversight of bankruptcy cases), a credit union representative, a representative on behalf of the Coalition for Responsible Bankruptcy 

Laws (a coalition of consumer creditors that includes banks, credit 

unions, retailers, savings institutions, mortgage and sales finance 

companies, and diversified financial service providers), and a representative in behalf of the Commercial Law League of America (a 

creditors’ rights organization comprised of attorneys and other professionals engaged in the fields of bankruptcy, insolvency, reorganization, and commercial law). 

Among the matters considered at the hearing were the following: 

(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 proposed legislative reforms 

would assist those who are charged with administrative oversight 

of bankruptcy cases and law enforcement matters; and (4) whether, 

given current economic circumstances, the need for comprehensive 

bankruptcy reform still exists. 

COMMITTEE CONSIDERATION

On March 12, 2003, the Committee met in open session and ordered favorably reported the bill, H.R. 975, the ‘‘Bankruptcy Abuse 

Prevention and Consumer Protection Act of 2003,’’ with an amendment by a recorded vote of 18 to11, with one Member voting 

present, a quorum being present. 

VOTE OF THE COMMITTEE

1. An amendment by Mr. Watt deleting provisions of section 311 

of the bill that except from the Bankruptcy Code’s automatic stay 

certain eviction actions and related proceedings against a debtor 

who is a tenant residing in residential property under a lease or 

rental agreement. Defeated 5 to 15.

ROLLCALL NO. 1 

Ayes Nays Present 

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

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

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

Mr. Gallegly .......................................................................................................

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

Mr. Chabot ........................................................................................................

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

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

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

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

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

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

Ms. Hart ............................................................................................................ X

138

ROLLCALL NO. 1—Continued

Ayes Nays Present 

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

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

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

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

Mr. Carter .......................................................................................................... X

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

Mrs. Blackburn .................................................................................................. X

Mr. Conyers .......................................................................................................

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

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

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

Mr. Scott ...........................................................................................................

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

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

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

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

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

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

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

Ms. Baldwin ......................................................................................................

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

Mr. Schiff ..........................................................................................................

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

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

Total ................................................................................................ 5 15

2. An amendment by Mr. Bachus striking section 414 of the bill, 

which eliminates the disinterestedness requirement for investment 

bankers retained by a trustee in a bankruptcy case. Defeated 12 to 

17.

ROLLCALL NO. 2 

Ayes Nays Present 

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

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

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

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

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

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

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

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

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

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

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

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

Ms. Hart ............................................................................................................ X

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

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

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

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

Mr. Carter .......................................................................................................... X

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

Mrs. Blackburn .................................................................................................. X

Mr. Conyers .......................................................................................................

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

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

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

Mr. Scott ...........................................................................................................

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

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

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

139

ROLLCALL NO. 2—Continued

Ayes Nays Present 

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

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

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

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

Ms. Baldwin ......................................................................................................

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

Mr. Schiff ..........................................................................................................

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

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

Total ................................................................................................ 12 17

3. An amendment offered by Mr. Delahunt disallowing as an administrative expense: (1) certain transfers made to or obligations 

incurred for the benefit of an insider of the debtor; (2) certain severance payments to a debtor’s insider; and (3) other transfers or obligations that are outside the ordinary course of business and not 

justified by the facts and circumstances of the case. Defeated 7 to 

18.

ROLLCALL NO. 3 

Ayes Nays Present 

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

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

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

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

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

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

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

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

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

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

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

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

Ms. Hart ............................................................................................................ X

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

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

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

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

Mr. Carter .......................................................................................................... X

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

Mrs. Blackburn .................................................................................................. X

Mr. Conyers .......................................................................................................

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

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

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

Mr. Scott ...........................................................................................................

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

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

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

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

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

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

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

Ms. Baldwin ......................................................................................................

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

Mr. Schiff ..........................................................................................................

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

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

Total ................................................................................................ 7 18

140

4. An amendment offered by Mr. Delahunt modifying section 322 

of the bill to limit a debtor’s homestead exemption to $125,000. Defeated 7 to 19.

ROLLCALL NO. 4 

Ayes Nays Present 

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

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

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

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

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

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

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

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

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

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

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

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

Ms. Hart ............................................................................................................ X

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

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

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

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

Mr. Carter .......................................................................................................... X

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

Mrs. Blackburn .................................................................................................. X

Mr. Conyers .......................................................................................................

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

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

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

Mr. Scott ...........................................................................................................

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

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

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

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

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

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

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

Ms. Baldwin ......................................................................................................

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

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

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

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

Total ................................................................................................ 7 19

5. An amendment offered by Ms. Lofgren reducing the reachback 

periods for which the anti-cramdown provisions in section 306(b) of 

the bill would apply. Defeated 6 to 15.

ROLLCALL NO. 5 

Ayes Nays Present 

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

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

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

Mr. Gallegly .......................................................................................................

Mr. Goodlatte .................................................................................................... X

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

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

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

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

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

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

141

ROLLCALL NO. 5—Continued

Ayes Nays Present 

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

Ms. Hart ............................................................................................................ X

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

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

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

Mr. King ............................................................................................................

Mr. Carter ..........................................................................................................

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

Mrs. Blackburn .................................................................................................. X

Mr. Conyers .......................................................................................................

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

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

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

Mr. Scott ...........................................................................................................

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

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

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

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

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

Mr. Delahunt .....................................................................................................

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

Ms. Baldwin ......................................................................................................

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

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

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

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

Total ................................................................................................ 6 15

6. An amendment by Ms. Lofgren expanding the safe harbor in 

section 102 of the bill (concerning motions to dismiss chapter 7 

cases based on the debtors’ ability to repay debts) to situations 

where the debtor or a debtor’s spouse meet certain criteria. Defeated 8 to 16.

ROLLCALL NO. 6 

Ayes Nays Present 

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

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

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

Mr. Gallegly .......................................................................................................

Mr. Goodlatte .................................................................................................... X

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

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

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

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

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

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

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

Ms. Hart ............................................................................................................ X

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

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

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

Mr. King ............................................................................................................

Mr. Carter ..........................................................................................................

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

Mrs. Blackburn .................................................................................................. X

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

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

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

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

142

ROLLCALL NO. 6—Continued

Ayes Nays Present 

Mr. Scott ...........................................................................................................

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

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

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

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

Mr. Meehan .......................................................................................................

Mr. Delahunt .....................................................................................................

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

Ms. Baldwin ......................................................................................................

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

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

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

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

Total ................................................................................................ 8 16

7. An amendment offered by Mr. Nadler making certain debts 

arising from the violation of section 244 (relating to discrimination 

against a person wearing the uniform of the Armed Forces), section 

245 (relating to federally protected rights), section 247 (relating to 

damage to religious property and obstruction of persons in the free 

exercise of religious belief), and section 248 (relating to the freedom 

of access to clinic entrances) of title 18 of the United States Code, 

among other specified debts, nondischargeable. Defeated 8 to 19.

ROLLCALL NO. 7 

Ayes Nays Present 

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

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

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

Mr. Gallegly .......................................................................................................

Mr. Goodlatte .................................................................................................... X

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

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

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

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

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

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

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

Ms. Hart ............................................................................................................ X

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

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

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

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

Mr. Carter .......................................................................................................... X

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

Mrs. Blackburn .................................................................................................. X

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

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

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

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

Mr. Scott ...........................................................................................................

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

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

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

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

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

Mr. Delahunt .....................................................................................................

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

Ms. Baldwin ......................................................................................................

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

143

ROLLCALL NO. 7—Continued

Ayes Nays Present 

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

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

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

Total ................................................................................................ 8 19

8. An amendment offered by Mr. Nadler modifying section 203 

of the bill to strike the provision’s credit union exception to the 

undue hardship presumption that applies to certain reaffirmation 

agreements. Defeated 8 to 18.

ROLLCALL NO. 8 

Ayes Nays Present 

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

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

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

Mr. Gallegly .......................................................................................................

Mr. Goodlatte .................................................................................................... X

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

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

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

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

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

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

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

Ms. Hart ............................................................................................................ X

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

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

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

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

Mr. Carter .......................................................................................................... X

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

Mrs. Blackburn .................................................................................................. X

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

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

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

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

Mr. Scott ...........................................................................................................

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

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

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

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

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

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

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

Ms. Baldwin ......................................................................................................

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

Mr. Schiff ..........................................................................................................

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

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

Total ................................................................................................ 8 18

9. An amendment offered by Mr. Nadler modifying section 102 

of the bill to eliminate its exception for small businesses with respect to the provision’s authorization for a court to require a party 

to pay reasonable costs to a debtor for certain motions filed under 

Bankruptcy Code section 707(b) (as amended by the bill) that violate Federal Rule of Bankruptcy Procedure 9011 or are made solely 

144

for the purpose of coercing a debtor into waiving a right guaranteed to the debtor under the Bankruptcy Code. Defeated 10 to 18.

ROLLCALL NO. 9 

Ayes Nays Present 

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

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

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

Mr. Gallegly .......................................................................................................

Mr. Goodlatte .................................................................................................... X

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

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

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

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

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

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

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

Ms. Hart ............................................................................................................ X

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

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

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

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

Mr. Carter .......................................................................................................... X

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

Mrs. Blackburn .................................................................................................. X

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

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

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

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

Mr. Scott ...........................................................................................................

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

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

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

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

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

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

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

Ms. Baldwin ......................................................................................................

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

Mr. Schiff ..........................................................................................................

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

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

Total ................................................................................................ 10 18

10. Motion to report favorably H.R. 975, as amended. Passed 18 

to 11, with one present.

ROLLCALL NO. 10 

Ayes Nays Present 

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

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

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

Mr. Gallegly .......................................................................................................

Mr. Goodlatte .................................................................................................... X

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

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

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

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

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

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

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

Ms. Hart ............................................................................................................ X

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

145

ROLLCALL NO. 10—Continued

Ayes Nays Present 

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

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

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

Mr. Carter .......................................................................................................... X

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

Mrs. Blackburn .................................................................................................. X

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

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

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

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

Mr. Scott ...........................................................................................................

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

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

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

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

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

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

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

Ms. Baldwin ......................................................................................................

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

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

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

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

Total ................................................................................................ 18 11 1

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. 

PERFORMANCE GOALS AND OBJECTIVES

The bill 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. 

NEW BUDGET AUTHORITY AND TAX EXPENDITURES

Clause 3(c)(2) of House Rule XIII is inapplicable because this legislation does not provide new budgetary authority or increased tax 

expenditures. 

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, H.R. 975, the following estimate and comparison prepared 

by the Director of the Congressional Budget Office under section 

402 of the Congressional Budget Act of 1974:

146

MARCH 18, 2003. 

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 H.R. 975, the Bankruptcy 

Abuse Prevention and Consumer Protection Act of 2003. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contacts are Mark Grabowicz (for 

federal spending), Annabelle Bartsch (for federal revenues), Victoria Heid Hall (for the state and local impact), and Paige Piper/

Bach (for the private-sector impact). 

Sincerely, 

DOUGLAS HOLTZ-EAKIN, 

Director. 

Enclosure. 

H.R. 975—Bankruptcy Abuse Prevention and Consumer Protection 

Act of 2003 

Summary: CBO estimates that implementing H.R. 975 would increase discretionary costs primarily to the United States Trustees 

(U.S. Trustees) by $280 million over the 2003–2008 period. At the 

same time, the bill would slightly increase the fees charged for filing a bankruptcy case and would change how some of these fees 

are currently recorded in the budget. We estimate that implementing the bill would increase the amount of bankruptcy fees that 

are treated as an offset to appropriations by $282 million over the 

five-year period, resulting in a net decrease in discretionary spending of $2 million over this period. 

In addition, CBO estimates that enacting this bill would decrease 

governmental receipts (revenues) by $263 million over the 2003–

2008 period because bankruptcy fees that are currently recorded as 

revenues would be reclassified as offsetting collections and offsetting receipts. Finally, enactment of H.R. 975 would result in filling 

additional judgeships, and we estimate that their mandatory pay 

and benefits would cost $23 million over the next five years. Assuming appropriation of the necessary amounts to implement the 

bill, CBO estimates that its enactment would increase budget deficits by $284 million over the 2003–2008 period. 

H.R. 975 contains two intergovernmental mandates as defined in 

the Unfunded Mandates Reform Act (UMRA), but CBO estimates 

the costs would be insignificant and would not exceed the threshold 

established in that act ($59 million in 2003, 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. 

H.R. 975 would impose private-sector mandates as defined by 

UMRA on bankruptcy attorneys, creditors, bankruptcy petition preparers, debt-relief agencies, and credit and charge-card companies. 

CBO estimates that the direct costs of these mandates would exceed the annual threshold established by UMRA ($117 million in 

2003, adjusted annually for inflation). 

147

Major Provisions: In addition to establishing means-testing for 

determining eligibility for chapter 7 bankruptcy relief, H.R. 975 

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 in 22 federal districts; • 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 13 bankruptcy filing fees 

and change the budgetary treatment of such fees. 

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 the following table, CBO estimates that implementing H.R. 975 would result in a net decrease in discretionary spending of $2 million over 

the 2003–2008 period, subject to appropriation actions. In addition, 

we estimate that mandatory spending for the salaries and benefits 

of bankruptcy judges would increase by less than $500,000 in 2003 

and by $23 million over the 2003–2008 period. Enacting the bill’s 

provisions for adjusting filing fees would reduce revenues by $263 

million over the next five years. That change in revenues would be 

more than offset, however, by increased collections to be credited 

against discretionary spending if future appropriation actions are 

consistent with the bill. (The estimated net decrease in discretionary spending of $2 million reflects an increase in spending totaling $280 million over the next five years, offset by collections of 

$282 million over those five years.) The costs of this legislation fall 

within budget function 750 (administration of justice).

By fiscal year, in millions of dollars—

2003 2004 2005 2006 2007 2008

CHANGES IN SPENDING SUBJECT TO APPROPRIATION 

Means-Testing (Section 102): 

Estimated Authorization Level ............................................. 0 12 11 11 11 10

Estimated Outlays ............................................................... 0 10 11 11 11 10

GAO, SBA, and U.S. Trustees Studies (Sections 103, 230, and 

443): 

Estimated Authorization Level ............................................. 0 1 a 0 0 0 

Estimated Outlays ............................................................... 0 1 a 0 0 0 

Debtor Financial Management Training (Section 105): 

Estimated Authorization Level ............................................. 0 3 1 0 0 0

Estimated Outlays ............................................................... 0 2 1 a 0 0 

Credit Counseling Certification (Section 106): 

Estimated Authorization Level ............................................. 0 4 3 3 4 4

Estimated Outlays ............................................................... 0 3 3 3 4 4

Maintenance of Tax Returns (Section 315): 

Estimated Authorization Level ............................................. 0 1 2 2 2 2

148

By fiscal year, in millions of dollars—

2003 2004 2005 2006 2007 2008

Estimated Outlays ............................................................... 0 1 2 2 2 2

Changes in Bankruptcy Filing Fees (Sections 325 and 418): 

Estimated Authorization Level ............................................. 0 ¥52 ¥60 ¥60 ¥55 ¥55

Estimated Outlays ............................................................... 0 ¥52 ¥60 ¥60 ¥55 ¥55

U.S. Trustee Site Visits (Section 439): 

Estimated Authorization Level ............................................. 0 3 2 2 2 3

Estimated Outlays ............................................................... 0 2 2 2 2 3

Compiling and Publishing Data (Sections 601–602): 

Estimated Authorization Level ............................................. 0 0 9 9 8 8

Estimated Outlays ............................................................... 0 0 9 9 8 8

Audit Procedures (Section 603): 

Estimated Authorization Level ............................................. 0 0 15 18 19 20

Estimated Outlays ............................................................... 0 0 15 18 19 20

Additional Judgeships—Support Costs (Section 1223): 

Estimated Authorization Level ............................................. a 9 16 17 18 17

Estimated Outlays ............................................................... a 9 16 17 18 17

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 Budget Authority ................................................ (1) ¥17 0 2 9 10

Estimated Outlays ............................................................... (1) ¥22 ¥1 2 9 10 

CHANGES IN DIRECT SPENDING

Additional Judgeships (Section 1223): 

Estimated Budget Authority ................................................ a 3 5 5 5 5

Estimated Outlays ............................................................... a 3 5 5 5 5

CHANGES IN REVENUES

Changes in Revenue from Filing Fees: Estimated Revenues ...... 0 ¥47 ¥54 ¥54 ¥54 ¥54

1 Less than $500,000.

Note:—GAO = General Accounting Office; SBA = Small Business Administration; and FTC = Federal Trade Commission. 

Basis of estimate: For this estimate, CBO assumes that H.R. 975 

will be enacted by July 2003 and that the amounts necessary to implement the bill will be appropriated for each fiscal year.

Spending Subject to Appropriation 

Most of the estimated increases in discretionary spending would 

be required to fund the additional workload that would be imposed 

on the U.S. Trustees. Those increases would be more than offset by 

changes in bankruptcy filing fees that would be recorded as offsetting collections under the bill. CBO estimates that implementing 

H.R. 975 would result in a net reduction in discretionary costs of 

$2 million over the 2003–2008 period. 

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 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 inVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00152 Fmt 6659 Sfmt 6602 E:\HR\OC\HR40P1.XXX HR40P1
149

creased 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 bill, 

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 

115 additional attorneys, paralegals, and analysts to address the 

increased workload. As a result, CBO estimates that implementing 

this provision would cost $53 million over the next five years. 

General Accounting Office (GAO), Small Business Administration 

(SBA), and U.S. Trustees Studies (Sections 103, 205, 230, and 443). 

Section 103 would require the U.S. Trustees to conduct a study regarding the use of Internal Revenue Service expense standards for 

determining a debtor’s current monthly expenses and the impact of 

those standards on debtors and bankruptcy courts. Section 230 

would require GAO to conduct a study regarding the feasibility of 

requiring trustees to provide the Office of Child Support Enforcement information about outstanding child support obligations of 

debtors. Section 205 would require GAO to conduct a study on the 

treatment of consumers by creditors with respect to reaffirmation 

agreements. Section 443 would require the Administrator of SBA, 

in consultation with the Attorney General, the U.S. Trustees, and 

the AOUSC, to conduct a study on small business bankruptcy 

issues. Based on information from U.S. Trustees, GAO, and SBA, 

CBO estimates that completing the necessary studies would cost 

about $1 million in 2004 and less than $500,000 in 2005. 

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 2004 and 2005. At a projected cost of about $40 per 

debtor, CBO estimates that implementing this provision would cost 

about $4 million over the 2004–2005 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 $20 million over the next five years. 

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 

150

that implementing section 315 would cost $9 million over the next 

five years to store and provide access to over two million tax returns. 

Changes in Bankruptcy Filing Fees (Sections 325 and 418). Section 325 would increase chapter 7 and chapter 13 bankruptcy filing 

fees and change the distribution of such fees. In addition, the bill 

would allow the U.S. Trustee System Fund to collect 75 percent of 

chapter 11 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, the AOUSC, the private trustee assigned to the case, 

and the remainder is recorded as a governmental receipt (i.e., revenue). Under H.R. 975, the filing fee for a chapter 7 case would be 

$160, and income from this fee would be recorded in two different 

places in the budget. Of the $160, $65 would be recorded as an offsetting collection to the appropriation for the U.S. Trustee System 

Fund, and $50 would be recorded as an offsetting receipt and spent 

without further appropriation by the AOUSC. The remainder of 

this fee would be spent by the private trustees assigned to each 

case. The bill would reduce the filing fee for a chapter 13 case to 

$150 and change how the fee is recorded in the budget. The U.S. 

Trustee System Fund would receive $105 and the AOUSC would 

receive $45 per case. Under H.R. 975, no portion of chapter 7, chapter 11, or chapter 13 filing fees would be recorded as governmental 

receipts. 

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 2004, 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 2007. 

Considering the expected reduction in the use of chapter 7 because of means-testing and the provision that would allow fee waivers, CBO estimates that implementing the new fee structure and 

changes in fee classifications would result in an increase in offsetting collections totaling $282 million over the 2003–2008 period. 

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 

$11 million over the next five years 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, H.R. 

975 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 $34 million over the 2003–2008 period to meet these requirements. Of the total estimated cost, about $30 million would be required for additional legal clerks, analysts, and data base support. 

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piling data and providing Internet access to records pertaining to 

bankruptcy cases. 

Audit Procedures (Section 603). Beginning 18 months after enactment, H.R. 975 would require that at least one out of every 250 

bankruptcy cases under chapter 7, chapter 11, 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 about 1.6 million cases would 

be subject to audits in fiscal year 2005, increasing to about 1.9 million in fiscal year 2008. CBO assumes that about 0.8 percent of 

those cases would be audited and that each audit would cost roughly $1,000 (in 2003 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 $72 million over the 2005– 2008 period. 

Additional Judgeships—Support Costs (Section 1223). This provision would extend four temporary bankruptcy judgeships and authorize 28 new temporary bankruptcy judgeships for 22 federal judicial districts. 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 2004 and the rest would be filled by 

the start of fiscal year 2005. Also, we anticipate that all four temporary judgeships would be filled by fiscal year 2005. We expect 

that discretionary expenditures for support costs associated with 

each judgeship would average about $490,000 annually (in 2003 

dollars). CBO estimates that the administrative support of additional bankruptcy judges would require an appropriation of less 

than $500,000 in fiscal year 2003 and $77 million over the 2004– 2008 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 the agency’s other credit-related hotline, 

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 2004 and 

$6 million over the 2004–2008 period, subject to the appropriation 

of the necessary amounts. 

Direct Spending and Revenues 

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 $155,000 a year (in 2003 dollars), CBO estimates that the mandatory costs associated with the 

salaries and benefits of those additional judgeships would be less 

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than $500,000 in fiscal year 2003 and about $23 million over the 

2004–2008 period. 

Changes in Bankruptcy Filing Fees (Sections 102, 325, and 418). 

Section 325 would 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 is recorded as governmental receipts (i.e., revenues). The percentage of 

the fees allocated to those different parts of the budget varies by 

chapter. Under the fee structure specified in the bill, the portions 

of chapter 7, chapter 11, and chapter 13 filing fees that are now 

recorded as governmental receipts would be recorded as offsetting 

collections or offsetting receipts. Therefore, CBO estimates that enacting H.R. 975 would reduce governmental receipts by $263 million over the 2004–2008 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 H.R. 975 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 13 or chapter 11 of the bankruptcy code, require periodic cash payments of priority tax claims, 

and specify the rate of interest on tax claims. Title VII also would 

change the status of assessment periods for tax claims and would 

alter various administrative requirements. Based on information 

from the Internal Revenue Service and the Joint Committee on 

Taxation, CBO estimates that these provisions would increase revenues, but that any increase would be negligible. 

Estimated impact on state, local, and tribal governments: H.R. 

975 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 ($59 million in 2003, 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. 

Mandates 

Section 227 of the bill 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 this bill. Such preemptions are mandates 

as defined in UMRA. Because the preemption would not require 

states to change their laws, CBO estimates that the costs to states 

of complying 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. 

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Other Impacts 

The changes to bankruptcy law in the bill would affect state and 

local governments primarily as creditors and holders of tax or child 

support claims against debtors. 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. 

A 1996 survey, the most recent data available, of the 50 states 

conducted by the Federation of Tax Administrators (FTA) and the 

States’ Association of Bankruptcy Attorneys indicated that more 

than 360,000 taxpayers in bankruptcy owed claims totaling about 

$4 billion. Of those claims, states reported collecting only about 

$234 million. According to FTA, total bankruptcy filings have increased since 1996, and the proportion of claims collected by states 

has remained constant. While CBO cannot predict how much more 

money might be collected under this legislation, it is likely that 

states and local governments would collect a greater share of future claims than they would under current law. 

Domestic Support Obligations. The bill 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 bill would make those 

debts nondischargeable (not able to be written-off at the end of 

bankruptcy). The bill 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 this bill, 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 bill 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 

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 bill 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 bill 

would exempt certain types of retirement and education savings, as 

well as contributions to specified employee benefit plans. 

Those 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 

154

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 bill 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 bill 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 bill 

would allow state and local governments to claim administrative 

expenses for costs incurred by closing a health care business. The 

bill 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 bill would require debtors to have filed tax returns before a bankruptcy case 

may continue. Those provisions would help states identify potential 

claims in bankruptcy cases where they may be owed delinquent 

taxes. 

Priority of Payments. In some circumstances under current law, 

debtors have borrowed money or incurred some new obligation that 

is dischargeable (able to be written-off at the end of bankruptcy) 

to pay for an obligation that would not be dischargeable. This bill 

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: H.R. 975 would impose 

new private-sector mandates on bankruptcy attorneys, creditors, 

bankruptcy petition preparers, debt-relief agencies, and credit and 

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charge-card companies. Consumer bankruptcy attorneys would be 

required to make reasonable inquiries to confirm that the information in documents they submit to the court or to the bankruptcy 

trustee is well grounded in fact. Creditors would be required to 

make disclosures in their agreements with debtors and to provide 

certain notices to courts and debtors. Bankruptcy petition preparers and debt-relief agencies would also be required to provide 

certain notices to debtors. Credit and charge-card companies would 

be required to disclose specified information in monthly billing 

statements, new account introductory rate offers, and Internetbased solicitations. CBO estimates that the direct costs of these 

mandates would exceed the annual threshold established by UMRA 

($117 million in 2003, adjusted annually for inflation). 

Section 102 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 1.9 million projected 

filings under chapter 7 (liquidation) and chapter 13 (rehabilitation), 

CBO estimates that the additional costs to bankruptcy attorneys 

would be between $280 million and $950 million beginning in fiscal 

year 2004 and remaining in that range over the next four years. 

The additional costs for attorneys would most likely be passed on 

to debtors. 

The bill 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. A reaffirmation is an 

agreement between a debtor and a creditor that the debtor will pay 

all or a portion of the money owed despite the bankruptcy filing. 

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 bankruptcy petition 

preparers who are not attorneys to give the debtor written notice 

explaining that the preparer may not provide legal advice. Section 

228 would require a debt-relief agency providing bankruptcy assistance to a person to give certain written notices to the person and 

to execute a written contract. Such agencies also would be required 

to supply certain advisories and explanations regarding the bankruptcy process. Most attorneys and debt-relief counselors currently 

provide similar information. Based on information from attorneys 

and other bankruptcy practitioners, CBO estimates that the direct 

costs of complying with these mandates would not be substantial. 

H.R. 975 also would require credit lenders to provide additional 

disclosures to consumers. Credit and charge-card companies would 

be required 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 

156

would be required to be included in application and solicitation materials involving introductory rate offers, Internet-based credit card 

solicitations, and for late payment deadlines and penalties. Based 

on information from credit lenders, CBO estimates that the direct 

costs of these disclosure requirements would fall below the annual 

threshold. 

Other Impacts 

H.R. 975 also contains many provisions that would benefit creditors. Most significant for creditors are provisions that would expand the types of debts that would be nondischargeable and provisions that would shift debtors from chapter 7 to chapter 13. 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 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. If 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 bill. 

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 bill 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. 

Estimate prepared by: Federal Spending: Mark Grabowicz, and 

Ken Johnson; Federal Revenues: Annabelle Bartsch; Impact on 

State, Local, and Tribal Governments: Victoria Heid Hall; and Impact on the Private Sector: Paige Piper/Bach. 

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis. 

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 2003 ( 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 

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verted to a case under chapter 12 or chapter 13 on request or consent of the debtor. 

Section 102. Dismissal or Conversion. This provision implements 

the legislation’s principal consumer bankruptcy reforms: needsbased debt relief. 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 5 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;

• 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.

158

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 of 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. 

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), this presumption may be rebutted only 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 that 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. In addition, the debtor must attest under oath to 

the accuracy of any information provided to demonstrate that such 

additional expense or adjustment is required. 

To implement these needs-based reforms, the Act requires the 

debtor to file, as part of the schedules of current income and current expenditures, a statement of current monthly income. This 

159

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. 

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 reasonable costs (including reasonable attorneys’ fees) in contesting a section 707(b) motion 

filed by a party in interest (other than a trustee, United States 

trustee or bankruptcy administrator) if the court: (1) does not grant 

the section 707(b) motion; and (2) finds that either the movant violated rule 9011, or the attorney (if any) who filed the motion did 

not comply with section 707(b)(4)(C) and such was made solely for 

the purpose of coercing a debtor into waiving a right guaranteed 

under the Bankruptcy Code to such debtor. An exception applies 

with respect to a movant that is a ‘‘small business’’ with a claim 

in an aggregate amount of less than $1,000. A small business, for 

purposes of this provision, is defined as an unincorporated business, partnership, corporation, association or organization that engages in commercial or business activities and employs less than 

25 full-time employees. The number of employees of a wholly 

160

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 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 6-month period preceding the filing of the bankruptcy case. The Act specifies that the 6-month period is determined as ending on the last day of the calendar month 

immediately preceding the filing of the bankruptcy case, if the 

debtor files the statement of current income required by Bankruptcy Code section 521. If the debtor does not file such schedule, 

the court determines the date on which current income is calculated. 

‘‘Current monthly income’’ includes any amount paid by any entity other than the debtor (or, in a joint case, the debtor and the 

debtor’s spouse if not otherwise a dependent) on a regular basis for 

the household expenses of the debtor or the debtor’s dependents 

(and, the debtor’s spouse in a joint case, if not otherwise a dependent). It excludes Social Security Act benefits and payments to victims of war crimes or crimes against humanity on account of their 

status as victims of such crimes. In addition, the Act provides that 

current monthly income does not include payments to victims of 

international or domestic terrorism as defined in section 2331 of 

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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 10 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 5 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 10 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 victims, unless the debtor establishes by a preponderance of the evidence that the filing of the case is necessary to 

satisfy a claim for a domestic support obligation. 

Section 102(g) of the Act amends section 1325(a) of the Bankruptcy Code to require the court, as a condition of confirming a 

chapter 13 plan, to find that the debtor’s action in filing the case 

was in good faith. 

Section 102(h) of the Act amends section 1325(b)(1) of the Bankruptcy Code to specify that the court must find, in confirming a 

chapter 13 plan to which there has been an objection, that the 

debtor’s disposable income will be paid to unsecured creditors. It 

also amends section 1325(b)(2)’s definition of disposable income. As 

defined under this provision, the term means income received by 

the debtor (other than child support payments, foster care payments, or certain disability payments for a dependent child) less 

amounts reasonably necessary to be expended for: (1) the maintenance or support of the debtor or the debtor’s dependent; (2) a domestic support obligation that first becomes due after the case is 

filed; (3) charitable contributions (as defined in Bankruptcy Code 

section 548(d)(3)) to a qualified religious or charitable entity or organization (as defined in Bankruptcy Code section 548(d)(4)) in an 

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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. As amended, 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 2 years from the 

date of the Act’s enactment regarding the utilization of the Internal 

Revenue Service expense standards for determining the current 

monthly expenses of a debtor under section 707(b) and the impact 

that the application of these standards has had on debtors and the 

bankruptcy courts. The report may include recommendations for 

amendments to the Bankruptcy Code that are consistent with the 

report’s findings. 

Sec. 104. Notice of Alternatives. Section 104 of the Act amends 

section 342(b) of the Bankruptcy Code to require the clerk, before 

the commencement of a bankruptcy case by an individual whose 

debts are primarily consumer debts, to supply such individual with 

a written notice containing: (1) a brief description of chapters 7, 11, 

12, and 13 and the general purpose, benefits, and costs of proceeding under each of these chapters; (2) the types of services 

available from credit counseling agencies; (3) a statement advising 

that a person who knowingly and fraudulently conceals assets or 

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ment, 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 3 

months after concluding such evaluation, the Director must submit 

to Congress a report with findings regarding the effectiveness and 

cost of the curricula, materials, and programs. 

Sec. 106. Credit Counseling. Section 106(a) of the Act amends 

section 109 of the Bankruptcy Code to require an individual—as a 

condition of eligibility for bankruptcy relief—to receive credit counseling within the 180-day period preceding the filing of a bankruptcy case by such individual. The credit counseling must be provided by an approved nonprofit budget and credit counseling agency consisting of either an individual or group briefing (which may 

be conducted telephonically or via the Internet) that outlined opportunities for available credit counseling and assisted the individual in performing a budget analysis. This requirement does not 

apply to a debtor who resides in a district where the United States 

trustee or bankruptcy administrator has determined that approved 

nonprofit budget and credit counseling agencies in that district are 

not reasonably able to provide adequate services to such individuals. Although such determination must be reviewed annually, the 

United States trustee or bankruptcy administrator may disapprove 

a nonprofit budget and credit counseling agency at any time. 

A debtor may be temporarily exempted from this requirement if 

he or she submits to the court a certification that: (1) describes exigent circumstances meriting a waiver of this requirement; (2) 

states that the debtor requested credit counseling services from an 

approved nonprofit budget and credit counseling agency, but was 

unable to obtain such services within the 5-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. 

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 

164

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. 

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. 

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 publically available list of 

approved: (1) credit counseling agencies that provide the services 

described in section 109(h) of the Bankruptcy Code; and (2) personal financial management instructional courses. Section 106(e) 

further provides that the United States trustee or bankruptcy administrator may only approve an agency or course provider under 

this provision pursuant to certain specified criteria. If such agency 

or provider course is approved, the approval may only be for a probationary period of up to 6 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 1-year period and, thereafter for successive 1-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 2-

year 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 

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ruptcy Code with respect to a debtor shall be liable to the debtor 

for damages in an amount equal to: (1) actual damages sustained 

by the debtor as a result of the violation; and (2) any court costs 

or reasonable attorneys’ fees incurred in an action to recover such 

damages. 

Section 106(f) of the Act amends section 362 of the Bankruptcy 

Code to provide that if a chapter 7, 11, or 13 case is dismissed due 

to the creation of a debt repayment plan, the presumption that a 

case was not filed in good faith under section 362(c)(3) shall not 

apply to any subsequent bankruptcy case commenced by the debtor. It also provides that the court, on request of a party in interest, 

must issue an order under section 362(c) confirming that the automatic stay has terminated. 

Sec. 107. Schedules of Reasonable and Necessary Expenses. For 

purposes of section 707(b) of the Bankruptcy Code, section 107 of 

the Act requires the Director of the Executive Office for United 

States Trustees to issue schedules of reasonable and necessary administrative expenses (including reasonable attorneys’ fees) relating to the administration of a chapter 13 plan for each judicial district not later than 180 days after the date of enactment of the Act. 

TITLE II. ENHANCED CONSUMER PROTECTION

Subtitle A. Penalties for Abusive Creditor Practices 

Sec. 201. Promotion of Alternative Dispute Resolution. Subsection 

(a) of section 201 of the Act amends section 502 of the Bankruptcy 

Code to permit the court, after a hearing on motion of the debtor, 

to reduce a claim based in whole on an unsecured consumer debt 

by up to 20 percent if: (1) the claim was filed by a creditor who unreasonably refused to negotiate a reasonable alternative repayment 

schedule proposed by an approved credit counseling agency on behalf of the debtor; (2) the debtor’s offer was made at least 60 days 

before the filing of the case; (3) the offer provided for payment of 

at least 60 percent of the debt over a period not exceeding the 

loan’s repayment period or a reasonable extension thereof; and (4) 

no part of the debt is nondischargeable. The debtor has the burden 

of proving by clear and convincing evidence that: (1) the creditor 

unreasonably refused to consider the debtor’s proposal; and (2) the 

proposed alternative repayment schedule was made prior to the expiration of the 60-day period. Section 201(b) amends section 547 of 

the Bankruptcy Code to prohibit the avoidance as a preferential 

transfer a payment by a debtor to a creditor pursuant to an alternative repayment plan created by an approved credit counseling 

agency. 

Sec. 202. Effect of Discharge. Section 202 of the Act amends section 524 of the Bankruptcy Code in two respects. First, it provides 

that the willful failure of a creditor to credit payments received 

under a confirmed chapter 11, 12, or 13 plan constitutes a violation 

of the discharge injunction if the creditor’s action to collect and failure to credit payments in the manner required by the plan caused 

material injury to the debtor. This provision does not apply if the 

order confirming the plan is revoked, the plan is in default, or the 

creditor has not received payments required to be made under the 

plan in the manner prescribed by the plan. Second, section 202 

amends section 524 of the Bankruptcy Code to provide that the disVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00169 Fmt 6659 Sfmt 6602 E:\HR\OC\HR40P1.XXX HR40P1
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charge injunction does not apply to a creditor having a claim secured by an interest in real property that is the debtor’s principal 

residence if the creditor communicates with the debtor in the ordinary course of business between the creditor and the debtor and 

such communication is limited to seeking or obtaining periodic payments associated with a valid security interest in lieu of the pursuit of in rem relief to enforce the lien. 

Sec. 203. Discouraging Abuse of Reaffirmation Agreement Practices. Section 203 of the Act effectuates a comprehensive overhaul 

of the law applicable to reaffirmation agreements. Subsection (a) 

amends section 524 of the Bankruptcy Code to mandate that certain specified disclosures be provided to a debtor at or before the 

time he or she signs a reaffirmation agreement. These specified disclosures, which are the only disclosures required in connection with 

a reaffirmation agreement, must be in writing and be made clearly 

and conspicuously. In addition, the disclosure must include certain 

advisories and explanations. At the election of the creditor, the disclosure statement may include a repayment schedule. If the debtor 

is represented by counsel, section 203(a) mandates that the attorney file a certification stating that the agreement represents a fully 

informed and voluntary agreement by the debtor, that the agreement does not impose an undue hardship on the debtor or any dependent of the debtor, and that the attorney fully advised the debtor of the legal effect and consequences of such agreement as well 

as of any default thereunder. In those instances where the presumption of undue hardship applies, the attorney must also certify 

that the debtor is able to make the payments required under the 

reaffirmation agreement. Further, the debtor must submit a statement setting forth the debtor’s monthly income and actual current 

monthly expenditures. If the debtor is represented by counsel and 

the debt being reaffirmed is owed to a credit union, a modified 

version of this statement may 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. 

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Section 203(b) amends title 18 of the United States Code to require the Attorney General to designate a United States Attorney 

for each judicial district and to appoint a Federal Bureau of Investigation agent for each field office to have primary law enforcement 

responsibilities for violations of sections 152 and 157 of title 18 

with respect to abusive reaffirmation agreements and materially 

fraudulent statements in bankruptcy schedules that are intentionally false or misleading. In addition, section 203(b) provides 

that the designated United States Attorney has primary responsibility with respect to bankruptcy investigations under section 3057 

of title 18. Section 203(b) further provides that the bankruptcy 

courts must establish procedures for referring any case in which a 

materially fraudulent bankruptcy schedule has been filed. 

Sec. 204. Preservation of Claims and Defenses Upon Sale of Predatory Loans. Section 204 of the Act adds a provision to section 363 

of the Bankruptcy Code with respect to sales of any interest in a 

consumer transaction that is subject to the Truth in Lending Act 

or any interest in a consumer credit contract (as defined in section 

433.1 of title 16 of the Code of Federal Regulations). It provides 

that the purchaser of such interest remains subject to all claims 

and defenses that are related to such assets to the same extent as 

that person would be subject to if the sale was not conducted under 

section 363. 

Sec. 205. GAO Study and Report on Reaffirmation Agreement 

Process. Section 205 of the Act directs the Comptroller General of 

the United States to report to Congress on how consumers are 

treated in connection with the reaffirmation agreement process. 

This report must include: (1) the policies and activities of creditors 

with respect to reaffirmation agreements; and (2) whether such 

consumers are fully, fairly, and consistently informed of their 

rights under the Bankruptcy Code. The report, which must be completed not later than 18 months after the date of enactment of this 

Act, may include recommendations for legislation to address any 

abusive or coercive tactics found in connection with the reaffirmation process. 

Subtitle B. Priority Child Support 

Sec. 211. Definition of Domestic Support Obligation. Section 211 

of the Act amends section 101 of the Bankruptcy Code to define a 

domestic support obligation as a debt that accrues pre- or 

postpetition (including interest that accrues pursuant to applicable 

nonbankruptcy law) and is 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 either pre- or postpetition 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, 

168

former spouse, child, or parent solely for the purpose of collecting 

the debt. 

Sec. 212. Priorities for Claims for Domestic Support Obligations.

Section 212 of the Act amends section 507(a) of the Bankruptcy 

Code to accord first priority in payment to allowed unsecured 

claims for domestic support obligations that, as of the petition date, 

are owed to or recoverable by a spouse, former spouse, or child of 

the debtor, or the parent, legal guardian, or responsible relative of 

such child, without regard to whether such claim is filed by the 

claimant or by a governmental unit on behalf of such claimant, on 

the condition that funds received by such unit under this provision 

be applied and distributed in accordance with nonbankruptcy law. 

Subject to these claims, section 212 accords the same payment priority to allowed unsecured claims for domestic support obligations 

that, as of the petition date, were assigned by a spouse, former 

spouse, child of the debtor, or such child’s parent, legal guardian, 

or responsible relative to a governmental unit (unless the claimant 

assigned the claim voluntarily for the purpose of collecting the 

debt), or are owed directly to or recoverable by a governmental unit 

under applicable nonbankruptcy law, on the condition that funds 

received by such unit under this provision be applied and distributed in accordance with nonbankruptcy law. Where a trustee administers assets that may be available for payment of domestic 

support obligations under section 507(a)(1) (as amended), administrative expenses of the trustee allowed under section 503(b)(1)(A), 

(2) and (6) of the Bankruptcy Code must be paid before such claims 

to the extent the trustee administers assets that are otherwise 

available for the payment of these claims. 

Sec. 213. Requirements To Obtain Confirmation and Discharge in 

Cases Involving Domestic Support Obligations. With respect to 

chapter 11 cases, section 213(1) adds a condition for confirmation 

of a plan. It amends section 1129(a) of the Bankruptcy Code to provide that if a chapter 11 debtor is required by judicial or administrative order or statute to pay a domestic support obligation, then 

the debtor must pay all amounts payable under such order or statute that became payable postpetition as a prerequisite for confirmation. 

With respect to chapter 12 cases, section 213(2) of the Act 

amends section 1208(c) of the Bankruptcy Code to provide that the 

failure of a debtor to pay any domestic support obligation that first 

becomes payable postpetition is cause for conversion or dismissal of 

the case. Section 213(3) amends Bankruptcy Code section 1222(a) 

to permit a chapter 12 debtor to propose a plan paying less than 

full payment of all amounts owed for a claim entitled to priority 

under Bankruptcy Code section 507(a)(1)(B) if all of the debtor’s 

projected disposable income for a 5-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 

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tions pursuant to such order or statute that became payable 

postpetition as a condition of confirmation. Section 213(6) amends 

section 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 5-year period will be 

applied to make payments under the plan. Section 213(9) amends 

Bankruptcy Code section 1322(b) to permit a chapter 13 debtor to 

propose a plan that pays postpetition interest on nondischargeable 

debts under section 1328(a), but only to the extent that the debtor 

has disposable income available to pay such interest after payment 

in full of all allowed claims. Section 213(10) amends Bankruptcy 

Code section 1325(a) to provide that if a chapter 13 debtor is required by judicial or administrative order or statute to pay a domestic support obligation, then the debtor must pay all such obligations pursuant to such order or statute that became payable 

postpetition as a condition of confirmation. Section 213(11) amends 

Bankruptcy Code section 1328(a) to condition the granting of a 

chapter 13 discharge on the debtor’s payment of certain 

postpetition domestic support obligations. 

Sec. 214. Exceptions To Automatic Stay in Domestic Support Proceedings. Under current law, section 362(b)(2) of the Bankruptcy 

Code excepts from the automatic stay the commencement or continuation of an action or proceeding: (1) for the establishment of 

paternity; or (2) the establishment or modification of an order for 

alimony, maintenance or support. It also permits the collection of 

such obligations from property that is not property of the estate. 

Section 214 makes several revisions to Bankruptcy Code section 

362(b)(2). First, it replaces the reference to ‘‘alimony, maintenance 

or support’’with ‘‘domestic support obligations.’’ Second, it adds to 

section 362(b)(2) actions or proceedings concerning: (1) child custody or visitation; (2) the dissolution of a marriage (except to the 

extent such proceeding seeks division of property that is property 

of the estate); and (3) domestic violence. Third, it permits the withholding of income that is property of the estate or property of the 

debtor for payment of a domestic support obligation under a judicial or administrative order as well as the withholding, suspension, 

or restriction of a driver’s license, or a professional, occupational or 

recreational license under state law, pursuant to section 466(a)(16) 

of the Social Security Act. Fourth, it authorizes the reporting of 

overdue support owed by a parent to any consumer reporting agency pursuant to section 466(a)(7) of the Social Security Act. Fifth, it 

permits the interception of tax refunds as authorized by sections 

464 and 466(a)(3) of the Social Security Act or analogous state law. 

Sixth, it allows medical obligations, as specified under title IV of 

the Social Security Act, to be enforced notwithstanding the automatic stay. 

170

Sec. 215. Nondischargeability of Certain Debts for Alimony, 

Maintenance, and Support. Section 215 of the Act amends Bankruptcy Code section 523(a)(5) to provide that a ‘‘domestic support 

obligation’’ (as defined in section 211 of the Act) is nondischargeable and eliminates Bankruptcy Code section 523(a)(18). Section 

215(2) amends Bankruptcy Code section 523(c) to delete the reference to section 523(a)(15) in that provision. Section 215(3) 

amends section 523(a)(15) to provide that obligations to a spouse, 

former spouse, or a child of the debtor (not otherwise described in 

section 523(a)(5)) incurred in connection with a divorce or separation or related action are nondischargeable irrespective of the debtor’s inability to pay such debts. 

Sec. 216. Continued Liability of Property. Section 216(1) of the 

Act amends section 522(c) of the Bankruptcy Code to make exempt 

property liable for nondischargeable domestic support obligations 

notwithstanding any contrary provision of applicable nonbankruptcy law. Section 216(2) and (3) make conforming amendments 

to sections 522(f)(1)(A) and 522(g)(2) of the Bankruptcy Code. 

Sec. 217. Protection of Domestic Support Claims Against Preferential Transfer Motions. Section 217 of the Act makes a conforming amendment to Bankruptcy Code section 547(c)(7) to provide that a bona fide payment of a debt for a domestic support obligation may not be avoided as a preferential transfer. 

Sec. 218. Disposable Income Defined. Section 218 of the Act 

amends section 1225(b)(2)(A) of the Bankruptcy Code to provide 

that disposable income in a chapter 12 case does not include payments for postpetition domestic support obligations. 

Sec. 219. Collection of Child Support. Section 219 amends sections 704, 1106, 1202, and 1302 of the Bankruptcy Code to require 

trustees in chapter 7, 11, 12, and 13 cases to provide certain notices to child support claimants and governmental enforcement 

agencies. In addition, the Act conforms internal statutory cross references to Bankruptcy Code section 523(a)(14A) and deletes the reference to Bankruptcy Code section 523(a)(14) with respect to chapter 13, as this provision is inapplicable to that chapter. 

Section 219(a) requires a chapter 7 trustee to provide written notice to a domestic support claimant of the right to use the services 

of a state child support enforcement agency established under sections 464 and 466 of the Social Security Act in the state where the 

claimant resides for assistance in collecting child support during 

and after the bankruptcy case. The notice must include the agency’s address and telephone number as well as explain the claimant’s right to payment under the applicable chapter of the Bankruptcy Code. In addition, the trustee must provide written notice 

to the claimant and the agency of such claim and include the name, 

address, and telephone number of the child support claimant. At 

the time the debtor is granted a discharge, the trustee must notify 

both the child support claimant and the agency that the debtor was 

granted a discharge as well as supply them with the debtor’s last 

known address, the last known name and address of the debtor’s 

employer, and the name of each creditor holding a debt that is not 

discharged under section 523(a)(2), (4) or (14A) or holding a debt 

that was reaffirmed pursuant to Bankruptcy Code section 524. A 

claimant or agency may request the debtor’s last known address 

from a creditor holding a debt that is not discharged under section 

171

523(a)(2), (4) or (14A) or that is reaffirmed pursuant to section 524 

of the Bankruptcy Code. A creditor who discloses such information, 

however, is not liable to the debtor or any other person by reason 

of such disclosure. Subsections (b), (c), and (d) of section 219 of the 

Act impose comparable requirements for chapter 11, 12, and 13 

trustees. 

Sec. 220. Nondischargeability of Certain Educational Benefits 

and Loans. Section 220 of the Act amends section 523(a)(8) of the 

Bankruptcy Code to provide that a debt for a qualified education 

loan (as defined in section 221(e)(1) of the Internal Revenue Code) 

is nondischargeable, unless excepting such debt from discharge 

would impose an undue hardship on the debtor and the debtor’s dependents. 

Subtitle C. Other Consumer Protections 

Sec. 221. Amendments To Discourage Abusive Bankruptcy Filings. Section 221 of the Act makes a series of amendments to section 110 of the Bankruptcy Code. First, section 221 clarifies that 

the definition of a bankruptcy petition preparer does not include an 

attorney for a debtor or an employee of an attorney under the direct supervision of such attorney. Second, it amends subsections (b) 

and (c) of section 110 to provide that if a bankruptcy petition preparer is not an individual, then an officer, principal, responsible 

person, or partner of the preparer must sign certain documents 

filed in connection with the bankruptcy case as well as state the 

person’s name and address on such documents. Third, it requires 

a bankruptcy petition preparer to give the debtor written notice (as 

prescribed by the Judicial Conference of the United States) explaining that the preparer is not an attorney and may not practice law 

or give legal advice. The notice may include examples of legal advice that a preparer may not provide. Such notice must be signed 

by the preparer under penalty of perjury and the debtor and be 

filed with any document for filing. Fourth, the petition preparer is 

prohibited from giving legal advice, including with respect to certain specified items. Fifth, it permits the Supreme Court to promulgate rules or the Judicial Conference of the United States to issue 

guidelines for setting the maximum fees that a bankruptcy petition 

preparer may charge for services. Sixth, section 221 requires the 

preparer to notify the debtor of such maximum fees. Seventh, it 

specifies that the bankruptcy petition preparer must certify that it 

complied with this notification requirement. Eighth, it requires the 

court to order the turnover of any fees in excess of the value of the 

services rendered by the preparer within the 12-month period preceding the bankruptcy filing. Ninth, section 221 provides that all 

fees charged by a preparer may be forfeited if the preparer fails to 

comply with certain requirements specified in Bankruptcy Code 

section 110, as amended by this provision. Tenth, it allows a debtor 

to exempt fees recovered under this provision pursuant to Bankruptcy Code section 522(b). Eleventh, it specifically authorizes the 

court to enjoin a bankruptcy petition preparer who has violated a 

court order issued under section 110. Twelfth, it generally revises 

section 110’s penalty provisions and requires such penalties to be 

paid into a special fund of the United States trustee for the purpose of funding the enforcement of section 110 on a national basis. 

With respect to Bankruptcy Administrator districts, the funds are 

172

74 504 U.S. 753 (1992). 

to be deposited as offsetting receipts pursuant to section 1931 of 

title 28 of the United States Code. 

Sec. 222. Sense of Congress. Section 222 of the Act expresses the 

sense of Congress that the states should develop personal finance 

curricula for use in elementary and secondary schools. 

Sec. 223. Additional Amendments to Title 11, United States Code.

Section 223 of the Act amends section 507(a) of the Bankruptcy 

Code to accord a tenth-level priority to claims for death or personal 

injuries resulting from the debtor’s operation of a motor vehicle or 

vessel while intoxicated. 

Sec. 224. Protection of Retirement Savings in Bankruptcy. The intent of section 224 is to expand the protection for tax-favored retirement plans or arrangements that may not be already protected 

under Bankruptcy Code section 541(c)(2) pursuant to Patterson v. 

Shumate,74 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 

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a loan authorized under section 408(b)(1) of the Employee Retirement Income Security Act of 1974 or subject to Internal Revenue 

Code section 72(p) or with respect to a loan from certain thrift savings plans. Section 224(c) further provides that this exception to 

discharge may not be used to cause any loan made under a governmental plan under section 414(d) or a contract or account under 

section 403(b) of the Internal Revenue Code to be construed to be 

a claim or debt within the meaning of the Bankruptcy Code. 

Section 224(d) amends Bankruptcy Code section 1322 to provide 

that a chapter 13 plan may not materially alter the terms of a loan 

described in section 362(b)(19) and that any amounts required to 

repay such loan shall not constitute ‘‘disposable income’’ under section 1325 of the Bankruptcy Code. 

Section 224(e) amends section 522 of the Bankruptcy Code to im- pose 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 interest 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 a 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 with the express or imVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00177 Fmt 6659 Sfmt 6602 E:\HR\OC\HR40P1.XXX HR40P1
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plied purpose of giving information, advice, or counsel; preparing 

documents for filing; or attending a meeting of creditors pursuant 

to section 341; appearing in a 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 

nonprofit organization exemption from taxation under section 

501(c)(3) of the Internal Revenue Code. Second, 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. Third, 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. Fourth, 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 case, 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 that an assisted 

person may receive as a result 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 

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528 preempt inconsistent state law. In addition, it provides that 

these provisions do not limit or curtail the authority of a Federal 

court, a state, or a subdivision or instrumentality of a state, to determine and enforce qualifications for the practice of law before the 

Federal court or under the laws of that state. 

Sec. 228. Disclosures. Section 228 of the Act requires a debt relief 

agency to provide certain specified written notices to an assisted 

person. These include the notice required under section 342(b)(1) 

(as amended by this Act) as well as a notice advising that: (1) all 

information the assisted person provides in connection with the 

case must be complete, accurate and truthful; (2) all assets and liabilities must be completely and accurately disclosed in the documents filed to commence the case, including the replacement value 

of each asset (if required) after reasonable inquiry to establish such 

value; (3) current monthly income, monthly expenses and, in a 

chapter 13 case, disposable income, must be stated after reasonable 

inquiry; and (4) the information an assisted person provides may 

be audited and that the failure to provide such information may result in dismissal of the case or other sanction including, in some 

instances, criminal sanctions. In addition, the agency must supply 

certain specified advisories and explanations regarding the bankruptcy process. Further, this provision requires the agency to advise an assisted person (to the extent permitted under nonbankruptcy law) concerning asset valuation, the calculation of disposable income, and the determination of exempt property. 

Sec. 229. Requirements for Debt Relief Agencies. Section 229 adds 

a provision to the Bankruptcy Code requiring a debt relief agency— not later than five business days after the first date on which it 

provides any bankruptcy assistance services to an assisted person 

(but prior to such assisted person’s bankruptcy petition being 

filed)—to execute a written contract with the assisted person. The 

contract must specify clearly and conspicuously the services the 

agency will provide, the basis on which fees will be charged for 

such services, and the terms of payment. The assisted person must 

be given a copy of the fully executed and completed contract in a 

form the person can retain. 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. 

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ice, discloses to an individual a policy prohibiting the transfer of 

personally identifiable information to persons unaffiliated with the 

debtor, and the policy is in effect at the time of the bankruptcy filing, then the trustee may not sell or lease such information unless 

either of the following conditions is satisfied: (1) the sale is consistent with such policy; or (2) the court, after appointment of a 

consumer privacy ombudsman (pursuant to section 332 of the 

Bankruptcy Code, as amended) and notice and hearing, the court 

approves the sale or lease upon due consideration of the facts, circumstances, and conditions of the sale or lease. 

Section 231(b) amends Bankruptcy Code section 101 to add a definition of ‘‘personally identifiable information.’’ The term applies to 

information provided by an individual to the debtor in connection 

with obtaining a product or service from the debtor primarily for 

personal, family, or household purposes. It includes the individual’s: (1) first name or initial and last name (whether given at 

birth or adoption or legally changed); (2) physical home address; (3) 

electronic address, including an e-mail address; (4) home telephone 

number; (5) Social Security account number; or (vi) credit card account number. The term also includes information if it is identified 

in connection with the above items: (1) an individual’s birth date, 

birth or adoption certificate number, or place of birth; or (2) any 

other information concerning an identified individual that, if disclosed, will result in the physical or electronic contacting or identification of that person. 

Sec. 232. Consumer Privacy Ombudsman. Section 232 implements the preceding provision of the Act with respect to the appointment and responsibilities of a consumer privacy ombudsman. 

It provides that if a hearing is required under section 363(b)(1)(B) 

(as amended), the court must order the United States trustee to appoint a disinterested person to serve as the consumer privacy ombudsman and to provide timely notice of the hearing to such person. It permits the ombudsman to appear and be heard at such 

hearing. The ombudsman must provide the court with information 

to assist its consideration of the facts, circumstances and conditions 

of the proposed sale or lease of personally identifiable information. 

The information may include a presentation of the debtor’s privacy 

policy, potential losses or gains of privacy to consumers if the sale 

or lease is approved, potential costs or benefits to consumers if the 

sale or lease is approved, and possible alternatives that would mitigate potential privacy losses or costs to consumers. Section 232 prohibits the ombudsman from disclosing any personally identifiable 

information obtained in the case by such individual. In addition, 

the provision amends Bankruptcy Code section 330(a)(1) to permit 

an ombudsman to be compensated. 

Sec. 233. Prohibition on Disclosure of Name of Minor Children.

Section 233 of the Act adds a new provision to the Bankruptcy 

Code (section 112) specifying that a debtor may be required to provide information regarding his or her minor child in connection 

with the bankruptcy case, but such debtor may not be required to 

disclose in the public records the child’s name. It provides, however, that the debtor may be required to disclose this information 

in a nonpublic record maintained by the court, which must be 

available for inspection by the United States trustee, trustee or an 

auditor, if any. Section 233 prohibits the court, United States trustVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00180 Fmt 6659 Sfmt 6602 E:\HR\OC\HR40P1.XXX HR40P1
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75PUB. L. NO. 104–134, § 804(b) (1996). 

ee, trustee, or auditor from disclosing such minor child’s name. Section 233 clarifies that the prohibition against disclosure pertains to 

the minor child’s name. 

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 75 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 1-year 

period. The provision does not apply to a case refiled under a chapter other than chapter 7 after dismissal of the prior chapter 7 case 

pursuant to section 707(b) of the Bankruptcy Code. Upon motion of 

a party in interest, the court may continue the automatic stay after 

notice and a hearing completed prior to the expiration of the 30-

day period if such party demonstrates that the latter case was filed 

in good faith as to the creditors who are stayed by the filing. 

For purposes of this provision, a case is presumptively not filed 

in good faith as to all creditors (but such presumption may be rebutted by clear and convincing evidence) if: (1) more than one 

bankruptcy case under chapter 7, 11 or 13 was previously filed by 

the debtor within the preceding 1-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 the court, (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 1-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 

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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 2 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 2 years following the entry of 

an order entered under section 362(d)(4). A debtor, in a subsequent 

case, may move for relief from such order based upon changed circumstances or for other good cause shown after notice and a hearing. Section 303(b) also provides that the automatic stay does not 

apply in a case where the debtor: (1) is ineligible to be a debtor in 

a bankruptcy case pursuant to section 109(g) of the Bankruptcy 

Code; or (2) filed the bankruptcy case in violation of an order 

issued in a prior bankruptcy case prohibiting the debtor from being 

a debtor in a subsequent bankruptcy case. 

Sec. 304. Debtor Retention of Personal Property Security. Section 

304(1) of the Act amends section 521(a) of the Bankruptcy Code to 

provide that an individual who is a chapter 7 debtor may not retain 

possession of personal property securing, in whole or in part, a purchase money security interest unless the debtor, within 45 days 

after the first meeting of creditors, enters into a reaffirmation 

agreement with the creditor, or redeems the property. If the debtor 

fails to so act within the prescribed period, the property is not subject to the automatic stay and is no longer property of the estate. 

An exception applies if the court: (1) determines on motion of the 

trustee filed before the expiration of the 45-day period that the 

property has consequential value or would benefit the bankruptcy 

estate; (2) orders adequate protection of the creditor’s interest; and 

(iii) 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 

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tion 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 no longer property of the estate An exception pertains where 

the court determines, on the motion of the trustee made prior to 

the expiration of the applicable time period under section 521(a)(2), 

and after notice and a hearing, that such property is of consequential value or benefit to the estate, orders adequate protection of the 

creditor’s interest, and directs the debtor to deliver any collateral 

in the debtor’s possession. 

Section 305(2) amends section 521 of the Bankruptcy Code to 

make the requirement to file a statement of intention applicable to 

all secured debts, not just secured consumer debts. In addition, it 

requires the debtor to effectuate his or her stated intention within 

30 days from the first date set for the meeting of creditors. If the 

debtor fails to timely undertake certain specified actions with respect to property that a lessor or bailor owns and has leased, 

rented or bailed to the debtor or in which a creditor has a security 

interest (not otherwise avoidable under section 522(f), 544, 545, 

547, 548 or 549 of the Bankruptcy Code), then nothing in the 

Bankruptcy Code shall prevent or limit the operation of a provision 

in a lease or agreement that places the debtor in default by reason 

of the debtor’s bankruptcy or insolvency. 

Sec. 306. Giving Secured Creditors Fair Treatment in Chapter 13.

Subsection (a) of section 306 of the Act amends Bankruptcy Code 

section 1325(a)(5)(B)(i) to require—as a condition of confirmation— that a chapter 13 plan provide that a secured creditor retain its 

lien until the earlier of when the underlying debt is paid or the 

debtor receives a discharge. If the case is dismissed or converted 

prior to completion of the plan, the secured creditor is entitled to 

retain its lien to the extent recognized under applicable nonbankruptcy law. 

Section 306(b) adds a new paragraph to section 1325(a) of the 

Bankruptcy Code specifying that Bankruptcy Code section 506 does 

not apply to a debt incurred within the two and one-half year period preceding the filing of the bankruptcy case if the debt is secured by a purchase money security interest in a motor vehicle acquired for the personal use of the debtor. 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 1-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, and a trailer. 

180

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 state opt out. 

Sec. 308. Reduction of Homestead Exemption for Fraud. Section 

308 amends section 522 of the Bankruptcy Code to reduce the 

value of a debtor’s interest in the following property that may be 

claimed as exempt under certain circumstances: (i) real or personal 

property that the debtor or a dependent of the debtor uses as a residence, (ii) a cooperative that owns property that the debtor or a 

dependent of the debtor uses as a residence, (iii) a burial plot, or 

(iv) real or personal property that the debtor or dependent of the 

debtor claims as a homestead. Where nonexempt property is converted to the above-specified exempt property within the 10-year 

period preceding the filing of the bankruptcy case, the exemption 

must be reduced to the extent such value was acquired with the 

intent to hinder, delay or defraud a creditor. 

Sec. 309. Protecting Secured Creditors in Chapter 13 Cases. Section 309(a) of the Act amends Bankruptcy Code section 348(f)(1)(B) 

to provide that valuations of property and allowed secured claims 

in a chapter 13 case only apply if the case is subsequently converted to one under chapter 11 or 12. If the chapter 13 case is converted to one under chapter 7, then the creditor holding security 

as of the petition date shall continue to be secured unless its claim 

was paid in full as of the conversion date. In addition, unless a 

prebankruptcy default has been fully cured at the time of conversion, then the default in any bankruptcy proceeding shall have the 

effect given under applicable nonbankruptcy law. 

Section 309(b) amends section 365 of the Bankruptcy Code to 

provide that if a lease of personal property is rejected or not assumed by the trustee in a timely manner, such property is no 

longer property of the estate and the automatic stay under 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 

181

lease. Section 309(b) provides that the automatic stay of section 

362 and the discharge injunction of section 524 are not violated if 

the creditor notifies the debtor and negotiates a cure under section 

365(p)(2) (as amended). In a chapter 11 or 13 case where the debtor 

is an individual lessee with respect to a personal property lease 

and the lease is not assumed in the confirmed plan, the lease is 

deemed rejected as of the conclusion of the confirmation hearing. 

If the lease is rejected, the automatic stay under section 362 as 

well as the chapter 13 codebtor stay under section 1301 are automatically terminated with respect to such property. 

Section 309(c)(1) amends Bankruptcy Code section 1325(a)(5)(B) 

to require that periodic payments pursuant to a chapter 13 plan 

with respect to a secured claim be made in equal monthly installments. Where the claim is secured by personal property, the 

amount of such payments shall not be less than the amount sufficient to provide adequate protection to the holder of such claim. 

Section 309(c)(2) amends section 1326(a) of the Bankruptcy Code to 

require a chapter 13 debtor to commence making payments within 

30 days after the filing of the plan or the order for relief, whichever 

is earlier. The amount of such payment must be the amount proposed in the plan, scheduled in a personal property lease for that 

portion of the obligation that becomes due postpetition (which 

amount shall reduce the payment required to be made to such lessor pursuant to the plan), and provides adequate protection directly 

to a creditor holding an allowed claim secured by personal property 

to the extent the claim is attributable to the purchase of such property (which amount shall reduce the payment required to be made 

to such secured creditor pursuant to the plan). Payments made 

pursuant to a plan must be retained by the chapter 13 trustee until 

confirmation or denial of confirmation. Section 309(c)(2) provides 

that if the plan is confirmed, the trustee must distribute payments 

received from the debtor as soon as practicable in accordance with 

the plan. If the plan is not confirmed, the trustee must return to 

the debtor payments not yet due and owing to creditors. Pending 

confirmation and subject to section 363, the court, after notice and 

a hearing, may modify the payments required under this provision. 

Section 309(c)(2) requires the debtor, within 60 days following the 

filing of the bankruptcy case, to provide reasonable evidence of any 

required insurance coverage with respect to the use or ownership 

of leased personal property or property securing, in whole or in 

part, a purchase money security interest. 

Sec. 310. Limitation on Luxury Goods. Section 310 amends section 523(a)(2)(C) of the Bankruptcy Code. Under current law, consumer debts owed to a single creditor that, in the aggregate, exceed 

$1,075 for luxury goods or services incurred within 60 days before 

the commencement of the case are presumed to be nondischargeable. As amended, the presumption applies if the aggregate amount 

of consumer debts for luxury goods or services is more than $500 

for luxury goods or services incurred by an individual debtor within 

90 days before the order for relief. With respect to cash advances, 

current law provides that cash advances aggregating more than 

$1,075 that are extensions of consumer credit under an open-end 

credit plan obtained by an individual debtor within 60 days before 

the case is filed are presumed to be nondischargeable. As amended, 

section 523(a)(2)(C) presumes that cash advances aggregating more 

182

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. 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 to continue or to be commenced after the filing of the petition, 

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 

non-bankruptcy law allows a default to be cured after a judgment 

has been obtained. Where non-bankruptcy 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 

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76Thompson v. Margen (In re McConville), 110 F.3d 47 (9th Cir.), cert. denied, 522 U.S. 966 

(1997). The bankruptcy trustee sought to avoid the lien created by the lenders’ deed of trust 

by asserting that the deed was an unauthorized, postpetition transfer under Bankruptcy Code 

section 549(a). The lenders claimed that the voluntary transfer to them was a transfer of real 

property to good faith purchasers for value, which thereby excepted it, under Bankruptcy Code 

section 549(c) from avoidance. The bankruptcy court held that the postpetition recordation of 

the lenders’ deed of trust was without authorization under the Bankruptcy Code or by the court 

and was therefore avoidable under section 549(a) and that the lenders did not qualify under 

the section 549(c) exception as good faith purchasers of real property for value. The District 

Court subsequently affirmed the bankruptcy court’s ruling granting the trustee the authority 

to avoid the lenders’ lien. McConville v. David Margen and Lawton Associates (In re

McConville), No. C 94–3308, 1994 U.S. Dist. LEXIS 18095 (N.D. Cal. Dec. 14, 1994). On appeal, 

the lower court’s decision in McConville was initially affirmed. Thompson v. Margen (In re

McConville), 84 F.3d 340 (9th Cir. 1996). The Ninth Circuit, however, subsequently issued an 

amended opinion, also affirming the lower court, Thompson v. Margen (**In re** McConville), 

97 F.3d 316 (9th Cir. 1996), and finally issued an opinion withdrawing its prior opinion and 

deciding the case on other grounds. It held that by obtaining secured credit from the lenders 

after filing but before the appointment of a trustee, the debtors violated their fiduciary responsibility to their creditors. Thompson v. Margen (In re McConville), 110 F.3d 47 (9th Cir. 1997). 

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 548. This amendment responds to a 1997 Ninth Circuit case in which two purchase money 

lenders (without knowledge that the debtor had recently filed and 

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.76

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 8 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 4 years preceding 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(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 

184

goods’’ as codified in section 522(f)(4). 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. 

Sec. 314. Debt Incurred To Pay Nondischargeable Debts. Subsection (a) of section 314 of the Act amends section 523(a) of the 

Bankruptcy Code to make a debt incurred to pay a nondischargeable tax owed to a governmental unit (other than a tax owed to the 

United States) nondischargeable. Section 314(b) amends section 

1328(a) of the Bankruptcy Code to make the following additional 

debts nondischargeable in a chapter 13 case: (1) debts for money, 

property, services, or extensions of credit obtained through fraud or 

by a false statement in writing under section 523(a)(2)(A) and (B) 

of the Bankruptcy Code; (2) consumer debts owed to a single creditor that aggregate to more than $500 for luxury goods or services 

incurred by an individual debtor within 90 days before the filing 

of the bankruptcy case, and cash advances aggregating more than 

$750 that are extensions of consumer credit obtained by a debtor 

under an open-end credit plan within 70 days before the order for 

relief under section 523(a)(2)(C) (as amended); (3) pursuant to section 523(a)(3) of the Bankruptcy Code, debts that require 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 if an entity files 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 

185

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 deemed to have 

been received by the creditor until it has been received by such person or subdivision. This provision also prohibits the imposition of 

any monetary penalty for violation of the automatic stay or for the 

failure to comply with the Bankruptcy Code sections 542 and 543 

unless the creditor has received effective notice under section 342. 

Section 315(b) amends section 521 to specify additional duties of 

a debtor. This provision requires the debtor to file a certificate executed by the debtor’s attorney or bankruptcy petition preparer stating that the attorney or preparer supplied the debtor with the notice required under Bankruptcy Code section 342(b). If the debtor 

is not represented by counsel and did not use the services of a 

bankruptcy petition preparer, then the debtor must sign a certificate stating that he or she obtained and read such notice. In addition, the debtor must file: (1) copies of all payment advices or other 

evidence of payment, if any, from any employer within 60 days preceding the bankruptcy filing; (2) a statement of the amount of 

monthly net income, itemized to show how such amount is calculated; and (3) a statement disclosing any reasonably anticipated 

increase in income or expenditures in the 12-month period following the date of filing. Upon request of a creditor, section 315(b) 

of the Act requires the court to make the petition, schedules, and 

statement of financial affairs of an individual who is a chapter 7 

or 13 debtor available to such creditor. 

In addition, section 315(b) requires such debtor to provide the 

trustee not later than 7 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. In addition, the debtor must file copies of any 

amendments to such tax returns. 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 3-year period preceding the date 

186

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 1 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 persons responsible with 

the debtor for the support of the debtor’s dependents, the identity 

of any persons who contributed to the debtor’s household expenses, 

and the amount of any such contributions. 

Section 315(b)(2) mandates that the tax returns, amendments 

thereto, and the statement of income and expenditures of an individual who is a chapter 7 or chapter 13 debtor be made available 

to the United States trustee or bankruptcy administrator, the 

trustee, and any party in interest for inspection and copying, subject to procedures established by the Director of the Administrative 

Office for United States Courts within 180 days from the date of 

enactment of this Act. The procedures must safeguard the confidentiality of any tax information required under this provision and include restrictions on creditor access to such information. In addition, the Director must, within 540 days from the Act’s enactment 

date, prepare and submit to Congress a report that assesses the effectiveness of such procedures and, if appropriate, includes recommendations for legislation to further protect the confidentiality 

of such tax information and to impose penalties for its improper 

use. If requested by the United States trustee or trustee, the debtor 

must provide a document establishing the debtor’s identity, which 

may include a driver’s license, passport, or other document containing a photograph of the debtor, and such other personal identifying information relating to the debtor. 

Sec. 316. Dismissal for Failure To Timely File Schedules or Provide Required Information. Section 316 of the Act amends section 

521 of the Bankruptcy Code to provide that if an individual debtor 

in a voluntary chapter 7 or chapter 13 case fails to file all of the 

information required under section 521(a)(1) within 45 days of the 

date on which the case is filed, the case must be automatically dismissed, effective on the 46th day. The 45-day period may be extended for an additional 45-day period providing the debtor requests such extension prior to the expiration of the original 45-day 

period and the court finds justification for such extension. Upon request of a party in interest, the court must enter an order of dismissal within 5 days of such request. Section 316 provides that a 

court may decline to dismiss the case if: (1) the trustee files a motion before the stated time periods; (2) the court finds, after notice 

and a hearing, that the debtor in good faith attempted to file all 

the information required under section 521(a)(1)(B)(iv); and (3) the 

court finds that the best interests of creditors would be served by 

continued administration of the case. 

Sec. 317. Adequate Time To Prepare for Hearing on Confirmation 

of the Plan. Section 317 of the Act amends section 1324 of the 

187

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 

creditor 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 

5 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 3 years, unless the court, for cause, approves a longer 

period up to 5 years. The applicable commitment period may be 

less if the plan provides for payment in full of all allowed unsecured claims over a shorter period. Section 318(2), (3), and (4) 

make conforming amendments to sections 1325(b) and 1329(c) of 

the Bankruptcy Code. 

Sec. 319. Sense of Congress Regarding Expansion of Rule 9011 of 

the Federal Rules of Bankruptcy Procedure. Section 319 of the Act 

expresses a sense of the Congress that Federal Rule of Bankruptcy 

Procedure 9011 be modified to require that any document, whether 

signed or unsigned, including schedules, 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 

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188

ment 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 5-year period beginning on the date that the first payment 

is due under the plan or during the plan’s term, whichever is 

longer. Section 321(c) also amends section 1129(b)(2)(B)(ii) of the 

Bankruptcy Code to provide that an individual chapter 11 debtor 

may retain property included in the estate under section 1115 (as 

added by the Act), subject to section 1129(a)(14). 

Section 321(d)(1) amends Bankruptcy Code section 1141(d) to 

provide that a discharge under chapter 11 does not discharge a 

debtor who is an individual from any debt excepted from discharge 

under Bankruptcy Code section 523. Section 321(d)(2) of the Act 

provides that in a chapter 11 individual debtor is not discharged 

until all plan payments have been made. The court may grant a 

hardship discharge if the value of property actually distributed 

under the plan—as of the plan’s effective date—is not less than the 

amount that would have been available for distribution if the case 

was liquidated under chapter 7 on such date, and modification of 

the plan is not practicable. 

Section 321(e) of the Act amends section 1127 to permit a plan 

in a chapter 11case of an individual debtor to be modified 

postconfirmation for the purpose of increasing or reducing the 

amount of payments, extending or reducing the time period for 

such payments, or altering the amount of distribution to a creditor 

whose claim is provided for by the plan. Such modification may be 

made at any time on request of the debtor, trustee, United States 

trustee, or holder of an allowed unsecured claim, if the plan has 

not been substantially consummated. 

Section 321(f) 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 1215-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 

189

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) 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 the Bankruptcy Code; or

(2) debtor owes a debt arising from:

(a) any violation of the Federal securities laws defined in 

section 3(a)(47) of the Securities and Exchange Act of 

1934, any state securities laws, or any regulation or 

order issued under Federal securities laws or state securities laws;

(b) fraud, deceit, or manipulation in a fiduciary capacity or 

in connection with the purchase or sale of any security 

registered under section 12 or 15(d) of the Securities 

Exchange Act of 1934, or under section 6 of the Securities Act of 1933;

(c) any civil remedy under section 1964 of title 18 of the 

United States Code; or

(d) any criminal act, intentional tort, or willful or reckless 

misconduct that caused serious physical injury or 

death to another individual in the preceding 5 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 

190

77Pub. L. No. 102–365, 106 Stat. 972 (1992). 

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 of the Act amends section 1930(a) of title 28 of the United 

States Code to increase the filing fee for chapter 7 to $160 and decrease the filing fee for chapter 13 to $150. Subsections 325(b) and 

(c) amend section 589a of title 28 of the United States Code and 

section 406(b) of the Judiciary Appropriations Act of 1990 to increase the percentage of the fees collected under section 1930 of 

title 28 of the United States Code that are paid to the United 

States Trustee 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.77

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 

191

(other than the debtor or an insider) is compensated for any actual 

pecuniary loss incurred by the holder as a result of such failure. 

Sec. 329. Clarification of Postpetition Wages and Benefits. Section 

329 amends Bankruptcy Code section 503(b)(1)(A) to accord administrative expense status to certain back pay awards. This provision 

applies to a back pay award attributable to any period of time occurring postpetition as a result of a violation of Federal or state 

law by the debtor pursuant to an action brought in a court or before the National Labor Relations Board, providing the bankruptcy 

court determines that the award will not substantially increase the 

probability of layoff or termination of current employees or of nonpayment of domestic support obligations. 

Sec. 330. Delay of Discharge During Pendency of Certain Proceedings. Section 330 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 pending a 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). 

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. A further 

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 

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upon the prior written consent of the lessor either by the lessor’s 

motion for an extension or on motion of the trustee, provided that 

the trustee has the prior written approval of the lessor. This provision is designed to remove the bankruptcy judge’s discretion to 

grant extensions of the time for the retail debtor to decide whether 

to assume or reject a lease after a maximum possible period of 210 

days from the time of entry of the order of relief. Beyond that maximum period, the judge has no authority to grant further time unless the lessor has agreed in writing to the extension. 

Section 404(b) amends section 365(f)(1) to assure that section 

365(f) does not override any part of section 365(b). Thus, section 

404(b) makes a trustee’s authority to assign an executory contract 

or unexpired lease subject not only to section 365(c), but also to 

section 365(b), which is given full effect. Therefore, for example, assumption or assignment of a lease of real property in a shopping 

center must be subject to the provisions of the lease, such as use 

clauses. 

Sec. 405. Creditors and Equity Security Holders Committees. Subsection (a) of section 405 of the Act amends section 1102(a)(2) of 

the Bankruptcy Code to permit, after notice and a hearing, a court, 

on its own motion or on motion of a party in interest, to order a 

change in a committee’s membership 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. 

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Sec. 408. Postpetition Disclosure and Solicitation. Section 408 

amends section 1125 of the Bankruptcy Code to permit an acceptance or rejection of a chapter 11 plan to be solicited from the holder 

of a claim or interest if the holder was solicited before the commencement of the case in a manner that complied with applicable 

nonbankruptcy law. 

Sec. 409. Preferences. Section 409 amends section 547(c)(2) of the 

Bankruptcy Code to provide that a trustee may not avoid a transfer 

to the extent such transfer was in payment of a debt incurred by 

the debtor in the ordinary course of the business or financial affairs 

of the debtor and the transferee and such transfer was made either: (1) in the ordinary course of the debtor’s and the transferee’s 

financial affairs or business; 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 410 amends section 1409(b) of title 28 of the United States Code to provide that 

a preferential transfer action in the amount of $10,000 or less pertaining to a nonconsumer debt against a noninsider defendant 

must be filed in the district where such defendant resides. This 

amount is presently fixed at $1,000. 

Sec. 411. Period for Filing Plan under Chapter 11. Section 411 

amends section 1121(d) of the Bankruptcy Code to mandate that a 

chapter 11 debtor’s exclusive period for filing a plan may not be extended beyond a date that is 18 months after the order for relief. 

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 other Federal or state nonbankruptcy 

law, to appear and participate at the meeting of creditors in chapter 7 and chapter 13 cases either alone or in conjunction with an 

attorney. In addition, the provision clarifies that it cannot be construed to require a creditor to be represented by counsel at any 

meeting of creditors. 

Sec. 414. Definition of Disinterested Person. Section 414 amends 

section 101(14) of the Bankruptcy Code to eliminate the requirement that an investment banker be a disinterested person. 

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Sec. 415. Factors for Compensation of Professional Persons. Section 415 amends section 330(a)(3) of the Bankruptcy Code to permit the court to consider, in awarding compensation to a professional person, whether such person is board certified or otherwise 

has demonstrated skill and experience in the practice of bankruptcy law. 

Sec. 416. Appointment of Elected Trustee. Section 416 of the Act 

amends section 1104(b) of the Bankruptcy Code to clarify the procedure for the election of a trustee in a chapter 11 case. Section 

1104(b) permits creditors to elect an eligible, disinterested person 

to serve as the trustee in the case, provided certain conditions are 

met. Section 416 amends this provision to require the United 

States trustee to file a report certifying the election of a chapter 

11 trustee. Upon the filing of the report, the elected trustee is 

deemed to be selected and appointed for purposes of section 1104 

and the service of any prior trustee appointed in the case is terminated. Section 416 also clarifies that the court shall resolve any 

dispute arising out of a chapter 11 trustee election. 

Sec. 417. Utility Service. Section 417 amends section 366 of the 

Bankruptcy Code to provide that assurance of payment, for purposes of this provision, includes a cash deposit, letter of credit, certificate of deposit, surety bond, prepayment of utility consumption, 

or other form of security that is mutually agreed upon by the debtor or trustee and the utility. It also specifies that an administrative 

expense priority does not constitute an assurance of payment. With 

respect to chapter 11 cases, section 417 permits a utility to alter, 

refuse or discontinue service if it does not receive adequate assurance of payment that is satisfactory to the utility within 30 days 

of the filing of the petition. The court, upon request of a party in 

interest, may modify the amount of this payment after notice and 

a hearing. In determining the adequacy of such payment, a court 

may not consider: (1) the absence of security before the case was 

filed; (2) the debtor’s timely payment of utility service charges before the case was filed; or (3) the availability of an administrative 

expense priority. Notwithstanding any other provision of law, section 417 permits a utility to recover or set off against a security 

deposit provided prepetition by the debtor to the utility without notice or court order. 

Sec. 418. Bankruptcy Fees. Section 418 of the Act amends section 

1930 of title 28 of the United States Code to permit a district court 

or a bankruptcy court, pursuant to procedures prescribed by the 

Judicial Conference of the United States, to waive the chapter 7 filing fee for an individual and certain other fees under subsections 

(b) and (c) of section 1930 if such individual’s income is less than 

150 percent of the official poverty level (as defined by the Office of 

Management and Budget) and the individual is unable to pay such 

fee in installments. Section 418 also clarifies that section 1930, as 

amended, does not prevent a district or bankruptcy court from 

waiving other fees for creditors and debtors, if in accordance with 

Judicial Conference policy. 

Sec. 419. More Complete Information Regarding Assets of the Estate. Section 419 of the Act directs the Judicial Conference of the 

United States, after consideration of the views of the Director of 

the Executive Office for United States Trustees, to propose official 

rules and forms directing chapter 11 debtors to disclose information 

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concerning the value, operations, and profitability of any closely 

held corporation, partnership, or other entity in which the debtor 

holds a substantial or controlling interest. Section 419 is intended 

to ensure that the debtor’s interest in any of these entities is used 

for the payment of allowed claims against debtor. 

Subtitle B. Small Business Bankruptcy Provisions 

Sec. 431. Flexible Rules for Disclosure Statement and Plan. Section 431 of the Act amends section 1125 of the Bankruptcy Code 

to streamline the disclosure statement process and to provide for 

more flexibility. Section 431(1) amends section 1125(a)(1) of the 

Bankruptcy Code to require a bankruptcy court, in determining 

whether a disclosure statement supplies adequate information, to 

consider the complexity of the case, the benefit of additional information to creditors and other parties in interest, and the cost of 

providing such additional information. With regard to a small business case, section 431(2) amends section 1125(f) to permit the court 

to dispense with a disclosure statement if the plan itself supplies 

adequate information. In addition, it provides that the court may 

approve a disclosure statement submitted on standard forms approved by the court or adopted under section 2075 of title 28 of the 

United States Code. Further, section 431(2) provides that the court 

may conditionally approve a disclosure statement, subject to final 

approval after notice and a hearing, and allow the debtor to solicit 

acceptances of the plan based on such disclosure statement. The 

hearing on the disclosure statement may be combined with the confirmation hearing. 

Sec. 432. Definitions. Section 432 of the Act amends section 101 

of the Bankruptcy Code to define a ‘‘small business case’’ as a chapter 11 case in which the debtor is a small business debtor. Section 

432, in turn, defines a ‘‘small business debtor’’ as a person engaged 

in commercial or business activities (including an affiliate of such 

person that is also a debtor, but excluding a person whose primary 

activity is the business of owning or operating real property or activities incidental thereto) having aggregate noncontingent, liquidated secured and unsecured debts of not more than $2 million 

(excluding debts owed to affiliates or insiders of the debtor) as of 

the date of the petition or the order for relief. This monetary definition applies only in a case where the United States trustee has not 

appointed a creditors’ committee or where the court has determined 

that the creditors’ committee is not sufficiently active and representative to provide effective oversight of the debtor. It does not 

apply to any member of a group of affiliated debtors that has aggregate noncontingent, liquidated secured and unsecured debts in 

excess of $2 million (excluding debts owed to one or more affiliates 

or insiders). This provision also requires this monetary figure to be 

periodically adjusted for inflation pursuant to section 104 of the 

Bankruptcy Code. 

Sec. 433. Standard Form Disclosure Statement and Plan. Section 

433 of the Act directs the Judicial Conference of the United States 

to propose for adoption standard form disclosure statements and 

reorganization plans for small business debtors. The provision requires the forms to achieve a practical balance between the needs 

of the court, case administrators, and other parties in interest to 

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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 cases, the provision requires 

a chapter 11 trustee or debtor to:

(1) file with a voluntary petition (or in an involuntary case, 

within 7 days from the date of the order for relief) the debtor’s most recent financial statements (including a balance 

sheet, statement of operations, cash flow statement, and 

Federal income tax return) or a statement explaining why 

such information is not available;

(2) attend, through its senior management personnel and 

counsel, meetings scheduled by the bankruptcy court or the 

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view 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). Section 438 

clarifies that the plan must otherwise comply with applicable provisions of the Bankruptcy Code and includes a cross-reference to section 1121(e)(3), as added by section 437 of this Act. 

Sec. 439. Duties of the United States Trustee. Section 439 of the 

Act amends section 586(a) of title 28 of the United States Code to 

require the United States trustee to perform the following additional duties with respect to small business debtors:

(1) conduct an initial debtor interview before the meeting of 

creditors for the purpose of (a) investigating the debtor’s viability, (b) inquiring about the debtor’s business plan, (c) 

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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 2-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 2-year period 

ending on the date of the order for relief entered in the pending 

case; or (4) is an entity that has acquired substantially all of the 

assets or business of a small business debtor described in the preceding paragraphs, unless such entity establishes by a preponderance of the evidence that it acquired the assets or business in good 

faith and not for the purpose of evading this provision. 

An exception to this provision applies to a chapter 11 case that 

is commenced involuntarily and involves no collusion between the 

debtor and the petitioning creditors. Also, it does not apply if the 

debtor proves by a preponderance of the evidence that: (1) the filing 

of the subsequent case resulted from circumstances beyond the 

debtor’s control and which were not foreseeable at the time the 

prior case was filed; and (2) it is more likely than not that the 

court will confirm a feasible plan of reorganization (but not a liquidating plan) within a reasonable time. 

Sec. 442. Expanded Grounds for Dismissal or Conversion and Appointment of Trustee. Subsection (a) of section 442 of the Act 

amends section 1112(b) of the Bankruptcy Code to mandate that 

the court convert or dismiss a chapter 11 case, whichever is in the 

best interests of creditors and the estate, if the movant establishes 

cause, absent unusual circumstances. In this regard, the court 

must specify the circumstances that support the court’s finding 

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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 period set forth in 

section 1121(e) and 1129(e), or if these provisions are inapplicable, 

within a reasonable period of time; (2) the grounds for granting 

such relief include an act or omission of the debtor for which there 

exists a reasonable justification for such act or omission; and (3) 

such act or omission will be cured within a reasonable period of 

time. 

The court must commence the hearing on a section 1112(b) motion within 30 days of its filing and decide the motion not later 

than 15 days after commencement of the hearing unless the movant expressly consents to a continuance for a specified period of 

time or compelling circumstances prevent the court from meeting 

these time limits. Section 442 provides that the term ‘‘cause’’ under 

section 1112(b), as amended by this provision, includes the following:

(1) substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation;

(2) gross mismanagement of the estate;

(3) failure to maintain appropriate insurance that poses a 

material risk to the estate or the public;

(4) unauthorized use of cash collateral that is harmful to one 

or more creditors;

(5) failure to comply with a court order;

(6) unexcused failure to timely satisfy any filing or reporting 

requirement under the Bankruptcy Code or applicable 

rule;

(7) failure to attend the section 341 meeting of creditors or an 

examination pursuant to rule 2004 of the Federal Rules 

of Bankruptcy Procedure, without good cause shown by 

the debtor;

(8) failure to timely provide information or to attend meetings reasonably requested by the United States trustee or 

bankruptcy administrator;

(9) failure to timely pay taxes owed after the order for relief 

or to file tax returns due postpetition;

(10) failure to file a disclosure statement or to confirm a plan 

within the time fixed by the Bankruptcy Code or pursuant 

to court order;

(11) failure to pay any requisite fees or charges under chapter 

123 of title 28 of the United States Code;

(12) revocation of a confirmation order;

(13) inability to effectuate substantial consummation of a confirmed plan;

(14) material default by the debtor with respect to a confirmed 

plan;

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(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 additional grounds for the appointment of 

a chapter 11 trustee 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 in the 

best interests of creditors and the bankruptcy estate. 

Sec. 443. Study of Operation of Title 11, United States Code, with 

Respect to Small Businesses. Section 443 of the Act directs the Administrator of the Small Business Administration, in consultation 

with the Attorney General, the Director of the Executive Office for 

United States Trustees, and the Director of the Administrative Office of the United States Courts, to conduct a study to determine: 

(1) the internal and external factors that cause small businesses 

(particularly sole proprietorships) to seek bankruptcy relief and the 

factors that cause small businesses to successfully complete their 

chapter 11 cases; and (2) how the bankruptcy laws may be made 

more effective and efficient in assisting small business to remain 

viable. 

Sec. 444. Payment of Interest. Paragraph (1) of section 444 of the 

Act amends section 362(d)(3) of the Bankruptcy Code to require a 

court to grant relief from the automatic stay within 30 days after 

it determines that a single asset real estate debtor is subject to this 

provision. Section 444(2) amends section 362(d)(3)(B) to specify that 

relief from the automatic stay shall be granted unless the single 

asset real estate debtor has commenced making monthly payments 

to each creditor secured by the debtor’s real property (other than 

a claim secured by a judgment lien or unmatured statutory lien) 

in an amount equal to the interest at the then applicable nondefault contract rate of interest on the value of the creditor’s interest in the real estate. It allows a debtor in its sole discretion to 

make the requisite interest payments out of rents or other proceeds 

generated by the real property, notwithstanding section 363(c)(2). 

Sec. 445. Priority for Administrative Expenses. Section 445 of the 

Act amends section 503(b) of the Bankruptcy Code to add a new 

administrative expense priority for a nonresidential real property 

lease that is assumed under section 365 and then subsequently rejected. The amount of the priority is the sum of all monetary obligations due under the lease (excluding penalties and obligations 

arising from or relating to a failure to operate) for the 2-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 an employee benefit plan if the debtor served in such capacity 

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at the time the case was filed. Section 446(b) amends Bankruptcy 

Code section 704 to require the chapter 7 trustee to perform the 

obligations of such administrator in a case where the debtor or an 

entity designated by the debtor was required to perform such obligations. Section 446(c) amends Bankruptcy Code section 1106(a) to 

require a chapter 11 trustee to perform these obligations. 

Sec. 447. Appointment of Committee of Retired Employees. This 

provision amends section 1114(d) of the Bankruptcy Code to clarify 

that it is the responsibility of the United States trustee to appoint 

members to a committee of retired employees. 

TITLE V. MUNICIPAL BANKRUPTCY PROVISIONS

Sec. 501. Petition and Proceedings Related to Petition. Section 

501 amends sections 921(d) and 301 of the Bankruptcy Code to 

clarify that the court must enter the order for relief in a chapter 

9 case. 

Sec. 502. Applicability of Other Sections to Chapter 9. Section 502 

of the of the Act amends section 901 of the Bankruptcy Code to 

make the following sections applicable to chapter 9 cases:

(1) section 555 (contractual right to liquidate, terminate or accelerate a securities contract);

(2) section 556 (contractual right to liquidate, terminate or accelerate a commodities or forward contract);

(3) section 559 (contractual right to liquidate, terminate or accelerate a repurchase agreement);

(4) section 560 (contractual right to liquidate, terminate or accelerate a swap agreement);

(5) section 561 (contractual right to liquidate, terminate, accelerate, or offset under a master netting agreement and 

across contracts); and

(6) section 562 (damage measure in connection with swap 

agreements, securities contracts, forward contracts, commodity contracts, repurchase agreements, or master netting agreement). 

TITLE VI. BANKRUPTCY DATA

Sec. 601. Improved Bankruptcy Statistics. This provision amends 

chapter 6 of title 28 of the United States Code to require the clerk 

for each district (or the bankruptcy court clerk if one has been certified pursuant to section 156(b) of title 28 of the United States 

Code) to collect certain statistics for chapter 7, 11, and 13 cases in 

a standardized format prescribed by the Director of the Administrative Office of the United States Courts and to make this information available to the public. Not later than July 1, 2006, 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;

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(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) 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 6 years preceding the filing of the present case;

(7) the number of cases in which creditors were fined for misconduct and the amount of any punitive damages awarded 

for creditor misconduct; and

(8) the number of cases in which sanctions under rule 9011 of 

the Federal Rules of Bankruptcy Procedure were imposed 

against a debtor’s counsel and the damages awarded under 

this rule.

Section 601 provides that the amendments in this provision take 

effect 18 months after the date of enactment of this Act. 

Sec. 602. Uniform Rules for the Collection of Bankruptcy Data.

Section 602 of the Act amends chapter 39 of title 28 of the United 

States Code to require the Attorney General to promulgate rules 

mandating the establishment of uniform forms for final reports in 

chapter 7, 12 and 13 cases and periodic reports in chapter 11 cases. 

This provision also specifies that these reports be designed to facilitate compilation of data and to provide maximum public access by 

physical inspection at one or more central filing locations and by 

electronic access through the Internet or other appropriate media. 

The information should enable an evaluation of the efficiency and 

practicality of the bankruptcy system. In issuing rules, the Attorney General must consider: (1) the reasonable needs of the public 

for information about the Federal bankruptcy system; (2) the economy, simplicity, and lack of undue burden on persons obligated to 

file the reports; and (3) appropriate privacy concerns and safeguards. 

Section 602 provides that final reports by trustees in chapter 7, 

12, and 13 cases include the following information: (1) the length 

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empted; (4) receipts and disbursements of the estate; (5) administrative expenses, including those associated with section 707(b) of 

the Bankruptcy Code, and the actual costs of administering chapter 

13 cases; (6) claims asserted; (7) claims allowed; and (8) distributions to claimants and claims discharged without payment. With 

regard to chapter 11 cases, section 602 provides that periodic reports include the following information regarding:

(1) the industry classification for businesses conducted by the 

debtor, as published by the Department of Commerce;

(2) the length of time that the case was pending;

(3) the number of full-time employees as of the date of the 

order for relief and at the end of each reporting period;

(4) cash receipts, cash disbursements, and profitability of the 

debtor for the most recent period and cumulatively from 

the date of the order for relief;

(5) the debtor’s compliance with the Bankruptcy Code, including whether tax returns have been filed and taxes have 

been paid;

(6) professional fees approved by the court for the most recent 

period and cumulatively from the date of the order for relief; and

(7) plans filed and confirmed, including the aggregate recoveries of holders by class and as a percentage of total claims 

of an allowed class.

Sec. 603. Audit Procedures. Subsection (a)(1) of section 603 of the 

Act requires the Attorney General (for judicial districts served by 

United States trustees) and the Judicial Conference of the United 

States (for judicial districts served by bankruptcy administrators) 

to establish procedures to determine the accuracy, veracity, and 

completeness of petitions, schedules and other information filed by 

debtors pursuant to sections 111, 521 and 1322 of the Bankruptcy 

Code. Section 603(a)(1) requires the audits to be conducted in accordance with generally accepted auditing standards and performed by independent certified public accountants or independent 

licensed public accountants. It permits the Attorney General and 

the Judicial Conference to develop alternative auditing standards 

not later than 2 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 

204

States trustee to contract with auditors to perform the audits specified in this provision. Further, it requires the report of each audit 

to be filed with the court and transmitted to the United States 

trustee. The report must specify material misstatements of income, 

expenditures or assets. In a case where a material misstatement 

has been reported, the clerk must provide notice of such 

misstatement to creditors and the United States trustee must report it to the United States Attorney, if appropriate, for possible 

criminal prosecution. If advisable, the United States trustee must 

also take appropriate action, such as revoking the debtor’s discharge. 

Section 603(c) amends section 521 of the Bankruptcy Code to 

make it a duty of the debtor to cooperate with an auditor. Section 

603(d) amends section 727 of the Bankruptcy Code to add, as a 

ground for revocation of a chapter 7 discharge the debtor’s failure 

to: (a) satisfactorily explain a material misstatement discovered as 

the result of an audit pursuant to this provision; or (b) make available for inspection all necessary documents or property belonging 

to the debtor that are requested in connection with such audit. Section 603(e) provides that the amendments made by this provision 

take effect 18 months after the Act’s date of enactment. 

Sec. 604. Sense of Congress Regarding Availability of Bankruptcy 

Data. Section 604 expresses a sense of the Congress that it is a national policy of the United States that all data collected by bankruptcy clerks in electronic form (to the extent such data relates to 

public records pursuant to section 107 of the Bankruptcy Code) 

should be made available to the public in a useable electronic form 

in bulk, subject to appropriate privacy concerns and safeguards as 

determined by the Judicial Conference of the United States. It also 

states that a uniform bankruptcy data system should be established that uses a single set of data definitions and forms to collect 

such data and that data for any particular bankruptcy case should 

be aggregated in electronic format. 

TITLE VII. BANKRUPTCY TAX PROVISIONS

Sec. 701. Treatment of Certain Tax Liens. Subsection (a) of section 701 of the Act makes several amendments to section 724 of the 

Bankruptcy Code to provide greater protection for holders of ad valorem tax liens on real or personal property of the estate. 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. Section 701(a) is intended to protect the holders of these tax liens from, among other things, erosion 

of their claims’ status by expenses incurred under chapter 11 of the 

Bankruptcy Code. 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 incurred under chapter 7 for wages, 

salaries, or commissions (but not expenses incurred under chapter 

11); (2) claims for wages, salaries, and commissions entitled to priority under section 507(a)(4); and (3) claims for contributions to 

employee benefit plans entitled to priority under section 507(a)(5). 

Before a tax lien on real or personal property may be subordinated 

pursuant to section 724, the chapter 7 trustee must exhaust all 

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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 of the appropriate taxing authority of that governmental 

unit. 

Sec. 704. Rate of Interest on Tax Claims. Under current law, 

there is no uniform rate of interest applicable to tax claims. As a 

result, varying standards have been used to determine the applicable rate. Section 704 of the Act amends the Bankruptcy Code to 

add section 511 for the purpose of simplifying the interest rate calculation. It provides that for all tax claims (federal, state, and 

local), including administrative expense taxes, the interest rate 

shall be determined in accordance with applicable nonbankruptcy 

law. With respect to taxes paid under a confirmed plan, the rate 

of interest is determined as of the calendar month in which the 

plan is confirmed. 

Sec. 705. Priority of Tax Claims. Under current law, a tax claim 

is entitled to be treated as a priority claim if it arises within certain specified time periods. In the case of income taxes, a priority 

arises, among other time periods, if the tax return was due within 

3 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, 

most courts have also held that the 3-year and 240-day time periods are 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 240-day period together with an 

206

78 96 T.C. 895 (1991). 

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 from a return due within 3 years of the petition 

date, taxes assessed within 240 days, or taxes related to an unfiled 

return or false return are not dischargeable. Chapter 13, on the 

other hand, allows these obligations to be discharged. Section 707 

of the Act amends Bankruptcy Code section 1328(a)(2) to prohibit 

the discharge of tax claims described in section 523(a)(1)(B) and (C) 

as well as claims for a tax required to be collected or withheld and 

for which the debtor is liable in whatever capacity pursuant to section 507(a)(8)(C). 

Sec. 708. No Discharge of Fraudulent Taxes in Chapter 11. Under 

current law, the confirmation of a chapter 11 plan discharges a corporate debtor from most debts. Section 708 amends section 1141(d) 

of the Bankruptcy Code to except from discharge in corporate chapter 11 case a debt specified in subsections 523(a)(2)(A) and (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 Federal tax court. This 

rule was arguably extended in Halpern v. Commissioner,78 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 alVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00210 Fmt 6659 Sfmt 6602 E:\HR\OC\HR40P1.XXX HR40P1
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lows the bankruptcy court to determine whether the automatic stay 

applies to the postpetition tax liabilities of a corporate debtor. 

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 5 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 class of claims under section 

1122(b). In addition, it requires the same payment treatment to be 

accorded to secured section 507(a)(8) claims of a governmental unit. 

Sec. 711. Avoidance of Statutory Liens Prohibited. The Internal 

Revenue Code gives special protections to certain purchasers of securities and motor vehicles notwithstanding the existence of a filed 

tax lien. Section 711 of the Act amends section 545(2) of the Bankruptcy Code to prevent that provision’s special protections from 

being used to avoid an otherwise valid lien. Specifically, it prevents 

the avoidance of unperfected liens against a bona fide purchaser, 

if the purchaser qualifies as such under section 6323 of the Internal Revenue Code or a similar provision under state or local law. 

Sec. 712. Payment of Taxes in the Conduct of Business. Although 

current law generally requires trustees and receivers to pay taxes 

in the ordinary course of the debtor’s business, the payment of administrative expenses must first be authorized by the court. Section 712(a) of the Act amends section 960 of title 28 of the United 

States Code to clarify that postpetition taxes in the ordinary course 

of business must be paid on or before when such tax is due under 

applicable nonbankruptcy law, with certain exceptions. This requirement does not apply if the obligation is a property tax secured 

by a lien against property that is abandoned under section 554 

within a reasonable time after the lien attaches. In addition, the 

requirement does not pertain where the payment is excused under 

the Bankruptcy Code. With respect to chapter 7 cases, section 

712(a) provides that the payment of a tax claim may be deferred 

until final distribution pursuant to section 726 if the tax was not 

incurred by a chapter 7 trustee or if the court, prior to the due date 

of the tax, finds that the estate has insufficient funds to pay all administrative expenses in full. Section 712(b) amends section 

503(b)(1)(B)(i) of the Bankruptcy Code to clarify that this provision 

applies to secured as well as unsecured tax claims, including property taxes based on liability that is in rem, in personam or both. 

Section 712(c) amends section 503(b)(1) to exempt a governmental 

unit from the requirement to file a request for payment of an administrative expense. Section 712(d)(1) amends section 506(b) to 

provide that to the extent that an allowed claim is oversecured, the 

holder is entitled to interest and any reasonable fees, costs, or 

charges provided for under state law. Section 712(d)(2), in turn, 

amends section 506(c) to permit a trustee to recover from a secured 

creditor the payment of all ad valorem property taxes. 

Sec. 713. Tardily Filed Priority Tax Claims. Section 713 of the 

Act amends section 726(a)(1) of the Bankruptcy Code to require a 

claim under section 507 that is not timely filed pursuant to section 

501 to be entitled to a distribution if such claim is filed the earlier 

of the date that is 10 days following the mailing to creditors of the 

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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 filed on behalf of a taxpayer who has provided information sufficient to complete a return constitutes filing 

a return (and the debt can be discharged), but that a return filed 

on behalf of a taxpayer based on information the Secretary obtains 

through testimony or otherwise 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. If 

the government does not make a determination or request an extension of time to audit, then the trustee or debtor in possession’s 

determination of taxes will be final. 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 request an audit of the debtor’s 

tax returns. Therefore, if the government does not make a determination of postpetition tax liabilities or request extension of time 

to audit, then the estate’s liability for unpaid taxes is discharged. 

Sec. 716. Requirement to File Tax Returns to Confirm Chapter 13 

Plans. Under current law, a debtor may enjoy the benefits of chapter 13 even if delinquent in the filing of tax returns. Section 716 

of the Act responds to this problem. Subsection (a) amends section 

1325(a) of the Bankruptcy Code to require a chapter 13 debtor to 

file all applicable Federal, state, and local tax returns as a condition of confirmation as required by section 1308 (as added by section 716(b)). Section 716(b) adds section 1308 to chapter 13 to require a chapter 13 debtor to be current on the filing of tax returns 

for the 4-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 

209

propose for adoption official rules with respect an objection by a 

governmental unit to confirmation of a chapter 13 plan when such 

claim pertains to a tax return filed pursuant to section 1308. 

Sec. 717. Standards for Tax Disclosure. Before creditors and 

stockholders may be solicited to vote on a chapter 11 plan, the plan 

proponent must file a disclosure statement that provides adequate 

information to holders of claims and interests so they can make a 

decision as to whether or not to vote in favor of the plan. As the 

tax consequences of a plan can have a significant impact on the 

debtor’s reorganization prospects, section 717 amends section 

1125(a) of the Bankruptcy Code to require that a chapter 11 disclosure statement discuss the plan’s potential material Federal tax 

consequences to the debtor, any successor to the debtor, and to a 

hypothetical investor that is representative of the claimants and interest holders in the case. 

Sec. 718. Setoff of Tax Refunds. Under current law, the filing of 

a bankruptcy petition automatically stays the setoff of a prepetition 

tax refund against a prepetition tax obligation unless the bankruptcy court approves the setoff. Interest and penalties that may 

continue to accrue may also be nondischargeable pursuant to section 523(a)(1) of the Bankruptcy Code and cause individual debtors 

undue hardship. Section 718 of the Act amends section 362(b) of 

the Bankruptcy Code to create an exception to the automatic stay 

whereby such setoff could occur without court order unless it would 

not be permitted under applicable nonbankruptcy law because of a 

pending action to determine the amount or legality of the tax liability. In that circumstance, the governmental authority may hold the 

refund pending resolution of the action, unless the court, on motion 

of the trustee and after notice and a hearing, grants the taxing authority adequate protection pursuant to section 361. 

Sec. 719. Special Provisions Related to the Treatment of State 

and Local Taxes. Section 719 of the Act conforms state and local 

income tax administrative issues to the Internal Revenue Code. For 

example, under Federal law, a bankruptcy petitioner filing on 

March 5 has two tax years—January 1 to March 4, and March 5 

to December 31. Under the Bankruptcy Code, however, state and 

local tax years are divided differently—January 1 to March 5, and 

March 6 to December 31. Section 719 requires the states to follow 

the Federal convention. It conforms state and local tax administration to the Internal Revenue Code in the following areas: division 

of tax liabilities and responsibilities between the estate and the 

debtor, tax consequences with respect to partnerships and transfers 

of property, and the taxable period of a debtor. Section 719 does 

not conform state and local tax rates to Federal tax rates. 

Sec. 720. Dismissal for Failure to Timely File Tax Returns. Under 

existing law, there is no definitive rule with respect to whether a 

bankruptcy court may dismiss a bankruptcy case if the debtor fails 

to file returns for taxes incurred postpetition. Section 720 of the 

Act amends section 521 of the Bankruptcy Code to allow a taxing 

authority to request that the court dismiss or convert a bankruptcy 

case if the debtor fails to file a postpetition tax return or obtain an 

extension. If the debtor does not file the required return or obtain 

the extension within 90 days from the time of the request by the 

taxing authority to file the return, the court must convert or disVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00213 Fmt 6659 Sfmt 6602 E:\HR\OC\HR40P1.XXX HR40P1
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79The 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. 80See section 1529 and commentary. 81Guide at 16–19. 82See id. at 18, ¶60; 19 ¶66. 

miss the case, whichever is in the best interest of creditors and the 

estate. 

TITLE VIII. ANCILLARY AND OTHER CROSS-BORDER CASES

Title VIII of the Act adds a new chapter to the Bankruptcy Code 

for transnational bankruptcy cases. It incorporates the Model Law 

on Cross-Border Insolvency to encourage cooperation between the 

United States and foreign countries with respect to transnational 

insolvency cases. Title VIII is intended to provide greater legal certainty for trade and investment as well as to provide for the fair 

and efficient administration of cross-border insolvencies, which protects the interests of creditors and other interested parties, including the debtor. In addition, it serves to protect and maximize the 

value of the debtor’s assets. 

Sec. 801. Amendment to Add Chapter 15 to Title 11, United 

States Code. Section 801 introduces chapter 15 to the Bankruptcy 

Code, which is the Model Law on Cross-Border Insolvency (‘‘Model 

Law’’) promulgated by the United Nations Commission on International Trade Law (‘‘UNCITRAL’’) at its Thirtieth Session on May 

12–30, 1997.79 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.80 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)) 81. 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.82

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. 

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83 Id. at 17. 84See section 1505. 85Guide at 19–21, ¶¶67–68. 

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.83 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, escrow, trust fund or the like posted by a foreign insurer under State 

law. 

Sec. 1502. Definitions. ‘‘Debtor’’ is given a special definition for 

this chapter. This definition does not come from the Model Law, 

but is necessary to eliminate the need to refer repeatedly to ‘‘the 

same debtor as in the foreign proceeding.’’ With certain exceptions, 

the term ‘‘person’’ used in the Model Law has been replaced with 

‘‘entity,’’ which is defined broadly in section 101(15) to include natural persons and various legal entities, thus matching the intended 

breadth of the term ‘‘person’’ in the Model Law. The exceptions include contexts in which a natural person is intended and those in 

which the Model Law language already refers to both persons and 

entities other than persons. The definition of ‘‘trustee’’ for this 

chapter ensures that debtors in possession and debtors, as well as 

trustees, are included in the term.84

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 2.85 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 

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86See 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). 87See id. at 21, ¶75. 88See id. at 22, Art. 3. 89See id. at 23, Art. 4. 90 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.

terms have been placed in alphabetical order.86 In order to be recognized as a foreign non-main proceeding, the debtor must at least 

have an establishment in that foreign country.87

Sec. 1503. International obligations of the United States. This 

section is taken exactly from the Model Law with only minor adaptations of terminology.88 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 courts in a ‘‘case’’ under this title.89 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.90

The title ‘‘ancillary’’ in this section and in the title of this chapter 

emphasizes the United States policy in favor of a general rule that 

countries other than the home country of the debtor, where a main 

proceeding would be brought, should usually act through ancillary 

proceedings in aid of the main proceedings, in preference to a system of full bankruptcies (often called ‘‘secondary’’ proceedings) in 

each state where assets are found. Under the Model Law, 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 

213

91See Guide at 24. 92See id. at 24, Art. 5. 93See id. at 23–24, ¶82. 94See id. at 25. 95 Id. at 26. 

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.91

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.92 Its main purpose is to ensure that the court has 

knowledge and control of possibly expensive activities, but it will 

have the collateral benefit of providing further assurance to foreign 

courts that the United States debtor or representative is under judicial authority and supervision. This requirement means that the 

first-day orders in reorganization cases should include authorization to act under this section where appropriate. 

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.93

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.94

Sec. 1507. Additional assistance. Subsection (1) follows the language of Model Law article 7.95 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 

214

96 Id. 97 Id. at 26, ¶91. 98See id. at 23, Art. 4, ¶¶79–83; 27 Art. 9, ¶93. 

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.96

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.97 Interpretation of this chapter on a uniform basis will be aided by reference to the Guide and the Reports cited therein, which explain 

the reasons for the terms used and often cite their origins as well. 

Uniform interpretation will also be aided by reference to CLOUT, 

the UNCITRAL Case Law On Uniform Texts, which is a service of 

UNCITRAL. CLOUT receives reports from national reporters all 

over the world concerning court decisions interpreting treaties, 

model laws, and other text promulgated by UNCITRAL. Not only 

are these sources persuasive, but they advance the crucial goal of 

uniformity of interpretation. To the extent that the United States 

courts rely on these sources, their decisions will more likely be regarded as persuasive elsewhere. 

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 may 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 9.98

Although a petition under current section 304 is the proper 

method for achieving deference by a United States court to a foreign insolvency under present law, some cases in state and Federal 

courts under current law have granted 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 

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99See id. at 27, Art. 9; 34–35, Art. 15 and ¶¶116–119; 39–40, Art. 18, ¶¶133–134; see also sections 1515(3), 1518. 100 Id. at 27, ¶93. 101See id. at 28, Art. 11. 102 Id. at 38, ¶¶97–99. 103 Id. at 29, Art. 12. 104 Id. at 29, ¶¶10–102. 

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.99

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.100 Subsection (f) 

provides a limited exception to the prior recognition requirement so 

that collection of a claim which is property of the debtor, for example an account receivable, by a foreign representative may proceed 

without commencement of a case or recognition under this chapter. 

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.101 Article 11 does not distinguish between voluntary 

and involuntary proceedings, but seems to have implicitly assumed 

an involuntary proceeding.102 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.103 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.104 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 

216

105 Id. at 30, ¶103. 106See id. at 30, ¶104. 107See id. at 31, ¶105. 108See Model Law, Art. 14; Guide at 31–32, ¶¶106–109. 109Guide at 33, ¶111. 110 Id. at 31, Art. 14(3)(a). 111 Id. at 33. 

language required alteration to fit into the Bankruptcy Code.105

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.106 The Model Law allows for an 

exception to the policy of nondiscrimination as to foreign revenue 

and other public law claims.107 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.108 As a ‘‘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.109 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).110 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.111 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 

217

112See id. at 36, ¶121. 113 Id. at 36. 114 Id. at 36, Art. 16(3). 115 Id. 116 Id. at 37. 117 Report of the Working Group on Insolvency Law on the Work of Its Twentieth Session (Vienna, 7–18 Oct. 1996), at 6, ¶¶16–20. 

should receive notices. Throughout the Model Law, the question of 

notice procedure is left to the law of the enacting state.112

Sec. 1516. Presumptions concerning recognition. This section follows article 16 of the Model Law with minor changes.113 Although 

sections 1515 and 1516 are designed to make recognition as simple 

and expedient as possible, the court may hear proof on any element 

stated. The ultimate burden as to each element is on the foreign 

representative, although the court is entitled to shift the burden to 

the extent indicated in section 1516. The word ‘‘proof’’ in subsection 

(3) has been changed to ‘‘evidence’’ to make it clearer using United 

States terminology that the ultimate burden is on the foreign representative.114 ‘‘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.115 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.116 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.117 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 

218

118Guide at 37, Art. 17(1)(d). 119 Id. 120 Id. at 39–40, ¶¶133, 134. 121 Id. at 40. 122 Id. at 42, Art. 20 1(a), (b). 

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.118 The reference to section 350 refers to the routine closing of a case that has 

been completed and will invoke requirements including a final report from the foreign representative in such form as the Rules may 

provide or a court may order.119

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.120 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.121 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 have 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.122

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 

219

123 Id. at 42, 45. 124 Id. at 42, Art. 20(2); 44, ¶¶148, 150. 125 Id. at 42, Art. 20(3); 44–45, ¶¶151 152. 126 Id. 127 Id. at 45–46, Art. 21. 

complete than those contemplated by the Model Law, but include 

all the restraints the Model Law provisions would impose.123 As 

the foreign proceeding may or may not create an ‘‘estate’’ similar 

to that created in cases under this title, the restraints are applicable to actions against the debtor under section 362(a) and with respect to the property of the debtor under the remaining sections. 

The only property covered by this section is property within the 

territorial jurisdiction of the United States as defined in section 

1502. To achieve effects on property of the debtor which is not 

within the territorial jurisdiction of the United States, the foreign 

representative would have to commence a case under another chapter of this title. 

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.124 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.125

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.126

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.127 The exceptions in subsection (a)(7) relate to avoiding powers. The foreign 

representative’s status as to such powers is governed by section 

220

128 Id. at 46, Art. 21(2); 47, Art. 22(1). 129See id. at 46–47, ¶¶158, 160. 130 Id. at 47. 131 Id. at 48–49. 132See id. at 49, ¶166. 133 Id. at 49. 

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.’’ 128 Subsection (c) is designed to limit 

relief to assets having some direct connection with a non-main proceeding, for example where they were part of an operating division 

in the jurisdiction of the non-main proceeding when they were 

fraudulently conveyed and then brought to the United States.129

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.130 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 an examiner appointed in a case under chapter 15 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.131 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.132 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.133

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 

221

134 Id. at 50. 135 Id. at 51. 136Guide at 51, 53. 137See e.g., In re Maxwell Communication Corp., 93 F.2d 1036 (2d Cir. 1996). 138Guide at 54–55. 

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. 

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.134 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.135 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. Subsection (3) is not taken from 

the Model Law but is added so that any examiner appointed under 

this chapter will be designated by the United States Trustee and 

will be bonded. 

Sec. 1527. Forms of cooperation. This section is identical to the 

Model Law.136 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.137

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.138 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 

222

139 Id. at 55–56. 140 Id. at 57. 141 Id. at 58. 142 Id. at 59. 143 Id. at 51–52, 71. 

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.139 This provision is consistent with United States policy to act ancillary to a 

foreign main proceeding whenever possible. 

Sec. 1530. Coordination of more than one foreign proceeding. This 

section follows exactly article 30 of the Model Law.140 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.141 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).142

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).143

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 

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United States is acting solely in an ancillary position, so jurisdiction over property is limited to that stated in chapter 15. 

Section 802(d) amends section 109 of the Bankruptcy Code to 

permit recognition of foreign proceedings involving foreign insurance companies and involving foreign banks which do not have a 

branch or agency in the United States (as defined in 12 U.S.C. 

3101). While a foreign bank not subject to United States regulation 

will be eligible for chapter 15 as a consequence of the amendment 

to section 109, section 303 prohibits the commencement of a full involuntary case against such a foreign bank unless the bank is a 

debtor in a foreign proceeding. 

While section 304 is repealed and replaced by chapter 15, access 

to the jurisprudence which developed under section 304 is preserved in the context of new section 1507. On deciding whether to 

grant the additional assistance contemplated by section 1507, the 

court must consider the same factors specified in former section 

304. The venue provisions for cases ancillary to foreign proceedings 

have been amended to provide a hierarchy of choices beginning 

with principal place of business in the United States, if any. If 

there is no principal place of business in the United States, but 

there is litigation against a debtor, then the district in which the 

litigation is pending would be the appropriate venue. In any other 

case, venue must be determined with reference to the interests of 

justice and the convenience of the parties. 

TITLE IX. FINANCIAL CONTRACT PROVISIONS

Sec. 901. Treatment of Certain Agreements by Conservators of Receivers of Insured Depository Institutions. Subsections (a) through 

(f) of section 901 of the Act amend the Federal Deposit Insurance 

Act’s (FDIA) definitions of ‘‘qualified financial contract,’’ ‘‘securities 

contract,’’ ‘‘commodity contract,’’ ‘‘forward contract,’’ ‘‘repurchase 

agreement’’ and ‘‘swap agreement’’ 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. 

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 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 as to whether a repurchase or reverse repurchase transaction is a purchase and sale transaction or a secured 

financing. Repurchase and reverse repurchase transactions meeting 

certain criteria are already covered under the definition of ‘‘repurchase agreement’’ in the FDIA (and a regulation of the Federal Deposit Insurance Corporation (FDIC)). Repurchase and reverse repurchase transactions on all securities (including, for example, eqVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00227 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
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144See 12 C.F.R. § 360.5. 

uity 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 the definition of ‘‘commodity contract’’ in 

section 11(e)(8)(D)(iii) of the Federal Deposit Insurance Act. It 

clarifies the reference to guarantee or reimbursement obligation. 

Section 901(d) amends section 11(e)(8)(D)(iv) of the Federal Deposit 

Insurance Act with respect to its definition of a ‘‘forward contract.’’ It also clarifies the reference to guarantee or reimbursement obligation. 

Subsection (e) amends the definition of ‘‘repurchase agreement’’ to codify the substance of the FDIC’s 1995 regulation defining repurchase agreement to include those on qualified foreign government securities.144 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). 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 

commodities as securities contracts, commodity contracts, or forward contracts, and their consequent eligibility for similar treatment under the qualified financial contract provisions. In parVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00228 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
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ticular, an agreement for the sale and repurchase of a security 

would continue to be a securities contract as defined in the FDIA, 

even if not a ‘‘repurchase agreement’’ as defined in the FDIA. Similarly, an agreement for the sale and repurchase of a commodity, 

even though not a ‘‘repurchase agreement’’ as defined in the FDIA, 

would continue to be a forward contract for purposes of the FDIA. 

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 1 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. 

The definition of ‘‘swap agreement’’ originally was intended to 

provide sufficient flexibility to avoid the need to amend the definition as the nature and uses of swap transactions matured. To that 

end, the phrase ‘‘or any other similar agreement’’ was included in 

the definition. (The phrase ‘‘or any similar agreement’’ has been 

added to the definitions of ‘‘forward contract,’’ ‘‘commodity contract,’’ ‘‘repurchase agreement’’ and ‘‘securities contract’’ for the 

same reason.) To clarify this, subsection (f) expands the definition 

of ‘‘swap agreement’’ to include ‘‘any agreement or transaction that 

is similar to any other agreement or transaction referred to in [section 11(e)(8)(D)(vi) of the FDIA] and is of a type that has been, is 

presently, or in the future becomes, the subject of recurrent dealings in the swap markets . . . and that is a forward, swap, future, 

or option on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities or other debt 

instruments, quantitative measures associated with an occurrence, 

extent of an occurrence, or contingency associated with a financial, 

commercial, or economic consequence, or economic or financial indices or measures of economic or financial risk or value.’’

The definition of ‘‘swap agreement,’’ however, should not be interpreted to permit parties to document non-swaps as swap transactions. Traditional commercial arrangements, such as supply 

agreements, or other non-financial market transactions, such as 

commercial, residential or consumer loans, cannot be treated as 

226

‘‘swaps’’ under either the FDIA 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 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 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(f) clarifies that the definition pertains to an agreement or transaction is ‘‘of a type that’’ has been, presently, or in 

the future becomes, the subject of recurrent dealings in the swap 

markets. 

Section 901(g) amends the FDIA by adding a definition for 

‘‘transfer,’’ which is a key term used in the FDIA, to ensure that 

it is broadly construed to encompass dispositions of property or interests in property. The definition tracks that in section 101 of the 

Bankruptcy Code. 

Section 901(h) makes clarifying technical changes to conform the 

receivership and conservatorship provisions of the FDIA. It also 

clarifies that the FDIA expressly protects 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 

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ship or receivership, absent actual fraudulent intent on the part of 

the transferee. 

Sec. 902. Authority of the Corporation 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 to transfer or to repudiate any QFC in accordance with its powers under the FDIA. As discussed below, there 

has been some uncertainty regarding whether or not FDICIA limits 

the authority of the FDIC 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 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 to expand 

the transfer authority of the FDIC to permit transfers of QFCs to 

‘‘financial institutions’’ as defined in FDICIA or in regulations. This 

provision will allow the FDIC to transfer QFCs to a non-depository 

financial institution, provided the institution is not subject to bankruptcy or insolvency proceedings. 

The new FDIA provision specifies that when the FDIC transfers 

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 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 provision also permits 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. It is expected that the FDIC would 

not transfer QFCs to such a financial institution if there were an 

impending change of law that would impair the enforceability of 

the parties’ contractual rights. 

Section 903(b) amends the notification requirements following a 

transfer of the QFCs of a failed depository institution to require the 

FDIC 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 acting as a conservator. This 

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amendment is consistent with the policy statement on QFCs issued 

by the FDIC on December 12, 1989. 

Section 903(c) 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(c) 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 

receivership or conservatorship because the provision is based solely on the financial condition of the depository institution in default. 

However, any payment, delivery or other performance-based default, or breach of a representation or covenant putting in question 

the enforceability of the agreement, will not be deemed to be based 

solely on financial condition for purposes of this provision. The 

amendment is not intended to prevent counterparties from taking 

all actions permitted and recovering all damages authorized upon 

repudiation of any QFC by a conservator or receiver, or from taking 

actions based upon a receivership or other financial condition-triggered default in the absence of a transfer (as contemplated in Section 11(e)(10) of the FDIA). The amendment allows the FDIC 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 to transfer QFCs of a 

failed depository institution to a bridge bank or a depository institution organized by the FDIC for which a conservator is appointed 

either (i) immediately upon the organization of such institution or 

(ii) at the time of a purchase and assumption transaction between 

the FDIC 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. 

229

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 with respect 

to QFCs so that such authority is consistent with the FDIC’s transfer authority under FDIA section 11(e)(9). This ensures that no 

disaffirmance, repudiation or transfer authority of the FDIC 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 (but only to the extent 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. 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’’ to include clearinghouses that are 

subject to exemptions pursuant to orders of the Securities and Exchange Commission or the Commodity Futures Trading Commission and to include multilateral clearing organizations (the definition of which was added to FDICIA by the CFMA). 

FDICIA provides that a netting arrangement will be enforced 

pursuant to its terms, notwithstanding the failure of a party to the 

agreement. The current netting provisions of FDICIA, however, 

limit this protection to ‘‘financial institutions,’’ which include depository institutions. Section 906(a)(2) amends the FDICIA definition 

of covered institutions to include (i) uninsured national and State 

member banks, irrespective of their eligibility for deposit insurance 

and (ii) foreign banks (including the foreign bank and its branches 

or agencies as a combined group, or only the foreign bank parent 

of a branch or agency). The latter change will extend the protections of FDICIA to ensure that U.S. financial organizations participating in netting agreements with foreign banks are covered by the 

Act, thereby enhancing the safety and soundness of these arrangements. It is intended that a non-defaulting foreign bank and its 

branches and agencies be considered to be a single financial institution for purposes of the bilateral netting provisions of FDICIA 

(except to the extent that the non-defaulting foreign bank and its 

branches and agencies on the one hand, and the defaulting financial institution, on the other, have entered into agreements that 

clearly evidence an intention that the non-defaulting foreign bank 

230

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 (ii) 

the appointment of a receiver for such institution under the FDIA, 

if such receiver transfers or repudiates QFCs in accordance with 

the FDIA and gives notice of a transfer by 5:00 p.m. on the business day following the appointment of a receiver. This change is 

made to confirm the FDIC’s flexibility to transfer or repudiate the 

QFCs of an insolvent depository institution in accordance with the 

terms of the FDIA. This modification also provides important legal 

certainty regarding the treatment of QFCs under the FDIA, because the current relationship between the FDIA and FDICIA is 

unclear. 

The second exception provides that FDICIA does not override a 

stay order under SIPA with respect to foreclosure on securities (but 

not cash) collateral of a debtor (section 911 of the Act makes a conforming change to SIPA). There is also an exception relating to insolvent commodity brokers. Subsections (b) and (c) also clarify that 

a security agreement or other credit enhancement related to a netting contract is enforceable to the same extent as the underlying 

netting contract. 

Section 906(d) of the Act adds a new section 407 to FDICIA. This 

new section provides that, notwithstanding any other law, QFCs 

with uninsured national banks, uninsured Federal branches or 

agencies, or Edge Act corporations, or uninsured State member 

banks that operate, or operate as, a multilateral clearing organization and that are placed in receivership or conservatorship will be 

treated in the same manner as if the contract were with an insured 

231

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 to such institutions 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 2(e) and 2(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. The term ‘‘stockbroker,’’ as defined in Bankruptcy Code section 101(53A), is 

intended to include within its scope an ‘‘OTC derivatives dealer’’, as that term is defined in Rule 3b-12 of the Securities Exchange 

Act of 1934, as amended, which is the new class of broker-dealer 

created by the Securities and Exchange Commission in 1999 to engage in over-the-counter derivatives transactions that are securities. 

Subsection (a)(1) also amends the definition of ‘‘repurchase agreement’’ to include those on mortgage-related securities, mortgage 

loans and interests therein, and expressly to include principal and 

interest-only U.S. government and agency securities as securities 

that can be the subject of a ‘‘repurchase agreement.’’ The reference 

in the definition to United States government- and agency-issued 

or fully guaranteed securities is intended to include obligations 

issued or guaranteed by Fannie Mae and the Federal Home Loan 

Mortgage Corporation (Freddie Mac) as well as all obligations eligible for purchase by Federal Reserve banks under the similar language of section 14(b) of the Federal Reserve Act. 

This amendment is not intended to affect the status of repos involving securities or commodities as securities contracts, commodity contracts, or forward contracts, and their consequent eligibility for similar treatment under 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 deVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00235 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
232

fined 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.’’ Such 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 1 year or less after such transfer would constitute a ‘‘repurchase agreement’’ (as well as a ‘‘securities contract’’). 

The definition of ‘‘swap agreement’’ is amended to include an ‘‘interest rate swap, option, future, or forward agreement, including a 

rate floor, rate cap, rate collar, cross-currency rate swap, and basis 

swap; a spot, same day-tomorrow, tomorrow-next, forward, or other 

foreign exchange or precious metals agreement; a currency swap, 

option, future, or forward agreement; an equity index or equity 

swap, option, future, or forward agreement; a debt index or debt 

swap, option, future, or forward agreement; a total return, credit 

spread or credit swap, option, future, or forward agreement; a commodity index or commodity swap, option, future, or forward agreement; or a weather swap, weather derivative, or weather option.’’ As amended, the definition of ‘‘swap agreement’’ will update the 

statutory definition and achieve contractual netting across economically similar transactions. 

The definition of ‘‘swap agreement’’ originally was intended to 

provide sufficient flexibility to avoid the need to amend the definition as the nature and uses of swap transactions matured. To that 

end, the phrase ‘‘or any other similar agreement’’ was included in 

the definition. (The phrase ‘‘or any similar agreement’’ has been 

added to the definitions of ‘‘forward contract,’’ ‘‘commodity contract,’’ ‘‘repurchase agreement,’’ and ‘‘securities contract’’ for the 

same reason.) To clarify this, subsection (a)(1) expands the definition of ‘‘swap agreement’’ to include ‘‘any agreement or transaction 

that is similar to any other agreement or transaction referred to in 

[Section 101(53B) of the Bankruptcy Code] and that is of a type 

that has been, is presently, or in the future becomes, the subject 

of recurrent dealings in the swap markets’ and [that] is a forward, 

swap, future, or option on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities 

or other debt instruments, quantitative measures associated with 

an occurrence, extent of an occurrence, or contingency associated 

with a financial, commercial, or economic consequence, or economic 

or financial indices or measures of economic or financial risk or 

value.’’

The definition of ‘‘swap agreement’’ in this subsection should not 

be interpreted to permit parties to document non-swaps as swap 

transactions. Traditional commercial arrangements, such as supply 

233

agreements, or other non-financial market transactions, such as 

commercial, residential or consumer loans, cannot be treated as 

‘‘swaps’’ under either the FDIA 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). 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 and the FDIA. 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, 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 

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 defiVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00237 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
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nition of ‘‘repurchase agreement’’ in the Bankruptcy Code. Repurchase and reverse repurchase transactions on all securities (including, for example, equity securities, asset-backed securities, corporate bonds and commercial paper) are included under the definition of ‘‘securities contract’’. A repurchase or reverse repurchase 

transaction which is a ‘‘securities contract’’ but not a ‘‘repurchase 

agreement’’ would thus be subject to the ‘‘counterparty limitations’’ contained in section 555 of the Bankruptcy Code (i.e., only stockbrokers, financial institutions, securities clearing agencies and financial participants can avail themselves of section 555 and related provisions). 

Subsection (a)(2) also specifies that purchase, sale and repurchase obligations under a participation in a commercial mortgage 

loan do not constitute ‘‘securities contracts.’’ While a contract for 

the purchase, sale or repurchase of a participation may constitute 

a ‘‘securities contract,’’ the purchase, sale or repurchase obligation 

embedded in a participation agreement does not make that agreement a ‘‘securities contract.’’ Section 907(a) clarifies the reference 

to guarantee or reimbursement obligation. 

Section 907(b) amends the Bankruptcy Code definitions of ‘‘financial institution’’ and ‘‘forward contract merchant.’’ The definition for ‘‘financial institution’’ includes Federal Reserve Banks and the receivers or conservators of insolvent depository institutions. With respect to securities contracts, the definition of ‘‘financial institution’’ expressly includes investment companies registered under the Investment Company Act of 1940. 

Subsection (b) also adds a new definition of ‘‘financial participant’’ to limit the potential impact of insolvencies upon other major 

market participants. This definition will allow such market participants to close-out and net agreements with insolvent entities under 

sections 362(b)(6), 555, and 556 even if the creditor could not qualify as, for example, a commodity broker. Sections 362(b)(6), 555 and 

556 preserve the limitations of the right to close-out and net such 

contracts, in most cases, to entities who qualify under the Bankruptcy Code’s counterparty limitations. However, where the 

counterparty has transactions with a total gross dollar value of at 

least $1 billion in notional or actual principal amount outstanding 

on any day during the previous 15-month period, or has gross 

mark-to-market positions of at least $100 million (aggregated 

across counterparties) in one or more agreements or transactions 

on any day during the previous 15-month period, sections 362(b)(6), 

555 and 556 and corresponding amendments would permit it to exercise netting and related rights irrespective of its inability otherwise to satisfy those counterparty limitations. This change will help 

prevent systemic impact upon the markets from a single failure, 

and is derived from threshold tests contained in Regulation EE 

promulgated by the Federal Reserve Board in implementing the 

netting provisions of the Federal Deposit Insurance Corporation 

Improvement Act. It is intended that the 15-month period be measured with reference to the 15 months preceding the filing of a petition by or against the debtor. 

‘‘Financial participant’’ is also defined to include ‘‘clearing organizations’’ within the meaning of FDICIA (as amended by the CFMA 

and Section 906 of the Act). This amendment, together with the inclusion of ‘‘financial participants’’ as eligible counterparties in conVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00238 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
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nection with ‘‘commodity contracts,’’ ‘‘forward contracts’’ and ‘‘securities contracts’’ and the amendments made in other Sections of the 

Act to include ‘‘financial participants’’ as counterparties eligible for 

the protections in respect of ‘‘swap agreements’’ and ‘‘repurchase 

agreements’’, take into account the CFMA and will allow clearing 

organizations to benefit from the protections of all of the provisions 

of the Bankruptcy Code relating to these contracts and agreements. 

This will further the goal of promoting the clearing of derivatives 

and other transactions as a way to reduce systemic risk. The definition of ‘‘financial participant’’ (as with the other provisions of the 

Bankruptcy Code relating to ‘‘securities contracts,’’ ‘‘forward contracts,’’ ‘‘commodity contracts,’’ ‘‘repurchase agreements’’ and ‘‘swap 

agreements’’) is not mutually exclusive, i.e., an entity that qualifies 

as a ‘‘financial participant’’ could also be a ‘‘swap participant,’’ ‘‘repo participant,’’ ‘‘forward contract merchant,’’ ‘‘commodity 

broker,’’ ‘‘stockbroker,’’ ‘‘securities clearing agency’’ and/or ‘‘financial institution.’’ Section 907(c) of the Act adds to the Bankruptcy Code new definitions for the terms ‘‘master netting agreement’’ and ‘‘master netting agreement participant.’’ The definition of ‘‘master netting 

agreement’’ is designed to protect the termination and close-out 

netting provisions of cross-product master agreements between parties. Such an agreement may be used (i) to document a wide variety of securities contracts, commodity contracts, forward contracts, 

repurchase agreements and swap agreements or (ii) as an umbrella 

agreement for separate master agreements between the same parties, each of which is used to document a discrete type of transaction. The definition includes security agreements or arrangements or other credit enhancements related to one or more such 

agreements and clarifies that a master netting agreement will be 

treated as such even if it documents transactions that are not within the enumerated categories of qualifying transactions (but the 

provisions of the Bankruptcy Code relating to master netting 

agreements and the other categories of transactions will not apply 

to such other transactions). A ‘‘master netting agreement participant’’ is any entity that is a party to an outstanding master netting 

agreement with a debtor before the filing of a bankruptcy petition. 

Subsection (d) amends section 362(b) of the Bankruptcy Code to 

protect enforcement, free from the automatic stay, of setoff or netting provisions in swap agreements and in master netting agreements and security agreements or arrangements related to one or 

more swap agreements or master netting agreements. This provision parallels the other provisions of the Bankruptcy Code that protect netting provisions of securities contracts, commodity contracts, 

forward contracts, and repurchase agreements. Because the relevant definitions include related security agreements, the references to ‘‘setoff’’ in these provisions, as well as in section 

362(b)(6) and (7) of the Bankruptcy Code, are intended to refer also 

to rights to foreclose on, and to set off against obligations to return, 

collateral securing swap agreements, master netting agreements, 

repurchase agreements, securities contracts, commodity contracts, 

or forward contracts. Collateral may be pledged to cover the cost 

of replacing the defaulted transactions in the relevant market, as 

well as other costs and expenses incurred or estimated to be incurred for the purpose of hedging or reducing the risks arising out 

236

of such termination. Enforcement of these agreements and arrangements free from the automatic stay is consistent with the policy 

goal of minimizing systemic risk. 

Subsection (d) also clarifies that the provisions protecting setoff 

and foreclosure in relation to securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements, and master netting agreements free from the automatic 

stay apply to collateral pledged by the debtor but that cannot technically be ‘‘held by’’ the creditor, such as receivables and book-entry 

securities, and to collateral that has been repledged by the creditor 

and securities re-sold pursuant to repurchase agreements. 

Subsections (e) and (f) of section 907 of the Act amend sections 

546 and 548(d) of the Bankruptcy Code to provide that transfers 

made under or in connection with a master netting agreement may 

not be avoided by a trustee except where such transfer is made 

with actual intent to hinder, delay or defraud and not taken in 

good faith. This amendment provides the same protections for a 

transfer made under, or in connection with, a master netting agreement as currently is provided for margin payments, settlement 

payments and other transfers received by commodity brokers, forward contract merchants, stockbrokers, financial institutions, securities clearing agencies, repo participants, and swap participants 

under sections 546 and 548(d), except to the extent the trustee 

could otherwise avoid such a transfer made under an individual 

contract covered by such master netting agreement. 

Subsections (g), (h), (i), and (j) of section 907 clarify that the provisions of the Bankruptcy Code that protect (i) rights of liquidation 

under securities contracts, commodity contracts, forward contracts 

and repurchase agreements also protect rights of termination or acceleration under such contracts, and (ii) rights to terminate under 

swap agreements also protect rights of liquidation and acceleration. 

Section 907(k) of the Act adds a new section 561 to the Bankruptcy Code to protect the contractual right of a master netting 

agreement participant to enforce any rights of termination, liquidation, acceleration, offset or netting under a master netting agreement. Such 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 

237

net equity in the commodity accounts at the debtor. Subsection 

(b)(2)(B) applies only if the debtor is a commodity broker, acting on 

behalf of its own customer, and is in turn a customer of another 

commodity broker. In that case, the latter commodity broker may 

not net or offset obligations under such commodity contracts with 

other claims against its customer, the debtor. Subsections (b)(2)(A) 

and (b)(2)(B) limit the depletion of assets available for distribution 

to customers of commodity brokers. Subsection (b)(2)(C) provides an 

exception to subsections (b)(2)(A) and (b)(2)(B) for cross-margining 

and other similar arrangements approved by, or submitted to and 

not rendered ineffective by, the Commodity Futures Trading Commission, as well as certain other netting arrangements. 

For the purposes of Bankruptcy Code sections 555, 556, 559, 560 

and 561, it is intended that the normal business practice in the 

event of a default of a party based on bankruptcy or insolvency is 

to terminate, liquidate or accelerate securities contracts, commodity 

contracts, forward contracts, repurchase agreements, swap agreements and master netting agreements with the bankrupt or insolvent party. The protection of netting and offset rights in sections 

560 and 561 is in addition to the protections afforded in sections 

362(b)(6), (b)(7), (b)(17) and (b)(28) of the Bankruptcy Code. 

Under the Act, the termination, liquidation or acceleration rights 

of a master netting agreement participant are subject to limitations 

contained in other provisions of the Bankruptcy Code relating to 

securities contracts and repurchase agreements. In particular, if a 

securities contract or repurchase agreement is documented under 

a master netting agreement, a party’s termination, liquidation and 

acceleration rights would be subject to the provisions of the Bankruptcy Code relating to orders authorized under the provisions of 

SIPA or any statute administered by the SEC. In addition, the netting rights of a party to a master netting agreement would be subject to any contractual terms between the parties limiting or 

waiving netting or set off rights. Similarly, a waiver by a bank or 

a counterparty of netting or set off rights in connection with QFCs 

would be enforceable under the FDIA. 

New Section 561 of the Bankruptcy Code clarifies that the provisions of the Bankruptcy Code related to securities contracts, commodity contracts, forward contracts, repurchase agreements, swap 

agreements and master netting agreements apply in a proceeding 

ancillary to a foreign insolvency proceeding under new section 304 

of the Bankruptcy Code. 

Subsections (l) and (m) of section 907 of the Act clarify that the 

exercise of termination and netting rights will not otherwise affect 

the priority of the creditor’s claim after the exercise of netting, foreclosure and related rights. 

Subsection (n) amends section 553 of the Bankruptcy Code to 

clarify that the acquisition by a creditor of setoff rights in connection with swap agreements, repurchase agreements, securities contracts, forward contracts, commodity contracts and master netting 

agreements cannot be avoided as a preference. This subsection also 

adds setoff of the kinds described in sections 555, 556, 559, 560, 

and 561 of the Bankruptcy Code to the types of setoff excepted 

from section 553(b). 

Section 907(o), as well as other subsections of the Act, adds references to ‘‘financial participant’’ in all the provisions of the BankVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00241 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
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ruptcy Code relating to securities, forward and commodity contracts and repurchase and swap agreements. 

Sec. 908. Recordkeeping Requirements. Section 908 of the Act 

amends section 11(e)(8) of the Federal Deposit Insurance Act to explicitly authorize the FDIC, in consultation with appropriate Federal banking agencies, to prescribe regulations on recordkeeping by 

any insured depository institution with respect to QFCs only if the 

insured financial institution is in a troubled condition (as such 

term is defined in the FDIA). 

Sec. 909. Exemptions from Contemporaneous Execution Requirement. Section 909 of the Act amends FDIA section 13(e)(2) to provide that an agreement for the collateralization of governmental 

deposits, bankruptcy estate funds, Federal Reserve Bank or Federal Home Loan Bank extensions of credit or one or more QFCs 

shall not be deemed invalid solely because such agreement was not 

entered into contemporaneously with the acquisition of the collateral or because of pledges, delivery or substitution of the collateral 

made in accordance with such agreement. 

The amendment codifies portions of policy statements issued by 

the FDIC regarding the application of section 13(e), which codifies 

the ‘‘D’Oench Duhme’’ doctrine. With respect to QFCs, this codification recognizes that QFCs often are subject to collateral and other 

security arrangements that may require posting and return of collateral on an ongoing basis based on the mark-to-market values of 

the collateralized transactions. The codification of only portions of 

the existing FDIC policy statements on these and related issues 

should not give rise to any negative implication regarding the continued validity of these policy statements. 

Sec. 910. Damage Measure. Section 910 of the Act adds a new 

section 562 to the Bankruptcy Code providing that damages under 

any swap agreement, securities contract, forward contract, commodity contract, repurchase agreement or master netting agreement will be calculated as of the earlier of (i) the date of rejection 

of such agreement by a trustee or (ii) the date or dates of liquidation, termination or acceleration of such contract or agreement. 

Section 562 provides an exception to the rules in (i) and (ii) if 

there are no commercially reasonable determinants of value as of 

such date or dates, in which case damages are to be measured as 

of the earliest subsequent date or dates on which there are commercially reasonable determinants of value. Although it is expected 

that in most circumstances damages would be measured as of the 

date or dates of either rejection or liquidation, termination or acceleration, in certain unusual circumstances, such as dysfunctional 

markets or liquidation of very large portfolios, there may be no 

commercially reasonable determinants of value for liquidating any 

such agreements or contracts or for liquidating all such agreements 

and contracts in a large portfolio on a single day. 

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 

239

145 11 U.S.C. § 109(f). 146 11 U.S.C. § 101(19). 147 11 U.S.C. § 1202. 148 11 U.S.C. § 1222. 149For example, chapter 12 is typically less complex and expensive than chapter 11, a form 

of bankruptcy relief generally utilized to effectuate large corporate reorganizations. 150 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). 151Pub. L. No. 99–554, § 255, 100 Stat. 3088, 3105 (1986). 152See 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:

Continued

are not measured as of either the date of rejection or the date or 

dates of liquidation, termination or acceleration and the other 

party challenges the timing of the measurement of damages by the 

party determining the damages, that party has the burden of proving the absence of any commercially reasonable determinants of 

value. 

New section 562 is not intended to have any impact on the determination under the Bankruptcy Code of the timing of damages for 

contracts and agreements other than those specified in section 562. 

Also, section 562 does not apply to proceedings under the FDIA, 

and it is not intended that Section 562 have any impact on the interpretation of the provisions of the FDIA relating to timing of 

damages in respect of QFCs or other contracts. 

Sec. 911. SIPC Stay. Section 911 of the Act amends SIPA to provide that an order or decree issued pursuant to SIPA shall not operate as a stay of any right of liquidation, termination, acceleration, offset or netting under one or more securities contracts, commodity contracts, forward contracts, repurchase agreements, swap 

agreements or master netting agreements (as defined in the Bankruptcy Code and including rights of foreclosure on collateral), except that such order or decree may stay any right to foreclose on 

or dispose of securities (but not cash) collateral pledged by the 

debtor or sold by the debtor under a repurchase agreement or lent 

by the debtor under a securities lending agreement. A corresponding amendment to FDICIA is made by section 906. A creditor that was stayed in exercising rights against such securities 

would be entitled to post-insolvency interest to the extent of the 

value of such securities. 

TITLE X. PROTECTION OF FAMILY FARMERS

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,’’ 145 a defined term.146 This 

form of bankruptcy relief permits eligible family farmers, under the 

supervision of a bankruptcy trustee,147 to reorganize their debts 

pursuant to a repayment plan.148 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 11 149 and chapter 13.150

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 151 in response to the farm financial crisis of the early- to mid-1980’s.152 It was subsequently reenacted 

240

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.)). 153Pub. L. No. 107–377 (2002). 

and extended on several occasions. The most recent extension provides that chapter remains in effect until June 30, 2003.153

Section 1001(a) of the Act reenacts chapter 12 of the Bankruptcy 

Code and provides that such reenactment takes effect as of the 

date of enactment. Section 1001(b) makes a conforming amendment 

to section 302 of the Bankruptcy Judges, United States Trustees, 

and Family Farmer Bankruptcy Act of 1986. As a result of this provision, chapter 12 becomes a permanent form of relief under the 

Bankruptcy Code. 

Sec. 1002. Debt Limit Increase. Section 1002 of the Act amends 

section 104(b) of the Bankruptcy Code to provide for periodic adjustments for inflation of the debt eligibility limit for family farmers. 

Sec. 1003. Certain Claims Owed to Governmental Units. Subsection (a) of section 1003 of the Act amends section 1222(a) of the 

Bankruptcy Code to add an exception with respect to payments to 

a governmental unit for a debt entitled to priority under section 

507 if such debt arises from the sale, transfer, exchange, or other 

disposition of an asset used in the debtor’s farming operation, but 

only if the debtor receives a discharge. Section 1003(b) amends section 1231(b) of the Bankruptcy Code to have it apply to any governmental unit. Subsection (c) provides that section 1003 becomes effective on the date of enactment of this Act and applies to cases 

commenced after such effective date. 

Sec. 1004. Definition of Family Farmer. Section 1004 of the Act 

amends the definition of ‘‘family farmer’’ in section 101(18) of the 

Bankruptcy Code to increase the debt eligibility limit from 

$1,500,000 to $3,237,000. It also reduces the percentage of the 

farmer’s liabilities that must arise out of the debtor’s farming operation for eligibility purposes from 80 percent to 50 percent. 

Sec. 1005. Elimination of Requirement that Family Farmer and 

Spouse Receive over 50 Percent of Income from Farming Operation 

in Year Prior to Bankruptcy. Section 1005 of the Act amends the 

Bankruptcy Code’s definition of ‘‘family farmer’’ with respect to the 

determination of the farmer’s income. Current law provides that a 

debtor, in order to be eligible to be a family farmer, must derive 

a specified percentage of his or her income from farming activities 

for the taxable year preceding the commencement of the bankruptcy case. Section 1005 adjusts the threshold percentage to be 

met during either: (1) the taxable year preceding the filing of the 

bankruptcy case; or (2) the taxable year in the second and third 

taxable years preceding the filing of the bankruptcy case. 

Sec. 1006. Prohibition of Retroactive Assessment of Disposable Income. Section 1006 of the Act amends the Bankruptcy Code in two 

respects concerning chapter 12 plans. Section 1006(a) amends 

241

Bankruptcy Code section 1225(b) to permit the court to confirm a 

plan even if the distribution proposed under the plan equal or exceed the debtor’s projected disposable income for that period, providing the plan otherwise satisfies the requirements for confirmation. Section 1006(b) amends Bankruptcy Code section 1229 to restrict the bases for modifying a confirmed chapter 12 plan. Specifically, Section 1006(b) to provide that a confirmed chapter 12 plan 

may not be modified to increase the amount of payments due prior 

to the date of the order modifying the confirmation of the plan. 

Where the modification is based on an increase in the debtor’s disposable income, the plan may not be modified to require payments 

to unsecured creditors in any particular month in an amount greater than the debtor’s disposable income for that month, unless the 

debtor proposes such a modification. Section 1006(b) further provides that a modification of a plan shall not require payments that 

would leave the debtor with insufficient funds to carry on the farming operation after the plan is completed, unless the debtor proposes such a modification. 

Sec. 1007. Family Fishermen. Subsection (a) of section 1007 of 

the Act amends Bankruptcy Code section 101 to add definitions of 

‘‘commercial fishing operation,’’ ‘‘commercial fishing vessel,’’ ‘‘family 

fisherman’’ and ‘‘family fisherman with regular annual income.’’

The definition of ‘‘commercial fishing operation’’ includes the catching or harvesting of fish, shrimp, lobsters, urchins, seaweed, shellfish, or other aquatic species or products. The term ‘‘commercial 

fishing vessel’’ is defined as a vessel used by a fisher to ‘‘carry out 

a commercial fishing operation.’’ The term ‘‘family fisherman’’ is defined as an individual engaged in a commercial fishing operation, 

with an aggregate debt limit of $1.5 million. The definition specifies that at least 80 percent of those debts must be derived from 

a commercial fishing operation. The percentage of income that 

must be derived from such operation is specified to be more than 

50 percent of the individual’s gross income for the taxable year preceding the taxable year in which the case was filed. Similar provisions are included for corporations and partnerships. The term 

‘‘family fisherman with regular annual income’’ is defined as a family fisherman whose annual income is sufficiently stable and regular to enable such person to make payments under a chapter 12 

plan. Section 1007(b) amends Bankruptcy Code section 109 to provide that a family fisherman is eligible to be a debtor under chapter 12. Section 1007(c) amends the heading of chapter 12 to include 

a reference to family fisherman and makes conforming revisions to 

Sections 1203 and 1206. 

TITLE XI. HEALTH CARE AND EMPLOYEE BENEFITS

Sec. 1101. Definitions. Subsection (a) of section 1101 of the Act 

amends section 101 of the Bankruptcy Code to add a definition of 

‘‘health care business.’’ The definition includes any public or private entity (without regard to whether that entity is for or not for 

profit) that is primarily engaged in offering to the general public 

facilities and services for 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 

242

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, and 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 

effected by new section 101(27A) do not affect the interpretation of 

section 109(b). 

Sec. 1102. Disposal of Patient Records. Section 1102 of the Act 

adds a provision to the Bankruptcy Code specifying requirements 

for the disposal of patient records in a chapter 7, 9, or 11 case of 

a health care business where the trustee lacks sufficient funds to 

pay for the storage of such records in accordance with applicable 

Federal or state law. The requirements chiefly consist of providing 

notice to the affected patients and specifying the method of disposal 

for unclaimed records. They are intended to protect the privacy and 

confidentiality of a patient’s medical records when they are in the 

custody of a health care business in bankruptcy. The provision 

specifies the following requirements:

(1) The trustee shall: (a) publish notice in one or more appropriate newspapers stating that if the records are not 

claimed by the patient or an insurance provider (if permitted under applicable law) within 90 days of the date of 

such notice, then the trustee will destroy such records; and 

(b) during such 90-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 

243

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

department or agency of a state are allowed administrative expenses. 

Sec. 1104. Appointment of Ombudsman to Act as Patient Advocate. Section 1104 of the Act adds a provision to the Bankruptcy 

Code requiring the court to order the appointment of an ombudsman to monitor the quality of patient care within 30 days after 

commencement of a chapter 7, 9, or 11 health care business bankruptcy case, unless the court finds that such appointment is not 

necessary for the protection of patients under the specific facts of 

the case. The ombudsman must be a disinterested person. If the 

health care business is a long-term care facility, a person who is 

serving as a State Long-Term Care Ombudsman of the Older 

Americans Act of 1965 may be appointed as the ombudsman in 

such case. The ombudsman must: (1) monitor the quality of patient 

care to the extent necessary under the circumstances, including 

interviewing patients and physicians; (2) report to the court, not 

less than 60 days from the date of appointment and then every 60 

days thereafter, at a hearing or in writing regarding the quality of 

patient care at the health care business involved; and (3) notify the 

court by motion or written report (with notice to appropriate parties in interest) if the ombudsman determines that the quality of 

patient care is declining significantly or is otherwise being materially compromised. The provision requires the ombudsman to maintain any information obtained that relates to patients (including 

patient records) as confidential. Section 1104(b) amends section 

330(a)(1) of the Bankruptcy Code to authorize the payment of reasonable compensation to an ombudsman. 

Sec. 1105. Debtor in Possession; Duty of Trustee to Transfer Patients. Section 1105 of the Act amends section 704(a) of the Bankruptcy Code to require a trustee or debtor in possession to use all 

reasonable and best efforts to transfer patients from a health care 

business that is in the process of being closed to an appropriate 

health care business. The transferee health care business should be 

in the vicinity of the transferor health care business, provide the 

patient with services that are substantially similar to those provided by the transferor health care business, and maintain a reasonable quality of care. 

Sec. 1106. Exclusion from Program Participation Not Subject to 

Automatic Stay. Section 1106 amends section 362(b) of the Bankruptcy Code to except from the automatic stay the exclusion by the 

Secretary of Health and Human Services of a debtor from participation in the Medicare program or other specified Federal health 

care programs. 

TITLE XII. TECHNICAL AMENDMENTS

Sec. 1201. Definitions. Section 1201 of the Act amends the definitions contained in section 101 of the Bankruptcy Code. Paragraphs 

(1), (2), (4), and (7) of section 1201 make technical changes to section 101 to convert each definition into a sentence (thereby facilitating future amendments to the separate paragraphs) and to redesignate the definitions in correct and completely numerical sequence. Paragraph (3) of section 1101 makes necessary and conforming amendments to cross references to the newly redesignated 

definitions. 

244

154Thompson v. Margen (In re McConville), 110 F.3d 47 (9th Cir.), cert. denied, 522 U.S. 966 

(1997). 

Paragraph (5) of section 1201 concerns single asset real estate 

debtors. A single asset real estate chapter 11 case presents special 

concerns. As the name implies, the principal asset in this type of 

case consists of some form of real estate, such as undeveloped land. 

Typically, the form of ownership of a single asset real estate debtor 

is a corporation or limited partnership. The largest creditor in a 

single asset real estate case is typically the secured lender who advanced the funds to the debtor to acquire the real property. Often, 

a single asset real estate debtor resorts to filing for bankruptcy relief for the sole purpose of staying an impending foreclosure proceeding or sale commenced by the secured lender. Foreclosure actions are filed when the debtor lacks sufficient cash flow to service 

the debt and maintain the property. Taxing authorities may also 

have liens against the property. Based on the nature of its principal asset, a single asset real estate debtor often has few, if any, 

unsecured creditors. If unsecured creditors exist, they may have 

only nominal claims against the single asset real estate debtor. Depending on the nature and ownership of any business operating on 

the debtor’s real property, the debtor may have few, if any, employees. Accordingly, there may be little interest on behalf of unsecured 

creditors in a single asset real estate case to serve on a creditors’ committee. 

In 1994, the Bankruptcy Code was amended to accord special 

treatment for single asset real estate debtors. It defined this type 

of debtor as a bankruptcy estate comprised of a single piece of real 

property or project, other than residential real property with fewer 

than four residential units. The property or project must generate 

substantially all of the debtor’s gross income. A debtor that conducts substantial business on the property beyond that relating to 

its operation is excluded from this definition. In addition, the definition fixed a monetary cap. To qualify as a single asset real estate 

debtor, the debtor could not have noncontingent, liquidated secured 

debts in excess of $4 million. Subparagraph (5)(A) amends the definition of ‘‘single asset real estate’’ to exclude family farmers from 

this definition. Paragraph (5)(B) amends section 101(51B) of the 

Bankruptcy Code to eliminate the $4 million debt limitation on single asset real estate. The present $4 million cap prevents the use 

of the expedited relief procedure in many commercial property reorganizations, and effectively provides an opportunity for a number 

of debtors to abusively file for bankruptcy in order to obtain the 

protection of the automatic stay against their creditors. As a result 

of this amendment, creditors in more cases will be able to obtain 

the expedited relief from the automatic stay which is made available under section 362(d)(3) of the Bankruptcy Code. 

Paragraph (6) of section 1201, together with section 1214, respond to a 1997 Ninth Circuit case, in which two purchase money 

lenders (without knowledge that the debtor had recently filed an 

undisclosed chapter 11 case that was subsequently converted to 

chapter 7), funded the debtor’s acquisition of an apartment complex 

and recorded their purchase-money deed of trust immediately following recordation of the deed to the debtors.154 Specifically, it 

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155Pub. L. No. 95–598, 92 Stat. 2549 (1978). 

ruptcy 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 1978,155 that is, a transfer 

includes the creation of a lien. 

Sec. 1202. Adjustment of Dollar Amounts. Section 1202 of the Act 

corrects an omission in section 104(b) of the Bankruptcy Code to 

include a reference to section 522(f)(3). 

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 

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156For a description of these errors, see the appropriate footnote and amendment notes in the 

United States Code. 

prise unpowered as well as motor-powered craft. Congress previously made the policy judgment that the equities of persons injured by drunk drivers outweigh the responsible debtor’s interest in 

a fresh start, and here clarifies that the policy applies not only on 

land but also on the water and in the air. Viewed from a practical 

standpoint, this provision closes a loophole that gives intoxicated 

watercraft and aircraft operators preferred treatment over intoxicated motor vehicle drivers and denies victims of alcohol and drug 

related boat and plane accidents the same rights accorded to automobile accident victims under current law. Finally, this section corrects a grammatical error in section 523(e). 

Sec. 1210. Effect of Discharge. Section 1210 of the Act makes 

technical amendments to correct errors in section 524(a)(3) of the 

Bankruptcy Code caused by section 257(o)(2) of Public Law 99–554 

and section 501(d)(14)(A) of Public Law 103–394.156

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, 

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157Levit v. Ingersoll Rand Fin. Corp., 874 F.2d 1186 (7th Cir. 1989); see, e.g., 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). 158See supra notes 76 and 154 and accompanying text. 159For a description of the error, see the appropriate footnote and amendment notes in the 

United States Code. 

fore filing. Several recent cases, including DePrizio,157 allowed the 

trustee to ‘‘reach-back’’ and avoid a transfer to a noninsider creditor made within the 90-day to 1-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 1-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 1 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 1 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 1 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.158

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.159

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 11347 of title 49 of the United States Code was repealed by 

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160For a description of the errors, see the appropriate footnote and amendment notes in the 

United States Code. 

parable 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.160

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 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. 

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 

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rated 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 5 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 received these goods while 

insolvent not later than 45 days prior to the commencement of the 

case, and (2) written demand for reclamation of the goods is made 

not later than 45 days after receipt of such goods by the debtor or 

not later than 20 days after the commencement of the case, if the 

45-day period expires after the commencement of the case. If the 

seller fails to provide notice in the manner provided in this provision, the seller may still assert the rights set forth in section 

503(b)(7) of the Bankruptcy Code. Section 1227(b) amends Bankruptcy Code section 503(b) to provide that the value of any goods 

received by a debtor not later than within 20 days prior to the commencement of a bankruptcy case in which the goods have been sold 

to the debtor in the ordinary course of the debtor’s business is an 

allowed administrative expense. 

Sec. 1228. Providing Requested Tax Documents to the Court. Subsection (a) of section 1228 of the Act provides that the court may 

not grant a discharge to an individual in a case under chapter 7 

unless requested tax documents have been provided to the court. 

Section 1228(b) similarly provides that the court may not confirm 

a chapter 11 or 13 plan unless requested tax documents have been 

filed with the court. Section 1228(c) directs the court to destroy 

documents submitted in support of a bankruptcy claim not sooner 

than 3 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 

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sumer 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 an administrative hearing on the record, the trustee 

is deemed to have exhausted all administrative remedies under 

this provision if the agency fails to make a final agency decision 

within 90 days after the trustee requests an administrative remedy. The provision requires the Attorney General to promulgate 

procedures to implement this provision. It further provides that the 

agency’s decision must be affirmed by the district court unless it 

is unreasonable and without cause based on the administrative 

record before the agency. 

Section 1231(b) amends section 586(e) of title 28 of the United 

States Code to permit a chapter 13 trustee to obtain judicial review 

of certain final agency actions relating to claims for actual, necessary expenses under section 586(e). The trustee may commence 

an action in the United States district court where the trustee resides. The agency’s decision must be affirmed by the district court 

unless it is unreasonable and without cause based on the administrative record before the agency. It directs the Attorney General to 

prescribe procedures to implement this provision. 

251

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 appropriately be resolved initially be 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 after such date. 

252

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 6 months 

prior to the expiration of the 24-month period, the Board must submit a report on this program to the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Committee on Financial Services of the House of Representatives. In addition, section 

1301(a) requires the Board to establish a detailed table illustrating 

the approximate number of months that it would take to repay an 

outstanding balance if a consumer pays only the required minimum 

month payments and if no other advances are made. The table 

should reflect a significant number of different annual percentage 

rates, and account balances, minimum payment amounts. The 

Board must also promulgate regulations providing instructional 

guidance regarding the manner in which the information contained 

in the tables should be used to respond to a request by an obligor 

under this provision. Section 1301(a) provides that the disclosure 

requirements of this provision are inapplicable to any charge card 

253

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 

section127. 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 must contain a specified statement. The statement must disclose that the interest on the portion of the credit extension that exceeds the dwelling’s fair market value is not tax deductible for Federal income tax 

purposes and that the consumer should consult a tax advisor for 

further information regarding the deductibility of interest and 

charges. Section 1302(b)(2) requires certain advertisements disseminated in paper form to the public or through the Internet that 

relate to a consumer credit transaction secured by a consumer’s 

principal dwelling where the extension of credit may exceed the 

dwelling’s fair market value to contain specified statements. These 

statements advise that the interest on the portion of the credit extension that is greater than the fair market value of the dwelling 

is not tax deductible for Federal income tax purposes and that the 

254

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 add further requirements 

for applications, solicitations and related materials that are subject 

to section 127(c)(1). With respect to an application or solicitation to 

open a credit card account and all promotional materials accompanying such application or solicitation involving an ‘‘introductory 

rate’’ offer, such materials must do the following if they offer a temporary annual percentage rate of interest:

(1) the term ‘‘introductory’’ in immediate proximity to each 

listing of the temporary annual percentage interest rate applicable to such account;

(2) if the annual percentage interest rate that will apply after 

the end of the temporary rate period will be a fixed rate, 

the time period in which the introductory period will end 

and the annual percentage rate that will apply after the 

end of the introductory period must be clearly and conspicuously stated in a prominent location closely proximate 

to the first listing of the temporary annual percentage rate;

(3) if the annual percentage rate that will apply after the end 

of the temporary rate period will vary in accordance with 

an index, the time period in which the introductory period 

will end and the rate that will apply after that, based on 

an annual percentage rate that was in effect 60 days before 

the date of mailing of the application or solicitation must 

be clearly and conspicuously stated in a prominent location 

closely proximate to the first listing of the temporary annual percentage rate.

The second and third provisions described above do not apply to 

any listing of a temporary annual percentage rate on an envelope 

or other enclosure in which an application or solicitation to open 

a credit card account is mailed. With respect to an application or 

solicitation to open a credit card account for which disclosure is required pursuant to section 127(c)(1) of the Truth in Lending Act, 

section 1303(a) specifies that certain statements be made if the 

rate of interest is revocable under any circumstance or upon any 

event. The statements must clearly and conspicuously appear in a 

prominent manner on or with the application or solicitation. The 

disclosures include a general description of the circumstances that 

may result in the revocation of the temporary annual percentage 

rate and an explanation of the type of interest rate that will apply 

upon revocation of the temporary rate. 

To implement this provision, section 1303(b) amends section 

127(c) of the Truth in Lending Act to define various relevant terms 

and requires the Board to promulgate regulations. The provision 

does not become effective until the earlier of 12 months after the 

255

Act’s enactment date or 12 months after the date of publication of 

such final regulations. 

Sec. 1304. Internet-Based Credit Card Solicitations. Subsection 

(a) of section 1304 of the Act amends section 127(c) of the Truth 

in Lending Act to require any solicitation to open a credit card account for an open end consumer credit plan through the Internet 

or other interactive computer service to clearly and conspicuously 

include the disclosures required under section 127(c)(1)(A) and (B). 

It also specifies that the disclosure required pursuant to section 

127(c)(1)(A) be readily accessible to consumers in close proximity to 

the solicitation and be updated regularly to reflect current policies, 

terms, and fee amounts applicable to the credit card account. Section 1304(a) defines terms relevant to the Internet. 

Section 1304(b) requires the Federal Reserve Board to promulgate regulations implementing this provision. It also provides that 

the amendments effectuated by section 1304 do not take effect until 

the later of 12 months after the Act’s enactment date or 12 months 

after the date of publication of such regulations. 

Sec. 1305. Disclosures Related to Late Payment Deadlines and 

Penalties. Subsection (a) of section 1305 of the Act amends section 

127(b) of the Truth in Lending Act to provide that if a late payment fee is to be imposed due to the obligor’s failure to make payment on or before a required payment due date, the billing statement must specify the date on which that payment is due (or if different the earliest date on which a late payment fee may be 

charged) and the amount of the late payment fee to be imposed if 

payment is made after such date. 

Section 1305(b) requires the Federal Reserve Board to promulgate regulations implementing this provision. The amendments effectuated by this provision and the regulations promulgated thereunder shall not take effect until the later of 12 months after the 

Act’s enactment date or 12 months after the date of publication of 

the regulations. 

Sec. 1306. Prohibition on Certain Actions for Failure to Incur Finance Charges. Subsection (a) of section 1306 of the Act amends 

section 127 of the Truth in Lending Act to add a provision prohibiting a creditor of an open end consumer credit plan from terminating an account prior to its expiration date solely because the 

consumer has not incurred finance charges on the account. The 

provision does not prevent the creditor from terminating such account for inactivity for three or more consecutive months. 

Section 1306(b) requires the Federal Reserve Board to promulgate regulations implementing the amendments effectuated by section 1306(a) and provides that they do not become effective until 

the later of 12 months after the Act’s enactment date or 12 months 

after the date of publication of such final regulations. 

Sec. 1307. Dual Use Debit Card. Subsection (a) of section 1307 

of the act provides that the Federal Reserve Board may conduct a 

study and submit a report to Congress containing its analysis of 

consumer protections under existing law to limit the liability of 

consumers for unauthorized use of a debit card or similar access 

device. The report must include recommendations for legislative 

initiatives, if any, based on its findings. 

Section 1307(b) provides that the Federal Reserve Board, in preparing its report, may include analysis of section 909 of the ElecVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00259 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
256

tronic 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 1 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 6 months after the Act’s enactment date 

to provide guidance on the meaning of the term ‘‘clear and conspicuous’’ as it is used in section 127(b)(11)(A), (B) and (C) and section 127(c)(6)(A)(ii) and (iii) of the Truth in Lending Act. 

Section 1309(b) provides that regulations promulgated under section 1309(a) shall include examples of clear and conspicuous model 

disclosures for the purpose of disclosures required under the Truth 

in Lending Act provisions set forth therein. 

Section 1309(c) requires the Federal Reserve Board, in promulgating regulations under this provision, to ensure that the clear 

and conspicuous standard required for disclosures made under the 

Truth in Lending Act provisions set forth in section 1309(a) can be 

implemented in a manner that results in disclosures which are reasonably understandable and designed to call attention to the nature and significance of the information in the notice. 

TITLE XIV. GENERAL EFFECTIVE DATE; APPLICATION OF AMENDMENTS

Sec. 1401. Effective Date; Application of Amendments. Subsection 

(a) of section 1401 of the Act states that the Act shall take effect 

180 days after the date of enactment, unless otherwise specified in 

this Act. Section 1401(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. 

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):

257

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 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 

258

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.

259

(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; 

260

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 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 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) * * *

* * * * * * *

261

(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 

262

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;¿.

263

(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, 

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) such 

customer; or 

(B) in connection with a securities contract (as defined 

in section 741) an investment company registered under the 

Investment Company Act of 1940. 

(22A) The term ‘‘financial participant’’ means— (A) an entity that, at the time it enters into a securities 

contract, commodity contract, swap agreement, repurchase 

agreement, or forward contract, or at the time of the date 

of the filing of the petition, has one or more agreements or 

transactions described in paragraph (1), (2), (3), (4), (5), or 

264

(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 

referred to in subparagraph (A), (B), (C), or (D), including 

265

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 

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266

ance 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¿.

(36) The term ‘‘judicial lien’’ means lien obtained by judgment, levy, sequestration, or other legal or equitable process or 

proceedingø;¿.

267

(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.

(41) The term ‘‘person’’ includes individual, partnership, 

and corporation, but does not include governmental unit, except that a governmental unit that—

268

(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;¿. (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;¿.

269

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 transaction under the master agreement that is referred to 

in clause (i), (ii), or (iii); or 

(v) any security agreement or arrangement or other 

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270

action 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 having 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 

271

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 

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 

272

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 master agreement contains an agreement or transaction 

that is not a swap agreement under this paragraph, except that the master agreement shall be considered to 

be a swap agreement under this paragraph only with 

respect to each agreement or transaction under the 

273

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;¿

(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 

274

(D) each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting 

with— (i) property; or 

(ii) an interest in property.

(54A) The term the term ‘‘uninsured State member bank’’ means a State member bank (as defined in section 3 of the 

Federal Deposit Insurance Act) the deposits of which are not 

insured by the Federal Deposit Insurance 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(51D), 109(e), 303(b), 507(a), 522(d), øand 

523(a)(2)(C)¿ 522(n), 522(p), 522(q), 522(f)(3), 523(a)(2)(C), 707(b), 

and 1325(b)(3) 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(51D), 109(e), 303(b), 507(a), 522(d), øand 

523(a)(2)(C)¿ 522(n), 522(p), 522(q), 522(f)(3), 523(a)(2)(C), 707(b), 

and 1325(b)(3) of this title. 

* * * * * * *

§ 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¿

275

(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. 

* * * * * * *

§ 108. Extension of time 

(a) * * *

* * * * * * *

(c) Except as provided in section 524 of this title, if applicable 

nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on 

a claim against the debtor, or against an individual with respect 

to which such individual is protected under section 1201 or 1301 

of this title, and such period has not expired before the date of the 

filing of the petition, then such period does not expire until the 

later of—

(1) * * *

(2) 30 days after notice of the termination or expiration of 

the stay under section 362, 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 

276

association, homestead association, or credit union, engaged in 

such business in the United States.¿

(3)(A) a foreign insurance company, engaged in such business in the United States; or 

(B) a foreign bank, savings bank, cooperative bank, savings 

and loan association, building and loan association, or credit 

union, that has a branch or agency (as defined in section 1(b) 

of the International Banking Act of 1978 in the United States.

* * * * * * *

(f) Only a family farmer or family fisherman with regular annual income may be a debtor under chapter 12 of this title. 

* * * * * * *

(h)(1) Subject to paragraphs (2) and (3), and notwithstanding 

any other provision of this section, an individual may not be a debtor under this title unless such individual has, during the 180-day 

period preceding the date of filing of the petition by such individual, 

received from an approved nonprofit budget and credit counseling 

agency described in section 111(a) an individual or group briefing 

(including a briefing conducted by telephone or on the Internet) that 

outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis. 

(2)(A) Paragraph (1) shall not apply with respect to a debtor 

who resides in a district for which the United States trustee (or the 

bankruptcy administrator, if any) determines that the approved 

nonprofit budget and credit counseling agencies for such district are 

not reasonably able to provide adequate services to the additional 

individuals who would otherwise seek credit counseling from such 

agencies by reason of the requirements of paragraph (1). 

(B) The United States trustee (or the bankruptcy administrator, 

if any) who makes a determination described in subparagraph (A) 

shall review such determination not later than 1 year after the date 

of such determination, and not less frequently than annually thereafter. Notwithstanding the preceding sentence, a nonprofit budget 

and credit counseling agency may be disapproved by the United 

States trustee (or the bankruptcy administrator, if any) at any time. 

(3)(A) Subject to subparagraph (B), the requirements of paragraph (1) shall not apply with respect to a debtor who submits to 

the court a certification that—

(i) describes exigent circumstances that merit a waiver of 

the requirements of paragraph (1); 

(ii) states that the debtor requested credit counseling services from an approved nonprofit budget and credit counseling 

agency, but was unable to obtain the services referred to in 

paragraph (1) during the 5-day period beginning on the date on 

which the debtor made that request; and 

(iii) is satisfactory to the court. 

(B) With respect to a debtor, an exemption under subparagraph 

(A) shall cease to apply to that debtor on the date on which the debtor meets the requirements of paragraph (1), but in no case may the 

exemption apply to that debtor after the date that is 30 days after 

the debtor files a petition, except that the court, for cause, may order 

an additional 15 days.

277

§ 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 

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. 

278

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— (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 

279

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—

(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—

280

(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 

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. 

281

§ 111. Nonprofit budget and credit counseling agencies; financial management instructional courses 

(a) The clerk shall maintain a publicly available list of—

(1) nonprofit budget and credit counseling agencies that 

provide 1 or more services described in section 109(h) currently 

approved by the United States trustee (or the bankruptcy administrator, if any); and 

(2) instructional courses concerning personal financial 

management currently approved by the United States trustee 

(or the bankruptcy administrator, if any), as applicable. 

(b) The United States trustee (or bankruptcy administrator, if 

any) shall only approve a nonprofit budget and credit counseling 

agency or an instructional course concerning personal financial 

management as follows: 

(1) The United States trustee (or bankruptcy administrator, 

if any) shall have thoroughly reviewed the qualifications of the 

nonprofit budget and credit counseling agency or of the provider 

of the instructional course under the standards set forth in this 

section, and the services or instructional courses that will be offered by such agency or such provider, and may require such 

agency or such provider that has sought approval to provide information with respect to such review. 

(2) The United States trustee (or bankruptcy administrator, 

if any) shall have determined that such agency or such instructional course fully satisfies the applicable standards set forth in 

this section. 

(3) If a nonprofit budget and credit counseling agency or 

instructional course did not appear on the approved list for the 

district under subsection (a) immediately before approval under 

this section, approval under this subsection of such agency or 

such instructional course shall be for a probationary period not 

to exceed 6 months. 

(4) At the conclusion of the applicable probationary period 

under paragraph (3), the United States trustee (or bankruptcy 

administrator, if any) may only approve for an additional 1-

year period, and for successive 1-year periods thereafter, an 

agency or instructional course that has demonstrated during 

the probationary or applicable subsequent period of approval 

that such agency or instructional course—

(A) has met the standards set forth under this section 

during such period; and 

(B) can satisfy such standards in the future. 

(5) Not later than 30 days after any final decision under 

paragraph (4), an interested person may seek judicial review of 

such decision in the appropriate district court of the United 

States. 

(c)(1) The United States trustee (or the bankruptcy administrator, if any) shall only approve a nonprofit budget and credit 

counseling agency that demonstrates that it will provide qualified 

counselors, maintain adequate provision for safekeeping and payment of client funds, provide adequate counseling with respect to 

client credit problems, and deal responsibly and effectively with 

other matters relating to the quality, effectiveness, and financial security of the services it provides. 

282

(2) To be approved by the United States trustee (or the bankruptcy administrator, if any), a nonprofit budget and credit counseling agency shall, at a minimum— (A) have a board of directors the majority of which— (i) are not employed by such agency; and 

(ii) will not directly or indirectly benefit financially 

from the outcome of the counseling services provided by 

such agency; 

(B) if a fee is charged for counseling services, charge a reasonable fee, and provide services without regard to ability to 

pay the fee; 

(C) provide for safekeeping and payment of client funds, including an annual audit of the trust accounts and appropriate 

employee bonding; 

(D) provide full disclosures to a client, including funding 

sources, counselor qualifications, possible impact on credit reports, and any costs of such program that will be paid by such 

client and how such costs will be paid; 

(E) provide adequate counseling with respect to a client’s 

credit problems that includes an analysis of such client’s current financial condition, factors that caused such financial condition, and how such client can develop a plan to respond to 

the problems without incurring negative amortization of debt; 

(F) provide trained counselors who receive no commissions 

or bonuses based on the outcome of the counseling services provided by such agency, and who have adequate experience, and 

have been adequately trained to provide counseling services to 

individuals in financial difficulty, including the matters described in subparagraph (E); 

(G) demonstrate adequate experience and background in 

providing credit counseling; and 

(H) have adequate financial resources to provide continuing 

support services for budgeting plans over the life of any repayment plan. 

(d) The United States trustee (or the bankruptcy administrator, 

if any) shall only approve an instructional course concerning personal financial management—

(1) for an initial probationary period under subsection 

(b)(3) if the course will provide at a minimum—

(A) trained personnel with adequate experience and 

training in providing effective instruction and services; 

(B) learning materials and teaching methodologies designed to assist debtors in understanding personal financial management and that are consistent with stated objectives directly related to the goals of such instructional 

course; 

(C) adequate facilities situated in reasonably convenient locations at which such instructional course is offered, 

except that such facilities may include the provision of such 

instructional course by telephone or through the Internet, if 

such instructional course is effective; and 

(D) the preparation and retention of reasonable records 

(which shall include the debtor’s bankruptcy case number) 

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283

structional 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 

(2) for any 1-year period if the provider thereof has demonstrated that the course meets the standards of paragraph (1) 

and, in addition—

(A) has been effective in assisting a substantial number 

of debtors to understand personal financial management; 

and 

(B) is otherwise likely to increase substantially the 

debtor’s understanding of personal financial management. 

(e) The district court may, at any time, investigate the qualifications of a nonprofit budget and credit counseling agency referred to 

in subsection (a), and request production of documents to ensure the 

integrity and effectiveness of such agency. The district court may, at 

any time, remove from the approved list under subsection (a) a nonprofit budget and credit counseling agency upon finding such agency does not meet the qualifications of subsection (b). 

(f) The United States trustee (or the bankruptcy administrator, 

if any) shall notify the clerk that a nonprofit budget and credit 

counseling agency or an instructional course is no longer approved, 

in which case the clerk shall remove it from the list maintained 

under subsection (a). 

(g)(1) No nonprofit budget and credit counseling agency may 

provide to a credit reporting agency information concerning whether 

a debtor has received or sought instruction concerning personal financial management from such agency. 

(2) A nonprofit budget and credit counseling agency that willfully or negligently fails to comply with any requirement under this 

title with respect to a debtor shall be liable for damages in an 

amount equal to the sum of—

(A) any actual damages sustained by the debtor as a result 

of the violation; and 

(B) any court costs or reasonable attorneys’ fees (as determined by the court) incurred in an action to recover those damages. 

§ 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.

284

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. 

* * * * * * *

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—

285

(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. 

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.¿

§ 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 

286

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.

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 condiVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00290 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
287

tions 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. 

* * * * * * *

§ 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. 

288

(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 hearing or in writing, regarding the quality of patient care provided 

to patients of the debtor; and 

(3) if such ombudsman determines that the quality of patient care provided to patients of the debtor is declining significantly or is otherwise being materially compromised, file with 

the court a motion or a written report, with notice to the parties 

in interest immediately upon making such determination. 

289

(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 other Federal or State law that is not a bankruptcy law, 

or other requirement that representation at the meeting of creditors 

under subsection (a) be by an attorney, a creditor holding a consumer debt or 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.¿

(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 

290

(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 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¿. (2)(A) If, within the 90 days before the commencement of a voluntary case, a creditor supplies the debtor in at least 2 communications sent to the debtor with the current account number of the debtor and the address at which such creditor requests to receive correspondence, then any notice required by this title to be sent by the 

debtor to such creditor shall be sent to such address and shall include such account number. 

(B) If a creditor would be in violation of applicable nonbankruptcy law by sending any such communication within such 90-day 

period and if such creditor supplies the debtor in the last 2 communications with the current account number of the debtor and the address at which such creditor requests to receive correspondence, then 

any notice required by this title to be sent by the debtor to such creditor shall be sent to such address and shall include such account 

number. 

(d) In a case under chapter 7 of this title in which the debtor 

is an individual and in which the presumption of abuse arises 

under section 707(b), the clerk shall give written notice to all creditors not later than 10 days after the date of the filing of the petition 

that the presumption of abuse has arisen. 

(e)(1) In a case under chapter 7 or 13 of this title of a debtor 

who is an individual, a creditor at any time may both file with the 

court and serve on the debtor a notice of address to be used to provide notice in such case to such creditor. 

(2) Any notice in such case required to be provided to such creditor by the debtor or the court later than 5 days after the court and 

the debtor receive such creditor’s notice of address, shall be provided 

to such address. 

(f)(1) An entity may file with any bankruptcy court a notice of 

address to be used by all the bankruptcy courts or by particular 

bankruptcy courts, as so specified by such entity at the time such 

notice is filed, to provide notice to such entity in all cases under 

chapters 7 and 13 pending in the courts with respect to which such 

notice is filed, in which such entity is a creditor. 

(2) In any case filed under chapter 7 or 13, any notice required 

to be provided by a court with respect to which a notice is filed 

under paragraph (1), to such entity later than 30 days after the filing of such notice under paragraph (1) shall be provided to such address unless with respect to a particular case a different address is 

specified in a notice filed and served in accordance with subsection 

(e). 

291

(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 

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 

292

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 

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 

293

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 

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 

294

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 

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 

295

by income that is a debtor in a case under this title, any gain or 

loss resulting from a distribution of property from such partnership, 

or any distributive share of any income, gain, loss, deduction, or 

credit of a partner or member that is distributed, or considered distributed, from such partnership, after the commencement of the 

case, is gain, loss, income, deduction, or credit, as the case may be, 

of the partner or member, and if such partner or member is a debtor 

in a case under this title, shall be subject to tax in accordance with 

subsection (a) or (b). 

(d) For purposes of any State or local law imposing a tax on 

or measured by income, the taxable period of a debtor in a case 

under this title shall terminate only if and to the extent that the taxable period of such debtor terminates under the Internal Revenue 

Code of 1986. 

(e) The estate in any case described in subsection (a) shall use 

the same accounting method as the debtor used immediately before 

the commencement of the case, if such method of accounting complies with applicable nonbankruptcy tax law. 

(f) For purposes of any State or local law imposing a tax on or 

measured by income, a transfer of property from the debtor to the 

estate or from the estate to the debtor shall not be treated as a disposition for purposes of any provision assigning tax consequences to 

a disposition, except to the extent that such transfer is treated as a 

disposition under the Internal Revenue Code of 1986. 

(g) Whenever a tax is imposed pursuant to a State or local law 

imposing a tax on or measured by income pursuant to subsection (a) 

or (b), such tax shall be imposed at rates generally applicable to the 

same types of entities under such State or local law. 

(h) The trustee shall withhold from any payment of claims for 

wages, salaries, commissions, dividends, interest, or other payments, 

or collect, any amount required to be withheld or collected under applicable State or local tax law, and shall pay such withheld or collected amount to the appropriate governmental unit at the time and 

in the manner required by such tax law, and with the same priority 

as the claim from which such amount was withheld or collected was 

paid. 

(i)(1) To the extent that any State or local law imposing a tax 

on or measured by income provides for the carryover of any tax attribute from one taxable period to a subsequent taxable period, the 

estate shall succeed to such tax attribute in any case in which such 

estate is subject to tax under subsection (a). 

(2) After such a case is closed or dismissed, the debtor shall 

succeed to any tax attribute to which the estate succeeded under 

paragraph (1) to the extent consistent with the Internal Revenue 

Code of 1986. 

(3) The estate may carry back any loss or tax attribute to a taxable period of the debtor that ended before the date of the order for 

relief under this title to the extent that—

(A) applicable State or local tax law provides for a 

carryback in the case of the debtor; and 

(B) the same or a similar tax attribute may be carried back 

by the estate to such a taxable period of the debtor under the 

Internal Revenue Code of 1986. 

(j)(1) For purposes of any State or local law imposing a tax on 

or measured by income, income is not realized by the estate, the 

296

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—

(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 

297

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 

(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—

298

(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; 

(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 

299

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 

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 valoVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00303 Fmt 6659 Sfmt 6603 E:\HR\OC\HR40P1.XXX HR40P1
300

rem, 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 (n), under subsection (a)(3), of the 

continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential 

property in which the debtor resides as a tenant under a lease 

or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, 

a judgment for possession of such property against the debtor; 

(23) subject to subsection (o), 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 

301

property or illegally used or allowed to be used a controlled 

substance on the property; 

(24) under subsection (a), of any transfer that is not avoidable under section 544 and that is not avoidable under section 

549; 

(25) under subsection (a), of—

(A) the commencement or continuation of an investigation or action by a securities self regulatory organization to 

enforce such organization’s regulatory power; 

(B) the enforcement of an order or decision, other than 

for monetary sanctions, obtained in an action by such securities self regulatory organization to enforce such organization’s regulatory power; or 

(C) any act taken by such securities self regulatory organization to delist, delete, or refuse to permit quotation of 

any stock that does not meet applicable regulatory requirements; 

(26) under subsection (a), of the setoff under applicable 

nonbankruptcy law of an income tax refund, by a governmental 

unit, with respect to a taxable period that ended before the date 

of the order for relief against an income tax liability for a taxable period that also ended before the date of the order for relief, except that in any case in which the setoff of an income tax 

refund is not permitted under applicable nonbankruptcy law because of a pending action to determine the amount or legality 

of a tax liability, the governmental unit may hold the refund 

pending the resolution of the action, unless the court, on the 

motion of the trustee and after notice and a hearing, grants the 

taxing authority adequate protection (within the meaning of section 361) for the secured claim of such authority in the setoff 

under section 506(a); 

(27) under subsection (a), of the setoff by a master netting 

agreement participant of a mutual debt and claim under or in 

connection with one or more master netting agreements or any 

contract or agreement subject to such agreements that constitutes the setoff of a claim against the debtor for any payment 

or other transfer of property due from the debtor under or in 

connection with such agreements or any contract or agreement 

subject to such agreements against any payment due to the 

debtor from such master netting agreement participant under or 

in connection with such agreements or any contract or agreement subject to such agreements or against cash, securities, or 

other property held by, pledged to, under the control of, or due 

from such master netting agreement participant to margin, 

guarantee, secure, or settle such agreements or any contract or 

agreement subject to such agreements, to the extent that such 

participant is eligible to exercise such offset rights under paragraph (6), (7), or (17) for each individual contract covered by 

the master netting agreement in issue; and 

(28) under subsection (a), of the exclusion by the Secretary 

of Health and Human Services of the debtor from participation 

in the medicare program or any other Federal health care program (as defined in section 1128B(f) of the Social Security Act 

pursuant to title XI or XVIII of such Act).

302

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 

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); 

303

(bb) provide adequate protection as ordered by the court; or 

(cc) perform the terms of a plan confirmed 

by the court; or 

(III) there has not been a substantial change 

in the financial or personal affairs of the debtor 

since the dismissal of the next most previous case 

under chapter 7, 11, or 13 or any other reason to 

conclude that the later case will be concluded—

(aa) if a case under chapter 7, with a discharge; or 

(bb) if a case under chapter 11 or 13, with 

a confirmed plan that will be fully performed; 

and 

(ii) as to any creditor that commenced an action 

under subsection (d) in a previous case in which the individual was a debtor if, as of the date of dismissal of 

such case, that action was still pending or had been resolved by terminating, conditioning, or limiting the 

stay as to actions of such creditor; and 

(4)(A)(i) if a single or joint case is filed by or against a 

debtor who is an individual under this title, and if 2 or more 

single or joint cases of the debtor were pending within the previous year but were dismissed, other than a case refiled under 

section 707(b), the stay under subsection (a) shall not go into effect upon the filing of the later case; and 

(ii) on request of a party in interest, the court shall promptly enter an order confirming that no stay is in effect; 

(B) if, within 30 days after the filing of the later case, a 

party in interest requests the court may order the stay to take 

effect in the case as to any or all creditors (subject to such conditions or limitations as the court may impose), after notice and 

a hearing, only if the party in interest demonstrates that the filing of the later case is in good faith as to the creditors to be 

stayed; 

(C) a stay imposed under subparagraph (B) shall be effective on the date of the entry of the order allowing the stay to 

go into effect; and 

(D) for purposes of subparagraph (B), a case is presumptively filed not in good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary)—

(i) as to all creditors if—

(I) 2 or more previous cases under this title in 

which the individual was a debtor were pending within the 1-year period; 

(II) a previous case under this title in which the 

individual was a debtor was dismissed within the time 

period stated in this paragraph after the debtor failed 

to file or amend the petition or other documents as required by this title or the court without substantial excuse (but mere inadvertence or negligence shall not be 

substantial excuse unless the dismissal was caused by 

the negligence of the debtor’s attorney), failed to provide adequate protection as ordered by the court, or 

304

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—

(i) may, in the debtor’s sole discretion, notwithstanding section 363(c)(2), be made from rents or other 

income generated before or after the commencement of 

the case by or from the property to each creditor whose 

claim is secured by such real estate (other than a claim 

secured by a judgment lien or by an unmatured statutory lien); 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 

305

of the petition was part of a scheme to delay, hinder, and defraud creditors that involved either— (A) transfer of all or part ownership of, or other interest in, such real property without the consent of the secured 

creditor or court approval; or 

(B) multiple bankruptcy filings affecting such real 

property. 

If recorded in compliance with applicable State laws governing notices of interests or liens in real property, an order entered under 

paragraph (4) shall be binding in any other case under this title 

purporting to affect such real property filed not later than 2 years 

after the date of the entry of such order by the court, except that a 

debtor in a subsequent case under this title may move for relief from 

such order based upon changed circumstances or for good cause 

shown, after notice and a hearing. Any Federal, State, or local governmental unit that accepts notices of interests or liens in real property shall accept any certified copy of an order described in this subsection for indexing and recording.

(e)(1) Thirty days after a request under subsection (d) of this 

section for relief from the stay of any act against property of the 

estate under subsection (a) of this section, such stay is terminated 

with respect to the party in interest making such request, unless 

the court, after notice and a hearing, orders such stay continued in 

effect pending the conclusion of, or as a result of, a final hearing 

and determination under subsection (d) of this section. A hearing 

under this subsection may be a preliminary hearing, or may be 

consolidated with the final hearing under subsection (d) of this section. The court shall order such stay continued in effect pending 

the conclusion of the final hearing under subsection (d) of this section if there is a reasonable likelihood that the party opposing relief from such stay will prevail at the conclusion of such final hearing. If the hearing under this subsection is a preliminary hearing, 

then such final hearing shall be concluded not later than thirty 

days after the conclusion of such preliminary hearing, unless the 

30-day period is extended with the consent of the parties in interest or for a specific time which the court finds is required by compelling circumstances.

(2) Notwithstanding paragraph (1), in a case under chapter 7, 

11, or 13 in which the debtor is an individual, the stay under subsection (a) shall terminate on the date that is 60 days after a request is made by a party in interest under subsection (d), unless— (A) a final decision is rendered by the court during the 60-

day period beginning on the date of the request; or 

(B) such 60-day period is extended— (i) by agreement of all parties in interest; or 

(ii) by the court for such specific period of time as the 

court finds is required for good cause, as described in findings made by the court. 

* * * * * * *

(h)(1) In a case in which the debtor is an individual, the stay 

provided by subsection (a) is terminated with respect to personal 

property of the estate or of the debtor securing in whole or in part 

a claim, or subject to an unexpired lease, and such personal property shall no longer be property of the estate if the debtor fails within the applicable time set by section 521(a)(2)—

306

(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 

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) 

307

complies with paragraph (1) and files with the court and serves 

upon the lessor a further certification under penalty of perjury that 

the debtor (or an adult dependent of the debtor) has cured, under 

nonbankrupcty law applicable in the jurisdiction, the entire monetary default that gave rise to the judgment under which possession 

is sought by the lessor, subsection (b)(22) shall not apply, unless ordered to apply by the court under paragraph (3). 

(3)(A) If the lessor files an objection to any certification filed by 

the debtor under paragraph (1) or (2), and serves such objection 

upon the debtor, the court shall hold a hearing within 10 days after 

the filing and service of such objection to determine if the certification filed by the debtor under paragraph (1) or (2) is true. 

(B) If the court upholds the objection of the lessor filed under 

subparagraph (A)— (i) subsection (b)(22) shall apply immediately and relief 

from the stay provided under subsection (a)(3) shall not be required to enable the lessor to complete the process to recover full 

possession of the property; and 

(ii) the clerk of the court shall immediately serve upon the 

lessor and the debtor a certified copy of the court’s order upholding the lessor’s objection. 

(4) If a debtor, in accordance with paragraph (5), indicates on 

the petition that there was a judgment for possession of the residential rental property in which the debtor resides and does not file a 

certification under paragraph (1) or (2)— (A) subsection (b)(22) shall apply immediately upon failure 

to file such certification, and relief from the stay provided 

under subsection (a)(3) shall not be required to enable the lessor 

to complete the process to recover full possession of the property; 

and 

(B) the clerk of the court shall immediately serve upon the 

lessor and the debtor a certified copy of the docket indicating 

the absence of a filed certification and the applicability of the 

exception to the stay under subsection (b)(22). 

(5)(A) Where a judgment for possession of residential property 

in which the debtor resides as a tenant under a lease or rental 

agreement has been obtained by the lessor, the debtor shall so indicate on the bankruptcy petition and shall provide the name and address of the lessor that obtained that pre-petition judgment on the 

petition and on any certification filed under this subsection. 

(B) The form of certification filed with the petition, as specified 

in this subsection, shall provide for the debtor to certify, and the 

debtor shall certify—

(i) whether a judgment for possession of residential rental 

housing in which the debtor resides has been obtained against 

the debtor before the date of the filing of the petition; and 

(ii) whether the debtor is claiming under paragraph (1) 

that under nonbankruptcy law applicable in the jurisdiction, 

there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the 

judgment for possession, after that judgment of possession was 

entered, and has made the appropriate deposit with the court. 

(C) The standard forms (electronic and otherwise) used in a 

bankruptcy proceeding shall be amended to reflect the requirements 

of this subsection. 

308

(D) The clerk of the court shall arrange for the prompt transmittal of the rent deposited in accordance with paragraph (1)(B) to 

the lessor. 

(m)(1) Except as otherwise provided in this subsection, subsection (b)(23) shall apply on the date that is 15 days after the date 

on which the lessor files and serves a certification described in subsection (b)(23). 

(2)(A) If the debtor files with the court an objection to the truth 

or legal sufficiency of the certification described in subsection (b)(23) 

and serves such objection upon the lessor, subsection (b)(23) shall 

not apply, unless ordered to apply by the court under this subsection. 

(B) If the debtor files and serves the objection under subparagraph (A), the court shall hold a hearing within 10 days after the 

filing and service of such objection to determine if the situation giving rise to the lessor’s certification under paragraph (1) existed or 

has been remedied. 

(C) If the debtor can demonstrate to the satisfaction of the court 

that the situation giving rise to the lessor’s certification under paragraph (1) did not exist or has been remedied, the stay provided 

under subsection (a)(3) shall remain in effect until the termination 

of the stay under this section. 

(D) If the debtor cannot demonstrate to the satisfaction of the 

court that the situation giving rise to the lessor’s certification under 

paragraph (1) did not exist or has been remedied— (i) relief from the stay provided under subsection (a)(3) 

shall not be required to enable the lessor to proceed with the 

eviction; and 

(ii) the clerk of the court shall immediately serve upon the 

lessor and the debtor a certified copy of the court’s order upholding the lessor’s certification. 

(3) If the debtor fails to file, within 15 days, an objection under 

paragraph (2)(A)— (A) subsection (b)(23) shall apply immediately upon such 

failure and relief from the stay provided under subsection (a)(3) 

shall not be required to enable the lessor to complete the process 

to recover full possession of the property; and 

(B) the clerk of the court shall immediately serve upon the 

lessor and the debtor a certified copy of the docket indicating 

such failure. 

(n)(1) Except as provided in paragraph (2), subsection (a) does 

not apply in a case in which the debtor—

(A) is a debtor in a small business case pending at the time 

the petition is filed; 

(B) was a debtor in a small business case that was dismissed for any reason by an order that became final in the 2-

year period ending on the date of the order for relief entered 

with respect to the petition; 

(C) was a debtor in a small business case in which a plan 

was confirmed in the 2-year period ending on the date of the 

order for relief entered with respect to the petition; or 

(D) is an entity that has acquired substantially all of the 

assets or business of a small business debtor described in subparagraph (A), (B), or (C), unless such entity establishes by a 

preponderance of the evidence that such entity acquired subVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00312 Fmt 6659 Sfmt 6603 E:\HR\OC\HR40P1.XXX HR40P1
309

stantially 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.

* * * * * * *

(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 deVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00313 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
310

fined in section 433.1 of title 16 of the Code of Federal Regulations 

(January 1, 2002), 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 

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¿.

311

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—

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—

312

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. 

(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 

313

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.

§ 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; 

314

(iv) a surety bond; 

(v) a prepayment of utility consumption; or 

(vi) another form of security that is mutually agreed on between the utility and the debtor or the trustee. 

(B) For purposes of this subsection an administrative expense 

priority shall not constitute an assurance of payment. 

(2) Subject to paragraphs (3) and (4), with respect to a case 

filed under chapter 11, a utility referred to in subsection (a) may 

alter, refuse, or discontinue utility service, if during the 30-day period beginning on the date of the filing of the petition, the utility 

does not receive from the debtor or the trustee adequate assurance 

of payment for utility service that is satisfactory to the utility. 

(3)(A) On request of a party in interest and after notice and a 

hearing, the court may order modification of the amount of an assurance of payment under paragraph (2). 

(B) In making a determination under this paragraph whether 

an assurance of payment is adequate, the court may not consider— (i) the absence of security before the date of the filing of the 

petition; 

(ii) the payment by the debtor of charges for utility service 

in a timely manner before the date of the filing of the petition; 

or 

(iii) the availability of an administrative expense priority. 

(4) Notwithstanding any other provision of law, with respect to 

a case subject to this subsection, a utility may recover or set off 

against a security deposit provided to the utility by the debtor before 

the date of the filing of the petition without notice or order of the 

court.

* * * * * * *

CHAPTER 5—CREDITORS, THE DEBTOR, AND THE 

ESTATE

SUBCHAPTER I—CREDITORS AND CLAIMS 

Sec. 

501. Filing of proofs of claims or interests. 

* * * * * * *

511. Rate of interest on tax claims.

* * * * * * *

SUBCHAPTER II—DEBTOR’S DUTIES AND BENEFITS 

521. Debtor’s duties. 

* * * * * * *

526. Restrictions on debt relief agencies. 

527. Disclosures. 

528. Requirements for debt relief agencies. 

* * * * * * *

SUBCHAPTER III—THE ESTATE 

541. Property of the estate. 

* * * * * * *

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.

* * * * * * *

315

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 

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 

316

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 

(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—

317

(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 

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 

318

in which the goods have been sold to the debtor in the ordinary 

course of such debtor’s business.

§ 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—

ø(1)¿ (A) upon payment of the tax shown on such return, 

if—

319

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: 

(A) Allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition in 

320

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 $4,000 for each individual or corporation, as 

the case may be, earned within 90 days before the date of the 

filing of the petition or the date of the cessation of the debtor’s 

business, whichever occurs first, for— (A) * * *

(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) * * *

* * * * * * *

321

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 

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; 

* * * * * * *

322

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.

* * * * * * *

§ 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 

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 curVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00326 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
323

rent income and current expenditures, and a statement of the 

debtor’s financial affairs;¿

(1) file—

(A) a list of creditors; and 

(B) unless the court orders otherwise— (i) a schedule of assets and liabilities; 

(ii) a schedule of current income and current expenditures; 

(iii) a statement of the debtor’s financial affairs 

and, if section 342(b) applies, a certificate— (I) of an attorney whose name is indicated on 

the petition as the attorney for the debtor, or a 

bankruptcy petition preparer signing the petition 

under section 110(b)(1), indicating that such attorney or the bankruptcy petition preparer delivered 

to the debtor the notice required by section 342(b); 

or 

(II) if no attorney is so indicated, and no 

bankruptcy petition preparer signed the petition, of 

the debtor that such notice was received and read 

by the debtor; 

(iv) copies of all payment advices or other evidence 

of payment received within 60 days before the date of 

the filing of the petition, by the debtor from any employer of the debtor; 

(v) a statement of the amount of monthly net income, itemized to show how the amount is calculated; 

and 

(vi) a statement disclosing any reasonably anticipated increase in income or expenditures over the 12-

month period following the date of the filing of the petition;

(2) if an individual debtor’s schedule of assets and liabilities includes 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 

324

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, 

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 

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325

ment that has the effect of placing the debtor in default under such 

lease or agreement by reason of the occurrence, pendency, or existence of a proceeding under this title or the insolvency of the debtor. 

Nothing in this subsection shall be deemed to justify limiting such 

a provision in any other circumstance. 

(e)(1) If the debtor in a case under chapter 7 or 13 is an individual and if a creditor files with the court at any time a request 

to receive a copy of the petition, schedules, and statement of financial affairs filed by the debtor, then the court shall make such petition, such schedules, and such statement available to such creditor. 

(2)(A) The debtor shall provide— (i) not later than 7 days before the date first set for the first 

meeting of creditors, to the trustee a copy of the Federal income 

tax return required under applicable law (or at the election of 

the debtor, a transcript of such return) for the most recent tax 

year ending immediately before the commencement of the case 

and for which a Federal income tax return was filed; and 

(ii) at the same time the debtor complies with clause (i), a 

copy of such return (or if elected under clause (i), such transcript) to any creditor that timely requests such copy. 

(B) If the debtor fails to comply with clause (i) or (ii) of subparagraph (A), the court shall dismiss the case unless the debtor 

demonstrates that the failure to so comply is due to circumstances 

beyond the control of the debtor. 

(C) If a creditor requests a copy of such tax return or such transcript and if the debtor fails to provide a copy of such tax return 

or such transcript to such creditor at the time the debtor provides 

such tax return or such transcript to the trustee, then the court shall 

dismiss the case unless the debtor demonstrates that the failure to 

provide a copy of such tax return or such transcript is due to circumstances beyond the control of the debtor. 

(3) If a creditor in a case under chapter 13 files with the court 

at any time a request to receive a copy of the plan filed by the debtor, then the court shall make available to such creditor a copy of 

the plan—

(A) at a reasonable cost; and 

(B) not later than 5 days after such request is filed. 

(f) At the request of the court, the United States trustee, or any 

party in interest in a case under chapter 7, 11, or 13, a debtor who 

is an individual shall file with the court—

(1) at the same time filed with the taxing authority, a copy 

of each Federal income tax return required under applicable 

law (or at the election of the debtor, a transcript of such tax return) with respect to each tax year of the debtor ending while 

the case is pending under such chapter; 

(2) at the same time filed with the taxing authority, each 

Federal income tax return required under applicable law (or at 

the election of the debtor, a transcript of such tax return) that 

had not been filed with such authority as of the date of the commencement of the case and that was subsequently filed for any 

tax year of the debtor ending in the 3-year period ending on the 

date of the commencement of the case; 

(3) a copy of each amendment to any Federal income tax return or transcript filed with the court under paragraph (1) or 

(2); and 

326

(4) in a case under chapter 13—

(A) on the date that is either 90 days after the end of 

such tax year or 1 year after the date of the commencement 

of the case, whichever is later, if a plan is not confirmed 

before such later date; and 

(B) annually after the plan is confirmed and until the 

case is closed, not later than the date that is 45 days before 

the anniversary of the confirmation of the plan; 

a statement, under penalty of perjury, of the income and expenditures of the debtor during the tax year of the debtor most 

recently concluded before such statement is filed under this 

paragraph, and of the monthly income of the debtor, that shows 

how income, expenditures, and monthly income are calculated. 

(g)(1) A statement referred to in subsection (f)(4) shall disclose—

(A) the amount and sources of the income of the debtor; 

(B) the identity of any person responsible with the debtor 

for the support of any dependent of the debtor; and 

(C) the identity of any person who contributed, and the 

amount contributed, to the household in which the debtor resides. 

(2) The tax returns, amendments, and statement of income and 

expenditures described in subsections (e)(2)(A) and (f) shall be available to the United States trustee (or the bankruptcy administrator, 

if any), the trustee, and any party in interest for inspection and 

copying, subject to the requirements of section 315(c) of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2003. 

(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 informaVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00330 Fmt 6659 Sfmt 6603 E:\HR\OC\HR40P1.XXX HR40P1
327

tion 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 

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

328

(C) retirement funds to the extent that those funds are in 

a fund or account that is exempt from taxation under section 

401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue 

Code of 1986. 

If the effect of the domiciliary requirement under subparagraph (A) 

is to render the debtor ineligible for any exemption, the debtor may 

elect to exempt property that is specified under subsection (d). 

(4) For purposes of paragraph (3)(C) and subsection (d)(12), the 

following shall apply: 

(A) If the retirement funds are in a retirement fund that 

has received a favorable determination under section 7805 of 

the Internal Revenue Code of 1986, and that determination is 

in effect as of the date of the filing of the petition in a case 

under this title, those funds shall be presumed to be exempt 

from the estate. 

(B) If the retirement funds are in a retirement fund that 

has not received a favorable determination under such section 

7805, those funds are exempt from the estate if the debtor demonstrates that—

(i) no prior determination to the contrary has been 

made by a court or the Internal Revenue Service; and 

(ii)(I) the retirement fund is in substantial compliance 

with the applicable requirements of the Internal Revenue 

Code of 1986; or 

(II) the retirement fund fails to be in substantial compliance with the applicable requirements of the Internal 

Revenue Code of 1986 and the debtor is not materially responsible for that failure. 

(C) A direct transfer of retirement funds from 1 fund or account that is exempt from taxation under section 401, 403, 408, 

408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986, 

under section 401(a)(31) of the Internal Revenue Code of 1986, 

or otherwise, shall not cease to qualify for exemption under 

paragraph (3)(C) or subsection (d)(12) by reason of such direct 

transfer. 

(D)(i) Any distribution that qualifies as an eligible rollover 

distribution within the meaning of section 402(c) of the Internal 

Revenue Code of 1986 or that is described in clause (ii) shall 

not cease to qualify for exemption under paragraph (3)(C) or 

subsection (d)(12) by reason of such distribution. 

(ii) A distribution described in this clause is an amount 

that—

(I) has been distributed from a fund or account that is 

exempt from taxation under section 401, 403, 408, 408A, 

414, 457, or 501(a) of the Internal Revenue Code of 1986; 

and 

(II) to the extent allowed by law, is deposited in such 

a fund or account not later than 60 days after the distribution of such amount.

(c) Unless the case is dismissed, property exempted under this 

section is not liable during or after the case for any debt of the 

debtor that arose, or that is determined under section 502 of this 

title as if such debt had arisen, before the commencement of the 

case, except—

329

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—

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; 

330

(xiii) furniture exclusively for the use of minor children, or 

elderly or disabled dependents of the debtor; 

(xiv) personal effects (including the toys and hobby equipment of minor dependent children and wedding rings) of the 

debtor and the dependents of the debtor; and 

(xv) 1 personal computer and related equipment. 

(B) The term ‘‘household goods’’ does not include— (i) works of art (unless by or of the debtor, or any relative 

of the debtor); 

(ii) electronic entertainment equipment with a fair market value of more than $500 in the aggregate (except 1 television, 

1 radio, and 1 VCR); 

(iii) items acquired as antiques with a fair market value of 

more than $500 in the aggregate; 

(iv) jewelry with a fair market value of more than $500 in 

the aggregate (except wedding rings); and 

(v) a computer (except as otherwise provided for in this section), motor vehicle (including a tractor or lawn tractor), boat, 

or a motorized recreational device, conveyance, vehicle, 

watercraft, or aircraft.

* * * * * * *

(g) Notwithstanding sections 550 and 551 of this title, the debtor may exempt under subsection (b) of this section property that 

the trustee recovers under section 510(c)(2), 542, 543, 550, 551, or 

553 of this title, to the extent that the debtor could have exempted 

such property under subsection (b) of this section if such property 

had not been transferred, if— (1) * * *

(2) the debtor could have avoided such transfer under 

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 

331

period ending on the date of the filing of the petition with the intent 

to hinder, delay, or defraud a creditor and that the debtor could not 

exempt, or that portion that the debtor could not exempt, under subsection (b), if on such date the debtor had held the property so disposed of. 

(p)(1) Except as provided in paragraph (2) of this subsection 

and sections 544 and 548, as a result of electing under subsection 

(b)(3)(A) to exempt property under State or local law, a debtor may 

not exempt any amount of interest that was acquired by the debtor 

during the 1215-day period preceding the date of the filing of the 

petition that exceeds in the aggregate $125,000 in value in— (A) real or personal property that the debtor or a dependent 

of the debtor uses as a residence; 

(B) a cooperative that owns property that the debtor or a 

dependent of the debtor uses as a residence; 

(C) a burial plot for the debtor or a dependent of the debtor; 

or 

(D) real or personal property that the debtor or dependent 

of the debtor claims as a homestead. 

(2)(A) The limitation under paragraph (1) shall not apply to an 

exemption claimed under subsection (b)(3)(A) by a family farmer for 

the principal residence of such farmer. 

(B) For purposes of paragraph (1), any amount of such interest 

does not include any interest transferred from a debtor’s previous 

principal residence (which was acquired prior to the beginning of 

such 1215-day period) into the debtor’s current principal residence, 

if the debtor’s previous and current residences are located in the 

same State. 

(q)(1) As a result of electing under subsection (b)(3)(A) to exempt 

property under State or local law, a debtor may not exempt any 

amount of an interest in property described in subparagraphs (A), 

(B), (C), and (D) of subsection (p)(1) which exceeds in the aggregate 

$125,000 if—(A) the court determines, after notice and a hearing, that 

the debtor has been convicted of a felony (as defined in section 

3156 of title 18), which under the circumstances, demonstrates 

that the filing of the case was an abuse of the provisions of this 

title; or 

(B) the debtor owes a debt arising from—

(i) any violation of the Federal securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 

1934), any State securities laws, or any regulation or order 

issued under Federal securities laws or State securities 

laws; 

(ii) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities 

Exchange Act of 1934 or under section 6 of the Securities 

Act of 1933; 

(iii) any civil remedy under section 1964 of title 18; or 

(iv) any criminal act, intentional tort, or willful or 

reckless misconduct that caused serious physical injury or 

death to another individual in the preceding 5 years. 

(2) Paragraph (1) shall not apply to the extent the amount of 

an interest in property described in subparagraphs (A), (B), (C), and 

332

(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) * * *

(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 aggregating more than $1,000 for ‘‘luxury goods or services’’ incurred by an individual debtor on or within 60 days before 

the order for relief under this title, or cash advances aggregating more than $1,000 that are extensions of consumer credit under an open end credit plan obtained by an 

individual debtor on or within 60 days before the order for 

relief under this title, are presumed to be nondischargeable; ‘‘luxury goods or services’’ do not include goods or 

services reasonably acquired for the support or maintenance of the debtor or a dependent of the debtor; an extension of consumer credit under an open end credit plan is 

to be defined for purposes of this subparagraph as it is defined in the Consumer Credit Protection Act;¿

(C)(i) for purposes of subparagraph (A)—

(I) consumer debts owed to a single creditor and 

aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 

days before the order for relief under this title are presumed to be nondischargeable; and 

(II) cash advances aggregating more than $750 

that are extensions of consumer credit under an open 

end credit plan obtained by an individual debtor on or 

within 70 days before the order for relief under this 

title, are presumed to be nondischargeable; and 

(ii) for purposes of this subparagraph—

(I) the terms ‘‘consumer’’, ‘‘credit’’, and ‘‘open end 

credit plan’’ have the same meanings as in section 103 

of the Truth in Lending Act; and 

(II) the term ‘‘luxury goods or services’’ does not include goods or services reasonably necessary for the 

333

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 

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 

334

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 

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; 

335

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

* * * * * * *

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 

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) * * *

336

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 

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:’’; 

337

(B) Under the heading ‘‘Summary of Reaffirmation Agreement’’, the statement: ‘‘This Summary is made pursuant to the 

requirements of the Bankruptcy Code’’; 

(C) The ‘‘Amount Reaffirmed’’, using that term, which shall 

be— (i) the total amount of debt that the debtor agrees to reaffirm by entering into an agreement of the kind specified 

in subsection (c), and 

(ii) the total of any fees and costs accrued as of the date 

of the disclosure statement, related to such total amount. 

(D) In conjunction with the disclosure of the ‘‘Amount Reaffirmed’’, the statements— (i) ‘‘The amount of debt you have agreed to reaffirm’’; 

and 

(ii) ‘‘Your credit agreement may obligate you to pay additional amounts which may come due after the date of this 

disclosure. Consult your credit agreement.’’. (E) The ‘‘Annual Percentage Rate’’, using that term, which 

shall be disclosed as— (i) if, at the time the petition is filed, the debt is an extension of credit under an open end credit plan, as the 

terms ‘‘credit’’ and ‘‘open end credit plan’’ are defined in 

section 103 of the Truth in Lending Act, then— (I) the annual percentage rate determined under 

paragraphs (5) and (6) of section 127(b) of the Truth 

in Lending Act, as applicable, as disclosed to the debtor in the most recent periodic statement prior to entering into an agreement of the kind specified in subsection (c) or, if no such periodic statement has been 

given to the debtor during the prior 6 months, the annual percentage rate as it would have been so disclosed 

at the time the disclosure statement is given to the 

debtor, or to the extent this annual percentage rate is 

not readily available or not applicable, then 

(II) the simple interest rate applicable to the 

amount reaffirmed as of the date the disclosure statement is given to the debtor, or if different simple interest rates apply to different balances, the simple interest 

rate applicable to each such balance, identifying the 

amount of each such balance included in the amount 

reaffirmed, or 

(III) if the entity making the disclosure elects, to 

disclose the annual percentage rate under subclause (I) 

and the simple interest rate under subclause (II); 

(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 

338

been so disclosed at the time the disclosure statement 

is given to the debtor, or to the extent this annual percentage rate is not readily available or not applicable, 

then 

(II) the simple interest rate applicable to the 

amount reaffirmed as of the date the disclosure statement is given to the debtor, or if different simple interest rates apply to different balances, the simple interest 

rate applicable to each such balance, identifying the 

amount of such balance included in the amount reaffirmed, or 

(III) if the entity making the disclosure elects, to 

disclose the annual percentage rate under (I) and the 

simple interest rate under (II). 

(F) If the underlying debt transaction was disclosed as a 

variable rate transaction on the most recent disclosure given 

under the Truth in Lending Act, by stating ‘‘The interest rate 

on your loan may be a variable interest rate which changes 

from time to time, so that the annual percentage rate disclosed 

here may be higher or lower.’’. (G) If the debt is secured by a security interest which has 

not been waived in whole or in part or determined to be void 

by a final order of the court at the time of the disclosure, by disclosing that a security interest or lien in goods or property is 

asserted over some or all of the debts the debtor is reaffirming 

and listing the items and their original purchase price that are 

subject to the asserted security interest, or if not a 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.’’. 

339

(J)(i) The following additional statements: ‘‘Reaffirming a debt is a serious financial decision. The law requires you to take certain steps to make sure the decision is in your 

best interest. If these steps are not completed, the reaffirmation 

agreement is not effective, even though you have signed it. ‘‘1. Read the disclosures in this Part A carefully. Consider 

the decision to reaffirm carefully. Then, if you want to reaffirm, 

sign the reaffirmation agreement in Part B (or you may use a 

separate agreement you and your creditor agree on). ‘‘2. Complete and sign Part D and be sure you can afford 

to make the payments you are agreeing to make and have received a copy of the disclosure statement and a completed and 

signed reaffirmation agreement. ‘‘3. If you were represented by an attorney during the negotiation of your reaffirmation agreement, the attorney must have 

signed the certification in Part C. ‘‘4. If you were not represented by an attorney during the 

negotiation of your reaffirmation agreement, you must have 

completed and signed Part E. ‘‘5. The original of this disclosure must be filed with the 

court by you or your creditor. If a separate reaffirmation agreement (other than the one in Part B) has been signed, it must 

be attached. ‘‘6. If you were represented by an attorney during the negotiation of your reaffirmation agreement, your reaffirmation 

agreement becomes effective upon filing with the court unless 

the reaffirmation is presumed to be an undue hardship as explained in Part D. ‘‘7. If you were not represented by an attorney during the 

negotiation of your reaffirmation agreement, it will not be effective unless the court approves it. The court will notify you of the 

hearing on your reaffirmation agreement. You must attend this 

hearing in bankruptcy court where the judge will review your 

reaffirmation agreement. The bankruptcy court must approve 

your reaffirmation agreement as consistent with your best interests, except that no court approval is required if your reaffirmation agreement is for a consumer debt secured by a mortgage, 

deed of trust, security deed, or other lien on your real property, 

like your home. 

‘‘Your right to rescind (cancel) your reaffirmation agreement. 

You may rescind (cancel) your reaffirmation agreement at any time 

before the bankruptcy court enters a discharge order, or before the 

expiration of the 60-day period that begins on the date your reaffirmation agreement is filed with the court, whichever occurs later. To 

rescind (cancel) your reaffirmation agreement, you must notify the 

creditor that your reaffirmation agreement is rescinded (or canceled). 

‘‘What are your obligations if you reaffirm the debt? A reaffirmed debt remains your personal legal obligation. It is not discharged in your bankruptcy case. That means that if you default on 

your reaffirmed debt after your bankruptcy case is over, your creditor may be able to take your property or your wages. Otherwise, 

your obligations will be determined by the reaffirmation agreement 

which may have changed the terms of the original agreement. For 

example, if you are reaffirming an open end credit agreement, the 

340

creditor may be permitted by that agreement or applicable law to 

change the terms of that agreement in the future under certain conditions. 

‘‘Are you required to enter into a reaffirmation agreement by 

any law? No, you are not required to reaffirm a debt by any law. 

Only agree to reaffirm a debt if it is in your best interest. Be sure 

you can afford the payments you agree to make. 

‘‘What if your creditor has a security interest or lien? Your 

bankruptcy discharge does not eliminate any lien on your property. 

A ‘lien’ is often referred to as a security interest, deed of trust, mortgage or security deed. Even if you do not reaffirm and your personal 

liability on the debt is discharged, because of the lien your creditor 

may still have the right to take the security property if you do not 

pay the debt or default on it. If the lien is on an item of personal 

property that is exempt under your State’s law or that the trustee 

has abandoned, you may be able to redeem the item rather than reaffirm the debt. To redeem, you make a single payment to the creditor equal to the current value of the security property, as agreed by 

the parties or determined by the court.’’. 

(ii) In the case of a reaffirmation under subsection (m)(2), 

numbered paragraph 6 in the disclosures required by clause (i) 

of this subparagraph shall read as follows: 

‘‘6. If you were represented by an attorney during the negotiation of your reaffirmation agreement, your reaffirmation 

agreement becomes effective upon filing with the court.’’. 

(4) The form of such agreement required under this paragraph 

shall consist of the following: 

‘‘Part B: Reaffirmation Agreement. I (we) agree to reaffirm the 

debts arising under the credit agreement described below. 

‘‘Brief description of credit agreement: 

‘‘Description of any changes to the credit agreement made as 

part of this reaffirmation agreement: 

‘‘Signature: Date: 

‘‘Borrower: 

‘‘Co-borrower, if also reaffirming these debts: 

‘‘Accepted by creditor: 

‘‘Date of creditor acceptance:’’. 

(5) The declaration shall consist of the following: 

(A) The following certification: 

‘‘Part C: Certification by Debtor’s Attorney (If Any). 

‘‘I hereby certify that (1) this agreement represents a fully informed and voluntary agreement by the debtor; (2) this agreement 

does not impose an undue hardship on the debtor or any dependent 

of the debtor; and (3) I have fully advised the debtor of the legal 

effect and consequences of this agreement and any default under 

this agreement. 

‘‘Signature of Debtor’s Attorney: Date:’’. 

(B) If a presumption of undue hardship has been established with respect to such agreement, such certification shall 

state that in the opinion of the attorney, the debtor is able to 

make the payment. 

(C) In the case of a reaffirmation agreement under subsection 

(m)(2), subparagraph (B) is not applicable. 

341

(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.’’. (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. 

342

(3) The requirements of subsections (c)(2) and (k) shall be 

satisfied if disclosures required under those subsections are 

given in good faith. 

(m)(1) Until 60 days after an agreement of the kind specified in 

subsection (c) is filed with the court (or such additional period as 

the court, after notice and a hearing and for cause, orders before the 

expiration of such period), it shall be presumed that such agreement 

is an undue hardship on the debtor if the debtor’s monthly income 

less the debtor’s monthly expenses as shown on the debtor’s completed and signed statement in support of such agreement required 

under subsection (k)(6)(A) is less than the scheduled payments on 

the reaffirmed debt. This presumption shall be reviewed by the 

court. The presumption may be rebutted in writing by the debtor if 

the statement includes an explanation that identifies additional 

sources of funds to make the payments as agreed upon under the 

terms of such agreement. If the presumption is not rebutted to the 

satisfaction of the court, the court may disapprove such agreement. 

No agreement shall be disapproved without notice and a hearing to 

the debtor and creditor, and such hearing shall be concluded before 

the entry of the debtor’s discharge. 

(2) This subsection does not apply to reaffirmation agreements 

where the creditor is a credit union, as defined in section 

19(b)(1)(A)(iv) of the Federal Reserve Act.

§ 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 

343

untrue and misleading, or that upon the exercise of reasonable 

care, should have been known by such agency to be untrue or 

misleading; 

(3) misrepresent to any assisted person or prospective assisted person, directly or indirectly, affirmatively or by material 

omission, with respect to— (A) the services that such agency will provide to such 

person; or 

(B) the benefits and risks that may result if such person becomes a debtor in a case under this title; or 

(4) advise an assisted person or prospective assisted person 

to incur more debt in contemplation of such person filing a case 

under this title or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing 

for or representing a debtor in a case under this title. 

(b) Any waiver by any assisted person of any protection or right 

provided under this section shall not be enforceable against the 

debtor by any Federal or State court or any other person, but may 

be enforced against a debt relief agency. 

(c)(1) Any contract for bankruptcy assistance between a debt relief agency and an assisted person that does not comply with the 

material requirements of this section, section 527, or section 528 

shall be void and may not be enforced by any Federal or State court 

or by any other person, other than such assisted person. 

(2) Any debt relief agency shall be liable to an assisted person 

in the amount of any fees or charges in connection with providing 

bankruptcy assistance to such person that such debt relief agency 

has received, for actual damages, and for reasonable attorneys’ fees 

and costs if such agency is found, after notice and a hearing, to 

have— (A) intentionally or negligently failed to comply with any 

provision of this section, section 527, or section 528 with respect 

to a case or proceeding under this title for such assisted person; 

(B) provided bankruptcy assistance to an assisted person in 

a case or proceeding under this title that is dismissed or converted to a case under another chapter of this title because of 

such agency’s intentional or negligent failure to file any required document including those specified in section 521; or 

(C) intentionally or negligently disregarded the material requirements of this title or the Federal Rules of Bankruptcy Procedure applicable to such agency. 

(3) In addition to such other remedies as are provided under 

State law, whenever the chief law enforcement officer of a State, or 

an official or agency designated by a State, has reason to believe 

that any person has violated or is violating this section, the State—

(A) may bring an action to enjoin such violation; 

(B) may bring an action on behalf of its residents to recover 

the actual damages of assisted persons arising from such violation, including any liability under paragraph (2); and 

(C) in the case of any successful action under subparagraph 

(A) or (B), shall be awarded the costs of the action and reasonable attorneys’ fees as determined by the court. 

(4) The district courts of the United States for districts located 

in the State shall have concurrent jurisdiction of any action under 

subparagraph (A) or (B) of paragraph (3). 

344

(5) Notwithstanding any other provision of Federal law and in 

addition to any other remedy provided under Federal or State law, 

if the court, on its own motion or on the motion of the United States 

trustee or the debtor, finds that a person intentionally violated this 

section, or engaged in a clear and consistent pattern or practice of 

violating this section, the court may— (A) enjoin the violation of such section; or 

(B) impose an appropriate civil penalty against such person. 

(d) No provision of this section, section 527, or section 528 

shall— (1) annul, alter, affect, or exempt any person subject to such 

sections from complying with any law of any State except to the 

extent that such law is inconsistent with those sections, and 

then only to the extent of the inconsistency; or 

(2) be deemed to limit or curtail the authority or ability— (A) of a State or subdivision or instrumentality thereof, 

to determine and enforce qualifications for the practice of 

law under the laws of that State; or 

(B) of a Federal court to determine and enforce the 

qualifications for the practice of law before that court. 

§ 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 stateVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00348 Fmt 6659 Sfmt 6603 E:\HR\OC\HR40P1.XXX HR40P1
345

ment, to the extent applicable, or one substantially similar. The 

statement shall be clear and conspicuous and shall be in a single 

document separate from other documents or notices provided to the 

assisted person: ‘‘IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER. ‘‘If you decide to seek bankruptcy relief, you can represent yourself, you can hire an attorney to represent you, or you can get help 

in some localities from a bankruptcy petition preparer who is not an 

attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN 

CONTRACT SPECIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND HOW 

MUCH IT WILL COST. Ask to see the contract before you hire anyone. ‘‘The following information helps you understand what must be 

done in a routine bankruptcy case to help you evaluate how much 

service you need. Although bankruptcy can be complex, many cases 

are routine. ‘‘Before filing a bankruptcy case, either you or your attorney 

should analyze your eligibility for different forms of debt relief 

available under the Bankruptcy Code and which form of relief is 

most likely to be beneficial for you. Be sure you understand the relief you can obtain and its limitations. To file a bankruptcy case, 

documents called a Petition, Schedules and Statement of Financial 

Affairs, as well as in some cases a Statement of Intention need to 

be prepared correctly and filed with the bankruptcy court. You will 

have to pay a filing fee to the bankruptcy court. Once your case 

starts, you will have to attend the required first meeting of creditors 

where you may be questioned by a court official called a ‘trustee’ and by creditors. ‘‘If you choose to file a chapter 7 case, you may be asked by a 

creditor to reaffirm a debt. You may want help deciding whether to 

do so. A creditor is not permitted to coerce you into reaffirming your 

debts. 

‘‘If you choose to file a chapter 13 case in which you repay your 

creditors what you can afford over 3 to 5 years, you may also want 

help with preparing your chapter 13 plan and with the confirmation 

hearing on your plan which will be before a bankruptcy judge. 

‘‘If you select another type of relief under the Bankruptcy Code 

other than chapter 7 or chapter 13, you will want to find out what 

should be done from someone familiar with that type of relief. 

‘‘Your bankruptcy case may also involve litigation. You are generally permitted to represent yourself in litigation in bankruptcy 

court, but only attorneys, not bankruptcy petition preparers, can 

give you legal advice.’’. 

(c) Except to the extent the debt relief agency provides the required information itself after reasonably diligent inquiry of the assisted person or others so as to obtain such information reasonably 

accurately for inclusion on the petition, schedules or statement of financial affairs, a debt relief agency providing bankruptcy assistance 

to an assisted person, to the extent permitted by nonbankruptcy law, 

shall provide each assisted person at the time required for the notice 

required under subsection (a)(1) reasonably sufficient information 

346

(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. 

§ 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, 

347

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) * * *

* * * * * * *

(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 

348

such Code with respect to such beneficiary, as adjusted beginning on the date of the filing of the petition in a case 

under this title by the annual increase or decrease (rounded 

to the nearest tenth of 1 percent) in the education expenditure category of the Consumer Price Index prepared by the 

Department of Labor; and 

(C) in the case of funds paid or contributed to such 

program having the same designated beneficiary not earlier 

than 720 days nor later than 365 days before such date, 

only so much of such funds as does not exceed $5,000; 

(7) any amount—

(A) withheld by an employer from the wages of employees for payment as contributions—

(i) to—

(I) an employee benefit plan that is subject to 

title I of the Employee Retirement Income Security 

Act of 1974 or under an employee benefit plan 

which is a governmental plan under section 414(d) 

of the Internal Revenue Code of 1986; 

(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or 

(III) a tax-deferred annuity under section 

403(b) of the Internal Revenue Code of 1986; 

except that such amount under this subparagraph 

shall not constitute disposable income as defined in 

section 1325(b)(2); or 

(ii) to a health insurance plan regulated by State 

law whether or not subject to such title; or 

(B) received by an employer from employees for payment as contributions—

(i) to—

(I) an employee benefit plan that is subject to 

title I of the Employee Retirement Income Security 

Act of 1974 or under an employee benefit plan 

which is a governmental plan under section 414(d) 

of the Internal Revenue Code of 1986; 

(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or 

(III) a tax-deferred annuity under section 

403(b) of the Internal Revenue Code of 1986; 

except that such amount under this subparagraph 

shall not constitute disposable income, as defined in 

section 1325(b)(2); or 

(ii) to a health insurance plan regulated by State 

law whether or not subject to such title; 

(8) subject to subchapter III of chapter 5, any interest of the 

debtor in property where the debtor pledged or sold tangible 

personal property (other than securities or written or printed 

evidences of indebtedness or title) as collateral for a loan or advance of money given by a person licensed under law to make 

such loans or advances, where—

(A) the tangible personal property is in the possession 

of the pledgee or transferee; 

349

(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 

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—

350

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, 

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 

351

after the date of the order for relief in a case under chapter 11 of 

this title and after notice and a hearing, that a return is in the best 

interests of the estate, the debtor, with the consent of a creditor 

and subject to the prior rights of holders of security interests in such 

goods or the proceeds of such goods, may return goods shipped to 

the debtor by the creditor before the commencement of the case, 

and the creditor may offset the purchase price of such goods 

against any claim of the creditor against the debtor that arose before the commencement of the case.

(i)(1) Notwithstanding paragraphs (2) and (3) of section 545, 

the trustee may not avoid a warehouseman’s lien for storage, transportation, or other costs incidental to the storage and handling of 

goods. 

(2) The prohibition under paragraph (1) shall be applied in a 

manner consistent with any State statute applicable to such lien 

that is similar to section 7–209 of the Uniform Commercial Code, 

as in effect on the date of enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2003, 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) * * *

352

(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¿

(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.

353

§ 548. Fraudulent transfers and obligations 

(a) * * *

* * * * * * *

(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.

* * * * * * *

§ 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) * * *

354

(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. 

* * * * * * *

§ 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 

355

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), 

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,

356

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 

any proceeding under this title, unless, where the debtor is a stockbroker or securities clearing agency, such order is authorized under 

the provisions of the Securities Investor Protection Act of 1970 or 

any statute administered by the Securities and Exchange Commission. In the event that a repo participant or financial participant

liquidates one or more repurchase agreements with a debtor and 

under the terms of one or more such agreements has agreed to deliver assets subject to repurchase agreements to the debtor, any excess of the market prices received on liquidation of such assets (or 

if any such assets are not disposed of on the date of liquidation of 

such repurchase agreements, at the prices available at the time of 

liquidation of such repurchase agreements from a generally recognized source or the most recent closing bid quotation from such a 

source) over the sum of the stated repurchase prices and all expenses in connection with the liquidation of such repurchase agreements shall be deemed property of the estate, subject to the available rights of setoff. 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 agreeVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00360 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
357

ment¿ 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 

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) exVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00361 Fmt 6659 Sfmt 6603 E:\HR\OC\HR40P1.XXX HR40P1
358

cept to the extent that the party has positive net equity in the 

commodity accounts at the debtor, as calculated under such 

subchapter; and 

(B) another commodity broker may not net or offset an obligation to the debtor arising under, or in connection with, a 

commodity contract entered into or held on behalf of a customer 

of the debtor and traded on or subject to the rules of a contract 

market designated under the Commodity Exchange Act or a derivatives transaction execution facility registered under the 

Commodity Exchange Act against any claim arising under, or 

in connection with, other instruments, contracts, or agreements 

listed in subsection (a). 

(3) No provision of subparagraph (A) or (B) of paragraph (2) 

shall prohibit the offset of claims and obligations that arise under— (A) a cross-margining agreement or similar arrangement 

that has been approved by the Commodity Futures Trading 

Commission or submitted to the Commodity Futures Trading 

Commission under paragraph (1) or (2) of section 5c(c) of the 

Commodity Exchange Act and has not been abrogated or rendered ineffective by the Commodity Futures Trading Commission; or 

(B) any other netting agreement between a clearing organization (as defined in section 761) and another entity that has 

been approved by the Commodity Futures Trading Commission. 

(c) As used in this section, the term ‘‘contractual right’’ includes 

a right set forth in a rule or bylaw of a derivatives clearing organization (as defined in the Commodity Exchange Act), a multilateral 

clearing organization (as defined in the Federal Deposit Insurance 

Corporation Improvement Act of 1991), a national securities exchange, a national securities association, a securities clearing agency, a contract market designated under the Commodity Exchange 

Act, a derivatives transaction execution facility registered under the 

Commodity Exchange Act, or a board of trade (as defined in the 

Commodity Exchange Act) or in a resolution of the governing board 

thereof, and a right, whether or not evidenced in writing, arising 

under common law, under law merchant, or by reason of normal 

business practice. 

(d) Any provisions of this title relating to securities contracts, 

commodity contracts, forward contracts, repurchase agreements, 

swap agreements, or master netting agreements shall apply in a 

case under chapter 15, so that enforcement of contractual provisions 

of such contracts and agreements in accordance with their terms 

will not be stayed or otherwise limited by operation of any provision 

of this title or by order of a court in any case under this title, and 

to limit avoidance powers to the same extent as in a proceeding 

under chapter 7 or 11 of this title (such enforcement not to be limited based on the presence or absence of assets of the debtor in the 

United States). 

§ 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 

359

(as defined in section 761), repurchase agreement, or master netting 

agreement pursuant to section 365(a), or if a forward contract merchant, stockbroker, financial institution, securities clearing agency, 

repo participant, financial participant, master netting agreement 

participant, or swap participant liquidates, terminates, or accelerates such contract or agreement, damages shall be measured as of 

the earlier of— (1) the date of such rejection; or 

(2) the date or dates of such liquidation, termination, or acceleration. 

(b) If there are not any commercially reasonable determinants 

of value as of any date referred to in paragraph (1) or (2) of subsection (a), damages shall be measured as of the earliest subsequent 

date or dates on which there are commercially reasonable determinants of value. 

(c) For the purposes of subsection (b), if damages are not measured as of the date or dates of rejection, liquidation, termination, or 

acceleration, and the forward contract merchant, stockbroker, financial institution, securities clearing agency, repo participant, financial participant, master netting agreement participant, or swap participant or the trustee objects to the timing of the measurement of 

damages—

(1) the trustee, in the case of an objection by a forward contract merchant, stockbroker, financial institution, securities 

clearing agency, repo participant, financial participant, master 

netting agreement participant, or swap participant; or 

(2) the forward contract merchant, stockbroker, financial 

institution, securities clearing agency, repo participant, financial participant, master netting agreement participant, or swap 

participant, in the case of an objection by the trustee, 

has the burden of proving that there were no commercially reasonable determinants of value as of such date or dates.

CHAPTER 7—LIQUIDATION

SUBCHAPTER I—OFFICERS AND ADMINISTRATION 

Sec. 

701. Interim trustee. 

* * * * * * *

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 

* * * * * * *

360

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 collection or determination of any tax arising out of such operation, periodic reports and summaries of the operation of such 

business, including a statement of receipts and disbursements, 

and such other information as the United States trustee or the 

court requires; 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. 

361

(2) The United States trustee (or bankruptcy administrator, if 

any) shall, not later than 30 days after the date of filing a statement 

under paragraph (1), either file a motion to dismiss or convert 

under section 707(b) or file a statement setting forth the reasons the 

United States trustee (or the bankruptcy administrator, if any) does 

not consider such a motion to be appropriate, if the United States 

trustee (or the bankruptcy administrator, if any) determines that the 

debtor’s case should be presumed to be an abuse under section 

707(b) and the product of the debtor’s current monthly income, multiplied by 12 is not less than— (A) in the case of a debtor in a household of 1 person, the 

median family income of the applicable State for 1 earner; or 

(B) in the case of a debtor in a household of 2 or more individuals, the highest median family income of the applicable 

State for a family of the same number or fewer individuals. 

(c)(1) In a case described in subsection (a)(10) to which subsection (a)(10) applies, the trustee shall— (A)(i) provide written notice to the holder of the claim described in subsection (a)(10) of such claim and of the right of 

such holder to use the services of the State child support enforcement agency established under sections 464 and 466 of the 

Social Security Act for the State in which such holder resides, 

for assistance in collecting child support during and after the 

case under this title; 

(ii) include in the notice provided under clause (i) the address and telephone number of such State child support enforcement agency; and 

(iii) include in the notice provided under clause (i) an explanation of the rights of such holder to payment of such claim 

under this chapter; 

(B)(i) provide written notice to such State child support enforcement agency of such claim; and 

(ii) include in the notice provided under clause (i) the 

name, address, and telephone number of such holder; and 

(C) at such time as the debtor is granted a discharge under 

section 727, provide written notice to such holder and to such 

State child support enforcement agency of— (i) the granting of the discharge; 

(ii) the last recent known address of the debtor; 

(iii) the last recent known name and address of the 

debtor’s employer; and 

(iv) the name of each creditor that holds a claim that— (I) is not discharged under paragraph (2), (4), or 

(14A) of section 523(a); or 

(II) was reaffirmed by the debtor under section 

524(c). 

(2)(A) The holder of a claim described in subsection (a)(10) or 

the State child support enforcement agency of the State in which 

such holder resides may request from a creditor described in paragraph (1)(C)(iv) the last known address of the debtor. 

(B) Notwithstanding any other provision of law, a creditor that 

makes a disclosure of a last known address of a debtor in connection with a request made under subparagraph (A) shall not be liable by reason of making such disclosure.

* * * * * * *

362

§ 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 request or suggestion of¿ trustee (or bankruptcy administrator, if 

any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor’s consent, convert such a case to a 

case under chapter 11 or 13 of this title, if it finds that the granting 

of relief would be 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. 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 

363

is reasonable and necessary, the debtor’s monthly expenses may also 

include an additional allowance for food and clothing of up to 5 

percent of the food and clothing categories as specified by the National Standards issued by the Internal Revenue Service. 

(II) In addition, the debtor’s monthly expenses may include, if 

applicable, the continuation of actual expenses paid by the debtor 

that are reasonable and necessary for care and support of an elderly, chronically ill, or disabled household member or member of the 

debtor’s immediate family (including parents, grandparents, siblings, children, and grandchildren of the debtor, the dependents of 

the debtor, and the spouse of the debtor in a joint case who is not 

a dependent) and who is unable to pay for such reasonable and necessary expenses. 

(III) In addition, for a debtor eligible for chapter 13, the debtor’s monthly expenses may include the actual administrative expenses of administering a chapter 13 plan for the district in which 

the debtor resides, up to an amount of 10 percent of the projected 

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

(IV) In addition, the debtor’s monthly expenses may include the 

actual expenses for each dependent child less than 18 years of age, 

not to exceed $1,500 per year per child, to attend a private or public 

elementary or secondary school if the debtor provides documentation 

of such expenses and a detailed explanation of why such expenses 

are reasonable and necessary, and why such expenses are not already accounted for in the National Standards, Local Standards, or 

Other Necessary Expenses referred to in subclause (I). 

(V) In addition, the debtor’s monthly expenses may include an 

allowance for housing and utilities, in excess of the allowance specified by the Local Standards for housing and utilities issued by the 

Internal Revenue Service, based on the actual expenses for home energy costs if the debtor provides documentation of such actual expenses and demonstrates that such actual expenses are reasonable 

and necessary. 

(iii) The debtor’s average monthly payments on account of secured debts shall be calculated as the sum of—

(I) the total of all amounts scheduled as contractually due 

to secured creditors in each month of the 60 months following 

the date of the petition; and 

(II) any additional payments to secured creditors necessary 

for the debtor, in filing a plan under chapter 13 of this title, 

to maintain possession of the debtor’s primary residence, motor 

vehicle, or other property necessary for the support of the debtor 

and the debtor’s dependents, that serves as collateral for secured debts; 

divided by 60. 

(iv) The debtor’s expenses for payment of all priority claims (including priority child support and alimony claims) shall be calculated as the total amount of debts entitled to priority, divided by 

60. 

(B)(i) In any proceeding brought under this subsection, the presumption of abuse may only be rebutted by demonstrating special 

circumstances that justify additional expenses or adjustments of 

current monthly income for which there is no reasonable alternative. 

364

(ii) In order to establish special circumstances, the debtor shall 

be required to itemize each additional expense or adjustment of income and to provide—

(I) documentation for such expense or adjustment to income; and 

(II) a detailed explanation of the special circumstances that 

make such expenses or adjustment to income necessary and reasonable. 

(iii) The debtor shall attest under oath to the accuracy of any 

information provided to demonstrate that additional expenses or adjustments to income are required. 

(iv) The presumption of abuse may only be rebutted if the additional expenses or adjustments to income referred to in clause (i) 

cause the product of the debtor’s current monthly income reduced by 

the amounts determined under clauses (ii), (iii), and (iv) of subparagraph (A) when multiplied by 60 to be less than the lesser of—

(I) 25 percent of the debtor’s nonpriority unsecured claims, 

or $6,000, whichever is greater; or 

(II) $10,000. 

(C) As part of the schedule of current income and expenditures 

required under section 521, the debtor shall include a statement of 

the debtor’s current monthly income, and the calculations that determine whether a presumption arises under subparagraph (A)(i), 

that show how each such amount is calculated. 

(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 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). 

365

(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; 

366

(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 

and the debtor’s spouse combined, as of the date of the order for relief when multiplied by 12, is equal to or less than— (i) in the case of a debtor in a household of 1 person, the 

median family income of the applicable State for 1 earner; 

(ii) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable 

State for a family of the same number or fewer individuals; or 

(iii) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable 

State for a family of 4 or fewer individuals, plus $525 per 

month for each individual in excess of 4. 

(B) In a case that is not a joint case, current monthly income 

of the debtor’s spouse shall not be considered for purposes of subparagraph (A) if— (i)(I) the debtor and the debtor’s spouse are separated under 

applicable nonbankruptcy law; or 

(II) the debtor and the debtor’s spouse are living separate 

and apart, other than for the purpose of evading subparagraph 

(A); and 

(ii) the debtor files a statement under penalty of perjury— (I) specifying that the debtor meets the requirement of 

subclause (I) or (II) of clause (i); and 

(II) disclosing the aggregate, or best estimate of the aggregate, amount of any cash or money payments received 

from the debtor’s spouse attributed to the debtor’s current 

monthly income. 

(c)(1) In this subsection—

(A) the term ‘‘crime of violence’’ has the meaning given such 

term in section 16 of title 18; and 

(B) the term ‘‘drug trafficking crime’’ has the meaning given 

such term in section 924(c)(2) of title 18. 

(2) Except as provided in paragraph (3), after notice and a 

hearing, the court, on a motion by the victim of a crime of violence 

or a drug trafficking crime, may when it is in the best interest of 

the victim dismiss a voluntary case filed under this chapter by a 

debtor who is an individual if such individual was convicted of 

such crime. 

(3) The court may not dismiss a case under paragraph (2) if the 

debtor establishes by a preponderance of the evidence that the filing 

of a case under this chapter is necessary to satisfy a claim for a domestic support obligation.

SUBCHAPTER II—COLLECTION, LIQUIDATION, AND 

DISTRIBUTION OF THE ESTATE 

* * * * * * *

367

§ 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).

* * * * * * *

§ 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 

368

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 resides in a district for 

which the United States trustee (or the bankruptcy administrator, if any) determines that the approved instructional 

courses are not adequate to service the additional individuals 

who would otherwise be required to complete such instructional 

courses under this section (The United States trustee (or the 

bankruptcy administrator, if any) who makes a determination 

described in this paragraph shall review such determination 

369

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 

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 

370

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 

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; 

371

(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; 

* * * * * * *

§ 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—

372

(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 

the damages in connection with any such agreement or 

transaction, measured in accordance with section 562; 

* * * * * * *

§ 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.

* * * * * * *

373

CHAPTER 9—ADJUSTMENT OF DEBTS OF A 

MUNICIPALITY 

* * * * * * *

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, 507(a)(1), 

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). 

* * * * * * *

CHAPTER 11—REORGANIZATION 

* * * * * * *

SUBCHAPTER I—OFFICERS AND ADMINISTRATION 

Sec. 

1101. Definitions for this chapter. 

* * * * * * *

1115. Property of the estate. 

1116. Duties of trustee or debtor in possession in small business cases.

* * * * * * *

SUBCHAPTER I—OFFICERS AND ADMINISTRATION 

* * * * * * *

§ 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 

374

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 

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)—

375

(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).

* * * * * * *

§ 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 

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—

376

(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; 

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 

377

and the estate, if the debtor or another party in interest objects and 

establishes that— (A) there is a reasonable likelihood that a plan will be confirmed within the timeframes established in sections 1121(e) 

and 1129(e) of this title, or if such sections do not apply, within 

a reasonable period of time; and 

(B) the grounds for granting such relief include an act or 

omission of the debtor other than under paragraph (4)(A)— (i) for which there exists a reasonable justification for 

the act or omission; and 

(ii) that will be cured within a reasonable period of 

time fixed by the court. 

(3) The court shall commence the hearing on a motion under 

this subsection not later than 30 days after filing of the motion, and 

shall decide the motion not later than 15 days after commencement 

of such hearing, unless the movant expressly consents to a continuance for a specific period of time or compelling circumstances prevent the court from meeting the time limits established by this paragraph. 

(4) For purposes of this subsection, the term ‘‘cause’’ includes— (A) substantial or continuing loss to or diminution of the 

estate and the absence of a reasonable likelihood of rehabilitation; 

(B) gross mismanagement of the estate; 

(C) failure to maintain appropriate insurance that poses a 

risk to the estate or to the public; 

(D) unauthorized use of cash collateral substantially harmful to 1 or more creditors; 

(E) failure to comply with an order of the court; 

(F) unexcused failure to satisfy timely any filing or reporting requirement established by this title or by any rule applicable to a case under this chapter; 

(G) failure to attend the meeting of creditors convened 

under section 341(a) or an examination ordered under rule 

2004 of the Federal Rules of Bankruptcy Procedure without 

good cause shown by the debtor; 

(H) failure timely to provide information or attend meetings 

reasonably requested by the United States trustee (or the bankruptcy administrator, if any); 

(I) failure timely to pay taxes owed after the date of the 

order for relief or to file tax returns due after the date of the 

order for relief; 

(J) failure to file a disclosure statement, or to file or confirm a plan, within the time fixed by this title or by order of 

the court; 

(K) failure to pay any fees or charges required under chapter 123 of title 28; 

(L) revocation of an order of confirmation under section 

1144; 

(M) inability to effectuate substantial consummation of a 

confirmed plan; 

(N) material default by the debtor with respect to a confirmed plan; 

(O) termination of a confirmed plan by reason of the occurrence of a condition specified in the plan; and 

378

(P) failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the 

petition. 

(5) 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.

* * * * * * *

§ 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.

* * * * * * *

§ 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, Federal income tax return; or 

(B) a statement made under penalty of perjury that no 

balance sheet, statement of operations, or cash-flow stateVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00382 Fmt 6659 Sfmt 6603 E:\HR\OC\HR40P1.XXX HR40P1
379

ment has been prepared and no Federal tax return has 

been filed; 

(2) attend, through its senior management personnel and 

counsel, meetings scheduled by the court or the United States 

trustee, including initial debtor interviews, scheduling conferences, and meetings of creditors convened under section 341 

unless the court, after notice and a hearing, waives that requirement upon a finding of extraordinary and compelling circumstances; 

(3) timely file all schedules and statements of financial affairs, unless the court, after notice and a hearing, grants an extension, which shall not extend such time period to a date later 

than 30 days after the date of the order for relief, absent extraordinary and compelling circumstances; 

(4) file all postpetition financial and other reports required 

by the Federal Rules of Bankruptcy Procedure or by local rule 

of the district court; 

(5) subject to section 363(c)(2), maintain insurance customary and appropriate to the industry; 

(6)(A) timely file tax returns and other required government 

filings; and 

(B) subject to section 363(c)(2), timely pay all taxes entitled 

to administrative expense priority except those being contested 

by appropriate proceedings being diligently prosecuted; and 

(7) allow the United States trustee, or a designated representative of the United States trustee, to inspect the debtor’s 

business premises, books, and records at reasonable times, after 

reasonable prior written notice, unless notice is waived by the 

debtor.

SUBCHAPTER II—THE PLAN 

§ 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—

380

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 

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) * * *

* * * * * * *

(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 

381

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 

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 

382

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—

(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 

383

(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) * * *

* * * * * * *

(9) Except to the extent that the holder of a particular 

claim has agreed to a different treatment of such claim, the 

plan provides that—

(A) * * *

(B) with respect to a class of claims of a kind specified 

in section 507(a)(3), 507(a)(4), 507(a)(5), 507(a)(6), or 

507(a)(7) of this title, each holder of a claim of such class 

will receive—

(i) * * *

(ii) if such class has not accepted the plan, cash on 

the effective date of the plan equal to the allowed 

amount of such claim; 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). 

* * * * * * *

384

(14) If the debtor is required by a judicial or administrative 

order, or by statute, to pay a domestic support obligation, the 

debtor has paid all amounts payable under such order or such 

statute for such obligation that first become payable after the 

date of the filing of the petition. 

(15) In a case in which the debtor is an individual and in 

which the holder of an allowed unsecured claim objects to the 

confirmation of the plan— (A) the value, as of the effective date of the plan, of the 

property to be distributed under the plan on account of 

such claim is not less than the amount of such claim; or 

(B) the value of the property to be distributed under the 

plan is not less than the projected disposable income of the 

debtor (as defined in section 1325(b)(2)) to be received during the 5-year period beginning on the date that the first 

payment is due under the plan, or during the period for 

which the plan provides payments, whichever is longer. 

(16) All transfers of property of the plan shall be made in 

accordance with any applicable provisions of nonbankruptcy 

law that govern the transfer of property by a corporation or 

trust that is not a moneyed, business, or commercial corporation or trust.

(b)(1) * * *

(2) For the purpose of this subsection, the condition that a plan 

be fair and equitable with respect to a class includes the following 

requirements: 

(A) * * *

(B) With respect to a class of unsecured claims— (i) * * *

(ii) the holder of any claim or interest that is junior to 

the claims of such class will not receive or retain under the 

plan on account of such junior claim or interest any property, except that in a case in which the debtor is an individual, the debtor may retain property included in the estate under section 1115, subject to the requirements of subsection (a)(14) of this section. 

* * * * * * *

(e) In a small business case, the court shall confirm a plan that 

complies with the applicable provisions of this title and that is filed 

in accordance with section 1121(e) not later than 45 days after the 

plan is filed unless the time for confirmation is extended in accordance with section 1121(e)(3).

SUBCHAPTER III—POSTCONFIRMATION MATTERS 

§ 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. 

* * * * * * *

385

(5) In a case in which the debtor is an individual—

(A) unless after notice and a hearing the court orders otherwise for cause, confirmation of the plan does not discharge any 

debt provided for in the plan until the court grants a discharge 

on completion of all payments under the plan; 

(B) at any time after the confirmation of the plan, and after 

notice and a hearing, the court may grant a discharge to the 

debtor who has not completed payments under the plan if—

(i) the value, as of the effective date of the plan, of 

property actually distributed under the plan on account of 

each allowed unsecured claim is not less than the amount 

that would have been paid on such claim if the estate of the 

debtor had been liquidated under chapter 7 on such date; 

and 

(ii) modification of the plan under section 1127 is not 

practicable; and 

(C) unless after notice and a hearing held not more than 

10 days before the date of the entry of the order granting the 

discharge, the court finds that there is no reasonable cause to 

believe that—

(i) section 522(q)(1) may be applicable to the debtor; 

and 

(ii) there is pending any proceeding in which the debtor 

may be found guilty of a felony of the kind described in section 522(q)(1)(A) or liable for a debt of the kind described 

in section 522(q)(1)(B). 

(6) Notwithstanding paragraph (1), the confirmation of a plan 

does not discharge a debtor that is a corporation from any debt— (A) of a kind specified in paragraph (2)(A) or (2)(B) of section 523(a) that is owed to a domestic governmental unit, or 

owed to a person as the result of an action filed under subchapter III of chapter 37 of title 31 or any similar State statute; 

or 

(B) for a tax or customs duty with respect to which the 

debtor—(i) made a fraudulent return; or 

(ii) willfully attempted in any manner to evade or to 

defeat such tax or such customs duty.

* * * * * * *

§ 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. 

386

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 

* * * * * * *

§ 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

387

(6) if with respect to the debtor there is a claim for a domestic support obligation, provide the applicable notice specified in subsection (c). 

(c)(1) In a case described in subsection (b)(6) to which subsection (b)(6) applies, the trustee shall—

(A)(i) provide written notice to the holder of the claim described in subsection (b)(6) of such claim and of the right of 

such holder to use the services of the State child support enforcement agency established under sections 464 and 466 of the 

Social Security Act for the State in which such holder resides, 

for assistance in collecting child support during and after the 

case under this title; and 

(ii) include in the notice provided under clause (i) the address and telephone number of such State child support enforcement agency; 

(B)(i) provide written notice to such State child support enforcement agency of such claim; and 

(ii) include in the notice provided under clause (i) the 

name, address, and telephone number of such holder; and 

(C) at such time as the debtor is granted a discharge under 

section 1228, provide written notice to such holder and to such 

State child support enforcement agency of—

(i) the granting of the discharge; 

(ii) the last recent known address of the debtor; 

(iii) the last recent known name and address of the 

debtor’s employer; and 

(iv) the name of each creditor that holds a claim that— (I) is not discharged under paragraph (2), (4), or 

(14A) of section 523(a); or 

(II) was reaffirmed by the debtor under section 

524(c). 

(2)(A) The holder of a claim described in subsection (b)(6) or the 

State child support enforcement agency of the State in which such 

holder resides may request from a creditor described in paragraph 

(1)(C)(iv) the last known address of the debtor. 

(B) Notwithstanding any other provision of law, a creditor that 

makes a disclosure of a last known address of a debtor in connection with a request made under subparagraph (A) shall not be liable by reason of making that disclosure.

§ 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 

388

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) * * *

* * * * * * *

(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 disVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00392 Fmt 6659 Sfmt 6603 E:\HR\OC\HR40P1.XXX HR40P1
389

posable 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) * * *

* * * * * * *

(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;

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.

390

(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 

* * * * * * *

§ 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 

391

(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¿

392

(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—

393

(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, 

394

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.¿

395

(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) * * *

396

(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 Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00400 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
397

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 

398

(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 

399

confirmed, the trustee shall return any such payments not previously paid and not yet due and owing to creditors pursuant to 

paragraph (3) to the debtor, after deducting any unpaid claim allowed under section 503(b). 

(3) Subject to section 363, the court may, upon notice and a 

hearing, modify, increase, or reduce the payments required under 

this subsection pending confirmation of a plan. 

(4) Not later than 60 days after the date of filing of a case 

under this chapter, a debtor retaining possession of personal property subject to a lease or securing a claim attributable in whole or 

in part to the purchase price of such property shall provide the lessor or secured creditor reasonable evidence of the maintenance of 

any required insurance coverage with respect to the use or ownership of such property and continue to do so for so long as the debtor 

retains possession of such property.

(b) Before or at the time of each payment to creditors under 

the plan, there shall be paid— (1) any unpaid claim of the kind specified in section 

507(a)(1) 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 Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00403 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
400

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 

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 

401

(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. 

402

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 

403

(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 

404

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. 

405

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 1515, 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. 

406

§ 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; 

407

(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. 

408

§ 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; 

409

(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. 

410

(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. 

411

§ 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. 

412

(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 Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00416 Fmt 6659 Sfmt 6603 E:\HR\OC\HR40P1.XXX HR40P1
413

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. 

* * * * * * *

§ 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 

414

(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.

* * * * * * *

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, and 31.25 percent 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. 

* * * * * * *

TITLE 28—UNITED STATES CODE

* * * * * * *

Part I—Organization of Courts 

* * * * * * *

CHAPTER 6—BANKRUPTCY JUDGES 

* * * * * * *

415

§ 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). However, upon the expiration of the term, a bankruptcy judge may, 

with the approval of the judicial council of the circuit, continue to 

perform the duties of the office until the earlier of the date which 

is 180 days after the expiration of the term or the date of the appointment of a successor. Bankruptcy judges shall serve as judicial 

officers of the United States district court established under Article 

III of the Constitution. 

(2) The bankruptcy judges appointed pursuant to this section shall be appointed for the several judicial districts as follows:

Districts Judges 

* * * * * * *

Georgia: 

Northern ................................................................................................... 8

Middle ....................................................................................................... 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.

* * * * * * *

416

§ 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) * * *

* * * * * * *

(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. 

417

§ 159. Bankruptcy statistics 

(a) The clerk of the district court, or the clerk of the bankruptcy 

court if one is certified pursuant to section 156(b) of this title, shall 

collect statistics regarding debtors who are individuals with primarily consumer debts seeking relief under chapters 7, 11, and 13 

of title 11. Those statistics shall be in a standardized format prescribed by the Director of the Administrative Office of the United 

States Courts (referred to in this section as the ‘‘Director’’). 

(b) The Director shall— (1) compile the statistics referred to in subsection (a); 

(2) make the statistics available to the public; and 

(3) not later than July 1, 2006, 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; 

418

(ii) the number of cases dismissed, the number of 

cases dismissed for failure to make payments under the 

plan, the number of cases refiled after dismissal, and 

the number of cases in which the plan was completed, 

separately itemized with respect to the number of modifications made before completion of the plan, if any; 

and 

(iii) the number of cases in which the debtor filed 

another case during the 6-year period preceding the filing; 

(G) the number of cases in which creditors were fined 

for misconduct and any amount of punitive damages 

awarded by the court for creditor misconduct; and 

(H) the number of cases in which sanctions under rule 

9011 of the Federal Rules of Bankruptcy Procedure were 

imposed against debtor’s attorney or damages awarded 

under such Rule.

* * * * * * *

Part II—Department of Justice 

* * * * * * *

CHAPTER 39—UNITED STATES TRUSTEES

Sec. 

581. United States trustees. 

* * * * * * *

589b. Bankruptcy data.

* * * * * * *

§ 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 

419

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 2003; 

(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 

420

so elects, shall also include an administrative hearing on the record. 

Unless the trustee elects to have an administrative hearing on the 

record, the trustee shall be deemed to have exhausted all administrative remedies for purposes of this paragraph if the agency fails 

to make a final agency decision within 90 days after the trustee requests administrative remedies. The Attorney General shall prescribe procedures to implement this paragraph. The decision of the 

agency shall be affirmed by the district court unless it is unreasonable and without cause based on the administrative record before 

the agency.

(e)(1)***

* * * * * * *

(3) After first exhausting all available administrative remedies, 

an individual appointed under subsection (b) may obtain judicial 

review of final agency action to deny a claim of actual, necessary 

expenses under this subsection by commencing an action in the district court of the United States for the district where the individual 

resides. The decision of the agency shall be affirmed by the district 

court unless it is unreasonable and without cause based upon the 

administrative record before the agency. 

(4) The Attorney General shall prescribe procedures to implement this subsection. 

(f)(1) The United States trustee for each district is authorized 

to contract with auditors to perform audits in cases designated by 

the United States trustee, in accordance with the procedures established under section 603(a) of the Bankruptcy Abuse Prevention and 

Consumer Protection Act of 2003. 

(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;¿

421

(1)(A) 40.63 percent of the fees collected under section 

1930(a)(1)(A) of this title in cases commenced under chapter 7 

of title 11; and 

(B) 70.00 percent of the fees collected under section 

1930(a)(1)(B) of this title in cases commenced under chapter 13 

of title 11;

(2) øone-half¿ three-fourths 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; 

* * * * * * *

§ 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; 

422

(6) claims asserted; 

(7) claims allowed; and 

(8) distributions to claimants and claims discharged without payment, 

in each case by appropriate category and, in cases under chapters 

12 and 13 of title 11, date of confirmation of the plan, each modification thereto, and defaults by the debtor in performance under 

the plan. 

(e) PERIODIC REPORTS.—The uniform forms for periodic reports 

required under subsection (a) for use by trustees or debtors in possession under chapter 11 of title 11 shall, in addition to such other 

matters as are required by law or as the Attorney General in the 

discretion of the Attorney General shall propose, include— (1) information about the industry classification, published 

by the Department of Commerce, for the businesses conducted 

by the debtor; 

(2) length of time the case has been pending; 

(3) number of full-time employees as of the date of the order 

for relief and at the end of each reporting period since the case 

was filed; 

(4) cash receipts, cash disbursements and profitability of 

the debtor for the most recent period and cumulatively since the 

date of the order for relief; 

(5) compliance with title 11, whether or not tax returns and 

tax payments since the date of the order for relief have been 

timely filed and made; 

(6) all professional fees approved by the court in the case 

for the most recent period and cumulatively since the date of the 

order for relief (separately reported, for the professional fees incurred by or on behalf of the debtor, between those that would 

have been incurred absent a bankruptcy case and those not); 

and 

(7) plans of reorganization filed and confirmed and, with 

respect thereto, by class, the recoveries of the holders, expressed 

in aggregate dollar values and, in the case of claims, as a percentage of total claims of the class allowed.

* * * * * * *

Part III—Court Officers and Employees 

* * * * * * *

CHAPTER 57—GENERAL PROVISIONS APPLICABLE TO 

COURT OFFICERS AND EMPLOYEES 

* * * * * * *

§ 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—

423

(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 

under chapter 7 of title 11; or 

(2) before the due date of the tax, an order of the court 

makes a finding of probable insufficiency of funds of the estate 

to pay in full the administrative expenses allowed under section 

503(b) of title 11 that have the same priority in distribution 

under section 726(b) of title 11 as the priority of that tax.

* * * * * * *

Part IV—Jurisdiction and Venue 

* * * * * * *

CHAPTER 85—DISTRICT COURTS; JURISDICTION 

* * * * * * *

§ 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 

424

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 

* * * * * * *

§ 1409. Venue of proceedings arising under title 11 or arising 

in or related to cases under title 11

(a) * * *

(b) Except as provided in subsection (d) of this section, a trustee in a case under title 11 may commence a proceeding arising in 

or related to such case to recover a money judgment of or property 

worth less than $1,000 or a consumer debt of less than $5,000, or 

a 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 jusVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00428 Fmt 6659 Sfmt 6603 E:\HR\OC\HR40P1.XXX HR40P1
425

tice 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 

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—

(A) under chapter 7 of title 11, $160; or 

(B) under chapter 13 of title 11, $150. 

* * * * * * *

(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 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 

426

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.

* * * * * * *

FEDERAL DEPOSIT INSURANCE ACT

* * * * * * *

SEC. 11. (a)***

* * * * * * *

(e) PROVISIONS RELATING TO CONTRACTS ENTERED INTO BEFORE APPOINTMENT OF CONSERVATOR OR RECEIVER.—

(1) * * *

* * * * * * *

(8) CERTAIN QUALIFIED FINANCIAL CONTRACTS.— (A) RIGHTS OF PARTIES TO CONTRACTS.—Subject to 

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; 

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. 

* * * * * * *

427

(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, except that the items (as described in such section) 

which may be subject to any such agreement shall 

be deemed to include mortgage-related securities 

(as such term is defined in section 3(a)(41) of the 

Securities Exchange Act of 1934), any mortgage 

loan, and any interest in any mortgage loan; and 

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, 

428

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 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; 

429

(VIII) means any option to enter into any 

agreement or transaction referred to in this clause; 

(IX) means a master agreement that provides 

for an agreement or transaction referred to in subclause (I), (III), (IV), (V), (VI), (VII), or (VIII), together with all supplements to any such master 

agreement, without regard to whether the master 

agreement provides for an agreement or transaction that is not a securities contract under this 

clause, except that the master agreement shall be 

considered to be a securities contract under this 

clause only with respect to each agreement or 

transaction under the master agreement that is referred to in subclause (I), (III), (IV), (V), (VI), (VII), 

or (VIII); and 

(X) means any security agreement or arrangement or other credit enhancement related to any 

agreement or transaction referred to in this clause, 

including any guarantee or reimbursement obligation in connection with any agreement or transaction referred to in this clause. 

(iii) COMMODITY CONTRACT.—The term ‘‘commodity 

contract’’ means— (I) with respect to a futures commission merchant, a contract for the purchase or sale of a commodity for future delivery on, or subject to the 

rules of, a contract market or board of trade; 

(II) with respect to a foreign futures commission merchant, a foreign future; 

(III) with respect to a leverage transaction 

merchant, a leverage transaction; 

(IV) with respect to a clearing organization, a 

contract for the purchase or sale of a commodity 

for future delivery on, or subject to the rules of, a 

contract market or board of trade that is cleared 

by such clearing organization, or commodity option traded on, or subject to the rules of, a contract 

market or board of trade that is cleared by such 

clearing organization; 

(V) with respect to a commodity options dealer, 

a commodity option; 

(VI) any other agreement or transaction that is 

similar to any agreement or transaction referred to 

in this clause; 

(VII) any combination of the agreements or 

transactions referred to in this clause; 

(VIII) any option to enter into any agreement 

or transaction referred to in this clause; 

(IX) a master agreement that provides for an 

agreement or transaction referred to in subclause 

(I), (II), (III), (IV), (V), (VI), (VII), or (VIII), together with all supplements to any such master 

agreement, without regard to whether the master 

agreement provides for an agreement or transaction that is not a commodity contract under this 

430

clause, except that the master agreement shall be 

considered to be a commodity contract under this 

clause only with respect to each agreement or 

transaction under the master agreement that is referred to in subclause (I), (II), (III), (IV), (V), (VI), 

(VII), or (VIII); or 

(X) any security agreement or arrangement or 

other credit enhancement related to any agreement 

or transaction referred to in this clause, including 

any guarantee or reimbursement obligation in connection with any agreement or transaction referred 

to in this clause. 

(iv) FORWARD CONTRACT.—The term ‘‘forward contract’’ means— (I) a contract (other than a commodity contract) for the purchase, sale, or transfer of a commodity or any similar good, article, service, right, 

or interest which is presently or in the future becomes the subject of dealing in the forward contract trade, or product or byproduct thereof, with 

a maturity date more than 2 days after the date 

the contract is entered into, including, a repurchase transaction, reverse repurchase transaction, 

consignment, lease, swap, hedge transaction, deposit, loan, option, allocated transaction, 

unallocated transaction, or any other similar 

agreement; 

(II) any combination of agreements or transactions referred to in subclauses (I) and (III); 

(III) any option to enter into any agreement or 

transaction referred to in subclause (I) or (II); 

(IV) a master agreement that provides for an 

agreement or transaction referred to in subclauses 

(I), (II), or (III), together with all supplements to 

any such master agreement, without regard to 

whether the master agreement provides for an 

agreement or transaction that is not a forward 

contract under this clause, except that the master 

agreement shall be considered to be a forward contract under this clause only with respect to each 

agreement or transaction under the master agreement that is referred to in subclause (I), (II), or 

(III); or 

(V) any security agreement or arrangement or 

other credit enhancement related to any agreement 

or transaction referred to in subclause (I), (II), 

(III), or (IV), including any guarantee or reimbursement obligation in connection with any agreement or transaction referred to in any such subclause. 

(v) REPURCHASE AGREEMENT.—The term ‘‘repurchase agreement’’ (which definition also applies to a reverse repurchase agreement)—

(I) means an agreement, including related 

terms, which provides for the transfer of one or 

431

more certificates of deposit, mortgage-related securities (as such term is defined in the Securities Exchange Act of 1934), mortgage loans, interests in 

mortgage-related securities or mortgage loans, eligible bankers’ acceptances, qualified foreign government securities or securities that are direct obligations of, or that are fully guaranteed by, the 

United States or any agency of the United States 

against the transfer of funds by the transferee of 

such certificates of deposit, eligible bankers’ acceptances, securities, mortgage loans, or interests with 

a simultaneous agreement by such transferee to 

transfer to the transferor thereof certificates of deposit, eligible bankers’ acceptances, securities, 

mortgage loans, or interests as described above, at 

a date certain not later than 1 year after such 

transfers or on demand, against the transfer of 

funds, or any other similar agreement; 

(II) does not include any repurchase obligation 

under a participation in a commercial mortgage 

loan unless the Corporation determines by regulation, resolution, or order to include any such participation within the meaning of such term; 

(III) means any combination of agreements or 

transactions referred to in subclauses (I) and (IV); 

(IV) means any option to enter into any agreement or transaction referred to in subclause (I) or 

(III); 

(V) means a master agreement that provides 

for an agreement or transaction referred to in subclause (I), (III), or (IV), together with all supplements to any such master agreement, without regard to whether the master agreement provides for 

an agreement or transaction that is not a repurchase agreement under this clause, except that the 

master agreement shall be considered to be a repurchase agreement under this subclause only 

with respect to each agreement or transaction 

under the master agreement that is referred to in 

subclause (I), (III), or (IV); and 

(VI) means any security agreement or arrangement or other credit enhancement related to any 

agreement or transaction referred to in subclause 

(I), (III), (IV), or (V), including any guarantee or 

reimbursement obligation in connection with any 

agreement or transaction referred to in any such 

subclause. 

For purposes of this clause, the term ‘‘qualified foreign 

government security’’ means a security that is a direct 

obligation of, or that is fully guaranteed by, the central 

government of a member of the Organization for Economic Cooperation and Development (as determined by 

regulation or order adopted by the appropriate Federal 

banking authority). 

432

(vi) SWAP AGREEMENT.—The term ‘‘swap agreement’’ means— (I) any agreement, including the terms and 

conditions incorporated by reference in any such 

agreement, which is an interest rate swap, option, 

future, or forward agreement, including a rate 

floor, rate cap, rate collar, cross-currency rate 

swap, and basis swap; a spot, same day-tomorrow, 

tomorrow-next, forward, or other foreign exchange 

or precious metals agreement; a currency swap, option, future, or forward agreement; an equity index 

or equity swap, option, future, or forward agreement; a debt index or debt swap, option, future, or 

forward agreement; a total return, credit spread or 

credit swap, option, future, or forward agreement; 

a commodity index or commodity swap, option, future, or forward agreement; or a weather swap, 

weather derivative, or weather option; 

(II) any agreement or transaction that is similar to any other agreement or transaction referred 

to in this clause and that is of a type that has 

been, is presently, or in the future becomes, the 

subject of recurrent dealings in the swap markets 

(including terms and conditions incorporated by 

reference in such agreement) and that is a forward, swap, future, or option on one or more rates, 

currencies, commodities, equity securities or other 

equity instruments, debt securities or other debt instruments, quantitative measures associated with 

an occurrence, extent of an occurrence, or contingency associated with a financial, commercial, or 

economic consequence, or economic or financial indices or measures of economic or financial risk or 

value; 

(III) any combination of agreements or transactions referred to in this clause; 

(IV) any option to enter into any agreement or 

transaction referred to in this clause; 

(V) a master agreement that provides for an 

agreement or transaction referred to in subclause 

(I), (II), (III), or (IV), together with all supplements 

to any such master agreement, without regard to 

whether the master agreement contains an agreement or transaction that is not a swap agreement 

under this clause, except that the master agreement shall be considered to be a swap agreement 

under this clause only with respect to each agreement or transaction under the master agreement 

that is referred to in subclause (I), (II), (III), or 

(IV); and 

(VI) any security agreement or arrangement or 

other credit enhancement related to any agreements or transactions referred to in subclause (I), 

(II), (III), (IV), or (V), including any guarantee or 

reimbursement obligation in connection with any 

433

agreement or transaction referred to in any such 

subclause. 

Such term is applicable for purposes of this subsection 

only and shall not be construed or applied so as to 

challenge or affect the characterization, definition, or 

treatment of any swap agreement under any other statute, regulation, or rule, including the Securities Act of 

1933, the Securities Exchange Act of 1934, the Public 

Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, 

the Investment Advisers Act of 1940, the Securities Investor Protection Act of 1970, the Commodity Exchange 

Act, the Gramm-Leach-Bliley Act, and the Legal Certainty for Bank Products Act of 2000. 

(vii) TREATMENT OF MASTER AGREEMENT AS ONE

AGREEMENT.—Any master agreement for any contract 

or agreement described in any preceding clause of this 

subparagraph (or any master agreement for such master agreement or agreements), together with all supplements to such master agreement, shall be treated as a 

single agreement and a single qualified financial contract. If a master agreement contains provisions relating to agreements or transactions that are not themselves qualified financial contracts, the master agreement shall be deemed to be a qualified financial contract only with respect to those transactions that are 

themselves qualified financial contracts. 

(viii) TRANSFER.—The term ‘‘transfer’’ means every 

mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with 

property or with an interest in property, including retention of title as a security interest and foreclosure of 

the depository institution’s equity of redemption.

(E) CERTAIN PROTECTIONS IN EVENT OF APPOINTMENT

OF CONSERVATOR.—Notwithstanding any other provision of 

this Act (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 reVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00437 Fmt 6659 Sfmt 6603 E:\HR\OC\HR40P1.XXX HR40P1
434

pudiate 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, 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—

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.—

435

(A) IN GENERAL.—In making any transfer of assets or 

liabilities of a depository institution in default which includes any qualified financial contract, the conservator or 

receiver for such depository institution shall either— (i) transfer to one financial institution, other than 

a financial institution for which a conservator, receiver, trustee in bankruptcy, or other legal custodian 

has been appointed or which is otherwise the subject of 

a bankruptcy or insolvency proceeding— (I) all qualified financial contracts between 

any person or any affiliate of such person and the 

depository institution in default; 

(II) all claims of such person or any affiliate 

of such person against such depository institution 

under any such contract (other than any claim 

which, under the terms of any such contract, is 

subordinated to the claims of general unsecured 

creditors of such institution); 

(III) all claims of such depository institution 

against such person or any affiliate of such person 

under any such contract; and 

(IV) all property securing or any other credit 

enhancement for any contract described in subclause (I) or any claim described in subclause (II) 

or (III) under any such contract; or 

(ii) transfer none of the qualified financial contracts, claims, property or other credit enhancement referred to in clause (i) (with respect to such person and 

any affiliate of such person). 

(B) TRANSFER TO FOREIGN BANK, FOREIGN FINANCIAL

INSTITUTION, OR BRANCH OR AGENCY OF A FOREIGN BANK

OR FINANCIAL INSTITUTION.—In transferring any qualified 

financial contracts and related claims and property under 

subparagraph (A)(i), the conservator or receiver for the depository institution shall not make such transfer to a foreign bank, financial institution organized under the laws of 

a foreign country, or a branch or agency of a foreign bank 

or financial institution unless, under the law applicable to 

such bank, financial institution, branch or agency, to the 

qualified financial contracts, and to any netting contract, 

any security agreement or arrangement or other credit enhancement related to one or more qualified financial contracts, the contractual rights of the parties to such qualified 

financial contracts, netting contracts, security agreements 

or arrangements, or other credit enhancements are enforceable substantially to the same extent as permitted under 

this section. 

(C) TRANSFER OF CONTRACTS SUBJECT TO THE RULES

OF A CLEARING ORGANIZATION.—In the event that a conservator or receiver transfers any qualified financial contract 

and related claims, property, and credit enhancements pursuant to subparagraph (A)(i) and such contract is cleared 

by or subject to the rules of a clearing organization, the 

clearing organization shall not be required to accept the 

transferee as a member by virtue of the transfer. 

436

(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) * * *

* * * * * * *

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 institution (or the insolvency or financial condition of the 

depository institution for which the receiver has been 

appointed)—

(I) until 5:00 p.m. (eastern time) on the business day following the date of the appointment of 

the receiver; or 

(II) after the person has received notice that 

the contract has been transferred pursuant to 

paragraph (9)(A). 

(ii) CONSERVATORSHIP.—A person who is a party 

to a qualified financial contract with an insured depository institution may not exercise any right that such 

person has to terminate, liquidate, or net such contract 

under paragraph (8)(E) of this subsection or section 

403 or 404 of the Federal Deposit Insurance Corporation Improvement Act of 1991, solely by reason of or incidental to the appointment of a conservator for the depository institution (or the insolvency or financial condition of the depository institution for which the conservator has been appointed). 

(iii) NOTICE.—For purposes of this paragraph, the 

Corporation as receiver or conservator of an insured 

depository institution shall be deemed to have notified 

a person who is a party to a qualified financial conVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00440 Fmt 6659 Sfmt 6603 E:\HR\OC\HR40P1.XXX HR40P1
437

tract 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—

(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 

438

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 

governmental entity or of any depositor referred to in section 

11(a)(2) shall not be deemed to be invalid pursuant to paragraph (1)(B) solely because such agreement was not executed 

contemporaneously with the acquisition of the collateral or 

with any changes in the collateral made in accordance with 

such agreement.¿

(2) EXEMPTIONS FROM CONTEMPORANEOUS EXECUTION REQUIREMENT.—An agreement to provide for the lawful 

collateralization of—

(A) deposits of, or other credit extension by, a Federal, 

State, or local governmental entity, or of any depositor referred to in section 11(a)(2), including an agreement to provide collateral in lieu of a surety bond; 

(B) bankruptcy estate funds pursuant to section 

345(b)(2) of title 11, United States Code; 

(C) extensions of credit, including any overdraft, from 

a Federal reserve bank or Federal home loan bank; or 

(D) one or more qualified financial contracts, as defined in section 11(e)(8)(D), 

shall not be deemed invalid pursuant to paragraph (1)(B) solely 

because such agreemen-t was not executed contemporaneously 

439

with the acquisition of the collateral or because of pledges, delivery, or substitution of the collateral made in accordance with 

such agreement.

* * * * * * *

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) * * *

(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;

ø(B) a branch or agency as defined in section 1(b) of 

the International Banking Act of 1978;¿

(C) a branch or agency of a foreign bank, a foreign 

bank and any branch or agency of the foreign bank, or the 

440

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 

(10)(B) of section 11(e) of the Federal Deposit Insurance 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 

441

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 

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 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 and section 5(b)(2) of the Securities Investor Protection 

Act of 1970).

* * * * * * *

SEC. 407. TREATMENT OF CONTRACTS WITH UNINSURED NATIONAL 

BANKS, UNINSURED FEDERAL BRANCHES AND AGENCIES, 

CERTAIN UNINSURED STATE MEMBER BANKS, AND EDGE 

ACT CORPORATIONS. 

(a) IN GENERAL.—Notwithstanding any other provision of law, 

paragraphs (8), (9), (10), and (11) of section 11(e) of the Federal Deposit Insurance Act shall apply to an uninsured national bank or 

uninsured Federal branch or Federal agency, a corporation chartered under section 25A of the Federal Reserve Act, or an uninsured 

State member bank which operates, or operates as, a multilateral 

clearing organization pursuant to section 409 of this Act, except that 

for such purpose—

442

(1) any reference to the ‘‘Corporation as receiver’’ or ‘‘the receiver or the Corporation’’ shall refer to the receiver appointed 

by the Comptroller of the Currency in the case of an uninsured 

national bank or uninsured Federal branch or agency, or to the 

receiver appointed by the Board of Governors of the Federal Reserve System in the case of a corporation chartered under section 25A of the Federal Reserve Act or an uninsured State member bank; 

(2) any reference to the ‘‘Corporation’’ (other than in section 

11(e)(8)(D) of such Act), the ‘‘Corporation, whether acting as 

such or as conservator or receiver’’, a ‘‘receiver’’, or a ‘‘conservator’’ shall refer to the receiver or conservator appointed by the 

Comptroller of the Currency in the case of an uninsured national bank or uninsured Federal branch or agency, or to the 

receiver or conservator appointed by the Board of Governors of 

the Federal Reserve System in the case of a corporation chartered under section 25A of the Federal Reserve Act or an uninsured State member bank; and 

(3) any reference to an ‘‘insured depository institution’’ or 

‘‘depository institution’’ shall refer to an uninsured national 

bank, an uninsured Federal branch or Federal agency, a corporation chartered under section 25A of the Federal Reserve 

Act, or an uninsured State member bank which operates, or operates as, a multilateral clearing organization pursuant to section 409 of this Act. 

(b) LIABILITY.—The liability of a receiver or conservator of an 

uninsured national bank, uninsured Federal branch or agency, a 

corporation chartered under section 25A of the Federal Reserve Act, 

or an uninsured State member bank which operates, or operates as, 

a multilateral clearing organization pursuant to section 409 of this 

Act, shall be determined in the same manner and subject to the 

same limitations that apply to receivers and conservators of insured 

depository institutions under section 11(e) of the Federal Deposit Insurance Act. 

(c) REGULATORY AUTHORITY.—

(1) IN GENERAL.—The Comptroller of the Currency in the 

case of an uninsured national bank or uninsured Federal 

branch or agency and the Board of Governors of the Federal Reserve System in the case of a corporation chartered under section 25A of the Federal Reserve Act, or an uninsured State 

member bank that operates, or operates as, a multilateral clearing organization pursuant to section 409 of this Act, in consultation with the Federal Deposit Insurance Corporation, may 

each promulgate regulations solely to implement this section. 

(2) SPECIFIC REQUIREMENT.—In promulgating regulations, 

limited solely to implementing paragraphs (8), (9), (10), and 

(11) of section 11(e) of the Federal Deposit Insurance Act, the 

Comptroller of the Currency and the Board of Governors of the 

Federal Reserve System each shall ensure that the regulations 

generally are consistent with the regulations and policies of the 

Federal Deposit Insurance Corporation adopted pursuant to the 

Federal Deposit Insurance Act. 

(d) DEFINITIONS.—For purposes of this section, the terms ‘‘Federal branch’’, ‘‘Federal agency’’, and ‘‘foreign bank’’ have the same 

443

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.). 

* * * * * * *

SECTION 5 OF THE SECURITIES INVESTOR PROTECTION 

ACT OF 1970

SEC. 5. PROTECTION OF CUSTOMERS. 

(a) * * *

(b) COURT ACTION.—

(1) * * *

(2) JURISDICTION AND POWERS OF COURT.—

(A) * * *

* * * * * * *

(C) EXCEPTION FROM STAY.—

(i) Notwithstanding section 362 of title 11, United 

States Code, neither the filing of an application under 

subsection (a)(3) nor any order or decree obtained by 

SIPC from the court shall operate as a stay of any contractual rights of a creditor to liquidate, terminate, or 

accelerate a securities contract, commodity contract, 

forward contract, repurchase agreement, swap agreement, or master netting agreement, as those terms are 

defined in sections 101, 741, and 761 of title 11, United 

States Code, to offset or net termination values, payment amounts, or other transfer obligations arising 

under or in connection with one or more of such contracts or agreements, or to foreclose on any cash collateral pledged by the debtor, whether or not with respect 

to one or more of such contracts or agreements. 

(ii) Notwithstanding clause (i), such application, 

order, or decree may operate as a stay of the foreclosure 

on, or disposition of, securities collateral pledged by the 

debtor, whether or not with respect to one or more of 

such contracts or agreements, securities sold by the 

debtor under a repurchase agreement, or securities lent 

under a securities lending agreement. 

(iii) As used in this subparagraph, the term ‘‘contractual right’’ includes a right set forth in a rule or 

bylaw of a national securities exchange, a national securities association, or a securities clearing agency, a 

right set forth in a bylaw of a clearing organization or 

contract market or in a resolution of the governing 

board thereof, and a right, whether or not in writing, 

444

arising under common law, under law merchant, or by 

reason of normal business practice.

* * * * * * *

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

* * * * * * *

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 

445

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 

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, 

446

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 2003, 

a toll-free telephone number, or provide a toll-free telephone 

number established and maintained by a third party, for use by 

creditors that are depository institutions (as defined in section 

3 of the Federal Deposit Insurance Act), including a Federal 

credit union or State credit union (as defined in section 101 of 

the Federal Credit Union Act), with total assets not exceeding 

$250,000,000. The toll-free telephone number may connect consumers to an automated device through which consumers may 

obtain information described in subparagraph (A) or (B), as applicable, by inputting information using a touch-tone telephone 

or similar device, if consumers whose telephones are not 

equipped to use such automated device are provided the opportunity to be connected to an individual from whom the information described in subparagraph (A) or (B), as applicable, may 

be obtained. A person that receives a request for information described in subparagraph (A) or (B) from an obligor through the 

toll-free telephone number disclosed under subparagraph (A) or 

(B), as applicable, shall disclose in response to such request 

only the information set forth in the table promulgated by the 

Board under subparagraph (H)(i). The dollar amount contained 

in this subclause shall be adjusted according to an indexing 

mechanism established by the Board. 

(II) Not later than 6 months prior to the expiration of the 

24-month period referenced in subclause (I), the Board shall 

submit to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of 

the House of Representatives a report on the program described 

in subclause (I). 

(G) The Federal Trade Commission shall establish and 

maintain a toll-free number for the purpose of providing to consumers the information required to be disclosed under subparagraph (C). 

(H) The Board shall—

(i) establish a detailed table illustrating the approximate number of months that it would take to repay an outstanding balance if a consumer pays only the required minimum monthly payments and if no other advances are 

made, which table shall clearly present standardized information to be used to disclose the information required to be 

disclosed under subparagraph (A), (B), or (C), as applicable; 

(ii) establish the table required under clause (i) by assuming—

(I) a significant number of different annual percentage rates; 

447

(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). 

(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; 

448

(ii) if the annual percentage rate of interest that 

will apply after the end of the temporary rate period 

will be a fixed rate, state in a clear and conspicuous 

manner in a prominent location closely proximate to 

the first listing of the temporary annual percentage 

rate (other than a listing of the temporary annual percentage rate in the tabular format described in section 

122(c)), the time period in which the introductory period will end and the annual percentage rate that will 

apply after the end of the introductory period; and 

(iii) if the annual percentage rate that will apply 

after the end of the temporary rate period will vary in 

accordance with an index, state in a clear and conspicuous manner in a prominent location closely proximate to the first listing of the temporary annual percentage rate (other than a listing in the tabular format 

prescribed by section 122(c)), the time period in which 

the introductory period will end and the rate that will 

apply after that, based on an annual percentage rate 

that was in effect within 60 days before the date of 

mailing the application or solicitation. 

(B) EXCEPTION.—Clauses (ii) and (iii) of subparagraph 

(A) do not apply with respect to any listing of a temporary 

annual percentage rate on an envelope or other enclosure in 

which an application or solicitation to open a credit card 

account is mailed. 

(C) CONDITIONS FOR INTRODUCTORY RATES.—An application or solicitation to open a credit card account for 

which a disclosure is required under paragraph (1), and 

that offers a temporary annual percentage rate of interest 

shall, if that rate of interest is revocable under any circumstance or upon any event, clearly and conspicuously 

disclose, in a prominent manner on or with such application or solicitation—

(i) a general description of the circumstances that 

may result in the revocation of the temporary annual 

percentage rate; and 

(ii) if the annual percentage rate that will apply 

upon the revocation of the temporary annual percentage rate—

(I) will be a fixed rate, the annual percentage 

rate that will apply upon the revocation of the temporary annual percentage rate; or 

(II) will vary in accordance with an index, the 

rate that will apply after the temporary rate, based 

on an annual percentage rate that was in effect 

within 60 days before the date of mailing the application or solicitation. 

(D) DEFINITIONS.—In this paragraph—

(i) the terms ‘‘temporary annual percentage rate of 

interest’’ and ‘‘temporary annual percentage rate’’ mean 

any rate of interest applicable to a credit card account 

for an introductory period of less than 1 year, if that 

rate is less than an annual percentage rate that was in 

449

effect within 60 days before the date of mailing the application or solicitation; and 

(ii) the term ‘‘introductory period’’ means the maximum time period for which the temporary annual percentage rate may be applicable. 

(E) RELATION TO OTHER DISCLOSURE REQUIREMENTS.—

Nothing in this paragraph may be construed to supersede 

subsection (a) of section 122, or any disclosure required by 

paragraph (1) or any other provision of this subsection. 

(7) INTERNET-BASED SOLICITATIONS.—

(A) IN GENERAL.—In any solicitation to open a credit 

card account for any person under an open end consumer 

credit plan using the Internet or other interactive computer 

service, the person making the solicitation shall clearly and 

conspicuously disclose—

(i) the information described in subparagraphs (A) 

and (B) of paragraph (1); and 

(ii) the information described in paragraph (6). 

(B) FORM OF DISCLOSURE.—The disclosures required by 

subparagraph (A) shall be—

(i) readily accessible to consumers in close proximity to the solicitation to open a credit card account; 

and 

(ii) updated regularly to reflect the current policies, 

terms, and fee amounts applicable to the credit card 

account. 

(C) DEFINITIONS.—For purposes of this paragraph—

(i) the term ‘‘Internet’’ means the international 

computer network of both Federal and non-Federal 

interoperable packet switched data networks; and 

(ii) the term ‘‘interactive computer service’’ means 

any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server, including specifically 

a service or system that provides access to the Internet 

and such systems operated or services offered by libraries or educational institutions.

* * * * * * *

(h) PROHIBITION ON CERTAIN ACTIONS FOR FAILURE TO INCUR

FINANCE CHARGES.—A creditor of an account under an open end 

consumer credit plan may not terminate an account prior to its expiration date solely because the consumer has not incurred finance 

charges on the account. Nothing in this subsection shall prohibit a 

creditor from terminating an account for inactivity in 3 or more 

consecutive months.

SEC. 127A. DISCLOSURE REQUIREMENTS FOR OPEN END CONSUMER 

CREDIT PLANS SECURED BY THE CONSUMER’S PRINCIPAL DWELLING. 

(a) APPLICATION DISCLOSURES.—In the case of any open end 

consumer credit plan which provides for any extension of credit 

which is secured by the consumer’s principal dwelling, the creditor 

shall make the following disclosures in accordance with subsection 

(b): 

450

(1) * * *

* * * * * * *

(13) STATEMENT REGARDING øCONSULTATION OF TAX ADVISOR.—A statement that the¿ TAX DEDUCTIBILITY.—A statement 

that—

(A) the consumer should consult a tax advisor regarding the deductibility of interest and charges under the 

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 

(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, 

451

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 

(B) the consumer should consult a tax adviser for further information regarding the deductibility of interest and 

charges.

* * * * * * *

452

COMMITTEE JURISDICTION LETTERS


Lett1A.eps
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Lett1B.eps
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Lett2.eps
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MARKUP TRANSCRIPT

BUSINESS MEETING 

WEDNESDAY, MARCH 12, 2003

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. A 

working quorum is present. 

* * * * * * *

Now, pursuant to notice, I call up the bill H.R. 975, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2003 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. 

Chairman SENSENBRENNER. At this point the Chair is prepared 

to recess the Committee. The House is shortly to go into session. 

There will be a 15-minute vote and two 5-minute votes. We will 

then have opportunity to commence this markup following these 

three votes, and the next round of votes will be at 1:00 o’clock in 

the afternoon. So I would urge Members to return promptly after 

the last of these three votes, so that we can begin this markup and 

hopefully make some progress on it. 

The Committee stands recessed. 

[Recess.] 

Chairman SENSENBRENNER. The Committee will be in order. A 

working quorum is present. 

When the Committee recessed prior to the votes, pending was a 

motion that H.R. 975, the Bankruptcy Abuse Prevention and Consumer Protection Act, be favorably reported to the House. 

The chair now recognizes himself for 5 minutes for purposes of 

an opening statement. 

This bill has a very long history. It represents the culmination 

of more than 6 years of intense and incisive consideration by this 

Committee. Over the course of the last three Congresses, this legislation has benefitted immensely from an extensive hearing and 

amendatory process, as well as meaningful bipartisan, bicameral 

negotiations. Last week, the Subcommittee on Commercial and Administrative Law had the eighteenth hearing that this Committee 

and Subcommittee have collectively held on the subject over the 

last 6 years. 

During the 106th Congress alone, this Committee entertained 59 

amendments over the course of a 5-day markup, which included 29 

recorded votes. Of these amendments, 27 were agreed to. On the 

floor, 11 more amendments were considered. During the last Congress, this Committee considered an additional 18 amendments 

during the course of its markup. On the floor, the House passed 

five amendments to the bill. 

Thereafter, an extensive negotiation process ensued. Beginning 

on August 10th, 2001, through July 26th, 2002, House and Senate 

conferees engaged in negotiations for nearly a year that ultimately 

456

produced a bipartisan conference report on bankruptcy reform. I 

think it is fair to say that the conference report included many significant improvements, as well as the compromises that could generally be viewed as debtor friendly. 

A version of the conference report, which deleted two provisions, 

was substituted for the text of H.R. 333. That passed the House by 

a vote of 244 to 116 on November 15th, 2002. It is against this 

lengthy legislative backdrop that we begin today’s markup. 

First, I want to remind my colleagues that H.R. 975 is virtually 

identical to the bankruptcy reform legislation that the House 

passed less than 4 months ago. 

Second, while I acknowledge that this bill is not beyond further 

perfection, I am concerned that any further substantive amendments to the bill could upset the very delicate balance and various 

compromises that have been struck over the last 6 years, especially 

during the last Congress. 

Third, as evidenced by experience in the last Congress, I strongly 

encourage Members on both sides to strenuously oppose amendments that concern extraneous or controversial matters. 

Finally, we should be cognizant of the fact that the time for reforms will be effectuated by the enactment of H.R. 975 is long overdue. This bill is about personal responsibility and accountability. 

Every day that goes by without these reforms, more abuse and 

fraud goes undetected. Our economy should not suffer any longer 

from the billions of dollars in losses associated with proflights and 

abusive of 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 extend 

that relief to family fishermen. And we need to enact important administrative reforms, like direct appeals, streamlined reorganization procedures and additional bankruptcy judges that will address 

the burdens being endured by the current system and by those who 

must administer and use it. 

I ask all Members to support this legislation and yield now to the 

gentleman from New York, Mr. Nadler, for an opening statement. 

He is recognized for 5 minutes. 

Mr. NADLER. Thank you, Mr. Chairman. 

Mr. Chairman, we have, indeed, been considering this bill for 6 

years, and it’s gotten no better. It is still one of the most obnoxious 

bills that have come before this Committee since I’ve been on the 

Committee in the last 10 years. 

This bill, when stripped to its essentials, is simply a way—actually, it’s about 60 to 70 different ways of using the power of the 

Federal Government to reach into the pockets of low- and middleincome people, inextremists going into bankruptcy, and take money 

out of their pockets, additional money out of their pockets, and give 

it to the big banks and the credit card companies. That’s the entire 

purpose and effect of this bill. 

There are a couple of minor things in here, some not so minor. 

There’s some good provisions in here, uncontroversial provisions, 

such as making Chapter 12 for the farmers permanent. No one disagrees with that. 

457

But when you consider that most people going into bankruptcy— I forget whether it is 70 or 90 percent of people going into bankruptcy—are going into bankruptcy for one of three reasons: They 

had a medical emergency, and they were underinsured or had no 

insurance; they were laid off from their jobs; or they had a divorce. 

Those are the three things that put most people who go into bankruptcy into bankruptcy, not because they are irresponsible. 

The slander that is behind this bill, the slander of the broad middle class of this country that the great increase in bankruptcy filings that we have seen in the last 20 years is because people simply see it as an easy way to get rid of their debt is simply not true. 

It is a slander. Slander is not true. 

Why do I say that? In 1983—before we had the big increase in 

bankruptcy filings that is the asserted justification for this bill— in 1983, the average debt-to-income ratio of the Chapter 7 filer was 

.74; that is, when the average Chapter 7 filer had debts equal to 

74 percent of his annual income. 

In 1998, the average debt-to-income ratio was 1.24; that is, the 

average Chapter 7 filer didn’t file for Chapter 7 until his debts 

equalled 124 percent of his annual income. So people were much 

more reluctant to file in recent years than in previous years. People 

are not jumping into bankruptcy, losing all their assets, except for 

those exempt property, because it’s a first resort, it’s lost the stigma, and therefore we have to do something. No, people are very reluctant to go into bankruptcy, but they’re forced into it. 

Why are they forced into? Because people have taken on too 

much debt, because the credit card companies have made debt too 

easy. Your dog can get a credit card. Certainly, my elementary 

school child was able to get a credit card or he got a solicitation 

for it when he was still in elementary school. He’s now in high 

school. That’s the real reason. 

And, in fact, if you want to chart the increase in bankruptcy filings from 1983 to 1998, it charts exactly what the increase and the 

average debt-to-income ratio in society as a whole. That’s the real 

problem. 

But does this bill deal with that? Do we penalize credit card companies who offer credit cards to people whom they know are already over their heads in debt, who are begging them to go into 

bankruptcy? No. All we do in this bill is sock it to people in desperate straits in many, many different ways. 

The Chairman mentioned, for instance, and while we’re at it, we 

really hit women trying to collect child support. The Chairman 

mentioned that we strengthen child support collection ability. 

That’s simply not true. What we do in this bill is we say that the 

woman who has her child support to collect would survive the 

bankruptcy judgment, survive the discharge in bankruptcy. It’s one 

of the few things that survive it. Now we’re going to add a lot of 

credit card debt that will survive in bankruptcy. So now, when she 

tries to collect on that child support, she’ll have to compete with 

Chemical Bank or Chase Manhattan Bank’s lawyer in trying to collect that debt. Who do you think is going to win? 

Now, we’re told, ah, but we made child support a—we gave it a 

priority for the first time, and that’s true, but the priorities don’t 

survive the bankruptcy. They’re irrelevant once the discharge occurred, and now she’s got to go compete with the Chase Bank’s 

458

lawyer. There is no priority then. She is in State civil court. The 

priorities are irrelevant to this collection. 

What we’ve done is make it much harder for her to collect because she’s now got to compete with the banks and the credit card 

companies because the credit card debt survived the bankruptcy, 

which they didn’t do before, and priorities are gone. So it’s upside 

down the way this bill is being represented. 

This bill is a testament to the power of large financial institutions in our political system. It is probably the greatest advertisement for the necessity of fundamental campaign finance reform. If 

Members of Congress didn’t have to raise money for their campaigns, I doubt this bill would be seriously considered because it 

is so one-sided, so impossible to enforce. Everybody who knows 

anything about the system of the judges, the trustees, the professors, the white-shoe law firms, they are all opposed to this bill because it is so bad a bill, and the fact that we’ve considered it for 

6 years has made it no better. 

I yield back, Mr. Chairman. 

Chairman SENSENBRENNER. The gentleman’s time has expired. 

Without objection, all Members’ opening statements will appear 

in the record at this point. 

Chairman SENSENBRENNER. At this point, I ask unanimous consent that the staff be directed to make the specific technical and 

conforming changes contained in the document entitled ‘‘Technical 

Revisions,’’ which has been cleared by both Democrats and Republicans. 

Chairman SENSENBRENNER. Without objection—— Mr. WATT. Reserving the right to—— Chairman SENSENBRENNER. The gentleman reserves the right to 

object. 

Mr. WATT. Could the Chairman just explain what it is, in general. 

Chairman SENSENBRENNER. Will the gentleman yield? 

Mr. WATT. Yes, sir. 

Chairman SENSENBRENNER. Notwithstanding the many technical 

and substantive enhancements made to the legislation over the 

course of its consideration in the 107th Congress, we have identified a number of other technical errors that require revisions. 

Let me assure the gentleman from North Carolina that they are 

purely technical, noncontroversial revisions, effectuated through 

my unanimous consent request, and will correct, for example, various grammatical, punctuation and spacing errors, inconsistent 

terms and erroneous terminologies and statutory cross-references 

and drafting errors. 

I can assure the gentleman that there is nothing substantive involved in this. The minority had a copy of the text 2 days ago, and 

they agree with this conclusion, and I would hope that we could 

make these revisions at the beginning. 

Mr. WATT. Thank you, Mr. Chairman. 

Continuing on my reservation, I would just say to the Members 

that, while I have not personally looked at these, I do understand 

that the minority has looked at them and that they are technical 

amendments, no substantive amendments and would encourage my 

colleagues not to exercise their right to object, and I withdraw any 

objection that I might——

459

Chairman SENSENBRENNER. Without objection, the unanimous 

consent request is agreed to. 

Chairman SENSENBRENNER. Are there amendments? 

Mr. WATT. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from North Carolina. 

Mr. WATT. I have an amendment at the desk. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

The CLERK. Amendment to H.R. 975 offered by Mr. Watt. On 

Page 155, strike lines 5 through——

Mr. WATT. Mr. Chairman, I ask unanimous that the amendment 

be considered as read. 

Chairman SENSENBRENNER. Without objection, so ordered. 

[The amendment follows:]

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. WATT. Thank you, Mr. Chairman. This bill upsets a number 

of balances that have developed in bankruptcy law over the years. 

One of the ones that I have particular concern about is addressed 

by this amendment, and it is the provision which basically makes 

it impossible for a tenant to continue to stay in an apartment once 

he or she declares bankruptcy, whether that tenant pays the rent, 

whether that tenant would like to try to correct whatever defaults 

there have been under the lease. The bill basically makes it impossible for a tenant to continue in an apartment. 

I think that this is counterproductive because if a person has no 

place to live, you are running the risk that the person is not going 

to be able to continue to hold a job, to continue to pay the payments into the bankruptcy court to even comply with these new 

standards that exist in this bill. 

So this provision would restore the automatic stay recognized in 

current law to allow the debtor breathing space to resolve his or 

her financial difficulties. Under current law, a debtor who wants to 

keep an apartment must keep current on the rent during bankruptcy, and must make steps, can make steps, should make steps, 

is required to make sense to cure past defaults as a condition for 

remaining in the apartment after filing the bankruptcy. 

The automatic stay provision is designed to allow the debtor time 

to resolve financial obligations without becoming uprooted. Studies 

have shown that debtors who are temporarily relieved of their 

debts during the pendency of a bankruptcy quickly catch up on the 

rental arrears because they don’t really have much alternative but 

to do that. 


A975A.eps
460

The bill would allow landlords to evict debtors, regardless of 

whether the debtor is meeting current obligations and regardless of 

whether a fresh start would enable the debtor to continue meeting 

rental obligations and cure any prebankruptcy defaults within a 

reasonable time. By doing so, the bill undermines the fresh-start 

rationale of the automatic stay and puts the only source of stability 

for many debtors, their apartments, at risk. 

This provision also affords landlords special status over other 

creditors and favors only residential landlords so the bill itself really is kind of selectively dealing with landlords. 

Also, this would, in a number of major cities like New York, 

where you have rent-controlled public housing tenancies, a person’s 

ability to stay in an apartment may be one of the most valuable 

assets in the bankruptcy proceeding. So I think we are, as in many 

other cases in this bill, overreacting and overcompensating, and I 

would encourage my colleagues to pass this amendment in this particular hearing. 

Mr. NADLER. Mr. Chairman? 

Mr. WATT. I yield back, Mr. Chairman. 

Chairman SENSENBRENNER. I recognize myself for 5 minutes in 

opposition to the amendment. 

This amendment strikes language that was a result of some 

lengthy negotiations during the Conference Committee and results 

in what is in the bill now, it results in an agreement that was negotiated between Senators Feingold and Sessions and signed off on 

by Senators Leahy and Biden. So it was a balancing of the equities. 

And what the gentleman from North Carolina is attempting to do 

is to push the pendulum more in favor of the debtor and against 

those who lease or rent properties to people who might file for 

bankruptcy. 

Not only can the people under the Watt amendment, which restores the existing law, have an opportunity to live rent free, which 

is definitely not in the benefit of the people who own and maintain 

the property, the lessor, but also severely restricts the ability of a 

landlord to kick somebody out who has filed for bankruptcy if they 

are endangering the property or are using the property with the illegal use of controlled substances on the property. For that reason, 

I would urge the——

Mr. WATT. Would the gentleman yield? 

Mr. NADLER. Mr. Chairman, would the gentleman yield for questions? 

Chairman SENSENBRENNER. I yield back the balance of my time. 

Mr. NADLER. Point of information. 

Chairman SENSENBRENNER. The gentleman can’t be recognized 

for a point of information under the rules. 

Mr. NADLER. What? 

Chairman SENSENBRENNER. Does the gentleman wish to support 

the amendment? 

Mr. NADLER. I don’t know. What I was going to ask is I don’t—— Chairman SENSENBRENNER. Does the gentleman wish to strike 

the last word? 

Mr. NADLER. No, I want some information, sir. I don’t want to 

use my time until I get the information. 

Chairman SENSENBRENNER. Well the question is on the amendment offered by the gentleman from North Carolina, Mr. Watt. 

461

Mr. NADLER. Mr. Chairman? 

Mr. WATT. Mr. Chairman? 

Chairman SENSENBRENNER. For what purpose does the gentleman from New York seek——

Mr. NADLER. I move to strike the last word. 

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. NADLER. I don’t want to speak for 5 minutes. I simply do not 

understand the current law and what the—I would ask the Chairman, sir, what change does this bill make in the current law? I 

don’t understand what we’re talking about here. That’s why I 

wanted a point of information. What’s the current law? What 

change does the bill make? 

Chairman SENSENBRENNER. If the gentleman will yield, it allows 

certain eviction procedures to go forward, irrespective of the automatic stay. 

Mr. NADLER. What eviction procedures? 

Chairman SENSENBRENNER. If the gentleman will yield further, 

the ones that are enumerated in the language that the gentleman 

from North Carolina seeks to strike. 

Mr. WATT. Will the gentleman yield? 

Mr. NADLER. Yes, I’ll yield. 

Mr. WATT. Let me just say, first, I appreciate the gentleman 

yielding. I think it’s fair to disagree with my amendment, but to 

misrepresent what it does I don’t think is fair, and I think the 

Chairman’s response to my amendment either reflects the fact that 

he has not read it or that he wants to intentionally mislead us. 

This amendment would continue the current provisions of the 

law that require a tenant, as condition for staying in an apartment, 

to maintain their rental payment. So this whole notion that somebody is going to be able to stay in an apartment without paying 

rent is just wrong. 

Mr. NADLER. Reclaiming my time. 

Let me ask Mr. Watt, who may give me a better answer than the 

Chairman did. 

Under current law, under current law, the automatic stay stays 

an eviction proceeding, as long, and only as long as the tenant is 

current on his rent or pays rent on an ongoing basis? 

Mr. WATT. Pays rent on——

Mr. NADLER. On an ongoing basis. 

Mr. WATT.—his ongoing rent and starts to make efforts, under 

the approval of the bankruptcy court, to pay their arrearage. 

Mr. NADLER. Thank you. And under the current law, if the tenant is endangering the apartment in some way, using controlled 

substances, setting fires, whatever, can the landlord evict him, despite the automatic stay? 

Mr. WATT. Yes. 

Mr. NADLER. He can, with the approval of the bankruptcy judge? 

Mr. WATT. With the approval of the bankruptcy judge. 

Mr. NADLER. And what is the effect of this amendment? 

Mr. WATT. The affect of the——

Mr. NADLER.—of the provision in the bill. 

Mr. WATT. The effect of the amendment is to maintain the current law. 

462

Mr. NADLER. No, no. What is the effect of the bill? What would 

the bill do as written? 

Mr. WATT. The bill would just evict the tenant. 

Mr. NADLER. So any tenant who keeps, who files for bankruptcy, 

but who keeps paying his rent would be evicted under this bill? 

Mr. WATT. Well, he wouldn’t be allowed to do that if the landlord 

didn’t want him to stay in the property. 

Mr. NADLER. I would ask the Chairman if he thinks that’s a correct characterization of the bill. 

Mr. Chairman? 

[No response.] 

Mr. NADLER. Mr. Chairman? 

[No response.] 

Mr. NADLER. On my time, I’m asking—I’ll yield. Is what the gentleman just said correct? 

[No response.] 

Mr. NADLER. Is anybody willing to answer that question on the 

other side? Any proponent of the bill, is Mr. Watt correct that what 

this bill does is say that any tenant, even if he pays his rent currently, is going to be evicted the moment he files for bankruptcy; 

is that correct or not? 

[No response.] 

Mr. NADLER. I think it’s a rather important question. Someone 

ought to answer it. 

[No response.] 

Mr. NADLER. Could I ask the Chairman if he’ll answer the question or ask staff to answer or somebody to answer the question? 

Mr. CANNON. If the gentleman will yield. 

Mr. NADLER. Yes, I will. 

Mr. CANNON. The statute has a specific set of criteria set out for 

what would happen in that circumstance. You should just look at 

the bill and answer that question for yourself. 

Mr. NADLER. I’ve looked at the bill, and it’s a lot of legal gobbledygook, which references other things which aren’t before me. 

Mr. WATT. Would the gentleman yield? 

Mr. NADLER. Yes, I will. 

Mr. WATT. The gentleman needs to accept what I’m saying to 

him. If the landlord wants to put the tenant out once the tenant 

declares bankruptcy, the fact that the tenant is there with the 

money in hand, willing to pay their current rent, and willing to 

work out an arrangement to correct the prior default, the tenant 

can still be put out if the landlord wants him——

Mr. NADLER. Well, let me, reclaiming my time. If that is correct, 

and if no one on the other side is willing to say that it’s incorrect, 

if that is correct, it’s the first time I’ve heard this about this bill, 

and I would dare say that a lot of people who voted for this bill 

in the past—not me, I’ve never voted for this bill—but a lot of people who have are not going to vote for it again. 

If what this bill really does is to say that any tenant who has 

some arrearages of rent, the moment he files for bankruptcy, even 

if he’s willing and able to pay current rent, and to pay some of the 

arrearages, can automatically be put out, then there is a real problem with this bill. 

Chairman SENSENBRENNER. The gentleman’s time has expired. 

463

The question is on the Watt amendment. Those in favor will say 

aye. 

Opposed, no. 

The noes appear to have it. The noes have it. 

Mr. WATT. Recorded vote, please. 

Chairman SENSENBRENNER. A recorded vote is requested. Those 

in favor of the Watt amendment will, as your names are called, answer aye; those opposed, no. The clerk will call the roll. 

The CLERK. Mr. Hyde? 

[No response.] 

The CLERK. Mr. Coble? 

[No response.] 

The CLERK. Mr. Smith? 

Mr. SMITH. No. 

The CLERK. Mr. Smith, no. Mr. Gallegly? 

[No response.] 

The CLERK. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

[No response.] 

The CLERK. Mr. Jenkins? 

[No response.] 

The CLERK. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

Mr. BACHUS. No. 

The CLERK. Mr. Bachus, no. Mr. Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. Mr. Green? 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. Mr. Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. Ms. Hart? 

Ms. HART. No. 

The CLERK. Ms. Hart, 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. Carter? 

Mr. CARTER. No. 

The CLERK. Mr. Carter, no. Mr. Feeney? 

[No response.] 

The CLERK. Mrs. Blackburn? 

Mrs. BLACKBURN. No. 

The CLERK. Mrs. Blackburn, no. Mr. Conyers? 

[No response.] 

The CLERK. Mr. Berman? 

[No response.] 

The CLERK. Mr. Boucher? 

[No response.] 

The CLERK. Mr. Nadler? 

464

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? 

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. Ms. Baldwin? 

[No response.] 

The CLERK. Mr. Weiner? 

[No response.] 

The CLERK. Mr. Schiff? 

[No response.] 

The CLERK. Ms. Sa ́nchez? 

[No response.] 

The CLERK. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

Are there additional Members in the chamber who wish to cast 

or change their votes? 

The gentleman from North Carolina, Mr. Coble? 

Mr. COBLE. I vote no. 

The CLERK. Mr. Coble, no. 

Chairman SENSENBRENNER. The gentleman from Tennessee, Mr. 

Jenkins? 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. 

Chairman SENSENBRENNER. The gentleman from Florida, Mr. 

Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their vote? 

[No response.] 

Chairman SENSENBRENNER. If not, the clerk will report. 

Mr. BACHUS. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from Alabama, Mr. 

Bachus? 

Mr. BACHUS. I move to strike the last word. 

Chairman SENSENBRENNER. The clerk has not reported yet. 

The clerk will report. 

Chairman SENSENBRENNER. Mr. Chairman, there are five ayes 

and fifteen nays. 

Chairman SENSENBRENNER. The amendment is not agreed to. 

Mr. BACHUS. Mr. Chairman? 

465

Chairman SENSENBRENNER. For what purpose does the gentleman from Alabama, Mr. Bachus, seek recognition? 

Mr. BACHUS. To strike the last word. 

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. BACHUS. I have an amendment I’d like to offer and ask—— Chairman SENSENBRENNER. Is the gentleman moving to strike 

the last word or offering an amendment? 

Mr. BACHUS. I’m offering an amendment. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

The CLERK. Amendment to H.R. 975 offered by Mr. Bachus. 

Strike Section 414. 

[The amendment follows:]

466 H.L.C.

AMENDMENT TO H.R. 975

OFFERED BY MR. BACHUS

Strike section 414.


A975B.AAB
467

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. BACHUS. Thank you. I think most of the Members of this 

panel, we’ve dealt with bankruptcy for the past several years, and 

we all know that there was a National Bankruptcy Review Commission set up, made up of judges, mostly at the appellate level, 

bankruptcy authorities, and this commission took literally hundreds of votes. Most of those votes were fairly evenly divided. One 

vote they took was unanimous or near unanimous—conservatives, 

liberals, everyone, and that was a vote not to water down the disinterested standard in the bankruptcy code. 

That is a standard that has existed since 1930. However, this, 

the present legislation before you contains Section 414, and what 

it does, briefly, is it strikes the disinterested standard. 

Let me read, I have a letter from Edith Jones, United States 

Court of Appeals, Fifth Circuit. She is a very conservative jurist. 

She writes this: ‘‘The National Bankruptcy Review Commission was asked to recommend a modification of the disinterested standard in order to accommodate the increased sophistication of professional firms of all 

types involved in Chapter 11 bankruptcy practice. Despite fervent 

lobbying by prominent bankruptcy professionals, the commission 

resisted making such a recommendation. We voted by a lopsided 

majority, as I recall, to retain the standard as it has existed since 

the 1930’s.’’ Each of you have a copy of that letter. This morning I received 

a copy of a letter from the dean of the University of Houston Law 

School, which basically it’s a two-page letter. I’m going to distribute 

it to the Members. But basically I want to read one thing that she, 

and she mentions the Enron case, and she basically says it’s inconceivable that in a post-Enron environment we would be moving to 

strike or water down the disinterested standard. It says, ‘‘Some 

proponents of Section 414 may argue that the elimination of investment bankers from the per se list is not harmful because 101 

would still retain language excluding from disinteresting those who 

‘have an interest materially adverse the estate.’ Although this provision may provide a similar result to the per se list, the per se list 

serves as an important purpose. It saves the bankruptcy court from 

having to make time-consuming factual findings regarding the disinterest of those categories which, by their very nature, are rift 

with conflicts of interest. Removing investment bankers from the 

per se exclusion list and creating a case-by-case factual determination by the bankruptcy court will increase the time, cost and attorney fees for every bankruptcy case without increasing the benefits 

to the estate as a whole.’’

So the one argument that has been advanced against my amendment is pretty much shot down by this letter. I reserve the balance 

of my time. 

Chairman SENSENBRENNER. Under the 5-minute rule, the gentleman can’t reserve his time. Does he yield it back? 

Ms. JACKSON LEE. Would the gentleman yield? 

Mr. BACHUS. I would yield. 

Ms. JACKSON LEE. I thank the gentleman for yielding. I think 

that the amendment that he is offering is an important one and 

that there is much in this bill I don’t like, but the amendment to 

468

protect the integrity of the bankruptcy process is enormously important. I believe that the language in Section 414 of the bankruptcy reform bill would remove investment bankers from the narrow list of persons and that the gentleman’s description of that is 

just about exactly right. 

If we, at a time when there are large corporate bankruptcies that 

raise many ethical issues to further impair the integrity and impartiality of the bankruptcy system, it would be a dreadful thing 

to do to markets, as well as to the court system itself. 

So I commend the gentleman for offering the amendment, and I 

look forward to voting for it, and I thank him for yielding and yield 

back to him. 

Mr. BACHUS. I thank you, and I would just reiterate that, Members, this is no time to soften or loosen current law as it applies 

to investment banks and what they are permitted to do. 

Weakening the current disinterested person standard would undermine public confidence and the core legislative intent of increasing corporate and financial accountability as set forth by the Sarbanes-Oxley Act. 

I ask that you vote for my amendment and restore and keep the 

integrity and accountability in the present bankruptcy—— Ms. JACKSON LEE. Would the gentleman yield? 

Chairman SENSENBRENNER. The gentleman’s time has expired. 

For what purpose does the gentleman from Utah seek recognition? 

Mr. CANNON. Thank you, Mr. Chairman. To strike the last word. 

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. CANNON. Thank you. 

I’d like to advise my colleagues that I intend to vote no on this 

amendment. This is not a very clear case, let me just say, but as 

Mr. Bachus has pointed out, this provision has been in the law 

since 1930. The provision in the current bill before us was much 

considered and I think is an appropriate change to the law. 

I might just point out that the law has many, there are many 

ways that you can deal with people who act badly, investment 

bankers, in particular, including criminal prosecutions. In this 

case, we have lots of corporations that have had difficulty and who 

are not evil, as Enron has sort of become synonymous with being. 

For instance, much, if not most, of our steel industry in America 

has gone through a reorganization process in bankruptcy, and the 

burden, largely because I think of policies that happened under the 

prior Administration, but the result of that has been that those 

companies which are pretty much innocent, they’ve had best practices, they’ve done well otherwise, have been forced into reorganization and ended up reeducating and paying the cost of a new investment banking counsel. That’s a burden that I don’t think we need 

to do on a per se basis. A person with an interest can still be challenged. 

So while we’re talking about a substantial change to a law that’s 

been in place for many years, this is a very thoughtful, the bill is 

very thoughtful on this point, and I would encourage people——

Chairman SENSENBRENNER. Will the gentleman yield? 

Mr. CANNON.—to vote against this amendment. 

Yes, I would yield to the Chairman. 

469

Chairman SENSENBRENNER. I appreciate the Chairman of the 

Subcommittee yielding. 

Let me also urge a no vote on this amendment. The reason that 

I think the language in Section 414 is good is that when a large 

corporation in particular goes bankrupt, there aren’t very many assets to pass around. The people who end up being the major sufferers of a large bankruptcy are the employees, particularly where 

401(k)s and other retirement plans have been heavily invested in 

that company’s stock. 

Now, the problem is, is that if we take Section 414 out, a large 

corporation, and Enron, as an example, is going to need to have investment banking advice in order to try to get itself on its feet and 

to try to preserve as much of the assets of the estate as possible. 

If there is an automatic disqualification of the incumbent investment banker, then an unnecessary part of that estate is going to 

have to be used hiring a new investment banker, having that investment banker get up to speed on what the issues are all the 

time while the meter is ticking and the fees are being generated 

for the new investment banker. 

Now, I think that the language in Section 414 prevents conflicts 

of interest from occurring, particularly 414(14)(c), which states that 

a disinterested person 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. 

That gives the court the authority to remove an investment 

banker that does have a conflict of interest, but if there is no conflict of interest, and the advice of the investment banker post-bankruptcy filing during a reorganization is in the interest of maintaining as much of the estate as possible. There should be no reason 

why there should be an automatic disqualification. That’s why I 

would hope that the amendment would be rejected, and I yield 

back to the gentleman from Utah. 

Mr. CANNON. Reclaiming my time. Let me just point out, in addition to what you said, the fact is these fees go up. The clock ticks 

on the fees, but it also ticks down against the assets that could be 

recovered by people who are familiar with the assets and who could 

move quickly if you have an investment banker who is not conflicted. So I would encourage a no vote. 

Mr. BACHUS. Would you yield? 

Mr. CANNON. I certainly would yield. 

Mr. BACHUS. Why would the National Bankruptcy Review Commission which was made up of appellate judges, many of which 

handle these cases, actually, said it would result in not only unjust 

enrichment or could, but it would also drive up the cost of fees and 

diminish the assets. I mean, the very professionals that deal with 

this on a daily basis, including the dean of the Houston Law School 

who says that actually her specialty——

Chairman SENSENBRENNER. The gentleman’s time has expired. 

Mr. COBLE. Mr. Chairman? 

Mr. WEINER. Mr. Chairman? 

Chairman SENSENBRENNER. For what purpose does the gentleman from New York seek recognition? 

Mr. WEINER. To strike the last word. 

470

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. WEINER. I actually had a similar question that the author of 

the amendment had, but in the inverse. It seems to me that the 

gentleman’s amendment takes out judicial discretion. You know, 

the present Section 414 seems to give a judge a bankruptcy judge, 

who’s most familiar with the case, the ability to decide whether 

someone is disinterested or not. So if you want to respect the views 

of judges as you quote that document, then I think the best way 

to do it is to leave Section 414 in, provide someone to make a judgment of who’s disinterested and who is not. 

I mean, it seems to me that one of the things that we have to 

be careful of doing here is think that we understand the complexities of every case. We won’t, and we never will. And I think that 

the way 414 is written is it gives a judge the ability to make that 

decision, to kind of look at the information and decide is an investment firm purely at the tangential element in the involvement with 

the company, and therefore they don’t fall under the category that 

would be disqualified or are they substantial? 

And also if you’re concerned about the grander question, I would 

agree with the Chairman’s assessment that the language is written 

to make sure that an obvious conflict is weeded out. But if the 

maker of the amendment is concerned about what judges’ opinions 

would be, rather than looking at some umbrella organization, why 

don’t we give an opportunity for a judge to look at the matters involved, decide whether it would be in the interest to disqualify the 

person, and I would be glad to yield for an answer to that question. 

Mr. BACHUS. Let me answer that question by just citing one 

member of the National Review Commission and what they said 

about that. 

They said, ‘‘Given the ongoing nature of the problem,’’ that is, of 

people having conflict of interest or people with an interest, a financial interest, in the bankruptcy proceeding advising the Court, 

they said, ‘‘I do not see how any professional group can advocate, 

consistent with the public interests, eliminating the statutory requirement of disinterestedness.’’

Now, they couldn’t see any reason, in fact, and they did——

Mr. WEINER. I’m going to reclaim my time and ask you——

Mr. BACHUS. And I can give you the two reasons they gave 

for——

Mr. WEINER. No, no, stand by. You misunderstood my question. 

My question is not what someone looking at the broad scope of the 

law might have to say about their perceived conflict, if you’re interested in the views of judges, there is one judge who I’m interested 

in more than any other, and that’s the one who is sitting up to 

their eyeballs in documents about a case who, by the way, can 

make a decision not just about investment bankers, but they can 

make it about an accountant, about any other money manager. 

The point is that that organization, I bet anyone who signed that 

letter would not like the presumption, going into a case that they 

were reviewing, that they didn’t have the judgment that would be 

necessary, and I think 414 is written to give them what we should 

be doing here, which is a general sense of what the guidelines 

should be, and then let them step in and review it. 

471

So if you have a judge who says, ‘‘Yeah, I don’t trust my own 

judgment on this case, and I want Congress to substitute it,’’ that 

letter I’d like to hear. 

Mr. BACHUS. Would you yield? 

Mr. WEINER. I’d be glad to. 

Mr. BACHUS. What the gentleman said was what about accountants? What about these other professionals? I mean what, not just 

investment bankers. Well, in fact, part of what the Review Commission said is that to grant to one group alone the investment 

bankers a status insulated from the strict disinterest requirement 

makes no sense. In fact—— Mr. WEINER. Where is that, sir? 

Mr. BACHUS. The accountants—— Mr. WEINER. Where is that, sir? 

Mr. BACHUS. The accountants can’t give advice, lawyers can’t 

give advice. It’s only the investment bankers who asked for this exemption. 

Mr. WEINER. I’m going to have to reclaim my time because it’s 

running out. 

Section 414 doesn’t read that way. The present Section 414 

would include everyone on the same playing field. That’s exactly 

the beauty of the way that the Chairman has written the bill. 

Mr. BACHUS. I can give you the reasons. I have passed out a letter telling you that this commission, made up of bankruptcy experts and appellate judges—— Mr. WEINER. I was asking, perhaps, if you had a way to clarify 

that inconsistency, but I’ll yield back the balance of my time. 

Mr. COBLE. Mr. Chairman? 

Chairman SENSENBRENNER. For what purpose does the gentleman from North Carolina seek recognition? 

Mr. COBLE. Move to strike the last word. 

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. COBLE. Mr. Chairman, I think compelling arguments can be 

submitted on each side of this issue, but I’m inclined to lean 

against it. You, and the Subcommittee Chairman, and the gentleman from New York have pretty well expressed sentiments that 

I share. 

Now, it is my belief, and I can’t prove this—Mr. Bachus, I may 

ask you to weigh in on this at the right time—it is my belief that 

many of these bankruptcies resulted more from the anxiety that 

plagues the stock market, rather than corrupt or misleading or deceptive advice submitted by financial advisers. I think you’re right, 

Mr. Chairman. I think the bill addresses an obvious conflict of interest, and I think the court that has jurisdiction can address that. 

I want to ask the gentleman from Alabama a question if he 

would be willing to respond to me. 

Mr. BACHUS. I would. 

Mr. COBLE. Mr. Bachus, do you know what percentage of the 

bankruptcies did result from the anxiety that plagues the stock 

market, as opposed to bad information submitted by respective financial advisers? You may not know that, and I may be wrong in 

my thinking. 

Mr. BACHUS. I do know this, that what our law has been since 

1930 is that a person that has a financial or monetary interest in 

472

the results cannot participate in the decision making on how to dispose of those assets or who gets them. 

The investment bankers have an inherent conflict of interest 

here because they make a ton of money off these offerings. They 

have a financial interest in the outcome of the disposition of these 

cases. 

Mr. COBLE. I thank you. I thank the gentleman. Let me reclaim 

my time. 

Mr. BACHUS. And we don’t let accountants do this, we don’t let 

lawyers do this, we don’t let third parties do this. 

Mr. COBLE. I understand that, but let me claim my time. 

Mr. BACHUS. We don’t let shareholders do this. Why would we 

let the investment bankers do this? 

Mr. COBLE. Let me reclaim my time before that red light illuminates into my eye. 

I still believe that the problem is not, for the most part, with investment bankers who have performed unethically or improperly or 

corruptly, and for that reason, I’ll lean against the amendment, 

and I thank the gentleman for his answer. 

Mr. BACHUS. Could I ask the gentleman one question? 

Mr. COBLE. I’ll yield. Yes, sir. 

Mr. BACHUS. What you basically say by this is that we’re going 

to exempt all of these other groups because there might be a conflict of interest because they have an interest or they could have 

an interest or it could—but we’re going to let the investment bankers participate. 

Mr. COBLE. Well, you and I——

Mr. BACHUS. Why would we do that? Why would we single them 

out and say, despite the fact that they have a conflict of interest, 

we’ll allow them to participate? 

Mr. COBLE. Let me reclaim and say to my good friend from Alabama, I think on this issue you and I are going to have to agree 

to disagree agreeably. 

With that, Mr. Chairman, I’ll yield back my time. 

Mr. NADLER. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from New York, Mr. 

Nadler. 

Mr. NADLER. Mr. Chairman, I’ve been——

Chairman SENSENBRENNER. For what purpose do you seek recognition? 

Mr. NADLER. To strike the last word. 

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. NADLER. Thank you, Mr. Chairman. 

I’ve been listening to this discussion, and I’ve been trying to figure out the equities here, and I think that some of the questions 

and answers given by the last few—some of the answers given 

were not on point to the question asked by the gentleman from—

my colleague from New York, perhaps because people didn’t understand it. 

The existing law allows the judge or mandates the judge to say 

whether someone has an interest, you know, to bar someone who 

has an interest materially adverse to the interest of the estate or 

of any class of creditors, that’s exactly as this amendment does. 

473

What the amendment does is remove a specific prohibition that 

says you cannot be the new—you cannot participate now if you 

were—that he is not, and was not an investment banker for any 

outstanding security of the debtor. 

And the gentleman asked why should there be this specific prohibition of the preexisting investment banker? Why not allow the 

judge to determine if there’s a conflict of interest, as the other section does. Why do you need to go beyond that? 

I think the answer is that, in order for the judge to determine 

whether there’s an adverse interest, he would have to review every 

prior note, the bond issue, determination and transaction made by 

the investment banker prior to the filing for bankruptcy. In fact, 

one of the jobs of the new investment banker in the bankruptcy 

proceeding, one of the things he has to do is precisely, the investment banker, not the judge, to review every transaction that the 

private investment banker went through in order to determine, 

number one, the valuation of different properties in the estate, different securities in the estate, and, number two, what obligations 

there are, and, number three, whether there was any impropriety. 

Obviously, you can’t review it yourself. So that’s why the law has 

required a specific—has had a specific provision for the investment 

bankers, not the same as the lawyers and the accountants, because 

they don’t have the same problem. Because in order to value everything in the estate, you have to review all of these transactions, 

and the guy who made all of these transactions, namely, the prior 

investment banker, is not the person to come in and review it to 

see if it was all done right and what the current valuations are. 

Mr. WEINER. Would the gentleman yield? 

Mr. NADLER. And they must—the attorneys and the accountants, 

by the way, must also be disinterested, and for the attorneys and 

the accountants, the judge determines whether they are disinterested, but because of the unique status of the job here, which 

is to say the new investment banker has to review everything the 

old investment banker did, you can’t review yourself, and that’s 

why the statute has a specific prohibition——

Mr. WEINER. Would the gentleman yield on that point? 

Mr. NADLER. Yes, I’ll yield. 

Mr. WEINER. Except that you’re description of the distinction is 

not correct. Frankly, an accountant would also have to go back and 

review their decisions that they’ve made over the last 20 years. 

Lawyers would have to go back and assess their decisions. That’s 

why the law gives the judge to decide who’s interested and who’s 

disinterested. 

And, frankly, this notion that they have to go back and review 

every transaction, well, what if they had one tangential or tertiary 

or fringe transaction 20 years ago, they are automatically disqualified. Whereas, an accountant who might have done some work for 

a CEO last week is not automatically disqualified. 

It’s simply, the distinction doesn’t exist. These are complex transactions, complex relationships. What’s the difference? 

Mr. NADLER. Reclaiming my time because you’re dealing with an 

outstanding security of the debtor, not for any transaction that 

happened 30 years ago. The language of the statute which this provision would get rid of is not, and was not, an investment banker 

for any outstanding security of the debtor. 

474

You have to evaluate and look at everything that went into the 

current status of the value of all outstanding securities, and for 

that you don’t want or the statute doesn’t want, for the very reasons of leaning over backwards to make sure you have clean hands, 

not just clean hands, but there is a disinterestedness that we 

should have learned from all of the problems we’ve had in the last 

few years. 

This statute, I think, on balance, and I’ve looked at it since yesterday really, has served us well for the last 65 years, and what 

is the pressing necessity to get rid of it? Especially now. What is 

the pressing necessity to get rid of it that not one single member 

of the Bankruptcy Commission, liberal, conservative, Republican, 

Democrats saw? Why do we have to now experiment by taking out 

this safeguard that has been there for 65 years and eliminate it? 

What do we gain by doing that? What is the pressing necessity for 

changing that? 

I’ll yield back. 

Chairman SENSENBRENNER. The time of the gentleman has experienced. 

The question is on the amendment offered by the gentleman from 

Alabama, Mr. Bachus. 

Those in favor will say aye. 

Opposed, no. 

The noes appear to have it. 

Mr. BACHUS. Mr. Chairman, I ask for a—— Chairman SENSENBRENNER. A rollcall will be ordered. Those in 

favor of the Bachus 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. 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. Jenkins? 

Mr. JENKINS. Aye. 

The CLERK. Mr. Jenkins, aye. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

Mr. BACHUS. Aye. 

The CLERK. Mr. Bachus, aye. Mr. Hostettler? 

Mr. HOSTETTLER. Aye. 

The CLERK. Mr. Hostettler, aye. Mr. Green? 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. Mr. Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. Ms. Hart? 

Ms. HART. No. 

The CLERK. Ms. Hart, no. Mr. Flake? 

475

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. Carter? 

Mr. CARTER. No. 

The CLERK. Mr. Carter, no. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mrs. Blackburn? 

Mrs. BLACKBURN. No. 

The CLERK. Mrs. Blackburn, 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? 

Ms. LOFGREN. Aye. 

The CLERK. Ms. Lofgren, aye. Ms. Jackson Lee? 

[No response.] 

The CLERK. 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. Ms. Baldwin? 

[No response.] 

The CLERK. Mr. Weiner? 

Mr. WEINER. No. 

The CLERK. Mr. Weiner, no. Mr. Schiff? 

[No response.] 

The CLERK. Ms. Sa ́nchez? 

[No response.] 

The CLERK. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Are there additional Members in the 

room who wish to cast or change their vote? 

The gentleman from Massachusetts, Mr. Meehan? 

Mr. MEEHAN. Aye. 

The CLERK. Mr. Meehan, aye. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their votes? 

476

[No response.] 

Chairman SENSENBRENNER. If not, the clerk will report. 

The gentleman from Indiana, Mr. Pence? 

Mr. PENCE. No. 

The CLERK. Mr. Pence, no. 

Chairman SENSENBRENNER. The gentlewoman from Texas, Ms. 

Jackson Lee? 

Ms. JACKSON LEE. Aye. 

The CLERK. Ms. Jackson Lee, aye. 

Chairman SENSENBRENNER. The gentleman from Florida, Mr. 

Wexler? 

Mr. WEXLER. Aye. 

The CLERK. Mr. Wexler, aye. 

Chairman SENSENBRENNER. The clerk will report. 

The CLERK. Mr. Chairman, there are 12 ayes and 17 nays. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. 

Are there further amendments? 

Mr. DELAHUNT. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from Massachusetts, 

Mr. Delahunt. 

Mr. DELAHUNT. I have an amendment at the desk. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

Mr. DELAHUNT. This is Delahunt 019. 

Chairman SENSENBRENNER. The clerk will report Delahunt 019. 

The CLERK. Amendment to H.R. 975 offered by Mr. Delahunt. 

Add at the end of Title II the following: Section 234, Administrative 

Expenses. Section 503 of Title 11—— Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read, and the gentleman from Massachusetts is recognized for 5 minutes. 

[The amendment follows:]

477 H.L.C.

AMENDMENT TO H.R. 975

OFFERED BY MR. DELAHUNT

Add at the end of title II the following:

1 SEC. 234. ADMINISTRATIVE EXPENSES.

2 Section 503 of title 11, United States Code, is

3 amended by adding at the end the following:

4 ‘‘(c)(1) Notwithstanding subsection (b), there shall

5 neither be allowed, nor paid—

6 ‘‘(A) a transfer made to, or an obligation in7 curred for the benefit of, an insider of the debtor for

8 the purpose of inducing such person to remain with

9 the debtor’s business, absent a finding by the court

10 based on evidence in the record that—

11 ‘‘(i) the transfer or obligation is essential

12 to retention of the person because the individual

13 has a bona fide job offer from another business

14 at the same or greater rate of compensation;

15 ‘‘(ii) the services provided by the person

16 are essential to the survival of the business; and

17 ‘‘(iii) either—

18 ‘‘(I) the amount of the transfer made

19 to, or obligation incurred for the benefit of,

20 the person is not greater than an amount

21 equal to 10 times the amount of the mean


A975C.AAB
478

2

H.L.C.

1 transfer or obligation of a similar kind

2 given to nonmanagement employees for

3 any purpose during the calendar year in

4 which the transfer is made or the obliga5 tion is incurred; or

6 ‘‘(II) if no such similar transfers were

7 made to, or obligations were incurred for

8 the benefit of, such nonmanagement em9 ployees during such calendar year, the

10 amount of the transfer or obligation is not

11 greater than an amount equal to 25 per12 cent of the amount of any similar transfer

13 or obligation made to or incurred for the

14 benefit of such insider for any purpose

15 during the calendar year before the year in

16 which such transfer is made or obligation

17 is incurred;

18 ‘‘(B) a severance payment to an insider of the

19 debtor, unless—

20 ‘‘(i) the payment is part of a program that

21 is generally applicable to all full-time employees;

22 and

23 ‘‘(ii) the amount of the payment is not

24 greater than 10 times the amount of the mean

25 severance pay given to nonmanagement employVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00482 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1

A975C.AAC
479

3

H.L.C.

1 ees during the calendar year in which the pay2 ment is made; or

3 ‘‘(C) other transfers or obligations that are out4 side the ordinary course of business and not justified

5 by the facts and circumstances of the case.

6 ‘‘(2) For purposes of paragraph (1)(C), transfers

7 made to, or obligations incurred for the benefit of, officers,

8 managers, or consultants hired after the date of the filing

9 of the petition shall be considered outside the ordinary

10 course of business.’’.


A975C.AAD
480

Mr. DELAHUNT. I thank the Chairman. 

Mr. Chairman, this markup has a certain surreal quality about 

it when we consider the economic strains and issues that are presently facing the American people, with unemployment rising, substantial numbers of people who can’t buy health insurance at reasonable rates, retirees whose pensions and life savings have been 

wiped out by corporate bankruptcies and what are we doing about 

it? We’re helping the credit card companies squeeze a few more 

pennies out of these same working folk, and at the same time we’re 

ignoring corporate abuses that have turned the bankruptcy code 

into a bonanza for a handful of unscrupulous executives. 

We talk about personal responsibility. We should also be talking 

about corporate responsibility. 

Some months ago, the Financial Times published an analysis of 

the profits amassed by the top officers and directors of the 25 largest companies to declare bankruptcy during the previous year and 

a half. According to that report, in just 3 years, they grossed about 

$3.3 billion dollars before their companies went bust, having wiped 

out hundreds of billions of dollars of shareholder value and nearly 

100,000 jobs. And so, as Global Crossing was losing $9.2 billion and elimi- nating over 5,000 jobs, its chairman grossed $512 million. While 

Enron lost $18.8 billion and eliminated 5,500 jobs, its CEO, Mr. 

Ken Lay, and the chairman of its Energy Services subsidiary by 

the name of Lou Pai, made gross profits of $247 million and $270 

million, respectively. 

The sources of these windfalls included such now-familiar devices 

as retention bonuses, severance payments, forgiven loans and dividends on holdings of company stock. 

In Massachusetts, my home State, Polaroid executives cancel 

their retirees health and life insurance coverage several days before the bankruptcy filing and terminated workers who were on 

long-term disability, all the while awarding themselves more than 

$5 million in various bonus and incentive payments, again, before 

filing for bankruptcy, and another $6 million in retention bonuses 

afterwards. 

Officers and directors received severance packages, while employee severance was terminated. Officers and directors were able 

to redeem their company stock while employees who were forced to 

put 8 percent of their salaries into the stock option plan were prohibited from withdrawing the funds and watched their holdings 

evaporate. 

No sooner was the sale of the company completed, than the new 

CEO terminated the retiree pension plan. What happens to people 

who lose their livelihood, their savings, and their health coverage? 

Well, a lot of them wind up unable to pay their debts and force 

them into bankruptcy. So, in fact, we have corporate bankruptcies 

causing personal bankruptcies. 

My amendment represents a modest attempt to redress the balance. It would place reasonable limits on exorbitant so-called retention bonuses, severance packages and other payments to corporate 

insiders of companies that are bankrupt or facing bankruptcy. 

The amendment does not prohibit such payment to the extent 

that they are truly necessary to keep key employees in place, but 

it permits such payments only when the court finds first the emVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00484 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
481

ployee has a bona fide job offer from other businesses at the same 

or at a greater rate of compensation; secondly, the services provided by the person are essential to the survival of the business; 

and, third, the amount of the payment is not excessive, when measured against the amounts paid to nonmanagement employees in 

the ordinary course of business. 

The amendment would empower the court to return excessive 

payments to the bankrupt company so that these funds can be 

available to help the company reorganize or, in the alternative, can 

be distributed to employees, retirees, and other creditors. 

The amendment would restore some sense of fairness to this unbalanced bill, and I urge my colleagues to support it. 

I yield back. 

Chairman SENSENBRENNER. The gentleman from Utah, Mr. Cannon? 

Mr. CANNON. Thank you, Mr. Chairman. 

Chairman SENSENBRENNER. You’re recognized for 5 minutes. 

Mr. CANNON. Thank you. I’m over here struggling with this. This 

is a fairly new amendment that we haven’t dealt with very much. 

Let me just make a couple of points, if I might. I intend to oppose 

this amendment and would encourage people to vote against it. Although while saying that, I think we all agree here that we’ve had 

really gross abuses of the system, especially in recent times, and 

Mr. Delahunt has spoken eloquently about those problems. 

This is an issue that we ought to do something about, that we 

need to be considering working on, and yet the amendment may be 

controversial, and probably includes some elements that have some 

unintended consequences. We haven’t had a chance to do a hearing 

on this issue, and so I would encourage people to vote against it. 

I might suggest that a hearing in the future to consider this is 

something that we may want to do. 

Let me just point out, just in a brief review of the amendment, 

we’re dealing with some fairly arbitrary amounts. You’ve got in 

Section (a)(2), on Page 2, line 11, we’re dealing with an amount 

equal to 25 percent of any similar transfer...made to or incurred for 

the benefit of the insider. 

That seems to me to be arbitrary. I’m not sure if it’s wrong or 

bad, it’s just that it’s something we haven’t dealt with up until this 

point. And so given the enormity of this, I mean, what do you do 

to keep your employees loyal when the company is going to go 

through rough times? Your best employees are going to have options and alternatives. 

I know Mr. Delahunt has tried to deal with that particular issue 

by showing that there is an outside offer, but often people need to 

get on and move away from a company and get on with their lives 

if the company is having problems. 

So I would encourage the Members of the Committee to vote 

against this amendment. I would encourage Mr. Delahunt to continue working on it, and I pledge, as Chairman of the Subcommittee, to work with him on this problem, so we can have a 

hearing and flush out these ideas a little more, but I think it’s inappropriate for this bill, which has been so carefully and so delicately balanced with so many interests, I believe this raises too 

many specters that are difficult. 

Thank you, Mr. Chairman. 

482

Chairman SENSENBRENNER. The question is on the Delahunt 

amendment. 

Those in favor will say aye. 

Opposed, no. 

The noes appear to have it. rollcall is ordered. Those in favor of 

Delahunt No. 019 will, as your names are called, answer aye; those 

opposed, no. 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? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, 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. Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. Mr. Green? 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. Mr. Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. Ms. Hart? 

Ms. HART. No. 

The CLERK. Ms. Hart, no. Mr. Flake? 

Mr. FLAKE. No. 

The CLERK. Mr. Flake, no. 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. Carter? 

Mr. CARTER. No. 

The CLERK. Mr. Carter, no. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mrs. Blackburn? 

Mrs. BLACKBURN. No. 

The CLERK. Mrs. Blackburn, 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. 

483

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? 

[No response.] 

The CLERK. Ms. Waters? 

[No response.] 

The CLERK. Mr. Meehan? 

[No response.] 

The CLERK. Mr. Delahunt? 

Mr. DELAHUNT. Aye. 

The CLERK. Mr. Delahunt, aye. Mr. Wexler? 

[No response.] 

The CLERK. Ms. Baldwin? 

[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. 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 Massachusetts, Mr. Meehan? 

Mr. MEEHAN. Aye, Mr. Chairman. 

The CLERK. Mr. Meehan, aye. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their vote? 

[No response.] 

Chairman SENSENBRENNER. If not, the clerk will report. 

The CLERK. Mr. Chairman, there are 7 ayes and 18 noes. 

Chairman SENSENBRENNER. The amendment is not agreed to. 

For what purpose does the gentleman from Massachusetts, Mr. 

Delahunt, seek recognition? 

Mr. DELAHUNT. I have an amendment at the desk, Mr. Chairman. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

The CLERK. Mr. Chairman, I have two Delahunt. 

Mr. DELAHUNT. I’m sorry. This is .017. 

Chairman SENSENBRENNER. The clerk will report Delahunt .017. 

The CLERK. Amendment to H.R. 975 offered by Mr. Delahunt. 

Add at the end of Title II the following: Section 234 Priorities. 

Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read, and the gentleman from Massachusetts is recognized for 5 minutes. 

[The amendment follows:]

484 H.L.C.

AMENDMENT TO H.R. 975

OFFERED BY MR. DELAHUNT

Add at the end of title II the following:

1 SEC. 234. PRIORITIES

2 Section 507(a) of title 11, United States Code, is

3 amended—

4 (1) in paragraph (3), by striking ‘‘$4,000’’ and

5 inserting ‘‘$13,500’’;

6 (2) in paragraph (3), striking ‘‘90 days’’ and

7 inserting ‘‘180 days’’;

8 (3) in paragraph (4)(A), striking ‘‘180 days’’

9 and inserting ‘‘360 days’’; and

10 (4) in paragraph (4)(B)(i), by striking

11 ‘‘$4,000’’ and inserting ‘‘$13,500’’.


A975D.AAB
485

Mr. DELAHUNT. I thank the chair. 

Like my previous amendment, this is an attempt to restore some 

measure of fairness and balance to the equation by increasing the 

chances that employees and retirees whose companies fall into 

bankruptcy are able to receive some portion of what they are owed. 

Currently, Section 507(a) of the bankruptcy code gives employees 

a priority unsecured claim for up to $4,000 for unpaid wages, salaries and commissions earned during a 90-day period preceding the 

bankruptcy filing. 

The section also gives employees a priority unsecured claim for 

up to $4,000 for unpaid contributions to an employee benefit plan 

during a 180-day period preceding the filing. The amendment 

would raise the wage and benefit cap to $13,500 and would lengthen the look-back period from 90 to 180 days in the case of unpaid 

wages, and from 130 to 360 days for plan contributions. 

This dollar increase corresponds to the amount negotiated for unpaid employee claims in the Enron settlement, and the longer lookback makes it possible for people who earn less to accrue more of 

their unpaid wages and benefits, up to the amount of the cap. 

The amendment recognizes the special obligations that an enterprise owes to the working people who have labored to build it, and 

to make it viable and to sustain it, and it acknowledges the high 

degree to which workers are reliant upon the good faith and promises of their employer to keep its commitments in return. 

This is a fair and reasonable change, I would submit, Mr. Chairman, and I hope my colleagues support it. 

I yield back. 

Chairman SENSENBRENNER. The gentleman from Utah, Mr. Cannon? 

Mr. CANNON. Thank you, Mr. Chairman. 

In looking this bill over, many of the issues that Mr. Delahunt 

has raised are important and they really go to fairness and equity. 

This is, in part, similar to legislation that was introduced by Mr. 

Gekas in the last Congress. That was H.R. 5525, and I would 

pledge to the gentleman, if he would like to do so, that we will 

work on this and see if we can’t take the best thinking from both 

sides and do something with this bill between now and the time 

that it comes to the floor. 

Mr. DELAHUNT. I appreciate the offer, and the offer is accepted, 

and I look forward to working with Mr. Cannon. 

Mr. CANNON. Thank you. 

Chairman SENSENBRENNER. Is the amendment withdrawn? 

Mr. DELAHUNT. And the amendment is withdrawn. 

Are there further amendments? 

The gentleman from Massachusetts, Mr. Delahunt? 

Mr. DELAHUNT. Yes, Mr. Chairman, if the chair will indulge me, 

I have one final amendment. 

Chairman SENSENBRENNER. The clerk will report the last 

Delahunt amendment. 

Mr. DELAHUNT. And this is Delahunt .013. 

The CLERK. Amendment to H.R. 975 offered by Mr. Delahunt. 

Page 187, line 20 strike ‘‘was’’ and all that follows through ‘‘which’’

in line 22. 

Page 188——

486

Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read, and the gentleman from Massachusetts is recognized for 5 minutes. 

[The amendment follows:]

487 H.L.C.

AMENDMENT TO H.R. 975

OFFERED BY MR. DELAHUNT

Page 187, line 20, strike ‘‘was’’ and all that follows

through ‘‘which’’ in line 22.

Page 188, strike line 12 and all that follows through

line 18.


A975E.AAB
488

Chairman SENSENBRENNER. Thank you, Mr. Chairman. 

This amendment would help eliminate the biggest loophole in the 

bankruptcy code and implement a key recommendation of the National Bankruptcy Review Commission by placing a meaningful national cap on the homestead exemption. I say meaningful, Mr. 

Chairman, because the $125,000 cap that is currently in the bill is 

qualified by a series of exemptions that assure that those who engage in flagrant abuse of the bankruptcy system by sheltering 

homestead assets can continue to do so. 

My amendment leaves the cap at $125,000, but eliminates the 

exemptions for transactions conducted more than 1,215 days, 

roughly, 3 years, preceding the bankruptcy filing and for interest 

transferred from a debtor’s previous principal residence acquired 

within the same State prior to that time. 

The rationale we have been given for the so-called needs based 

reforms proposed in 975 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 obsesses about whether small debtors can manage to 

pay $20 a month in Chapter 13, it continues to permit, indeed, endorses, the most notorious abuse of the consumer bankruptcy system of all of the financial planning strategy, whereby debtors purchase expensive homes in States with unlimited homestead exemptions, declare bankruptcy, and continue to enjoy a life of luxury 

while their creditors get little or nothing. 

If we are truly serious about curtailing abuses, it seems to me 

that this is the place to start, with the owner of the failed Ohio 

S&L who paid off only a fraction of $300 million in bankruptcy 

claims, while keeping his multi-million-dollar ranch in Florida; or 

the convicted Wall Street financier who filed bankruptcy while 

owing some $50 million in debt and fines, but he still kept his $5-

million Florida mansion, complete with 11 bedrooms and 21 baths; 

or the 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 100-foot swimming pool; 

or that 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. 

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. 

The sponsors of this bill will claim that they have closed the 

loophole, first, by applying the cap to property purchased within 

the 1,215-day period prior to the filling; second, by requiring the 

individual to wait for 730 days after moving from another State before claiming the new State’s exemption; and, third, by disallowing 

the claim on any portion of the homestead acquired, quoting the 

statutory language, ‘‘with the intent to hinder, delay or defraud a 

creditor.’’

While these features may eliminate a few of the abuses, they do 

not solve the problem. Wealthy debtors who are sophisticated 

enough to plan ahead can purchase a homestead and shelter their 

nonexempt assets and simply wait before filing their petition. 

489

And the bill expressly permits them to transfer their assets from 

a previous principal residence into a new one at any time prior to 

their bankruptcy filing without being subject to the cap, provided 

that the former residence is located in the same State. 

Well, what message does this send when Congress subjects middle class debtors to a means test, while permitting the wealthy to 

continue to place their millions out of reach of their creditors. With 

all due respect, a bill that does that isn’t a Bankruptcy Abuse Prevention Act at all. If we’re serious about curbing abuse, this 

amendment is the only way to do it, and I urge support, and I yield 

back. 

Chairman SENSENBRENNER. For what purpose does the gentleman from Utah seek recognition? 

Mr. CANNON. Mr. Chairman, it’s my understanding that the gentleman from Texas, Mr. Smith, would like to address this bill. 

Chairman SENSENBRENNER. The gentleman from Texas? 

Mr. SMITH. Mr. Chairman, I oppose the amendment. 

Chairman SENSENBRENNER. The gentleman is recognized. 

Mr. SMITH. Mr. Chairman, this amendment should be opposed 

for several reasons. The amendment substantially changes the substance of the bill. In the last Congress, the Conference Committee 

carefully negotiated these provisions over the course of many 

months. The Senate Democrats, in fact, agreed to the provisions. 

If we change the provisions now, we jeopardize the chances that 

this bill will be enacted into law. 

Also, a flat cap is an attempt to bypass State Constitutions. For 

over a century, our Nation’s bankruptcy laws have allowed States 

to determine how much of the homestead should be protected from 

creditors in the event of bankruptcy. 

Congress gave this authority because States are in a better position to determine an appropriate exemption based on the needs of 

each, individual State. Factors like property values, real estate inflation and demographics vary widely. In States like Texas and 

Florida, the exemption is unlimited and is written into the State 

Constitution. 

In California, Massachusetts, and Arizona, the exemption is 

based on the debtor’s age, health or income. Minnesota looks at 

whether the homestead is used for agricultural purposes. At any 

point here, different States have different standards. 

If a flat cap is imposed, the authority for States to set their own 

limits will be overridden. The provisions in this bill already close 

a loophole in current law that allows individuals to relocate to a 

State on the eve of bankruptcy solely to obtain bankruptcy relief 

in a venue with a more generous exemption. 

Infringing on a State’s rights is only part of the problem with the 

policy behind flat caps. Under a permanent cap, senior citizens are 

at particular risk. Currently, 81 percent of those 65 and older own 

their own homes. Should a senior suffer a catastrophic illness or 

a financial calamity and be forced to seek bankruptcy relief, they 

would be forced to sell their home if its equity exceeded the amount 

of the one-size-fits-all cap. 

Since most seniors have limited or no capacity to earn additional 

income, this would mean the end of home ownership for them. 

This bill addresses debtors who abuse the homestead provision. 

It provides that a debtor must be domiciled in a State for at least 

490

2 years before he or she can claim the State’s homestead exemption. The bill further requires the debtor to own the homestead for 

at least 40 months before he or she can use State-exemption law. 

If a debtor has committed an intentional tort or criminal act or violated securities laws, their homestead exemption will be capped at 

125,000. 

These provisions will close the loophole that currently allows 

debtors to abuse the homestead provision. The overwhelming majority of people who declare bankruptcy do so because they have no 

other choice. Bankruptcy law is intended to give debtors a fresh 

start, not to punish them. Less than 1 percent of bankruptcy debtors abuse the process. We should not send a message to the American people that all debtors are wrongdoers and deserve to lose 

their homes. If we want really to address fraudulent debtors, an inflexible, across-the-board permanent cap is not the way to do it. 

The solution is to support the provisions as they are in the underlying bill and ensure that this bill is enacted. I urge my colleagues to oppose the amendment—— Ms. LOFGREN. Would the gentleman yield? 

Mr. CANNON. Would the gentleman yield, Mr. Smith? 

Mr. SMITH. I’ll yield back the balance of my time because I’m almost at the end and would appreciate their getting their own time. 

Thanks. 

Chairman SENSENBRENNER. For what purpose does the gentlewoman from California seek recognition? 

Ms. LOFGREN. To strike the last word. 

Chairman SENSENBRENNER. The gentlewoman is recognized for 5 

minutes. 

Ms. LOFGREN. I don’t think I’ll use the entire 5 minutes. 

I think Mr. Delahunt has done a splendid job of pointing out 

some of the abuses that have occurred, and I share his sense that 

there is something wrong about stiffing the creditors, while residing in your mansion. 

Now, I understand Mr. Smith’s comments that there are differences, in terms of housing prices, and taxes, and the like. Certainly, the San Francisco Bay area has one of the highest housing 

costs in the world. As a matter of fact, you can’t get anything for 

$125,000. You can’t get a mobile home for $125,000 in San Jose. 

But I would suggest, and I would actually ask Mr. Smith if he 

would agree, that if we were to change the $125,000-limit to a million dollars, let’s just put it at million dollars, and preempt. Surely, 

in every part of the country, a million-dollar house ought to do the 

trick without disturbing the kind of differences that you have outlined. Would the gentleman consider that? 

Mr. SMITH. Well, the reason I don’t think we ought to consider 

it is twofold. 

First of all, it still—my objections would remain the same. First 

of all, it does substantially change the bill. We have a bipartisan 

bill agreed to with the Senate last time. I sat through months of 

Conference Committee meetings, and if we come in with a change 

of this magnitude, I don’t think it’s going to be an easy haul to get 

the bankruptcy bill passed. So I think any substantive change like 

that would upset the cart. 

Furthermore, as we all know, the cap is somewhat arbitrary, and 

I oppose caps in general, whether it’s a million dollars or $125,000, 

491

and I’m not really happy with the compromise that we ironed out 

in the Conference Committee last year because it doesn’t allow 

States like Texas or Florida or Massachusetts or others to determine for themselves what’s best for their own residents. 

So, for those reasons, I’m afraid I’d have to pass on the gentlewoman’s offer. 

Ms. LOFGREN. I would yield to Mr. Delahunt. 

Mr. DELAHUNT. I’m certainly glad to hear that the gentleman 

from Texas is disturbed by caps. I hope that tomorrow or whenever 

the malpractice bill comes to the floor of the House, he’ll agree with 

any amendment that would remove the cap on pain and suffering 

from $250,000. 

But let me respond to the gentlelady’s suggestion of a million. I’d 

be happy to raise the cap because I know how expensive it is out 

in San Francisco there. It’s very, very expensive, and I’d be more 

than willing to raise the cap in the amendment to $5 million. 

Ms. LOFGREN. Well, can we ask unanimous consent to make that 

change in the gentleman’s amendment? 

Mr. DELAHUNT. Absolutely. 

Chairman SENSENBRENNER. Looking at the amendment that the 

gentleman from Massachusetts has introduced, there is no number 

in the amendment, so the chair does not know what the UC request would relate to. 

The time belongs to the gentlewoman from California. 

Ms. LOFGREN. I would yield to Mr. Delahunt. 

Mr. DELAHUNT. Well, if I could, on Page 187, line 22 of the base bill, strike $125,000 and insert $10 million. 

And on Page 188, line 23, strike $125,000 and insert $10 million. 

Chairman SENSENBRENNER. Is this a unanimous consent request? 

Mr. DELAHUNT. It is. 

Ms. LOFGREN. It is. 

Chairman SENSENBRENNER. Is there objection? 

Mr. CANNON. Mr. Chairman, I object to that. 

Chairman SENSENBRENNER. Objection is heard. 

Chairman SENSENBRENNER. The question is on Delahunt Amendment .013. 

Those in favor will say aye. 

Opposed, no. 

The noes appear to have it. The noes have it. 

Mr. DELAHUNT. Recorded vote, Mr. Chairman. 

Chairman SENSENBRENNER. Recorded vote is demanded. 

Those in favor of Delahunt Amendment .013 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? 

[No response.] 

492

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, 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. Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. Mr. Green? 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. Mr. Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. Ms. Hart? 

Ms. HART. No. 

The CLERK. Ms. Hart, no. Mr. Flake? 

Mr. FLAKE. No. 

The CLERK. Mr. Flake, no. 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. Carter? 

Mr. CARTER. No. 

The CLERK. Mr. Carter, no. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mrs. Blackburn? 

Mrs. BLACKBURN. No. 

The CLERK. Mrs. Blackburn, no. Mr. Conyers? 

[No response.] 

The CLERK. Mr. Berman? 

[No response.] 

The CLERK. 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? 

[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. Ms. Baldwin? 

493

[No response.] 

Ms. JACKSON LEE. How am I recorded? 

The CLERK. Mr. Chairman, Ms. Jackson Lee is not recorded. 

The CLERK. The clerk will continue calling the roll. 

The CLERK. Ms. Baldwin? 

[No response.] 

The CLERK. Mr. Weiner? 

[No response.] 

The CLERK. Mr. Schiff? 

Mr. SCHIFF. Aye. 

The CLERK. Mr. Schiff, aye. Ms. Sa ́nchez? 

[No response.] 

The CLERK. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Are there Members in the room who 

wish to cast or change their votes? 

The gentlewoman from California, Ms. Waters? 

Ms. WATERS. Aye. 

The CLERK. Ms. Waters, aye. 

Chairman SENSENBRENNER. The gentlewoman from Texas, Ms. 

Jackson Lee? 

Ms. JACKSON LEE. No. 

The CLERK. Ms. Jackson Lee, no. 

Chairman SENSENBRENNER. Are there further Members who 

wish to cast or change their vote? 

[No response.] 

Chairman SENSENBRENNER. If not, the clerk will report. 

The CLERK. Mr. Chairman, there are 17 ayes and 19 noes. 

Chairman SENSENBRENNER. And the amendment; is that correct? 

There are a lot of Members that are absent. 

The CLERK. I’m sorry, 7 ayes and 19 nays. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. 

Are there further amendments? 

Mr. NADLER. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from New York, Mr. 

Nadler. 

Mr. NADLER. Mr. Chairman, I have an amendment at the desk, 

No. A–1. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

While the clerk is looking for the amendment, the chair will announce that it is the chair’s intention to continue this markup until 

the next series of votes, which I am now informed will be approximately 2 o’clock in the afternoon.l 

After the next series of votes, and the official photograph of the 

House in session, Mr. Conyers and I are to testify before the House 

Administration Committee on the money needed to run this Committee for the next 2 years, and the chair will announce when the 

markup will resume, if necessary, after that period of time, which 

would be in the 3:30 to 4 o’clock area. 

The Rules Committee is scheduled to meet at 5 o’clock in order 

to consider a rule for H.R. 5, which is the medical liability bill. The 

chair wishes to conclude the markup on this legislation today and 

494

will keep the Committee marking up until such time as there is a 

vote on reporting the bill. 

The clerk will now report the Nadler amendment. 

The CLERK. Amendment to H.R. 975 offered by Mr. Nadler. On 

Page 8——

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:]


A975F1.eps
495

Mr. NADLER. Thank you, Mr. Chairman. 

Mr. Chairman, this amendment would remove the IRS standards 

from the means test and allow a court to use the debtor’s actual 

expenses, rather than those concocted by some IRS bureaucrat to 

determine how much a debtor would be able to repay creditors. The 

rest of the formula remains the same only the IRS is removed from 

the process to ensure that the process remains fair and reasonable. 

I drafted this amendment using the language offered by Chairman Hyde before the full House when this bill was considered in 

the 106th Congress. Members of this Committee will no doubt recall that a similar amendment was offered by the Chairman and 

was adopted by this Committee, only to be reconsidered and removed later in the same markup. 

The standard that would be put in place of the IRS standards by 

this amendment is the reasonable and necessary standard. The 

court would have to assess what the debtor’s actual expenses are 

and whether they are reasonably necessary for the maintenance 

and support of the debtor and the dependents of the debtor. This 

is not a standard that has been pulled out of thin air. It has been 

the law for decades and has been interpreted by the courts. The 

main merit is that it is reasonable, it’s real world, and it works. 

Anyone who thinks that by turning the lives of financially distressed Americans, and there are quite a few out there right now, 

over to the IRS that we will avoid litigation should take another 

look at this bill. It assumes your expenses. And if the IRS standards have nothing to do with your real family, then you must go 

to court and litigate special circumstances. Just to get the court to 


A975F2.eps
496

look at your real finances, you must hire a lawyer and bring a motion. 

How many genuinely bankrupt families are there out there who 

can do this, who can afford to hire a lawyer and bring a motion 

just to get their real expenses in front of the court? This is neither 

fair nor rational. Since when did Members of Congress become 

cheerleaders for the IRS? Chairman Hyde put it quite well, and I 

quote, he said, ‘‘I am as capitalist as anybody. I am as conservative 

as anybody, but it does not seem to me, when there is a bill that 

is truly tilted toward the creditors, that giving a little flexibility for 

living standards for people who are bankrupt is a violation of one’s 

credentials as a conservative.’’ You will be told that this is a closed issue; that because Congress 

has done it before, you should not take the trouble to consider the 

arguments. Well, I don’t think any of us came to Congress to put 

our reason in a blind trust, and I don’t think any Member of this 

Committee did that. Please read the bill. Do you think IRS bureaucrats should have the power to decide how much a family of four 

should live on? Do you believe IRS bureaucrats should have the 

power to amend the bankruptcy code without any public notice? 

Because that’s what you’ll be doing if you defeat this amendment. 

Did you vote for IRS reform because you thought the IRS was 

being too heavy-handed with taxpayers? If you did, you voted for 

a bill requiring the IRS to be more flexible in its application of 

these same collection standards when they negotiate with taxpayers who fail to pay their back taxes. Why are we now coming 

down so hard on families who are just down on their luck, when 

Members of this Congress were so willing to cut tax evaders more 

slack just a few year ago? Is this really what we want to vote for? 

As Mr. Hyde said in concluding his remarks on this topic on the 

floor of the House, and again I quote, ‘‘Give some flexibility. The 

current law is what ought to obtain. My colleagues are trying to 

change it by putting the IRS standards in it. It is the first time, 

and I dare say the last time, so much approbation will be showered 

on the IRS by this side of the aisle. I certainly do not join in that 

showering. For goodness sake, give some humanity in the establishment of living standards while paying out Chapter 13.’’

‘‘Lastly, let me pay my respects to the creditor lobby. They are 

awesome.’’

Mr. Chairman, I ask that Chairman Hyde’s entire floor statement appear in the record following my remarks. 

And, Mr. Chairman, I will simply summarize by saying that we 

decided, this Congress decided that the IRS standards are too 

harsh to be applied to people who fail to pay their taxes. They’re 

also too harsh to be applied to people who are simply down in their 

luck, and the fact is someone’s real expenses ought to be considered 

when looking to his ability to repay debts, not some average expenses for the Northeast United States that some bureaucrat at 

the IRS decides on without any knowledge of this particular creditor and his or her family. That’s what Chairman Hyde said. I join 

with him. It’s the only humane standard, and I urge my colleagues 

to vote for this amendment. 

I thank you, and I yield back. 

Chairman SENSENBRENNER. The gentleman from Utah, Mr. Cannon? 

497

Mr. NADLER. Mr. Chairman, I asked for unanimous consent, and 

I didn’t hear you—I asked a moment ago for unanimous consent 

that Chairman Hyde’s entire floor statement appear in the record 

following my remarks. 

Chairman SENSENBRENNER. Without objection. 

[The statement of Mr. Hyde follows:]

Chairman SENSENBRENNER. The gentleman from Utah, Mr. Cannon. 

Mr. CANNON. Thank you. Mr. Chairman, I move to strike the last 

word. 

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. CANNON. I appreciate the gentleman’s concern here, and of 

course the position of Mr. Hyde. I would like to point out I rise in 

opposition to this bill and urge my colleagues to vote against it. 


Hyde.eps
498

Again, this is a delicately balanced bill that’s been through a lot 

of process, and just let me point out that Chairman Hyde signed 

three conference reports that included the provision that Mr. Nadler would illuminate here. 

Let me make several points about this because there are a number of them. In the first place, the means test goes well beyond the 

IRS expense standards in certain respects, so we’re not fixed to 

those. 

Secondly, the current provision allows the debtor to claim, in addition to the IRS expense standards, eight other categories of expenses. If the debtor has higher expenses, the means tests specifically allows the debtor to rebut the presumption of abuse to establish special circumstances with respect to such higher expenses. 

The bill specifically authorizes the Secretary of the Treasury to 

alter the IRS expense standards as they apply to bankruptcy cases. 

The bill requires the director of the Executive Office of the U.S. 

Trustees to study this matter and to report to Congress on his conclusions. Efforts to delete the IRS expense standard failed on several occasions. It failed twice in the 105th Congress, both at full 

Committee and on the floor; it failed on the April 23rd, 2002, the 

conference on the meeting of this bill’s predecessor. So it’s been 

considered, it’s been debated. And, frankly, in the 107th Congress, 

not even the Senate Democrats wanted this provision deleted. 

This is a case where clarity of the process and the convenience 

of moving the issue forward, the efficiency of our judicial process 

I think is involved and been considered, and I would urge my colleagues to oppose this—— Mr. NADLER. Would the gentleman yield for a question? 

Mr. CANNON.—this provision. 

Mr. NADLER. Would the gentleman yield? 

Mr. CANNON. Certainly. 

Mr. NADLER. Thank you. Yes, it is true, of course, as you said, 

and as I referenced, that there are various standards in the bill to 

get away from the IRS standards if you make a motion for extraordinary circumstances. But the point is, and you would agree, I assume, that to make that motion, you need to hire a lawyer, and few 

people who are—now, maybe if it’s General Motors going bankrupt, 

they’ll have a lawyer, but if it’s an ordinary middle-class or low- income person, to spend $5,000 to make that motion is not going 

to happen. 

So, in effect, you don’t really have an appeal against the IRS 

standards. 

Mr. CANNON. Except that, in this case, it’s a response to a motion 

so somebody else has to bring that standard to bear to be able to 

raise that issue of the standard, the way I understand the law is 

written currently. 

Mr. NADLER. No, I think you have to make, you have to appeal 

to the extraordinary circumstances because the law creates a presumption of abuse—there’s a presumption of abuse if you exceed 

the IRS standards. So, now, you can make a motion to go against 

that presumption, but you’ve got to make the motion, and that 

costs a few thousand dollars. 

Mr. CANNON. The way I think it works is that the creditor would 

make a motion to dismiss, and then the debtor would have to respond to that is the way I believe it is currently——

499

Mr. NADLER. Yes, the creditor would have to make the motion to 

dismiss, but then you have to rebut the presumption—— Mr. CANNON. That’s correct. 

Mr. NADLER. And rebutting the presumption requires your law- yer and $5,000 or $6,000. 

Mr. CANNON. Well, if you’re a poor person in this system, the 

possibility of being attacked by a creditor is going to be lower than; 

in other words, to the degree that you have the ability to deal with 

an issue of rebutting the presumption, then you probably have the 

cash to do so. 

Mr. NADLER. Do you think that the average middle-class person 

in a bankruptcy situation—and why is a middle-class person in a 

bankruptcy situation? Because he lost his job or whatever—he has 

the $5,000 to—— Mr. CANNON. Reclaiming my time. I think that in that circumstance, he’s not going to be typically challenged by a creditor 

unless his expenditures are so far out of line that it would suggest 

that he has the ability to afford an attorney. In other words, there’s 

sort of a self-healing process built into the system. This is not just 

a matter of—— Mr. NADLER. Would the gentleman yield further? 

Mr. CANNON. Reclaiming my time. This is not just a matter of 

poor people, poor versus rich; this is a system that people need to 

move through with some clarity and efficiency. 

Mr. NADLER. Would the gentleman yield for a second? 

Mr. CANNON. I think I’m almost out of town. 

Mr. NADLER. Well, just for a second then, before you’re out of 

time. The fact is that creditors were kept out of this until this bill, 

for making such a motion, specifically because of the coercive power 

that they have given the fact that the guy going bankrupt is going 

to have, for another $5,000, is going to have a problem with a lawyer. 

Mr. CANNON. Mr. Chairman, I yield back what little remains of 

my time. 

Chairman SENSENBRENNER. The question is on the Nadler 

amendment. 

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? 

Chairman SENSENBRENNER. From New York, the clerk will report the next Nadler amendment. 

The CLERK. Amendment to H.R. 975 offered by Mr. Nadler. 

Strike Section 1223 and insert——

Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read, and the gentleman will be recognized for 5 minutes. 

[The amendment follows:]

500 H.L.C.

AMENDMENT TO H.R. 975

OFFERED BY MR. NADLER

Strike section 1223 and insert the following:

1 SEC. 1223.

2 (a) PERMANENT JUDGESHIPS.—Section 152(a)(2) of

3 title 28, United States Code, is amended—

4 (1) in the item relating to the eastern and west5 ern districts of Arkansas by striking ‘‘3’’ and insert6 ing ‘‘4’’,

7 (2) in the item relating to the district of Dela8 ware by striking ‘‘1’’ and inserting ‘‘6’’,

9 (3) in the item relating to the middle district of

10 Florida by striking ‘‘8’’ and inserting ‘‘10’’,

11 (4) in the item relating to the southern district

12 of Florida by striking ‘‘5’’ and inserting ‘‘7’’,

13 (5) in the item relating to the northern district

14 of Georgia by striking ‘‘8’’ and inserting ‘‘9’’,

15 (6) in the item relating to the southern district

16 of Georgia by striking ‘‘2’’ and inserting ‘‘3’’,

17 (7) in the item relating to the district of Mary18 land by striking ‘‘4’’ and inserting ‘‘7’’,

19 (8) in the item relating to the eastern district

20 of Michigan by striking ‘‘4’’ and inserting ‘‘6’’,


A975G.AAB
501

2

H.L.C.

1 (9) in the item relating to the district of Ne2 vada by striking ‘‘3’’ and inserting ‘‘5’’,

3 (10) in the item relating to the district of New

4 Jersey by striking ‘‘8’’ and inserting ‘‘9’’,

5 (11) in the item relating to the southern district

6 of New York by striking ‘‘9’’ and inserting ‘‘11’’,

7 (12) in the item relating to the eastern district

8 of North Carolina by striking ‘‘2’’ and inserting ‘‘3’’,

9 (13) in the item relating to the eastern district

10 of Pennsylvania by striking ‘‘5’’ and inserting ‘‘6’’,

11 (14) in the item relating to the district of Puer12 to Rico by striking ‘‘2’’ and inserting ‘‘3’’,

13 (15) in the item relating to the district of South

14 Carolina by striking ‘‘2’’ and inserting ‘‘3’’,

15 (16) in the item relating to the western district

16 of Tennessee by striking ‘‘4’’ and inserting ‘‘6’’,

17 (17) in the item relating to the district of Utah

18 by striking ‘‘3’’ and inserting ‘‘4’’, and

19 (18) in the item relating to the eastern district

20 of Virginia by striking ‘‘5’’ and inserting ‘‘6’’.

21 (b) TEMPORARY JUDGESHIPS.—

22 (1) IN GENERAL.—

23 (A) APPOINTMENTS.—The following bank24 ruptcy judges shall be appointed in the manner

25 prescribed in section 152(a)(1) of title 28,


A975G.AAC
502

3

H.L.C.

1 United States Code, for the appointment of

2 bankruptcy judges provided for in section

3 152(a)(2) of such title:

4 (i) One additional bankruptcy judge

5 for the southern district of Georgia.

6 (ii) One additional bankruptcy judge

7 for the district of Maryland.

8 (iii) One additional bankruptcy judge

9 for the eastern district of Mississippi.

10 (iv) One additional bankruptcy judge

11 for the northern district of Mississippi.

12 (v) One additional bankruptcy judge

13 for the middle district of New York.

14 (vi) One additional bankruptcy judge

15 for the middle district of Pennsylvania.

16 (vii) One additional bankruptcy judge

17 for the district of Puerto Rico.

18 (B) VACANCIES.—The first vacancy occur19 ring in the office of bankruptcy judge in each

20 of the judicial districts set forth in subpara21 graph (A)—

22 (i) occurring 5 years or more after the

23 appointment date of the bankruptcy judge

24 appointed under subparagraph (A) to such

25 office; and


A975G.AAD
503

4

H.L.C.

1 (ii) resulting from the death, retire2 ment, resignation, or removal of a bank3 ruptcy judge;

4 shall not be filled.

5 (2) EXTENSIONS.—

6 (A) IN GENERAL.—The temporary office of

7 bankruptcy judges authorized for the northern

8 district of Alabama and the eastern district of

9 Tennessee under paragraphs (1) and (9) of sec10 tion 3(a) of the Bankruptcy Judgeship Act of

11 1992 (28 U.S.C. 152 note) are extended until

12 the first vacancy occurring in the office of a

13 bankruptcy judge in the applicable district re14 sulting from the death, retirement, resignation,

15 or removal of a bankruptcy judge and occurring

16 5 years after the date of the enactment of this

17 Act.

18 (B) APPLICABILITY OF OTHER PROVI19 SIONS.—All other provisions of section 3 of the

20 Bankruptcy Judgeship Act of 1992 (28 U.S.C.

21 152 note) remain applicable to the temporary

22 office of bankruptcy judges referred to in this

23 paragraph.

24 (3) TECHNICAL AMENDMENTS.—Section 152(a)

25 of title 28, United States Code, is amended—


A975G.AAE
504

5

H.L.C.

1 (A) in paragraph (1), by striking the first

2 sentence and inserting the following: ‘‘Each

3 bankruptcy judge to be appointed for a judicial

4 district, as provided in paragraph (2), shall be

5 appointed by the court of appeals of the United

6 States for the circuit in which such district is

7 located.’’; and

8 (B) in paragraph (2)—

9 (i) in the item relating to the middle

10 district of Georgia, by striking ‘‘2’’ and in11 serting ‘‘3’’; and

12 (ii) in the collective item relating to

13 the middle and southern districts of Geor14 gia, by striking ‘‘Middle and Southern . .

15 . . . . 1’’.

16 (4) EFFECTIVE DATE.—The amendments made

17 by this section shall take effect on the date of the

18 enactment of this Act.


A975G.AAF
505

Mr. NADLER. Mr. Chairman, my amendment embodies the text 

of H.R. 1112 introduced by our colleague Mr. Kingston. It reflects 

the current recommendations from the Judicial Conference for additional bankruptcy judges. Much of our discussion today is centered on the increase in bankruptcies, both individually—— Chairman SENSENBRENNER. Will the gentleman yield? 

Mr. NADLER. Yes, I will. 

Chairman SENSENBRENNER. The chair intends to deal with additional judicial manpower of both Article 3 judges and Article 1 

judges, using as the baseline the Administrative Office’s recommendations. I would encourage the gentleman from New York 

to forebear on this, and we will handle the question of additional 

judicial manpowers in the context of an overall comprehensive bill. 

Mr. NADLER. Reclaiming my time. 

Thank you, Mr. Chairman. I would welcome the opportunity for 

such hearings, and with that understanding, and with your continued interest in this matter, I ask unanimous consent to withdraw 

the amendment at this time. 

Chairman SENSENBRENNER. The amendment is withdrawn. 

We now have votes on the floor. It is my understanding that between the votes the official photograph of the House will be taken. 

Mr. Conyers and I will have to go get us some money after all of 

those votes are over with. That should be done with about 2:30. 

The chair will recess the Committee until 2:45 and encourage the 

Members to return promptly. We have a few amendments left, and 

hopefully before the next series of votes at 4 o’clock we will be able 

to finish this bill. 

The Committee is recessed. 

[Recess.] 

Chairman SENSENBRENNER. The Committee will be in order. A 

working quorum is present. 

When the Committee recessed, pending was a motion to report 

the bill H.R. 975 favorably to the House. Are there further amendments? The gentlewoman from California. 

Ms. LOFGREN. Mr. Chairman, I have an amendment at the desk. 

It’s Lofgren 005. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

The CLERK. Amendment to H.R. 975 offered by Ms. Lofgren. 

Page 145, line 11, strike ‘‘910’’——

Ms. LOFGREN. I’d ask unanimous consent that the amendment be 

considered as read. 

Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read. 

[The amendment follows:]

506 H.L.C.

AMENDMENT TO H.R. 975

OFFERED BY MS. LOFGREN

Page 145, line 11, strike ‘‘910’’ and insert ‘‘365’’.

Page 145, line 16, strike ‘‘1-year’’ and insert ‘‘180-

day’’.


A975H.AAB
507

Chairman SENSENBRENNER. The gentlewoman is recognized for 5 

minutes. 

Ms. LOFGREN. Mr. Chairman, although I oppose the bill, as you 

know, this is an amendment that proponents of the bill should like. 

As you know, under current law a secured creditor is given favored 

treatment only for the value of the collateral that secures their 

claim. For example, if a debtor owes $10,000 on a car loan but the 

car is only worth $5,000, the car lender’s secured claim is, as it’s 

said in the biz, ‘‘crammed down’’ to $5,000, plus interest. And the 

remaining $5,000 in debt becomes an unsecured claim. 

The cram-down principle protects unsecured creditors. If secured 

creditors can get more than the value of their collateral, the unsecured creditors get that much less. 

H.R. 975 changes this fundamental principle. Under this bill, secured creditors would be allowed to protect the full amount of their 

loans if a bankruptcy is declared within a certain time frame. For 

example, a car lender would be able to protect the full value of a 

car loan made within 910 days of the bankruptcy, regardless of the 

current value of the car. That doesn’t make sense. If a person simply defaulted on a car loan without declaring bankruptcy, the lender’s only security would be to impound the car. There is no reason 

to give them more in bankruptcy. 

The bill, I have heard over and over for the last several years, 

is supposed to help unsecured creditors, like doctors, hospitals, and, 

yes, credit card companies. But the longer cram-downs are prohibited, the more likely it is people will be ineligible for Chapter 13. 

In fact, Chapter 13 trusteed estimated that a similar provision 

would reduce the number of Chapter 13 cases by 20 percent. 

This provision also makes it more difficult for families to save 

homes and cars from repossession since it increases the value of secured claims. Debtors would have to propose longer reorganization 

plans and, with longer plans, there is an increased risk that the 

plan will fail because of sudden unemployment or unexpected medical emergencies. 

My amendment simply lessens the period during which cramdowns are prohibited. For cars, it would be 1 years instead of 910 

days. For other personal items, it would be 180 days instead of 1 

year. 

This amendment will protect the intended beneficiaries of this 

bill, unsecured creditors, and will provide more incentives to file 

Chapter 13 and will give debtors a better chance to come out of 

bankruptcy. And I would highly recommend it to those who are so 

anxious to make sure that credit card companies get a better shot 

at the assets of the bankrupt, and I would yield back the balance 

of my time. 

Chairman SENSENBRENNER. The gentleman from Utah. 

Mr. CANNON. Thank you, Mr. Chairman. Move to strike the last 

word. 

Chairman SENSENBRENNER. The gentleman’s recognized for 5 

minutes. 

Mr. CANNON. Thank you. I appreciate the gentlelady’s amendment and argument. As I understand it, this amendment would reduce the reach-back periods for which anti-cram-down provisions 

would apply. The 910-day period applies to automobiles, and let me 

508

just point out that the 1-year period applies to other types of collateral. 

This is one of those cases where many good things could happen, 

but this bill has been the subject of, again, great and careful negotiations, and this provision in particular was modified at the request of the Senate Democrats to have a shorter reach-back period 

with respect to the anti-cram-down provisions as they apply to 

automobiles. And it was the subject of extensive negotiations. 

I oppose the gentlelady’s amendment and encourage all the Members of the Committee to vote no, and with that, Mr. Chairman, I 

yield back. 

Chairman SENSENBRENNER. The question is on the amendment 

offered by—— Mr. WATT. Mr. Chairman? 

Chairman SENSENBRENNER. For what purpose does the gentleman from North Carolina seek recognition? 

Mr. WATT. I move to strike the last word. 

Chairman SENSENBRENNER. The gentleman’s recognized for 5 

minutes. 

Mr. WATT. And I yield to Ms. Lofgren. 

Ms. LOFGREN. I would simply say that we have heard from many 

good amendments that this is a deal and it can’t be undone. But 

I would note that the deal unraveled last Congress, and there is 

no deal at this point, and the matter relative to abortion has not 

been secured, and I don’t think this bill has a bright future. I do 

think it is ironic that in our rush to help the credit card industry 

that is making more money now than they have ever made in the 

history of the United States, one group trumped them and that was 

auto dealerships. And why we would take this one group and benefit them unreasonably beyond any other group is just completely 

mysterious, and I think does deserve some scrutiny on the part of 

those who are watching this process. 

And I think thank the gentleman for yielding me time. 

Mr. WATT. I yield back, Mr. Chairman. 

Chairman SENSENBRENNER. The question is on the Lofgren 

amendment. Those in favor will say aye? Opposed, no? 

The noes appear to have it. The—— Ms. LOFGREN. Mr. Chairman, I ask for a recorded vote. 

Chairman SENSENBRENNER. A recorded vote is ordered. Those in 

favor of Lofgren 005 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? 

[No response.] 

The CLERK. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, no. Mr. Jenkins? 

[No response.] 

509

The CLERK. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

[No response.] 

The CLERK. Mr. Hostettler? 

[No response.] 

The CLERK. Mr. Green? 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. Mr. Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. Ms. Hart? 

Ms. HART. No. 

The CLERK. Ms. Hart, 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? 

[No response.] 

The CLERK. Mr. Carter? 

[No response.] 

The CLERK. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mrs. Blackburn? 

Mrs. BLACKBURN. No. 

The CLERK. Mrs. Blackburn, no. Mr. Conyers? 

[No response.] 

The CLERK. Mr. Berman? 

[No response.] 

The CLERK. 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? 

[No response.] 

The CLERK. Ms. Waters? 

[No response.] 

The CLERK. Mr. Meehan? 

[No response.] 

The CLERK. Mr. Delahunt? 

[No response.] 

The CLERK. Mr. Wexler? 

[No response.] 

The CLERK. Ms. Baldwin? 

[No response.] 

The CLERK. Mr. Weiner? 

[No response.] 

The CLERK. Mr. Schiff? 

510

Mr. SCHIFF. Aye. 

The CLERK. Mr. Schiff, aye. Ms. Sa ́nchez? 

Ms. SA ́ NCHEZ. Aye. 

The CLERK. Ms. Sa ́nchez, aye. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Additional Members who wish to 

cast or change their vote? The gentleman from Indiana, Mr. Pence? 

Mr. PENCE. No. 

The CLERK. Mr. Pence, no. 

Chairman SENSENBRENNER. The gentleman from Virginia, Mr. 

Goodlatte? 

Mr. GOODLATTE. No. 

The CLERK. Mr. Goodlatte, no. 

Chairman SENSENBRENNER. The gentleman from Tennessee, Mr. 

Jenkins? 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. 

Chairman SENSENBRENNER. The gentleman from Texas, Mr. 

Smith? 

Mr. SMITH. No. 

The CLERK. Mr. Smith, no. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their vote? If—Mr. Meehan? 

Mr. MEEHAN. Yes. 

The CLERK. Mr. Meehan, aye. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their vote? If not, the clerk will report. The gentleman 

from Indiana, Mr. Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. 

Mr. Chairman, there are 6 ayes and 15 noes. 

Chairman SENSENBRENNER. The amendment is not agreed to. 

Are there further amendments? The gentlewoman from California? 

Ms. LOFGREN. Mr. Chairman, I have an amendment at the desk, 

Lofgren number 2. 

Chairman SENSENBRENNER. The clerk will report Lofgren number 2. 

The CLERK. Amendment to H.R. 975 offered by Ms. Lofgren. 

Page 17, beginning in line 21, redesignate the matter after ‘‘if’’——

Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read. 

[The amendment follows:]

511


A975I.eps
512

Chairman SENSENBRENNER. The gentlewoman is recognized for 5 

minutes. 

Ms. LOFGREN. Mr. Chairman, this amendment would provide 

that when the debtor or the debtor’s spouse is diagnosed with a debilitating medical condition within the 730-day period preceding 

the filing of the petition, the debtor or the debtor’s spouse is unemployed for at least 90 days preceding the filing of the petition, and 

the debtor or the debtor’s spouse is owed the equivalent of 60 days 

of delinquent child support payments at the time the petition is 

filed, in that case the draconian provisions of the act would not 

apply. 

I have heard, as the years have gone by, a lot of rather extravagant rhetoric about deadbeats and people who are not being responsible, and certainly in this big wide country there will be people who are irresponsible. But we know that the vast majority of 

bankruptcies doesn’t relate to that type of situation. This is really 

a P.R. job that the credit card industry has painted for America. 

Additionally, the number of bankruptcies filed in 2001 has hit a 

record high. It’s up 19 percent, and it’s clearly related to the economic situation. In fact, over 91 percent of individuals who file for 

bankruptcy have suffered a recent job loss, medical problem, or divorce. The leading cause is unemployment. Two out of three individuals that file for bankruptcy have lost their jobs. Half have experienced serious health problems, and that’s according to a study 

by the University of Texas published in Norton’s Bankruptcy Adviser. 

Seniors and women head of households are particularly hard hit 

by the financial consequences of illness or loss of employment, and 

it is these most vulnerable Americans who will suffer the most 

from this so-called reform. 

American seniors will suffer. The average household debt for 

those 65 and older has jumped 164 percent over the last 8 years 

compared to 92 percent for those under 65. And although seniors 

account for a small proportion of total personal bankruptcies, they 

are the fastest-growing group according to the Consumer Bankruptcy Project, a study done at Harvard. 

Nearly half of the seniors who ended up in bankruptcy court did 

so because of medical reasons; also, out-of-pocket health care expenses for seniors increased nearly 50 percent from 1999 to 2001. 

Yet at the same time HMOs in California and around the country 

have cut prescription drug coverage, aggravating this situation, 

and also seniors are frequently the targets of predatory lenders. 

Women also suffer. Women filing independently represent the 

largest group of personal bankruptcies, and women filers have even 

less income and fewer assets than men filers. 

This bill would prevent many seniors and single mothers from 

filing Chapter 7 and regaining economic stability. The means test 

in the IRS formula it incorporates will force many into Chapter 13 

where more debts will survive and only limited household goods 

will be protected from repossession. 

The means test starts with a family’s income and then subtracts 

medical expenses and ends up with a really rather miserly amount 

of money for one to live on. The proponents of this bill say they 

want to restore personal responsibility and integrity to the bankruptcy system. Well, that’s fine. But what this amendment would 

513

do would say don’t punish the people who are in trouble because 

they lost a job or they’re dogged by huge medical bills or they can’t 

get a deadbeat dad to pay child support. These are the people that 

account for a majority of personal bankruptcies, not spendthrifts 

who are abusing the system. 

The bankruptcy system is supposed to give these people a chance 

to get back on their feet. My amendment would do this by exempting them from the harsh means test, and it would allow those who 

believe in compassionate conservatism to show that they really 

mean what they say. 

And I yield back the balance of my time. 

Chairman SENSENBRENNER. The gentleman from Utah. 

Mr. CANNON. Thank you, Mr. Chairman. I move to strike the last 

word. 

Chairman SENSENBRENNER. The gentleman’s recognized for 5 

minutes. 

Mr. CANNON. I thank you, Mr. Chairman. 

I oppose this amendment, with all—with the utmost respect to 

the gentlelady from California. In fact, some elements of our system are draconian, and, in fact, we have deadbeat dads who don’t 

pay and deadbeat moms who don’t pay child support. We have 

problems in our society, and I don’t want to suggest that’s not the 

case at all. And I agree with the gentlelady that the largest reason 

for bankruptcies is job loss followed by medical problems or in some 

cases divorce. These are serious problems that people have. They’re 

not planning for them. They’re not using those problems as an excuse for estate planning. 

But as I understand this amendment, it would expand the safe 

harbor in Section 102 of the bill with respect to motions to dismiss 

Chapter 7 cases based on the debtor’s ability to repay debts. 

What happens if the debtor’s unemployment is—unemployed 

spouse is, say, Tom Cruise, who is temporarily between movie contractors? Or what if the medical condition is curable and the debtor 

is a multimillionaire? What if the debtor who is owed delinquent 

child support is Mrs. Trump? The point is these are the extreme 

cases——

Ms. LOFGREN. Would the gentleman yield? 

Mr. CANNON. In just a moment, because I believe that you have 

a reasonable response to those, and I’d just like to make another 

couple of points first, and then we can join the debate. 

The short of it is there are many cases that are the outliers. 

With the normal cases that come through the system, what we’re 

trying to do here is have a means test that attempts to establish 

a neutral, a uniform income and expense screening mechanisms to 

determine who has the ability to repay. It allows the debtor to establish special circumstances with respect to additional expenses or 

income adjustments to rebut the presumptions of abuse. Establishing numerous exceptions to the means test will unduly burden 

what I think is the efficient administration of bankruptcy cases 

and create opportunities for abuse. 

So I would encourage Members of the Committee to vote against 

this amendment and would certainly yield to the gentlelady from 

California for further discussion. 

Ms. LOFGREN. If the gentleman has an interest in the amendment, I would be happy to alter the proposed amendment to make 

514

it apply to only those whose income is not higher than the median 

income in the metropolitan area where they file their petition for 

bankruptcy. 

Mr. CANNON. Let me say to the gentlelady that if you would like 

to withdraw the amendment, I’m willing to talk to you about it, although I can’t make any promises as to whether—any likelihood of 

including it into the bill. But I would certainly be happy to talk 

some more about that; otherwise, I think we just need to have a 

vote. 

Ms. LOFGREN. Let’s vote on it, and we can always talk further. 

Mr. CANNON. We certainly can. 

Chairman SENSENBRENNER. The gentleman yield back? 

Mr. CANNON. I yield back, Mr. Chairman. 

Mr. WATT. Mr. Chairman? 

Chairman SENSENBRENNER. For what purpose does the gentleman from North Carolina seek recognition? 

Mr. WATT. I move to strike the last word. 

Chairman SENSENBRENNER. The gentleman’s recognized for 5 

minutes. 

Mr. WATT. Thank you, Mr. Chairman. 

I actually had pretty much convinced myself not to say anything 

else on this bill. 

Chairman SENSENBRENNER. You’re not very persuasive in doing 

that. 

Mr. WATT. And I’m sure it disappoints you that I’ve changed my 

mind. And I wouldn’t on this amendment, either, except that it 

kind of goes to the heart of what this bill and what this process 

has been all about. There are a number of us who are extremely 

frustrated because 4, 5, 6 years ago, when this process started, 

some of us were willing to concede from the very first day of the 

debate that some gaming of the system was taking place, that people were taking advantage of the bankruptcy system, and that we 

were willing to sit down and roll up our sleeves and work with people to try to address the gaming of the system. 

Instead, a group of people sat down and basically made a pact 

that they would exempt the lowest-income people in the country by 

virtue of a means test from the effects of this bill, and it was okay 

with them if lower-income people gamed the system. They just—

you know, the deal that got cut between consumer interest and 

creditor interest was, okay, we’ll leave the poorest of the poor alone 

if you give us a bill and don’t lay down in the road and block getting a bankruptcy bill. 

Now, my consumer friends, consumer groups, don’t like for me to 

say this any more than my creditor friends like for me to say it, 

but I think the result of that kind of unholy alliance is just a terrible public policy result that is going to get you two separate sets 

of bankruptcy proceedings, one for very poor people, which I have 

called the pauper’s court, similar to the old pauper’s court that we 

used to have, and one for a higher-income category of citizens. And 

it really makes no allowance for either very poor people who are 

gaming the system or people who are above the means test who are 

not gaming the system. So you’ve got these inflexible set of rules 

that just go into effect, take all the discretion away from the bankruptcy judges to make reasonable judgments about who is, in fact, 

gaming the system, who is not gaming the system, and it’s an easy 

515

kind of way to legislate, because I was the first to acknowledge, one 

of the first to acknowledge that coming up with a set of rules that 

really got at the people who were gaming the system, who are the 

people that everybody said they wanted to get at, would be difficult. It would take some work. It would take some crafting of language that really got at those people rather than just a bunch of 

arbitrary rules, a means test that exempts some people who are 

gaming the system and doesn’t exempt other people whether they 

are gaming the system or not. 

This is a bad way to legislate. This bill does it—and Ms. 

Lofgren’s amendment actually has come closer to trying to address 

that than anything else I have heard. I’ve been trying to think of 

some way to do it myself, and I couldn’t resist the opportunity to 

rise in support of her amendment because she at least is trying to 

get at the problem that everybody 6 years ago started off saying 

they were trying to get at. And that’s to keep people from gaming 

the system but not be unfair—— Chairman SENSENBRENNER. The gentleman’s time has expired. 

Mr. WATT.—to people who really need the bankruptcy system. 

Chairman SENSENBRENNER. The question is on Lofgren amendment number 2. Those in favor will say aye? Opposed, no? 

The noes appear to have it. The noes—— Ms. LOFGREN. rollcall. 

Chairman SENSENBRENNER. A recorded vote is ordered. Those in 

favor of Lofgren amendment number 2 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? 

[No response.] 

The CLERK. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, no. Mr. Jenkins? 

[No response.] 

The CLERK. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

[No response.] 

The CLERK. Mr. Hostettler? 

[No response.] 

The CLERK. Mr. Green? 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. Mr. Keller? 

[No response.] 

The CLERK. Ms. Hart? 

Ms. HART. No. 

The CLERK. Ms. Hart, no. Mr. Flake? 

Mr. FLAKE. No. 

516

The CLERK. Mr. Flake, no. Mr. Pence? 

Mr. PENCE. No. 

The CLERK. Mr. Pence, no. Mr. Forbes? 

Mr. FORBES. No. 

The CLERK. Mr. Forbes, no. Mr. King? 

[No response.] 

The CLERK. Mr. Carter? 

[No response.] 

The CLERK. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mrs. Blackburn? 

Mrs. BLACKBURN. No. 

The CLERK. Mrs. Blackburn, 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? 

[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? 

[No response.] 

The CLERK. Mr. Delahunt? 

[No response.] 

The CLERK. Mr. Wexler? 

[No response.] 

The CLERK. Ms. Baldwin? 

[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. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Members who wish to cast or change 

their vote? The gentleman from Texas, Mr. Smith? 

Mr. SMITH. No. 

The CLERK. Mr. Smith, no. 

Chairman SENSENBRENNER. The gentleman from Virginia, Mr. 

Goodlatte? 

Mr. GOODLATTE. No. 

The CLERK. Mr. Goodlatte, no. 

517

Chairman SENSENBRENNER. The gentleman from Tennessee, Mr. 

Jenkins? 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. 

Chairman SENSENBRENNER. The gentleman from Indiana, Mr. 

Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. 

Chairman SENSENBRENNER. The gentleman from Florida, Mr. 

Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. 

Chairman SENSENBRENNER. Are there other Members who wish 

to cast or change their vote? If not, the clerk will report. 

The CLERK. Mr. Chairman, there are 8 ayes and 16 nays. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. 

For what purpose does the gentlewoman from Texas seek recognition? 

Ms. JACKSON LEE. Mr. Chairman, I have three amendments at 

the desk, and I’d like to call up the three of them, 001 Jackson Lee, 

049, and 039, and I would ask the Chairman that I be allowed to 

take them—that they be taken en bloc. 

Chairman SENSENBRENNER. That sounds like a good idea. Without objection, the clerk will report the amendments en bloc. 

The CLERK. Amendment to H.R. 975 offered by Ms. Jackson Lee 

of Texas. Page 145, line 16, insert ‘‘The preceding sentence does not 

apply if the court determines that such application would hinder 

the ability of the debtor to pay alimony or a child support obligation’’ before the close quotation mark. 

Amendment to H.R. 975 offered by Ms. Jackson Lee of Texas—— Chairman SENSENBRENNER. Without objection, the amendments 

en bloc are considered as read. 

[The amendments follow:]

518

Amendment to H.R. 975

Offered by Ms. Jackson Lee

Page 154, line 23, strike the period, the close

quotation marks, and the period at the end.

Page 154, after line 23, insert the following (and

make such technical and conforming changes as may be

appropriate):

1 ‘‘(III) clause (i) shall not apply if the court

2 determines that the limitations on discharge

3 would impair the debtor’s ability to pay domes4 tic support obligations.’’.

Page 165, after line 15, insert the following:

5 (c) LIMITATION ON APPLICABILITY.—The amend6 ments made by this section do not apply if the court deter7 mines that the limitation on discharge would impair the

8 debtors ability to pay domestic support obligations.


A975J.AAB
519 H.L.C.

AMENDMENT TO H.R. 975

OFFERED BY MS. JACKSON-LEE OF TEXAS

Page 145, line 16, insert ‘‘The proceeding sentence

does not apply if the court determines that such application would hinder the ability of the debtor to pay alimony

or a child support obligation.’’ before the close quotation

mark.


A975K.AAB
520 H.L.C.

AMENDMENT TO H.R. 975

OFFERED BY MS. JACKSON-LEE OF TEXAS

Page 63, line 16, strike the close quotation mark

and the period which follows.

Page 63, after line 16, insert the following:

1 ‘‘(3) Notwithstanding any other provision of this sec2 tion, the court may disapprove a reaffirmation agreement

3 if the agreement would hinder the debtor’s ability to pay

4 alimony or a child support obligation.’’.


A975L.AAB
521

Chairman SENSENBRENNER. The gentlewoman is recognized for 5 

minutes. 

Mr. CONYERS. Would the gentlelady yield? 

Ms. JACKSON LEE. Yes, I’d be happy to yield. 

Mr. CONYERS. I want to commend her for her act, but could we 

not approach the Chair to ask that we—that they agree off on one 

of the three? 

Ms. JACKSON LEE. I’d be delighted if they would. 

Mr. CONYERS. Wouldn’t that—— Ms. JACKSON LEE. This is more important to me than having all 

three—this is a very—— Mr. CONYERS. Which one do you really prefer? 

Ms. JACKSON LEE. Well, Mr. Chairman, the fear is that if I say 

what I prefer, I would knock out what they might accept. Any consultation, advice that you might give me, Mr. Chairman, as you 

consult with—Mr. Ranking Member, as you consult with the Chairman would be helpful. But I would hope my colleagues would realize the devastating position women and families are put in as it relates to alimony and child support. If we have an opportunity for 

an agreement, Mr. Cannon, as I begin to discuss these amendments, I’d be happy to ask for a separation, dividing of the question, so that we could vote on one of these amendments. 

With that, are you in consultation, Mr. Conyers? 

Mr. CONYERS. Yes, ma’am, we are. 

Ms. JACKSON LEE. All right. And then I will continue to discuss 

the amendment? Thank you very much. 

The amendment number 1 and—is alimony and child support, 39 

and 40 deal with a cram-down analysis, but let me just proceed 

with my discussion of the amendment. 

The amendment provides that a creditor should not receive any 

greater protections under the bill with respect or with regard to 

luxury good purchases, ATM debt, or credit card debt used to pay 

taxes if it would impair the debtor’s ability to pay alimony and 

child support. 

Why do I say this? First of all, I think it’s important to note our 

earlier remarks that most Americans do not willingly go into bankruptcy court. They do not send out announcement cards. They do 

not let their neighbors know or their employer know, ‘‘I am happily 

going into bankruptcy court.’’ It is, in fact, an embarrassment. It 

is, in fact, something they wish they did not have to do. 

It penalizes them, as maybe it should, that they cannot secure 

credit or mortgages or homes for a period of time. It is well known 

that many who owe child support and alimony file bankruptcy. In 

fact, 180,000 persons owing alimony and child support filed for 

bankruptcy in 2001. 

It most harms women, single heads of households, and single 

male parents who are taking care of children as well, single heads 

of households who are depending upon that support system from 

the divorced spouse. It impacts negatively if the person who is trying to receive the alimony and the child support also experiences 

a catastrophic illnesses—illness. That is a double knock, if you will, 

against that household being able to survive. 

This would simply ensure—this amendment would simply ensure—these amendments would simply ensure, and independently 

they would do so, to ensure that the alimony and child support is 

522

first. This amendment does nothing to impair the present position 

of the creditors. It merely states that before we give them greater 

protection than they now enjoy, we need to make sure that alimony 

and child care are protected. 

Let me also reinforce the fact that women are the largest group 

in bankruptcy. Women filing independently in 2001 for bankruptcy 

represented 39 percent of the households, so they file because 

they’re not getting their child support and alimony. Additionally, 

they file more than men and more than married couples. 

The main crux of this amendment is the economic vulnerabilities 

that families face, and particularly those with a single head of 

household. Now, when 300,000 people are being laid off, the unemployment is 5.6 percent, deficit is skyrocketing, and Wall Street is 

plunging, it seems to me that overall this is a bad time for this 

bankruptcy bill. It is absolutely absurd. But the least we can do is 

take care of the least of those, elderly, people experiencing catastrophic illnesses, and certainly heads of households with children 

who are dependent upon alimony and child support. 

I would ask my colleagues to consider these amendments as they 

are presented to make the bill a better bill and to protect—and to 

protect those individuals who are dependent on this income as an 

aspect of their resources to provide for their family. 

I yield back. 

Mr. CANNON. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from Utah. 

Mr. CANNON. Thank you, Mr. Chairman. I——

Chairman SENSENBRENNER. The gentleman’s recognized for 5 

minutes. 

Mr. CANNON. Thank you. I oppose these amendments, the three 

en bloc, and let me just point out that they’re not the same, and 

so I’m going to deal with each of them independently, and that may 

take a little bit of time. 

Let me start by agreeing with the gentlelady that most Americans don’t go into bankruptcy intentionally or are desirous of going 

into bankruptcy. But the focus of this bill is on those bankruptcy 

filings which are frivolous, abusive, fraudulent, and unhealthy for 

our system. The fact is we need people who have medical problems 

or who lose their jobs or who go through a divorce—we need a system that will help them solve their problem. 

But we all know many cases of people who, in fact, take out 

bankruptcy without considering the seriousness of the effects of 

taking out bankruptcy and, therefore, create an environment that 

is unhealthy for their futures individually and also for the economic stability of the country. 

So as I understand the Lee amendment 001, it would create an 

exception to the provision in the bill in Section 310 that makes certain debts for luxury goods and expenses non-dischargeable. The 

exception would apply if the debt—the debts that would be non-dischargeable under the provision would impair the debtor’s ability to 

repay domestic support obligations. 

Now, this provision is the result of extensive compromise and, 

thus, should not be further amended here. For example, the House 

provision in the last Congress had a lower figure of $250 for luxury 

goods and services. The compromise raised this amount to $500. 

523

With respect to the underlying concerns that this amendment 

purports to address—that is, women and children may be adversely 

affected by this amendment—it should be noted that the legislation 

over the years has been substantially improved to specifically address these very concerns. Indeed, the National Child Support Enforcement Association has said that the reforms contained in H.R. 

975 are crucial to the collection of child support during bankruptcy. 

H.R. 975 benefits women and children in the following respects: 

Firstly, it prioritizes the collection of payment of spousal and 

child support. The legislation gives spousal and child support 

claims the highest priority, payment priority under the bankruptcy 

law. Current reforms contained in H.R. 975 are crucial to the collection of child support during bankruptcy. H.R. 975 benefits 

women and children in the following respects. Firstly, it prioritizes 

the collection or payment of spousal and child support. The legislation gives spousal and child support claims the highest priority 

under the bankruptcy law. Current law gives these claimants only 

a seventh level payment priority. So this is a major change as far 

as women and children go. It requires important guidance and information to be supplied to the child support claimants. H.R. 975 

requires bankruptcy trustees to inform these claimants about the 

availability of State child support enforcement assistance and to 

notify the State child support enforcement agency of the deadbeat 

parents filing bankruptcy. 

It protects the debtor—or the name of the debtor’s minor child 

from public disclosure in a bankruptcy case. It permits enforcement 

action to continue or be commenced, notwithstanding the deadbeat’s bankruptcy filing, and finally, it permits child custody and 

domestic violence proceedings to continue, notwithstanding the 

debtor’s filing for bankruptcy. 

So the bill does address these concerns very particularly and 

carefully. 

If I might turn to the Jackson Lee .039 amendment. As I understand this amendment, this would create an exception from the 

anti-cramdown provisions in Section 306(b) of the bill. This provision was modified at the request of the Senate Democrats to have 

a shorter reachback period with respect to anti-cramdown provisions as they apply to automobiles. We discussed this to some degree in the prior Lofgren amendment, so we’ll come back to that 

if there are questions. 

And then finally, the Jackson Lee .040, Section 203 of the bill is 

intended to give more protections to debtors who enter into reaffirmation agreements, a legally binding obligation pursuant to which 

a debtor agrees to repay an otherwise dischargeable debt. Under 

current law if the debtor is represented by counsel, the attorney 

must file an affidavit with the court specifying that the debtor was 

fully informed about the agreement and entered into it voluntarily, 

that the agreement does not impose an undue hardship on the 

debtor or the debtor’s dependence, and that the attorney fully advised the debtor of the legal consequences of the agreement and default under it. 

Let me just check my time here, Mr. Chairman. We’re getting 

close to being out of time. So we can touch on more of the arguments in opposition to this, but let me just say,k this is a section 

of the bill, these issues that these amendments address are secVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00527 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
524

tions of the bill that we’ve dealt with with great particularity and 

through a long series of compromises, and I believe they’ve been 

significantly improved during the course of the development of this 

bill, and I would encourage the Members of the Committee to vote 

against this amendment. 

Chairman SENSENBRENNER. The gentleman’s time is expired. 

The question is on the Jackson Lee. 

Ms. WATERS. Mr. Chairman? 

Chairman SENSENBRENNER. Jackson Lee amendments en bloc. 

Those in favor will say aye. 

Opposed, no 

Noes appear to have it. The noes have it, and the amendments 

en bloc are not agreed to. 

For what purpose does the other gentlewoman from California, 

Ms. Waters, seek recognition? 

Ms. WATERS. My previous attempt to seek recognition was to 

speak on Ms. Jackson Lee’s bill, but since I was effectively ignored, 

I’ll just go ahead and tell you that I have an amendment at the 

desk. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

The CLERK. Amendment to H.R. 975, offered by Ms. Waters. 

Mr. SMITH. Mr. Chairman, I’ll reserve a point of order. 

Chairman SENSENBRENNER. Point of order is reserved. 

Without objection, the amendment is considered as read, and the 

gentlewoman from California, Ms. Waters, is recognized for 5 minutes. 

[The amendment follows:]

525

1

H.L.C.

AMENDMENT TO H.R. 975

OFFERED BY MS. WATERS

Page 437, strike line 21 and all that follows through

page 447, line 9, and insert the following (and conform

the table of contents accordingly):

1 SEC. 1301. 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 (6) (as added by section 1303

5 of this title) the following new paragraph:

6 ‘‘(7) 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—


A975M.AAB
526

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.’’.


A975M.AAC
527

Ms. WATERS. Thank you very much, Mr. Chairman. This amendment would prohibit the issuance of credit cards to persons under 

age 21 unless a parent acts as co-signor or minors can demonstrate 

an independent source of income sufficient to repay their debts. 

This amendment would in no way limit the extension of credit to 

the millions of working young Americans who have an adequate income and are deserving of credit, as anyone over age 21. 

Right now credit card companies are sending millions upon millions of credit card solicitations to teenagers every year. They offer 

them free gifts, tee shirts and toys to hook them on credit. It is outrageous. Financial troubles caused by reckless lending to teens can 

haunt them for the rest of their lives, costing them more when they 

try to buy a car, home or take out future loans. With the average 

undergraduate owing approximately $3,000 to credit cards, college 

and university officials have reported that it is no longer uncommon for some students to drop out before completing their degree 

because of the burden of credit card debt, or worse yet, the television news magazine, 60 Minutes II, profiled two college students 

last year, who had committed suicide while struggling with credit 

card debts of thousands of dollars apiece. This is not about pointing 

fingers at anyone. It’s all of our moral responsibility, our children’s, 

our parents, Congress’, and yes, even the credit card companies 

moral responsibility. The cost to our nation is too high. 

I believe that this is a common sense amendment that imposes 

an incredibly reasonable requirement on credit card companies and 

will protect our children being forced into the bankruptcy system 

later in life. 

I yield back. 

Chairman SENSENBRENNER. Does the gentleman from Texas insist on his point of order? 

Mr. SMITH. Mr. Chairman, I do insist on my point of order. 

Chairman SENSENBRENNER. State your point of order. 

Mr. SMITH. And may I elaborate? 

Chairman SENSENBRENNER. State your point of order. 

Mr. SMITH. The point of order is that the amendment does not 

fall within the jurisdiction of this particular Committee. It falls 

within the jurisdiction of the Financial Services Committee, on 

which I believe the gentlewoman serves, and so it is not germane. 

I yield back to the Chair. 

Chairman SENSENBRENNER. The gentlewoman from California 

wish to be heard on the point of order? 

Ms. WATERS. Yes, Mr. Chairman. Let me just say this. Certainly, 

I know how you’re going to rule on that point of order, but the fact 

of the matter is this is an issue, just as the last issue we heard 

that was given to us by Ms. Jackson, that should be dealt with by 

this Committee. You’re right, I serve on the Financial Service Committee, and I too will continue to press this issue, whether it’s this 

year, next year or the year after, but the fact of the matter is, we 

have a problem in this country, and it could be shuttled off to another Committee and not dealt with, or even laughed at as it appears is happening on the other side of the aisle, but it is irresponsible, and I would certainly hope that you would have the foresight 

and the—take the responsibility for dealing with it in this Committee. 

528

Chairman SENSENBRENNER. The Chair is prepared to rule. The 

gentleman from Texas, Mr. Smith, raises a point of order that the 

amendment is not germane because the text of the amendment 

falls within the jurisdiction of another Committee, namely the 

Committee on Financial Services. The gentleman from Texas is correct and the point of order is sustained. 

Are there further amendments? The gentleman from New York, 

Mr. Nadler? 

Mr. NADLER. Thank you, Mr. Chairman. I have an amendment 

at the desk, No. 022. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

The CLERK. Amendment to H.R. 975 offered by Mr. Nadler. Insert at the appropriate place—— Mr. NADLER. Mr. Chairman, I move that reading of the amendment be dispensed with. 

Chairman SENSENBRENNER. Without objection, so ordered, and 

the gentleman’s recognized for 5 minutes. 

[The amendment follows:]

529 H.L.C.

AMENDMENT TO H.R. 975

OFFERED BY MR. NADLER

Insert at the appropriate place the following:

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—

18 ‘‘(A) the violation by the debtor of any of19 fense described in section 244 (relating to dis20 crimination against a person wearing the uni21 form of the Armed Forces), section 245 (relatVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00533 Fmt 6659 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1

A975N.AAB
530

2

H.L.C.

1 ing to federally protected rights), section 247

2 (relating to damage to religious property; ob3 struction of persons in the free exercise of reli4 gious beliefs), or section 248 (relating to the

5 freedom of access to clinic entrances), of title

6 18, United States Code;

7 ‘‘(B) an offense under State law that con8 sists of conduct that would be a civil rights

9 crime described in subparagraph (A) of this

10 paragraph; or

11 ‘‘(C) a valid court order enforcing a civil

12 rights law described in subparagraphs (A) or

13 (B) of this paragraph.’’.

14 (b) RESTITUTION.—Section 523(a)(13) of title 11,

15 United States Code, is amended by inserting ‘‘or under

16 the criminal law of a State’’ after ‘‘title 18’’.


A975N.AAC
531

Mr. NADLER. Thank you, Mr. Chairman. This amendment would 

exempt from discharge debts incurred as a result of acts on the 

part of the debtor that constitute violations of certain criminal civil 

rights laws. These include discrimination against a person wearing 

the uniform of the armed services, denying a person’s federally protected civil rights, damaging religious property or obstructing persons in the free exercise of religious beliefs, or denying people freedom of access to clinic entrances. 

As the original author of the amendment making debts incurred 

due to violations of the Freedom of Access to Clinic Entrances Act, 

an amendment which has gotten some notoriety over the last few 

years, I’ve had the benefit of the last few years of debate to reevaluate my original amendment. I think this new amendment reflects many of the concerns that some of my colleagues have had 

in the past, and I would ask people to take a fresh look at it. There 

was a concern that the debts made dischargeable were vaguely defined. I have used the language from last year’s conference agreement to make clear that only judgments, orders, consent orders, decrees entered in a Federal or State court or contained in a settlement agreement entered into by the debtor are included. 

Second, I also have clearly spelled out which existing statutory 

violations must have given rise to the debt owed by the debtor. 

There is no ambiguity, no danger of inadvertently incurring a nondischargeable debt. It is spelled out in chapter and verse. I have 

taken to heart the concerns by my colleagues that certain types of 

violations should not be singled out. As I went back through the 

criminal code to review the Freedom of Access to Clinic Entrances 

Act, I was reminded that that act is one part of a larger portion 

of the Federal Criminal Code that exists to protect the rights of individuals. That makes sense. We should favor the rights of women 

exercising their constitutional right to go to a doctor, or for a person of faith trying to attend church or a soldier in uniform trying 

to attend a show. No one should get away with using violence, the 

threat of violence, intimidation or a blockade to rob someone of 

their rights, and they certainly shouldn’t be allowed to use the 

bankruptcy courts either to evade the debt that results from a 

judgment because of their conviction for robbing someone of their 

rights, or to force the people whose rights they have violated to 

spend large sums of money chasing them through the bankruptcy 

courts. That law should be clear. 

Some will say that this is unnecessary because people have not 

had much success in discharging debts. Were that the only issue, 

we might actually have to consider the argument. But the bankruptcy courts are misused in many ways. For example, this bill 

makes it easier to evict a debtor from an apartment. Why? Because 

the law gives the landlord no remedy? No. The landlord has plenty 

of remedies under the law, but landlords have complained that the 

time and expense of asserting those remedies under current law is 

overly burdensome, and so this bill gives them a further remedy. 

The problems with these cases is that people whose rights have 

been violated have spent years litigating the status of these debts 

in State and Federal courts and then have had to start all over 

again in bankruptcy court. It’s not some accident. The extremists, 

not the nuns praying on the sidewalk, but the people who threaten 

women, shout at them, block them from the doctor’s office, who 

532

think that they are law unto themselves, have made it their strategy to train their activists to shed assets and file for bankruptcy 

so that the people they harm can never enforce their rights. 

Even in cases such as Randall Terry’s, who famously bragged 

that he would file for bankruptcy so that his victims would never 

see a penny, there was no discharge of all debts, but he did succeed 

in forcing his victims to settle for cents on the dollar. Is that an 

appropriate use of the bankruptcy system? 

I think this amendment strikes an appropriate balance between 

the rights of individual debtors and the rights of the people they 

harm. It does not make hypothetical judgments nondischargeable. 

It would make nondischargeable only those debts that are the result of legally enforceable judgments from a clearly-defined set of 

civil rights violations. It also does not single out, as it did in prior 

year, and its people objected to, only one type of debt, that arising 

from violation of the FACE Act. This would deal with debts arising 

from the violation of the FACE Act, from violation of statutes protecting religious property, or protecting people’s free exercise of 

their religious beliefs. It protects people who are discriminated 

against as a result of wearing the uniform of the armed services. 

It seeks to ensure that our bankruptcy court do not become a 

haven for people who have been found guilty of violating the civil 

rights of others. I urge the adoption of the amendment, and I yield 

back the balance of my time. 

Chairman SENSENBRENNER. Gentleman from Ohio, Mr. Chabot. 

Mr. CHABOT. Thank you, Mr. Chairman. Move to strike the last 

word. 

Chairman SENSENBRENNER. The gentleman’s recognized for 5 

minutes. 

Mr. CHABOT. Thank you, Mr. Chairman. I oppose this amendment. First of all, it’s really unnecessary. The bankruptcy code already prevents the discharge of most types of debts resulting from 

violent or destructive activities. Current law clearly applies to willful and malicious acts of violence committed by persons protesting, 

for example, at an abortion clinic that result in injury to the person 

or to property. In fact, there is no reported case holding otherwise. 

The Congressional Research Service concluded, for example, and I 

quote, ‘‘As a consequence of the specific intent requirement in order 

to establish a violation of the FACE Act it is likely that civil liability incurred thereunder would arise from behavior comparable to 

an intentional tort, and would therefore be nondischargeable under 

11 USC Section 523(a)(6).’’ Unquote. 

Bankruptcy code Section 523(a)(6) provides that a debt for a willful and malicious injury by the debtor to another entity or to the 

property or another entity is nondischargeable. The Supreme Court 

has interpreted the phrase ‘‘willful and malicious’’ to encompass 

acts done with the actual intent to cause injury as opposed to acts 

done intentionally that cause injury. Current bankruptcy law 

makes other debts nondischargeable that may relate to a violation 

of FACE. For example, Section 523(A)(13) of the bankruptcy code 

provides that an obligation to pay a restitution order issued under 

Title 18 of the United States Code, and may not be discharged. 

Likewise Section 523(a)(7) makes certain fines and penalties payable to and for the benefit of a Federal or State governmental unit 

nondischargeable. The bankruptcy code is designed to regulate the 

533

terms of commercial relations between debtors and creditors. It 

should not be misused to advance and ideologically driven agenda 

of small minority, many of whom are in the final analysis, opposed 

to bankruptcy reform in any event. 

For those and other reasons I would oppose this amendment, 

urge my colleagues to do the same, and yield back the balance of 

my time. 

Chairman SENSENBRENNER. The question is on—— Mr. WATT. Mr. Chairman, Mr. Chairman. 

Chairman SENSENBRENNER. The gentleman from North Carolina, 

Mr. Watt. 

Mr. WATT. I move to strike the last word. 

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. WATT. Thank you, Mr. Chairman. I just wanted to ask what 

disposition was made of the carefully-negotiated compromise that 

was negotiated painfully through the conference I thought last 

year, between Mr. Schumer and Mr. Hyde. I too was a member of 

that conference and—— Chairman SENSENBRENNER. Will the gentleman yield? 

Mr. WATT. Yes, sir. 

Chairman SENSENBRENNER. It failed on the floor. 

Mr. WATT. Okay. But this bill came back, I thought, for the purpose of reflecting those carefully negotiated compromises, and we’ve 

been carefully protecting all of those—— Chairman SENSENBRENNER. Will the gentleman yield further? 

Mr. WATT. Yes, sir. 

Chairman SENSENBRENNER. The gentleman may recall there was 

another bill that came up after the bill with the Schumer-Hyde language failed on the floor, that passed by an overwhelming margin. 

Mr. WATT. Oh, okay. So you’re just protecting that compromise 

that came out of the conference. 

Chairman SENSENBRENNER. If the gentleman will yield further? 

Mr. WATT. Yes, sir. 

Chairman SENSENBRENNER. Both of us are good at counting 

votes. 

Mr. WATT. Okay, all right. All right. Well, I just—I couldn’t recall exactly what had happened with all of that agony we went 

through in conference last year. I’m glad the Chairman has enlightened me. 

I think Mr. Nadler wants me to yield to him, and I’m happy to 

do that. 

Mr. NADLER. Thank you. I would just make two observations. 

First of all, this is a real deviation from what we’ve been told all 

day was the carefully negotiated agreement of last year, which included a version of this amendment. This is an updated, new and 

improved super amendment. 

Secondly, the bill did—a different version of the bill without this 

amendment passed on the floor, but that was because everybody 

knew it was a joke and wasn’t going anywhere in the Senate, 

which may be happening to this bill without some version of this 

amendment. 

But the second thing I’d say is that Mr. Chabot, a few minutes 

ago, reading carefully from notes that sounded very much like the 

debate last year on the same amendment, neglected to mention 

534

what was at the heart of the compromise and the heart of the negotiations in the conference. We’re not talking here really about violence. We are agreed, everybody agrees that if someone is convicted 

of deliberate tortious violence, that’s covered by existing law. What 

the negotiations were about last year, what this amendment is 

really about, is nonviolent but nonetheless forceful interference 

with constitutional rights. Someone who blockades a clinic entrance, not by shooting people who want to walk in or slugging 

them, but laying down in front of them so they can’t walk in the 

door. That is not covered by existing law, but that effectively deprives people of their constitutional rights and is the real purpose 

of this amendment, and that’s what Senator Schumer and Mr. 

Hyde and others agreed to last year. 

And that’s the essence of this, so to say that this is unnecessary 

because it’s covered by the law is simply not true. Granted, the violent acts are covered by the law. The nonviolent but effective forceful blockade of a clinic or forceful neglect of someone—not neglect— blocking of someone’s constitutional rights without violence is not 

covered by the current law, is covered by the bill that was reported 

by the Conference Committee, by that carefully conceived and negotiated compromise, and that’s what we ought to do because without this language or something similar to it, the bankruptcy law 

will be used, as it has been in the past, perhaps nonviolently, but 

nonetheless effectively to deprive people of paying judgments incurred as a result of deliberate violation of people’s constitutional 

rights, and we shouldn’t allow the bankruptcy code to be used in 

that way, and that’s why I urge Members to vote for this amendment, and I thank the gentleman for yielding. 

Mr. WATT. I’ll reclaim my time just to refresh my recollection, 

and I appreciate the Chairman refreshing it about what transpired 

last year, but the ultimate result last year was we got no bankruptcy bill. And I’m wondering—I mean this is a wonderful political statement to pass something on the House floor, but is there 

some end game that the Chairman and the proponents of this bill 

have to prevail this year? 

Chairman SENSENBRENNER. Will the gentleman yield? 

Mr. WATT. yes, sir. 

Chairman SENSENBRENNER. Yes, there is. Hopefully we get a bill 

signed into law. 

Mr. WATT. Okay. As long as you got your end game. I just was 

wondering. I yield back. 

Chairman SENSENBRENNER. The question is on the Nadler 

Amendment. Those in favor will say aye. 

Opposed no. 

The noes appear to have it. 

Mr. NADLER. Mr. Chairman, I ask for the ayes and nays. 

Chairman SENSENBRENNER. 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. No. 

535

The CLERK. Mr. Smith, no. Mr. Gallegly? 

[No response.] 

The CLERK. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, 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. Hostettler? 

[No response.] 

The CLERK. Mr. Green? 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. Mr. Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. Ms. Hart? 

Ms. HART. No. 

The CLERK. Ms. Hart, no. Mr. Flake? 

Mr. FLAKE. No. 

The CLERK. Mr. Flake, no. 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. Carter? 

Mr. CARTER. No. 

The CLERK. Mr. Carter, no. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mrs. Blackburn? 

Mrs. BLACKBURN. No. 

The CLERK. Mrs. Blackburn, 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? 

[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? 

[No response.] 

The CLERK. Ms. Waters? 

Ms. WATERS. Aye. 

The CLERK. Ms. Waters, aye. Mr. Meehan? 

[No response.] 

The CLERK. Mr. Delahunt? 

536

[No response.] 

The CLERK. Mr. Wexler? 

[No response.] 

The CLERK. Ms. Baldwin? 

[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. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Members who wish to case or 

change their votes. The gentleman from Virginia, Mr. Goodlatte? 

Mr. GOODLATTE. No. 

The CLERK. Mr. Goodlatte, no. 

Chairman SENSENBRENNER. Further Members who wish to 

case—gentleman from Indiana, Mr. Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their note? If not, the clerk will report. The gentleman 

from Massachusetts, Mr. Meehan? 

Mr. MEEHAN. Yes. 

The CLERK. Mr. Meehan, aye. 

Mr. Chairman, there are 8 ayes and 19 nays. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. Are there further amendments? Gentleman from New York, Mr. 

Nadler? 

Mr. NADLER. Mr. Chairman, I have an amendment, .016. 

Chairman SENSENBRENNER. The clerk will report 016. 

The CLERK. Amendment to H.R. 975 offered by Mr. Nadler. Page 

63, strike lines 12 through 14. 

[The amendment follows:]

537 H.L.C.

AMENDMENT TO H.R. 975

OFFERED BY MR. NADLER

Page 63, strike lines 12 through 14.


A975O.AAB
538

Chairman SENSENBRENNER. The gentleman’s recognized for 5 

minutes. 

Mr. NADLER. Thank you, Mr. Chairman. This amendment deals 

with a strange provision in one of the stranger sections of this bill. 

The actual provision carves out an exception to a provision that in 

itself makes no sense. Section 203 deals with so-called reaffirmation agreements. Under the bankruptcy code a debtor may legally 

bind himself to repay a debt that could otherwise be discharged in 

bankruptcy. 

Now, that in itself is counter-intuitive. Why would someone legally bind himself to repay a debt when the whole purpose of filing 

for bankruptcy and incurring the bad credit rating for 10 years and 

the possible loss of employment and everything else, is to get a 

fresh start. It’s not because he would be prevented from repaying 

the debt without a reaffirmation agreement, because he can always 

repay it, every penny of it if he wants to. Sometimes it is in the 

interest of a debtor to reaffirm a debt because he wants to retain 

property that is securing the debt. There are many reasons, but 

this is at the discretion of the debtor. There have been many cases, 

however, in the past, involving abuses like creditors who have 

failed to follow the rules of the law, who have used unscrupulous 

or deceptive practices, who have made threats or coerced debtors 

into signing away their rights. This bill, especially by allowing 

many more creditor motions, would encourage the creditors to engage in much more of that conduct by making many more motions 

which have to be opposed by the debtor at the expense of thousands of dollars apiece, would encourage that kind of coercive tactic 

to get a debtor to reaffirm some of his debts. 

Section 203 of the bill says that a bankruptcy court may—may, 

not shall—disapprove a reaffirmation agreement if the agreement 

is, quote, ‘‘an undue hardship on the debtor,’’ if the debtor’s monthly income is less than the debtor’s monthly expenses—I’m sorry— if the debtor’s monthly income, less the debtor’s monthly expenses 

is less than the scheduled payments on the reaffirmed debt. 

In other words, the court has the power to block a reaffirmation 

agreement if the debtor’s ability to repay is less than he would be 

obligating himself to repay under the reaffirmation agreement. 

Really, as to say that—it’s at the bottom of page 62. Undue hardship is a reaffirmation agreement that would legally require a debtor to pay more than 100 percent of his income less expenses, to 

repay a debt that he had a legal right to discharge. 

Whoever wrote that has a very strange sense of humor. But it 

gets better. On the next page it says that the discretion of the court 

to disapprove a reaffirmation agreement, calling on the debtor to 

pay more than 100 percent of his post-discharge disposable income 

does not apply if the creditor is a credit union. So the bankruptcy 

courts would be powerless to stop a credit union from requiring a 

debtor to repay more money than they know he has available to 

repay at the time he legally binds himself to repay it. That makes 

no sense. 

No one has ever been able to explain why the credit union would 

want such power, or why the law would give the power to the credit union. Just last week we had a witness on behalf of the credit 

union industry who appeared not to know that this provision was 

in the bill. She couldn’t tell us why anyone would or should ever 

539

reaffirm a debt that he cannot possibly repay. She couldn’t tell us 

why any credit union under any circumstances would ever try to 

obtain such an agreement. She appeared genuinely surprised when 

I asked her about the answer we’ve been getting for years about 

this bizarre provision, that we can’t take it out of the bill because 

the credit unions would withdraw their support from the bill. She 

did tell me that credit unions are the good guys. She did tell us 

that reaffirmations are important to them. She even told us that 

they lose money when people don’t repay their debts. But that 

doesn’t really answer the question. We gave her another chance to 

explain this strange provision in writing after the hearing. Her answer was not responsive. 

Can any one tell me what the provision of this—what the purpose, rather, of this provision is? Can anyone tell me under what 

circumstances it would ever be a sane thing to permit a credit 

union to assist on a reaffirmation that requires the debtor to repay 

more than 100 percent of his ability to repay? Is it really true that 

without this, the credit union industry will abandon this bill? Am 

I the only one who finds this whole thing absurd? 

My amendment would simply strike this exception for credit 

unions. It would not even disturb the disturbing definition of undue 

hardship or the suggestion that a court should ever approve an 

agreement that everyone knows in advance the debtor could never 

honor? Is there anyone in this room willing to argue that this 

should remain in the bill and provide a cogent reason why it 

should? The fact is that there’s no way that a court should be required not—should be required to approve a reaffirmation agreement that requires a debtor to pay more than 100 percent of what 

he can possibly repay. 

So I urge my colleagues to approve this amendment, or at least 

to explain how this makes any sense at all as currently written. 

I thank the Chairman and I yield back. 

Chairman SENSENBRENNER. The gentleman’s time is expired. 

Gentleman from Utah, Mr. Cannon. 

Mr. CANNON. Thank you, Mr. Chairman. The gentleman asks if 

he’s the only one who finds this provision absurd. Let me say I 

don’t know that because I can’t know the hearts and minds of everybody at least in this room, but many people have found that this 

is an appropriate issue. 

Let me first start by talking about who has agreed to this issue 

and then answer the gentleman’s question about the rationale behind it. 

This provision has had bipartisan support. Senator Clinton specifically mentioned the need to protect credit unions from abuse in 

her floor statement in support of similar legislation pending in the 

Senate during the 107th Congress. And members of the House 

Democratic Caucus have specifically endorsed Section 203. Senator 

Torricelli and the Clinton administration specifically negotiated 

Section 203 and insisted that it be included in the conference report during the 106th Congress. It was left untouched during the 

nearly 1 year that the legislation was out in conference during the 

107th Congress. 

I think the rationale is this: credit unions are different. The witness that you referred to, you will recall was a lovely person who 

I thought was very, very calm in the face of daunting questions and 

540

criticism, but she represented a $23.7 million credit union. Now, 

that is not a massive financial institution. And her lack of understanding of the particulars does not mean—and her surprise at the 

question and the manner of the questioning does not mean that she 

wouldn’t assert with clarify what the underlying concept was, that 

is, that credit unions, especially small—you know, we have some 

major financial institutions that are credit unions, but the small 

historically chartered credit unions are different because they represent a sort of a community. And what this bill does is allow people, or part of that community, the reaffirm their debts. Unlike 

other types of creditors, there is this special relationship that credit 

unions have with their members, and by not restricting the member’s ability to reaffirm an obligation owed to a credit union, this 

ensures the credit union member has continued access to reasonably priced products and services, as does the rest of that creditor 

community. 

Credit unions are not-for-profit entities, and reaffirmation agreements save the credit unions from suffering financial losses which 

keeps costs down for all credit unions and their members. Now 

that, you may want to call that rationale absurd, but I think most 

people that have been part of a small credit union, or who understand the legal construct for small credit unions, for them this 

makes a compelling argument and a very reasonable argument. 

Mr. NADLER. Would the gentleman now yield for a question? 

Mr. CANNON. I’d be happy to yield. 

Mr. NADLER. Thank you. There’s no disagreement that credit 

unions need the ability to reaffirm debts, that reaffirmations make 

sense, and that they have it under current law. The question, sir, 

the question is what the—what the bill says is that it should be 

presumed that the reaffirmation agreement is an undue hardship 

on the debtor, if the debtor’s monthly income less his monthly expenses is less than the scheduled payments on the reaffirmed debt. 

Now, this presumption may be rebutted if he can show additional 

sources of income. That makes sense. 

But then it says, and if the presumption is not rebutted, the 

court may disapprove, may disapprove the agreement. In other 

words, if you show that he can’t possibly repay that amount, the 

court may disapprove. Then it says, this subsection does not apply 

where the creditor is a credit union. So the question is not why 

credit unions need reaffirmation agreements; it is why if a presumption that he can’t repay—if you show that he doesn’t have 

the—that he can’t possibly repay it because he doesn’t have enough 

money to repay it, the court decides that that presumption wasn’t 

rebutted, the court may then disapprove the reaffirmation agreement and presumably can have a smaller reaffirmation agreement. 

Why shouldn’t that apply to a credit union? If I owe money to a 

credit union, it’s still not possible for me to pay more by definition 

than I’m able to pay. 

Mr. CANNON. I think the rationale for that is that you have—the 

credit union in fact represents the community and credit unions 

are not likely to overreach in this regard, recognizing the difficulty 

of getting more money than the creditor has available. 

Mr. NADLER. Would the gentleman further yield? 

Mr. CANNON. Yes. 

541

Mr. NADLER. A credit union may be further—may or may not— let’s assume it would be less willing to—less likely to overreach. 

But the arithmetic is the arithmetic. If it needs to—— Mr. CANNON. Reclaiming my time, let me just point out that we 

did take testimony on this particular point, and what happens is 

that credit unions have a tendency to work with—in fact, credit 

unions work with their debtors to try and work out a system in the 

process, so that we don’t have the kind of overreaching that may 

happen with a credit card or a larger institution where there’s 

more pressure. In other words, I believe that what we came to a 

conclusion on a long time since with many, many folks from both 

parties is that this is not an unreasonable—— Chairman SENSENBRENNER. The gentleman’s time has expired. 

Mr. WATT. Mr. Chairman? 

Mr. CANNON. I yield back. 

Chairman SENSENBRENNER. Gentleman from North Carolina, Mr. 

Watt. 

Mr. WATT. I move to strike the last word. 

Chairman SENSENBRENNER. The gentleman’s recognized for 5 

minutes. 

Mr. WATT. Yield to Mr. Nadler. 

Mr. NADLER. Thank you, sir. I thank the gentleman for yielding. 

And let me continue, Mr. Cannon, because the credit union may 

want to work everything out and they may be the greatest people 

in the world, and they may be very reasonable. But the fact is the 

arithmetic is the arithmetic. If in fact the facts are in a given case 

that the debtor’s monthly income less the debtor’s monthly expenses is less than the scheduled payment on the reaffirmed debt, 

and if there are no sources of outside income, he cannot possibly 

pay what the reaffirmation agreement is saying. In the circumstance, the bill says the court may disapprove the agreement 

if the court sees that it’s impossible to meet the agreement unless 

the creditor is a credit union. 

If the arithmetic is such that there’s no possibility of repaying 

the agreement because the guy’s income less his expenses is less 

than the reaffirmation and there are no outside sources of income, 

why shouldn’t the court have the ability even if the credit union 

is the creditor, to disapprove a reaffirmation agreement under 

those circumstances? And saying that the credit union is a nice guy 

and they’re wonderful people, that’s all true, but in the given instance where the arithmetic, where his income is $1,000 and his 

expenses are $900, and he can pay $100, and he agrees to pay 

$200, it can’t be done. Why shouldn’t the court have the ability to 

say no, that’s too much? 

I’ll yield. 

Mr. CANNON. I thank the gentleman for yielding. 

Mr. WATT. I’ll yield to the gentleman. 

Mr. CANNON. I’m sorry. Thank you, Mr. Watt. I appreciate your 

yielding to me, although if you want to answer this question, you’re 

welcome to take a shot. [Laughter.] 

Mr. WATT. My answer I suspect would be substantially different. 

Mr. CANNON. Different from mine. 

Mr. WATT. I don’t want to deprive you of your answer. 

Mr. CANNON. Thank you. I think that inherent in your question 

is, maybe they’re nice guys. You’re acknowledging the fact that I 

542

think that all of the folks that have been involved in this on both 

sides, including the very prominent Democrats have come to acknowledge. That is, credit unions are not going to get more than 

what the math allows, but sometimes they have reason to believe 

that maybe the math is not what reality is. They ought to have 

that option to do that, I believe, as do the others that have dealt 

with this issue. 

Mr. WATT. Reclaiming my time and yielding to Mr. Nadler. 

Mr. NADLER. But the problem is, that without—with my amendment, without these two lines, they have that ability because it’s 

not only the arithmetic. The presumption may be rebutted if the 

statement includes an explanation which identifies additional 

sources of funds. And the court may then disapprove it, or may approve it. In other words, you show to the court, this is the arithmetic. If someone disputes the arithmetic, fine. The court can decide that. That’s what it’s there for, to decide the facts. But if the 

facts are such that his income less his expenses are less than he 

agreed to repay, and there are no outside sources of income, the 

court ought to have the ability to say this is ridiculous. You got to 

have a smaller reaffirmation agreement, which is the case without 

these two lines with my amendment, and is the case with everybody else, and saying that the creditor is a nice guy doesn’t change 

it. If the arithmetic is such and the court finds the arithmetic is 

such, the court ought to have the ability to say you got to change 

the deal. 

Mr. WATT. Reclaiming my time and yielding to Mr. Cannon. 

Mr. CANNON. Thank you. I’d like to submit, Mr. Chairman, ask 

unanimous consent to submit for the record a letter, a ‘‘Dear Colleague’’ letter from various Members of the Congress that I’ll name 

in a moment, dated April 12th, 2000. 

Chairman SENSENBRENNER. Without objection. 

[The information follows:]

543

Mr. CANNON. Let me just read a section of that, a paragraph of 

that, and then the people who signed the letter. This is April 12, 

2000. ‘‘Sound protection, such as mandatory consumer financial 

education and minimum payment disclosures, have been incorporated to ensure that consumers have a better understanding of 

their financial obligations.’’ This is written by the Democratic Caucus in asking for a bankruptcy to be—this bill to be passed before. 

Continuing: ‘‘Furthermore the rights of’’——

Mr. WATT. Reclaiming my times, just to clarify, that I’m a member of the Democratic Caucus. I don’t think that’s speaking for the 

Democratic caucus. 

Mr. CANNON. I understand that, but let me go on if you don’t 

mind. 


Caucus.eps
544

Mr. WATT. Well, if you’re speaking for whoever signed the letter, 

I don’t have any problem with that, but it certainly doesn’t speak 

for me. 

Mr. CANNON. This is people writing as members of the Democratic Caucus, asking for your support. I’m sorry if I was not clear 

enough on that point. 

But continuing: ‘‘Furthermore, the rights of credit union members to reaffirm their debts and thus protect their access to fairly 

priced financial services are preserved in the House version of the 

legislation.’’ This is a letter signed by Ellen Tauscher, Martin Frost, Robert 

Menendez, Patrick Kennedy and James Maloney. 

Mr. WATT. Reclaiming my time, I’m not sure that’s responsive to 

Mr. Nadler’s question. I’ll yield to Mr. Nadler. 

Mr. NADLER. Again, the question isn’t the right of reaffirmation. 

The bill, including with my amendment, grants the right of reaffirmation. All we’re talking about here is in a case where reaffirmation is made, where it’s impossible arithmetically to meet that reaffirmation, the bill grants everybody—the ability to say, wait a 

minute, you’ve got to change your arithmetic, unless the creditor is 

a credit union, and that ‘‘unless’’ doesn’t make sense. And that’s 

what my amendment deals with. 

Chairman SENSENBRENNER. The gentleman’s time—— Ms. LOFGREN. Would the gentleman yield? 

I ask unanimous consent that the gentleman be allotted 30 seconds so he might—— Chairman SENSENBRENNER. The gentlemen from North Carolina, 

without objection, is given another 30 seconds. 

Mr. WATT. I yield to the generous lady from California. 

Ms. LOFGREN. I just wanted to note the gentleman from Utah 

read a letter with some individuals who had supported the bill. I 

think it’s worth noting that upon further study, some of those individuals no longer support the bill, including Congressman Patrick 

Kennedy. 

I yield back. I thank the gentleman. 

Mr. CANNON. If the gentleman would yield his remaining 15 seconds? 

Mr. WATT. I’d be happy to yield. 

Chairman SENSENBRENNER. 8 seconds. 

Mr. CANNON. 8 seconds. I don’t know who has withdrawn in 

name from this position, but the language is specific to what—the 

question that Mr. Nadler was asking,a and I suppose——

Chairman SENSENBRENNER. The gentleman’s time has once again 

expired. The question is on the Nadler Amendment. Those in favor 

will say aye. 

Opposed, no. 

The noes appear to have it. The noes have it, and the——

Mr. NADLER. Mr. Chairman, I ask for the ayes and nays. 

Chairman SENSENBRENNER. rollcall will be ordered Those in 

favor of Nadler Amendment No. 16 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. 

545

The CLERK. Mr. Coble, no. Mr. Smith? 

[No response.] 

The CLERK. Mr. Gallegly? 

[No response.] 

The CLERK. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, no. Mr. Jenkins? 

[No response.] 

The CLERK. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

[No response.] 

The CLERK. Mr. Hostettler? 

[No response.] 

The CLERK. Mr. Green? 

[No response.] 

The CLERK. Mr. Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. Ms. Hart? 

[No response.] 

The CLERK. Mr. Flake? 

[No response.] 

The CLERK. Mr. Pence? 

Mr. PENCE. No. 

The CLERK. Mr. Pence, no. Mr. Forbes? 

Mr. FORBES. No. 

The CLERK. Mr. Forbes, no. Mr. King? 

Mr. KING. No. 

The CLERK. Mr. King, no. Mr. Carter? 

Mr. CARTER. No. 

The CLERK. Mr. Carter, no. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mrs. Blackburn? 

Mrs. BLACKBURN. No. 

The CLERK. Mrs. Blackburn, no. Mr. Conyers? 

[No response.] 

The CLERK. Mr. Berman? 

[No response.] 

The CLERK. 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? 

[No response.] 

The CLERK. Ms. Waters? 

Ms. WATERS. Aye. 

The CLERK. Ms. Waters, aye. Mr. Meehan? 

546

[No response.] 

The CLERK. Mr. Delahunt? 

Mr. DELAHUNT. Aye. 

The CLERK. Mr. Delahunt, aye. Mr. Wexler? 

[No response.] 

The CLERK. Ms. Baldwin? 

[No response.] 

The CLERK. Mr. Weiner? 

[No response.] 

The CLERK. Mr. Schiff? 

[No response.] 

The CLERK. Ms. Sa ́nchez? 

Ms. SA ́ NCHEZ. Aye. 

The CLERK. Ms. Sa ́nchez, aye. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Are there Members in the chamber 

who wish to cast or change their vote? Gentleman from Texas, Mr. 

Smith. 

Mr. SMITH. No. 

The CLERK. Mr. Smith, no. 

Chairman SENSENBRENNER. Gentleman from Virginia, Mr. Goodlatte? 

Mr. GOODLATTE. No. 

The CLERK. Mr. Goodlatte, no. 

Chairman SENSENBRENNER. Gentleman from Tennessee, Mr. 

Jenkins? 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. 

Chairman SENSENBRENNER. Gentleman from Alabama, Mr. 

Bachus? 

Mr. BACHUS. No. 

The CLERK. Mr. Bachus, no. 

Chairman SENSENBRENNER. Gentleman from Indiana, Mr. 

Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. 

Chairman SENSENBRENNER. Gentleman from Wisconsin, Mr. 

Green? 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. 

Chairman SENSENBRENNER. Gentlewoman from Pennsylvania, 

Ms. Hart? 

Ms. HART. No. 

The CLERK. Ms. Hart, no. 

Chairman SENSENBRENNER. Gentleman from Massachusetts, Mr. 

Meehan? 

Mr. MEEHAN. Aye. 

The CLERK. Mr. Meehan, aye. 

Chairman SENSENBRENNER. Gentleman from Michigan, Mr. Conyers? 

Mr. CONYERS. Aye. 

The CLERK. Mr. Conyers, aye. 

Chairman SENSENBRENNER. Are there further Members who 

wish to cast or change their vote? If not, the clerk will report. 

547

The CLERK. Mr. Chairman, there ar 8 ayes and 18 nays. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. Are there further amendments? 

Mr. NADLER. Mr. Chairman? 

Chairman SENSENBRENNER. Gentleman from New York, Mr. 

Nadler. 

Mr. NADLER. Thank you. I now call up my last amendment, No. 

007. 

Chairman SENSENBRENNER. Promise? 

Mr. NADLER. Yes, I do. 

Chairman SENSENBRENNER. Clerk will report the amendment. 

Mr. NADLER. And it’s No. 007 notice. 

The CLERK. Amendment to H.R. 975 offered by Mr. Nadler. Page 

16, strike lines 7 through 24. 

[The amendment follows:]

548 H.L.C.

AMENDMENT TO H.R. 975

OFFERED BY MR. NADLER

Page 16, strike lines 7 through 24.


A975P.AAB
549

Chairman SENSENBRENNER. The gentleman’s recognized for 5 

minutes. 

Mr. NADLER. Thank you, Mr. Chairman. This amendment deals 

with another of those perplexing sections of this bill. As you know, 

there’s been a great deal of controversy generated by that part of 

Section 102 that imposes sanctions on attorneys. Apparently the 

authors of this section think that debtors’ counsel are inherently 

more dangerous than creditors’ counsel, because the penalties and 

the duties imposed on debtors’ counsel are much more severe than 

those imposed on their colleagues who represent creditors. 

Anyone who thinks this isn’t a bill written by creditors to tilt the 

whole system in their favor, should read pages 13 through 16 of 

this bill. 

All right. So it’s be kind to creditor lawyer week on the Judiciary 

Committee. Congress often plays favorites, and I suppose if the majority of Members want to favor bank lawyers over the lawyers who 

represent financially distressed individuals, the majority will rule. 

My amendment deals with only one small part of that that no 

one has ever explained. While debtors attorneys can be fined if 

they fail to detect that their clients are providing them with bad 

information, a creditor’s attorney can only be assessed costs. He 

can’t be fined. Even more amazingly, some creditors cannot be penalized if they are found to have violated bankruptcy rule 9011. In 

order to violate that rule—and I hope I won’t be yelled at for reading rule 9011 aloud, the way a Member of the minority staff was 

a few years ago—you must have filed a motion for, quote, ‘‘any improper purpose such as to harass or to cause unnecessary delay or 

needless increase in the course of litigation,’’ unquote. Additionally, 

quote, ‘‘the allegations and other factual contentions have evidentiary support, or specifically so identified a likelihood to have 

evidentiary support after a reasonable opportunity for further investigation or discovery and the denials of factual contentions are 

warranted on the evidence or specifically so identified are reasonably based on a lack of information or belief,’’ close quote. 

Okay. Is there anyone in this room prepared to tell me why anyone should be allowed to do that, especially in a bill that’s supposed 

to repair the integrity of the bankruptcy system? Does anyone want 

to defend a, quote, ‘‘improper purpose,’’ unquote? How about making false statements, harassment, unnecessary delay or needless 

increase in the cost of litigation? 

Well, that’s what it says right here on page 16 at lines 7 to 9. 

No penalty under this section even if you violate rule 9011. So who 

is the lucky winner of this special rule? It says small business. 

Well, we all like small business, but do we want them to act that 

improperly with impunity? 

Now, let’s look at the definition of small business, because it’s 

not your local mom and pop getting this protection. It says that it 

is ‘‘any business that has fewer than 25 full-time employees and is 

engaged in commercial or business activity,’’ unquote, if they have 

a claim of an aggregate amount less than $1,000. Do you recognize 

this business? Does it sound like one of those law firms that buys 

bad debt and then harasses people to squeeze out a few more cents 

on the dollar? 

Some of these operators are what politely could be called shady. 

In Brooklyn where I grew up, we have other names for them. Even 

550

in Brooklyn these things are illegal. Perhaps they should be in the 

bankruptcy courts as well. 

My amendment would simply eliminate this unwarranted get-ofjail-free card for these sleazy operators. If we’re going to clean up 

the system, we should not track the place up on our way out. 

I thank you and I yield back the balance of my time. 

Chairman SENSENBRENNER. Gentleman from Utah, Mr. Cannon. 

Mr. CANNON. Thank you, Mr. Chairman. 

Section 102 of the bill allows a debtor to recover reasonable costs 

including contesting a motion against a creditor who violates rule 

9011 of the Federal Rules of Bankruptcy procedure or brought the 

motion solely to coerce a debtor into waiving his or her rights. Its 

purpose is to ensure that creditors do not profit from violations of 

the code, but it creates an important exception for businesses that 

have aggregate claims of less than $1,000. This provision which the 

amendment seeks to change is limited only to a Section 707(b) motion filed by a small business. It does not prevent a court from 

awarding sanctions against a small business that violates rule 

9011 or further filings. Rule 9011 is broader, more comprehensive 

to turn against improper conduct on the part of small businesses. 

Over the nearly 1 year that the bankruptcy legislation was in 

conference in the 107th Congress, there was no serious effort to remove this provision. Supporters of this amendment now wish to penalize small businesses. While we have striven to create broad, 

generally applicable rules throughout H.R. 975, it’s important to 

make the necessary adjustments to make provisions for the specific 

needs of individuals and businesses that this legislation affects. 

Small businesses are the cornerstone of the American economy. 

They generate most of our job growth and often operate on very 

small margins. The events of September 11th caused considerable 

dislocation with small businesses, and small businesses that sell 

commercial goods and merchandise have seen their already narrow 

profit margins strained even further. 

While some claim that small businesses should be treated like 

large corporations capable of withstanding these losses, the special 

circumstances faced by small businesses requires to address this 

problem with particularity. In other words, these people in small 

businesses ought to have the ability, without investigating and 

spending a great deal of money which they don’t have to ask their 

claims to be covered without fear of retribution. And so I would 

suggest to the Members of this Committee that this amendment 

is—would be destructive. It would be counterproductive for the 

overall balance of this bill. This is an important provision which 

helps small business, and I request the Members of the Committee 

to oppose this amendment. 

Thank you, Mr. Chairman. I yield back. 

Mr. DELAHUNT. Mr. Chairman? Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from Massachusetts, 

Mr. Delahunt. 

Mr. DELAHUNT. I move to strike the last word. 

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. DELAHUNT. And I won’t take 5 minutes. I’ll just be very 

brief, but I want to yield some time to the gentleman from New 

York. But let me say this about small business. A thorough review 

551

of this entire bill can only lead to one conclusion, that this is a bill 

that does nothing, in fact is an impediment to small businesses’ reorganization efforts, and I would suggest that the only conclusion 

one could reach after a thoughtful examination and close scrutiny 

of this legislation is that this particular bill is hostile to the interests of small business in this Nation, and ought to be described as 

a bill that is anti-small business. 

And with that, I will yield to Mr. Nadler. 

Mr. NADLER. Thank you. I thank the gentleman for yielding. 

I want to say two things, and I’ll be brief. One, I agree with Mr. 

Delahunt, not these provisions but the provisions in the bill in 

other title sections of the bill that greatly reduce the ability of 

small businesses to reorganize and put a lot of requirements on 

them in Chapter 11, will result in a lot more liquidations and a lot 

fewer—and going out of business, and a lot fewer businesses surviving and reorganizing in Chapter 11, and that makes it a very 

anti-small business bill. 

What this provision does, all that it—all we’re saying is let it be 

a little more balance. Yes, Mr. Cannon said that you can assess 

costs against the lawyers for a small business who violate rule 11. 

If the debtor’s attorney does the wrong thing, you can assess costs 

and fines. If the creditor’s attorney does the wrong thing, you can 

assess only costs. All this amendment says is be even handed. 

You’re dealing with a small business. You’re dealing with a small 

debtor usually. Either they should both be subject to costs and 

fines if they violate the law, or they should both be subject only to 

costs. But why say that the attorney who violates the law if he’s 

the attorney for the creditor, can be assessed costs, but if he’s the 

attorney for the debtor and he violates the law, he can be fined as 

well as being assessed costs. That’s uneven handed and doesn’t 

make sense, and that’s what this amendment seeks to change. 

Mr. CANNON. Would the gentleman yield? 

Mr. NADLER. I thank the gentleman and yield back. 

Mr. CANNON. Would the gentleman yield for a moment? 

Mr. DELAHUNT. I will. 

Mr. CANNON. I’m not going to respond particularly but just to say 

this is not a bill that is anti-small business. One of the big problems with small businesses is the languishing of other cases as 

debtors in bankruptcy court, and this moves that more quickly. I 

might say that the U.S. Chamber of Commerce, the NFIB, the National Federation of Independent Businesses, representing small 

businesses, both endorsed this bill, and it’s really probably not fair 

to characterize it as anti-small business. I think in fact that many 

of its provisions are dramatically good for small businesses. 

Mr. DELAHUNT. Reclaiming my time, and I agree with the gentleman that the Chamber of Commerce has in fact endorsed this 

bill, and I can understand that perspective. But when the gentleman—I cannot understand why NFIB has endorsed this particular legislation, and I daresay they’re not representing the interest of small business. 

And I’ll yield to Mr. Nadler. 

Mr. NADLER. Thank you. 

Let me say I spoke to the NFIB about 4 years ago on the particular provisions, not the ones we’re talking about in this amendment, but the particular provisions that are going to murder small 

552

businesses and Chapter 11s. I said, you ought to look into that and 

you ought to do something about it. And they refused, which went 

to my conclusion that the NFIB is not honestly representing small 

businesses, but has overarching political motives, whatever that 

may be. That’s just my conclusion. 

But the point is, whatever you may say, watch what happens 

when and if this bill is in law, and watch what the percentage of 

small businesses in Chapter 11, watch the percentages of liquidations soar, the percentages of reorganizations go way down, and 

then I will say I told you so. 

I yield back, and I thank the gentleman. 

Chairman SENSENBRENNER. The gentleman from Massachusetts 

yield back. 

The question is on the Nadler Amendment. Those in favor will 

say aye. 

Opposed, no. 

The noes appear to have it. The noes have—— Mr. NADLER. Mr. Chairman, I ask for the ayes and nays. 

Chairman SENSENBRENNER. A rollcall will be ordered. The question is on Nadler Amendment No. 7. 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? 

[No response.] 

The CLERK. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, 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. Hostettler? 

[No response.] 

The CLERK. Mr. Green? 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. Mr. Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. Ms. Hart? 

[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? 

553

Mr. KING. No. 

The CLERK. Mr. King, no. Mr. Carter? 

Mr. CARTER. No. 

The CLERK. Mr. Carter, no. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mrs. Blackburn? 

Mrs. BLACKBURN. No. 

The CLERK. Mrs. Blackburn, no. Mr. Conyers? 

Mr. CONYERS. Aye. 

The CLERK. Mr. Conyers, aye. Mr. Berman? 

Mr. BERMAN. Aye. 

The CLERK. Mr. Berman, aye. Mr. Boucher? 

[No response.] 

The CLERK. Mr. Nadler? 

Mr. NADLER. Aye. 

The CLERK. Mr. Nadler, aye. Mr. Scott? 

[No response.] 

The CLERK. Mr. Watt? 

Mr. WATT. Aye. 

The CLERK. Mr. Watt, aye. Ms. Lofgren? 

Ms. LOFGREN. Aye. 

The CLERK. Ms. Lofgren, aye. Ms. Jackson Lee? 

[No response.] 

The CLERK. Ms. Waters? 

[No response.] 

The CLERK. Mr. Meehan? 

[No response.] 

The CLERK. Mr. Delahunt? 

Mr. DELAHUNT. Aye. 

The CLERK. Mr. Delahunt, aye. Mr. Wexler? 

[No response.] 

The CLERK. Ms. Baldwin? 

[No response.] 

The CLERK. Mr. Weiner? 

Mr. WEINER. Aye. 

The CLERK. Mr. Weiner, aye. Mr. Schiff? 

[No response.] 

The CLERK. Ms. Sa ́nchez? 

Ms. SA ́ NCHEZ. Aye. 

The CLERK. Ms. Sa ́nchez, 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 Virginia, Mr. Goodlatte? 

Mr. GOODLATTE. No. 

The CLERK. Mr. Goodlatte, no. 

Chairman SENSENBRENNER. Gentleman from Indiana, Mr. 

Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. 

Chairman SENSENBRENNER. Gentlewoman from Pennsylvania, 

Ms. Hart? 

Ms. HART. No. 

The CLERK. Ms. Hart, no. 

554

Chairman SENSENBRENNER. Gentleman from Indiana, Mr. 

Pence? 

Mr. PENCE. No. 

The CLERK. Mr. Pence, no. 

Chairman SENSENBRENNER. Gentleman from Massachusetts, Mr. 

Meehan? 

Mr. MEEHAN. Aye. 

The CLERK. Mr. Meehan, aye. 

Chairman SENSENBRENNER. Gentleman from Florida, Mr. 

Wexler? 

Mr. WEXLER. Aye. 

The CLERK. Mr. Wexler, 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 18 noes. 

Chairman SENSENBRENNER. The amendment is not agreed to. 

Are there further amendments? There being none, the question 

now occurs on the motion to report the bill H.R. 975 favorably as 

modified by the technical revisions. Those in favor will—a reported 

quorum is present. Those in favor will say aye. 

Opposed, no. 

The ayes appear to have it. 

Mr. WATT. May I as for a rollcall. 

Chairman SENSENBRENNER. rollcall is requested. Those in favor 

of reporting the bill favorably 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. Aye. 

The CLERK. Mr. Smith, aye. Mr. Gallegly? 

[No response.] 

The CLERK. Mr. Goodlatte? 

Mr. GOODLATTE. Aye. 

The CLERK. Mr. Goodlatte, aye. Mr. Chabot? 

Mr. CHABOT. Aye. 

The CLERK. Mr. Chabot, 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. Hostettler? 

Mr. HOSTETTLER. Aye. 

The CLERK. Mr. Hostettler, aye. Mr. Green? 

Mr. GREEN. Aye. 

The CLERK. Mr. Green, aye. Mr. Keller? 

Mr. KELLER. Aye. 

The CLERK. Mr. Keller, aye. Ms. Hart? 

Ms. HART. Aye. 

The CLERK. Ms. Hart, aye. Mr. Flake? 

[No response.] 

The CLERK. Mr. Pence? 

555

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. Carter? 

Mr. CARTER. Aye. 

The CLERK. Mr. Carter, aye. Mr. Feeney? 

Mr. FEENEY. Aye. 

The CLERK. Mr. Feeney, aye. Mrs. Blackburn? 

Mrs. BLACKBURN. Aye. 

The CLERK. Mrs. Blackburn, aye. Mr. Conyers? 

Mr. CONYERS. No. 

The CLERK. Mr. Conyers, no. Mr. Berman? 

Mr. BERMAN. No. 

The CLERK. Mr. Berman, no. Mr. Boucher? 

[No response.] 

The CLERK. Mr. Nadler? 

Mr. NADLER. No. 

The CLERK. Mr. Nadler, no. Mr. Scott? 

[No response.] 

The CLERK. Mr. Watt? 

Mr. WATT. No. 

The CLERK. Mr. Watt, no. Ms. Lofgren? 

Ms. LOFGREN. No. 

The CLERK. Ms. Lofgren, no. 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? 

Mr. DELAHUNT. No. 

The CLERK. Mr. Delahunt, no. Mr. Wexler? 

Mr. WEXLER. No. 

The CLERK. Mr. Wexler, no. Ms. Baldwin? 

[No response.] 

The CLERK. Mr. Weiner? 

Mr. WEINER. No. 

The CLERK. Mr. Weiner, no. Mr. Schiff? 

Mr. SCHIFF. Pass. 

The CLERK. Mr. Schiff, pass. Ms. Sa ́nchez? 

Ms. SA ́ NCHEZ. No. 

The CLERK. Ms. Sa ́nchez, no. Mr. Chairman? 

Chairman SENSENBRENNER. Aye. 

The CLERK. Mr. Chairman, aye. 

Chairman SENSENBRENNER. Members in the chamber, who wish 

to cast or change their votes? If not, the clerk will report. 

The CLERK. Mr. Chairman, there are 18 ayes, 11 noes, and one 

pass. 

Chairman SENSENBRENNER. And the motion to report favorably 

is agreed to. Without objection the bill will be reported favorably 

to the House in the form of a single amendment in the nature of 

a substitute, incorporating the modifications contained in the technical revisions adopted here today. 

556

Without objection, the Chairman is authorized to move to go to 

conference pursuant to House rules. 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. 

The Chair thanks all Members for their patience. We got a lot 

of work done today, and the Committee is adjourned. 

[Whereupon, at 4:25 p.m., the Committee was adjourned.] 

(557)

1Local Loan v. Hunt, 292 U.S. 234 (April 30, 1934). ‘‘One of the primary purposes of the bankruptcy act is to ‘relieve the honest debtor from the weight of oppressive indebtedness and permit 

him to start afresh free from the obligations and responsibilities consequent upon business misfortunes.’ The purpose of the act has been again and again emphasized by the courts as being 

of public as well as private interest, in that if gives to the honest but unfortunate debtor who 

surrenders for distribution the property which he owns at the time of bankruptcy, a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement 

of preexisting debt.’’ Id. at 244. (Citations omitted). 2Letter to Colleagues from Rep. F. James Sensenbrenner and Rep. Richard Boucher (March 

11. 2003). 3 18 USC 248. 

DISSENTING VIEWS

Reform of the bankruptcy system, and the principle that every 

debtor should repay as much of her debt as she can reasonably afford, is a sound and uncontroversial idea. Were the legislation reported by the Judiciary Committee to bear any remote relationship 

to that laudable goal, this legislation would be wholly 

uncontroversial. Instead, by pressing legislation that is unbalanced 

and tilted toward specific special interest groups, the proponents of 

H.R. 975 have created a bill that would impose monumental costs 

on the parties in the bankruptcy system, including the government, 

subject the ‘‘honest but unfortunate debtor’’ 1 to coercion and loss 

of their legal rights, force businesses into unnecessary liquidation, 

and favor certain creditors over others. 

For these reasons, and others discussed below, we respectfully 

dissent. 

The sponsors of H.R. 975 have argued that the legislation is warranted by the increase in bankruptcy filings in recent years, the 

losses to borrowers, purported widespread abuse of the system and 

the costs which they claim are passed on to borrowers. They further claim that the bill ‘‘will help some of the most needy and deserving members in our society.’’ 2

Nonetheless, this legislation is opposed by organizations and individuals most concerned with the bankruptcy system, the rights of 

consumers, the needs of single parents and children, the elderly, 

working families, civil rights, and crime victims. Many of these concerns have been expressed since the introduction of the precursor 

bills since the 105th Congress. The reported bill is virtually identical to the conference report on H.R. 333 in the 107th Congress 

with the exception of an important provision that would have prevented the discharge, or the abuse of the bankruptcy system to 

hinder, delay and defraud creditors, of debts arising from violations 

of the Freedom of Access to Clinic Entrances Act 3. There is no reason for the deletion of this amendment which reflects a compromise 

between Rep. Henry Hyde, Sen. Charles Schumer, and Sen. Orrin 

Hatch, other than the conclusion among the sponsors that protecting women’s constitutional rights would interfere with the passage of this special interest legislation. 

558

4While the meticulous corrections, to which all members of the Committee agreed, are highly 

technical, we note that interpretation of the Bankruptcy Code has turned on the placement of 

commas. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241–2 (February 22, 1989). 

Nonetheless, we are concerned that the reckless manner in which this legislation has been drafted will lead to interminable litigation and perverse and unexpected results. If the sponsors wish 

to enact a bad policy, they have, at the very least, an obligation to execute that policy correctly. 5Letter from AFL-CIO, American Association of University Women, American Friends 

Service3 Committee, Association of Community Organization for Reform Now (ACORN), Business and Professional Women/USA, Center for Community Change, Children’s Foundation, 

Church Women United, Commission on Social Action of Reform Judaism, Consumer Federation 

of America, Consumers Union, International Brotherhood of Boilermakers, International Union 

UAW, Leadership Conference on Civil Rights, Lutheran Office for Governmental Affairs ELCA, 

NAACP, National Advocacy Center of the Sisters of the Good Shepard, National Community reinvestment Coalition, National Consumer Law Center, National Council of Jewish Women, National Council of Women’s Organizations, National Organization for Women, National Women’s 

Law Center, Neighborhood Assistance Corporation of America, Network—a National Catholic 

Social Justice Lobby, NOW Legal Defense and Education Fund, OWL—Thee Voice of Midlife 

and Older Women, Public Justice Center, Transport Workers Union, Union of Needletrade Industrial and Textile Employees (UNITE), United Steelworkers of America, U.S. Public Research 

Group (March 3, 2003). 6Letter from Peggy Taylor, Director of Legislation, AFL-CIO, to the Honorable Henry J. Hyde, 

Chair, House Comm. on the Judiciary (Apr. 20, 1999); Letter from Charles M. Loveless, Director 

of Legislation, AFSCME, to Members of Congress (Apr. 19, 1999); Letter from Alan Reuther, 

Legislative Director, UAW, to Members of Congress (Apr. 26, 1999); Letter from Ann Hoffman, 

Legislative Director, UNITE, to the Honorable John Conyers, Jr., Ranking Member, House 

Comm. on the Judiciary (May 4, 1998). 7Letter from Douglas G. Baird, Vice Chair, NBC, to the Honorable Henry J. Hyde, Chair, 

House Comm. on the Judiciary (Apr. 19, 1999); Hearing on H.R. 833, the ‘‘Bankruptcy Reform 

Act of 1999,’’ Before the House Subcomm. on Commercial and Admin. Law, 106th Cong., 1st 

Sess. (Mar. 17, 1999) [hereinafter March 17, 1999 Hearing] (written statement of the Honorable 

William Houston Brown, ABI); Id. (written statement of the Honorable Randall J. Newsome, 

NCBJ; Id. (written statement of Henry E. Hildebrand, III, NACTT); Id. (written statement of 

Robert H. Waldschmidt, NABT); COMMERCIAL LAW LEAGUE OF AMERICA, POSITION PAPER ON

THE BANKRUPTCY REFORM ACT OF 1999, H.R. 833, SUBMITTED TO THE U.S. HOUSE OF REPRESENTATIVES AND THE U.S. SENATE (Mar. 9, 1999); Letter from Raymond L. Shapiro, Chair, 

American College of Bankruptcy, to Members of Congress (Apr. 26, 1999); Letter from Norma 

Hammes, President, NACBA, to Members of Congress (Apr. 26, 1999).

The bill as reported also makes 350 technical corrections of 

which we approve, but which do not in any way improve the substance of the legislation.4

Among the organizations that have opposed, or have expressed 

serious concerns with, H.R. 975 and its precursors since the 105th 

Congress are: 5

(1) groups concerned about the rights of workers (such as the 

AFL-CIO; the American Federation of State, County, and 

Municipal Employees (‘‘AFSCME’’); the United Auto Workers (‘‘UAW’’); and the Union of Needletrades, Industrial 

and Textile Employees (‘‘UNITE’’)); 6

(2) groups of non-partisan bankruptcy lawyers, judges, and 

academics (such as the National Bankruptcy Conference 

(‘‘NBC’’), the American Bankruptcy Institute (‘‘ABI’’), the 

National Conference of Bankruptcy Judges (‘‘NCBJ’’), the 

National Association of Chapter 13 Trustees (‘‘NACTT’’), 

the National Association of Bankruptcy Trustees (‘‘NABT’’), 

the Commercial Law League of America, the American College of Bankruptcy, and the National Association of Consumer Bankruptcy Attorneys (‘‘NACBA’’)); 7

(3) groups concerned about the rights of women, children, and 

victims of crimes and torts (such as the National Women’s 

Law Center, the National Partnership for Women and 

Families, the National Organization for Women (‘‘NOW’’), 

the Association for Children for Enforcement of Support 

(‘‘ACES’’), the California Women’s Law Center, Mothers 

559

8Letter from the National Women’s Law Center & the National Partnership for Women and 

Families to the Honorable John Conyers, Jr., Ranking Member, House Comm. on the Judiciary 

(Apr. 19, 1999); Letter from Patricia Ireland, President, NOW, to the Honorable John Conyers, 

Jr., Ranking Member, House Comm. on the Judiciary (May 15, 1998); Letter from Geraldine 

Jensen, President, ACES, to the Honorable George W. Gekas, Chair, House Subcomm. on Commercial and Admin. Law (Mar. 17, 1999); Letter from Abby J. Leibman, Executive Director, 

California Women’s Law Center, to the Honorable Dianne Feinstein, Senate Comm. on the Judiciary (Apr. 27, 1998); Letter from Karolyn V. Nunnallee, National President, MADD, to Members of Congress (Apr. 26, 1999); Letter from Marlene A. Young, Executive Director, NOVA, to 

the Honorable Henry J. Hyde, Chair, House Comm. on the Judiciary (Apr. 26, 1999); Letter from 

David Beatty, Director of Public Policy, The National Center for Victims of Crime, to the Honorable Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and Admin. Law (Apr. 

28, 1999). 9Letter from the Leadership Conference on Civil Rights to Members of Congress (March 12, 

2003); Letter from Gary Klein, Senior Attorney, National Consumer Law Center, to Members 

of Congress (Apr. 23, 1999); Letter from Consumer Federation, Consumers Union, and U.S. Public Interest Group (March 11, 2003); Letter from Frank Clemente, Legislative Director, Public 

Citizen, to House Comm. on the Judiciary (May 11, 1998); Letter from Nan Aron, President, 

Alliance for Justice, to Members of the Senate Comm. on the Judiciary (Apr. 23, 1998); Letter 

from Dan Schulder, Director Legislation, National Council of Senior Citizens, to the Honorable 

Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and Admin. Law (June 9, 

1998).

Against Drunk Driving (‘‘MADD’’), the National Organization for Victim Assistance (‘‘NOVA’’), and the National Victim Center); 8 and 

(4) consumer and civil rights organizations (such as the Leadership Conference on Civil Rights (‘‘LCCR’’), National Consumer Law Center, Consumers Union, the Consumer Federation of America, U.S. Public Interest Research Group 

(‘‘U.S. PIRG’’), Public Citizen, the Alliance for Justice, and 

the National Council of Senior Citizens).9

Section I of describes concerns about the lack of empirical justification for this bill. Section II describes the consumer provisions, 

including, most notably, the means test. Section III discusses flaws 

in the small business and single-asset real estate provisions, and 

Section IV turns to the tax sections of H.R. 975. The following is 

a table of contents summarizing this analysis:

560

10 According to the Administrative Office of the U.S. Courts, in the calendar year 2002 there 

1,109,923 personal chapter 7 filings, 984 personal chapter 11 filings, and 450, 516 personal 

chapter 13 filings in 1998. Press Release of the Administrative Office of the U.S. Courts (Feb. 

12, 2003. Personal bankruptcy filings represented 97.6% of all filings in 2003. Id. 11Professor Michael E. Staten of Georgetown University’s Credit Research Center (‘‘CRC’’), 

which has many credit industry officials on its board, conducted what is perhaps the most-discussed study. JOHN M. BARRON & MICHAEL E. STATEN, PURDUE UNIVERSITY CREDIT RESEARCH

CENTER, PERSONAL BANKRUPTCY: A REPORT ON PETITIONERS’ ABILITY TO PAY (Oct. 1997); see 

also March 17, 1999 Hearing (written statement of Michael E. Staten). Staten concluded that 

I. LACK OF EMPIRICAL JUSTIFICATION

One of the major reasons accounting for the differing views regarding H.R. 975 relates to differing understandings of the quantitative evidence of the causes, costs, and effects of bankruptcy. 

H.R. 975’s proponents point to (1) the fact that the United States 

is experiencing a dramatic growth in the number of bankruptcy filings (an increase by 150% to more than 1.5 million filings in 

2002),10 and (2) credit industry-funded studies by Professor Michael Staten of Georgetown University’s Credit Research Center,11


Views1.eps
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5% of chapter 7 debtors could repay all of their non-priority, non-housing debt over 5 years, 10% 

could repay at least 78% of such debt, and 25% could repay 30% of their debt. 12 An Ernst & Young study, funded by VISA USA and MasterCard International, purports to 

corroborate the CRC findings. Policy Economics and Quantitative Analysis Group, Chapter 7 

Bankruptcy Petitioner’s Ability to Repay: Additional Evidence from bankruptcy Petition Files, Ernst & Young LLP (Feb. 1998). 13Wharton Econometric Forecasting Associates (‘‘WEFA’’) examined the financial cost of personal bankruptcy cases filed in 1997, which it defined as ‘‘the amount of credit dollars (outstanding loans) lost due to bankruptcy filings . . . [and] the costs of the U.S. court system . . . 

and other creditor’s expenses relating to bankruptcy.’’ WEFA Group Resource Planning Service, 

The Financial Costs of Personal Bankruptcy 4 (Feb. 1998). The WEFA study calculated that ‘‘financial losses due to 1997 personal bankruptcies totaled more than $44 billion. . . . Unsecured 

nonpriority losses totaled almost $35 billion in 1997 . . . [and] passing such financial losses on 

to consumers in terms of higher prices would cost the average household over $400 annually.’’ Id. at 1. The WEFA study also concluded that the needs based proposal in H.R. 3150 ‘‘should 

decrease financial costs due to bankruptcy . . . from 8% to 17% annually.’’ Id. at 2. 14 Hearing on H.R. 833, the ‘‘Bankruptcy Reform Act of 1999,’’ Before the House Subcomm. on 

Commercial and Admin. Law, 106th Cong., 1st Sess. (Mar. 17, 1999) (written statement of Michael E. Staten); Joint Hearing Before the House Subcomm. on Commercial and Admin. Law 

and the Senate Subcomm. on Admin. Oversight and the Courts, 106th Cong., 1st Sess. (Mar. 

11, 1999) (written statements of (1) Bruce L. Hammonds, Senior Vice Chairman of MBNA Corporation; (2) Judge Edith H. Jones, U.S. Court of Appeals for the Fifth Circuit; (3) Professor 

Todd J. Zywicki, George Mason University School of Law; and (4) Dean Sheaffer, National Retail 

Federation). See also ‘‘Dear Colleague,’’ dated February 27, 2003, from Chairman F. James Sensenbrenner and Congressman Rick Boucher (‘‘There is a perception that bankruptcy relief is too 

readily available and the it is sometimes used as a first resort, rather than a last resort.’’). 15Kim Kowalewski of the Congressional Budget Office (‘‘CBO’’), at the request of the National 

Bankruptcy Review Commission, conducted a review of three economic analyses of this question. 

Kowalewski concluded that a 1996 VISA study did not support such a conclusion and, in fact, 

‘‘because the social trends variable is flat during 1995 and early 1996, VISA believes that their 

social factors played no role behind the increase in personal bankruptcies in that period.’’ Kim 

J. Kowalewski, Evaluations of Three Studies Submitted to the National Bankruptcy Review Commission 4 (Oct.6, 1997). At the request of Subcommittee Democrats, Mr. Kowalewski reviewed 

the economic issues affecting the rate and nature of bankruptcy in the United States. The 

Democratic Members made their original request on January 14, 1998; the response from CBO, 

in draft form only, was delivered April 16, 1999, over 1 year later. Mr. Kowalewski has still 

not been made available to testify before the Committee. 16 At the request of Senators Charles Grassley and Richard Durbin, the General Accounting 

Office (‘‘GAO’’) examined the CRC study and found five areas of concern: (1) data supplied by 

the debtors regarding their income expenses, and debts and the stability of their income and 

expenses over a 5-year period were not validated, (2) the report did not define the universe of 

debts for which it estimated debtors’ ability to pay, (3) payments on non-housing debts that 

debtors stated they intended to reaffirm were not included in debtor expenses in determining 

the net income debtors had, (4) the CRC did not account for the considerable variation among 

the 13 locations used in the analysis, and (5) a scientific random sampling methodology was not 

used to select the 13 bankruptcy locations or the bankruptcy petitions used in the analysis. GENERAL ACCOUNTING OFFICE, PERSONAL BANKRUPTCY: THE CREDIT RESEARCH CENTER REPORT ON

DEBTORS’ ABILITY TO PAY, GAO/GGD–98–47 (Feb. 1998). 

Ernst & Young,12 and the WEFA 13 group that purport to demonstrate that the bankruptcy laws allow many relatively high income individuals to avoid debts they could otherwise pay and that 

this avoidance imposes substantial costs on the economy. Proponents of H.R. 975 point to the ‘‘opportunistic personal filings’’ for 

bankruptcy and the declining stigma associated with doing so to 

explain the increase in filings.14

Despite the earlier trend in higher numbers of bankruptcy filings, the vast weight of studies have contradicted the proponents’ rationales and have shown that the increasing filing rate is a 

symptom, not a root cause, of financial difficulties. Analysts with 

the Congressional Budget Office,15 the General Accounting Office,16

and the Federal Deposit Insurance Corporation all have called into 

question the conclusions of those studies. These critiques focus on 

a number of grounds, including numerous flaws in the analysis and 

the assumptions underlying the studies. Moreover, other analyses 

indicate that the rise in bankruptcies is more properly attributable 

to a number of changes unrelated to the bankruptcy laws, such as 

unexpected medical costs, family crises like divorce, loss of high 

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17The Federal Deposit Insurance Corporation (‘‘FDIC’’) contested many of assertions made in 

the above-noted studies. FEDERAL DEPOSIT INSURANCE CORP., BANK TRENDS (Mar. 1998); Lawrence M. Ausubel, Credit Card Defaults, Credit Card Profits, and Bankruptcy, 71 American 

Bankruptcy L.J. 249 (1997). The FDIC observed a strong correlation between credit card default 

rates and personal bankruptcies, both of which increased in the 1990’s. The FDIC found that, 

because of and following interest rate deregulation in 1978, credit card companies became more 

profitable and credit card lenders were able to extend more unsecured credit to less creditworthy 

borrowers. 18March 11, 1999 Hearing (written statement of Bruce L. Hammonds, Senior Vice Chairman, 

MBNA Corporation). 19While bankruptcy rates have been on the rise as a result of the current recession both the 

American Bankruptcy Institute and Professor Ausubel pointed out, however, that the earlier rise 

in personal bankruptcy rates, which were used to manufacture fear of a so-called bankruptcy 

crisis, in fact ended in 1998. AMERICAN BANKRUPTCY INSTITUTE, 18 ABI JOURNAL 1 (Apr. 1999); 

LAWRENCE M. AUSUBEL, UNIVERSITY COLLEGE LONDON, A SELF-CORRECTING ‘‘CRISIS’’: THE STA- TUS OF PERSONAL BANKRUPTCY IN 1999 1 (Mar. 10, 1999). In fact, the ABI found that ‘‘consumer bankruptcy filings have dropped dramatically nationwide in January and February [1999], after 

three consecutive years of record filings.’’ AMERICAN BANKRUPTCY INSTITUTE, supra, at 1. Specifically, ‘‘[t]he personal bankruptcy filing rate per thousand population grew at an annual rate of 

only 1.5% in the last year, and at a (seasonally-adjusted) annual rate of only 1.0% in the last 

quarter.’’ ?LAWRENCE M. AUSUBEL, supra, at 1. The crisis corrected itself because lenders, as 

they normally would, tightened their lending practices when defaults became more common and 

infringed upon profits, thereby limiting the number of people going into debt and filing for bankruptcy. See id. at 3. 20March 17, 1999 Hearing (written statement of Marianne B. Culhane); MARIANNE B. 

CULHANE & MICHAELA M. WHITE, TAKING THE NEW CONSUMER BANKRUPTCY MODEL FOR A TEST

DRIVE: MEANS-TESTING REAL CHAPTER 7 DEBTORS (Mar. 8, 1999). 21 Culhane and White, ‘‘Means Testing for Chapter 7 Debtors: Repayment Capacity 

paying full time jobs, and most notably, the deregulation of credit 

card interest rates and the dramatic increase in credit card solicitations and overall consumer debt.17 Even a credit card industry official found that ‘‘[t]he majority of bankruptcies in [its] file are on 

customers who have been on the books for more than 3 years and 

have had some significant change in their financial condition.’’ 18 It 

also has been shown that the average income of persons filing for 

bankruptcy has declined from the 1980’s, further contradicting assertions of widespread abuse by high-income individuals.19

One of the most telling studies was performed by the non-partisan American Bankruptcy Institute commissioned Professors 

Marianne B. Culhane and Michaela M. White of the Creighton University School of Law to conduct a study independent of the credit 

industry.20 Professors Culhane and White used for their study a 

database of chapter 7 cases; the National Conference of Bankruptcy 

Judges funded the compilation of the database. The study estimated that 3.6% of the debtors in their sample had sufficient income, after deducting allowable living expenses, to pay all of their 

non-housing secured debts, all of their unsecured priority debts, 

and at least 20% of their unsecured nonpriority debts. Moreover, in 

making their calculations, Professors Culhane and White assumed 

that 100% of the debtors in chapter 13 would complete a 5-year repayment plan even though more than 60% of voluntary chapter 13 

plans currently do not complete. These figures are significantly 

lower than those of the Credit Research Center and VISA—two entities that had financial stakes in their own bankruptcy studies— and show that the credit industry may have overstated the ‘‘problem’’ by as much as 500%. 

The American Bankruptcy Institute study also showed that, while the credit industry estimates it may be eligible recover $4 

billion under the rigid standards of the means test, creditors would 

receive only $450 million in actual collections.21 The Executive Office of United States Trustees in the Justice Department conducted 

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22FDIC Roundtable On Consumer Debt (Statement of Michael Staten)(Feb. 28, 2003). 23 Jim Blaine, ‘Only Thing Bankrupt Is Logic Behind ’Reform’ Credit Union Journal, 23 (February 24, 2003). 

a study that reached similar results, estimating that passage of the 

Conference Report probably would have netted creditors no more 

than 3% of the $400 per household they claim to be losing. These 

findings call into question the hundreds of millions of dollars in bureaucratic expenses the means test would require of both government and private citizens. 

Untapped?’’ (American Bankruptcy Institute, 1998). 

Recently, Prof. Staten, whose work for the credit industry provided much of the empirical fodder for this legislation, observed 

that this legislation would only move about 5% of all ch. 7 cases 

into ch. 13, and that the legislation would have not effect on the 

number of bankruptcies.22

Similarly, according to James Blaine, CEO of the NC State Employees Credit Union, ‘‘Charge-offs, too, are well under control at 

.46% of total loans (less than 1%). In other words, 99.5% of credit 

union loans are repaid as promised. According to NCUA 41.1% of 

credit union charge-offs related to bankruptcy. Or said another 

way, just .19% (less than 2/10th of 1%!) of total credit union loans 

result in a bankruptcy loss. So taking a the high estimate of 15% 

rate of abuse, he calculates that total losses on loan portfolios are 

.0385% or less than 3/100ths of 1% (.19% × 15% = .0285% (less 

than 3/100ths of 1%)’’.23

Notwithstanding claims by the consumer credit industry to the 

contrary, consumer lending is their most profitable enterprise. According to Bloomberg News:

Citigroup Inc. said fourth-quarter profit fell 37 percent because of higher loan losses and the cost of settling claims that 

the world’s biggest financial-services company misled customers with biased stock research.

Net income declined $2.43 billion, or 47 cents a share, from 

$3.88 billion, or 74 cents, in the year-ago quarter, the New 

York-based company said. Revenue was $18.93 billion, little 

changed, as fees from credit cards and mortgage lending rose 

while its Salomon Smith Barney Inc. unit had a loss.

For Chairman and Chief Executive Sanford Weill’s bank, businesses aimed at consumers contributed about 98 percent of net 

income.

The company also took a $1.3 billion after-tax charge to set 

up a reserve to pay for the settlement with regulators and related civil litigation as well as private litigation related to 

Enron. The reserve was announced last month.

The Salomon Smith Barney securities unit lost $344 million as 

revenue declined 9 percent to $4.66 billion. Citigroup includes 

corporate lending in its investment banking results.

Profit from the global consumer business, including credit 

cards, home lending and fees generated through 459 Citibank 

branches, rose 26 percent to $2.37 billion.

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24George Stein ‘‘CitiGroup Net Falls on Loan Loss Settlement Costs’’ Bloomberg News, January 21, 2003. 25 In 1993, credit card banks were nearly four times as profitable as all commercial banks. 

Despite the slight decrease in the average credit card interest rate, credit card banks remain 

twice as profitable as commercial banks. March 16, 1999 Hearing (written statement of the Honorable Joe Lee) (citing FEDERAL RESERVE BOARD, THE PROFITABILITY OF CREDIT CARD OPER- ATIONS OF DEPOSITORY INSTITUTIONS (Aug. 1997)). 26 In 1996, Professor James Medoff, the Meyer Kestnbaum Professor of Labor and Industry 

at Harvard University, pointed out that, between 1980 and 1992, when the Federal funds rate 

(the interest that banks charge for overnight loans) fell from 13.4% to 3.5%, a drop of nearly 

10 percentage points, the average credit card interest rate rose from 17.3% to 17.8%. Professor 

Medoff suggests that during the 1980’s, when interest rates were high, lenders learned a valuable lesson; consumer debtors in general pay very little attention to interest rates. March 16, 

1999 Hearing (written statement of the Honorable Joe Lee at 1) (citations omitted). 27Kenneth N. Gilpin, ‘‘Antitrust Suit Filed Against VISA and MasterCard,’’ N.Y. TIMES, Oct. 

8, 1998, at C1. 28For example, the costs of administering the estate are entitled to the first priority, and payments of alimony, child support, and taxes are entitled to later priorities, with general unsecured debt entitled to any residual assets left over. 11 U.S.C. § 507(a). 

Credit card earnings rose 30 percent to $939 million, branch 

profit rose 25 percent and consumer-finance earnings rose 15 

percent.24

Based on this report it appears that consumer borrowers are not 

subsidizing other consumers who are filing for bankruptcy relief. 

Rather it appears that consumer borrowers are subsidizing losses 

due to bad investments and penalties. 

There is nothing in this bill to guarantee that any savings realized from this bill will be passed on to consumers. The bill does not 

require it and, quite frankly, although real interest rates are at 

record lows, none of those savings have been passed on to credit 

card borrowers. There is no guarantees that consumers have that 

any increased returns would be passed on the form of reduced interest rates or other fees. Yet the proponents of this legislation 

have never been willing to accept a provision requiring such a 

passalong to ensure that the proponents of this bill do not reap a 

windfall. 

Finally, we have never received any evidence that the credit card 

industry likely would pass on any of the ‘‘savings’’ from bankruptcy 

law changes to individual debtors. Instead the evidence shows that 

credit card companies, which represent by far the most profitable 

sector of the commercial banking business,25 tend to maintain high 

interest rates, even when their own cost of credit declines.26 The 

lack of competition in this industry has caught even the Justice Department’s attention, which has brought an antitrust suit against 

VISA and MasterCard in the Southern District of New York.27

II. CONSUMER PROVISIONS

A. Current Law and Proposed Changes 

Under current law, individuals facing financial difficulty may 

seek a variety of forms of relief under the bankruptcy laws, with 

chapter 7 (liquidation) being by far the most common form of relief 

sought. Under this chapter, debtors are required to forfeit all of 

their property other than their ‘‘exempt’’ assets (i.e., deemed necessary for the debtor’s maintenance, as determined under Federal 

or state law, at the state’s option) in exchange for receiving a discharge of their unsecured debts. Creditors are entitled to receive 

any net proceeds from the sale of the debtor’s nonexempt property, 

subject to the statutory priority schedule.28 The Bankruptcy Code 

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29The Code does not define the term ‘‘substantial abuse,’’ which is used in § 707(b), although, 

some courts have found that the ability to pay an appreciable proportion of one’s debts over 3 

years, using future income, could constitute ‘‘substantial abuse.’’ See, e.g., Fonder v. United 

States, 974 F.2d 996 (8th Cir. 1992) (debtor could pay 89% of unsecured debts in 3 years); In 

re Krohn, 886 F.2d 123 (6th Cir. 1989) (ability to pay portion of debts from ‘‘ample income’’ in 

excess of $80,000 per year); In re Walton, 866 F.2d 981 (8th Cir. 1989) (ability to pay two thirds 

of debts in 3 years). 30There are a number of disincentives to filing for bankruptcy, such as the fact that a person 

filed for a chapter 7 bankruptcy will be disclosed on a debtor’s credit report, and the law’s prohibitions on repeat chapter 7 filings for 6 years. 31The eligibility requirements for chapter 13 may be found in 11 U.S.C. § 109(e). To be eligible 

for chapter 13, an individual must have regular income and noncontingent, liquidated, unsecured debts of less than $290,525 and secured debts of less than $871,550. Individuals with 

debts in excess of the ch. 13 limits must reorganize under chapter 11. 

does not permit the discharge of certain debts whose payments are 

considered to be important to society. Some of this debt is of the 

same nature as priority debt (e.g., family support obligations and 

taxes), but the law also excepts from discharge debts incurred 

through the debtor’s misconduct, such as debts arising from fraud 

and intentional injuries. 

While the decision to seek relief under ch. 7 or ch. 13 is voluntary at the discretion of the debtor, § 707(b) of the Bankruptcy 

Code grants the court the discretion to deny relief where the filing 

is found to be a ‘‘substantial abuse.’’ 29 Under § 707(b), however, 

there is a presumption in favor of granting relief to the debtor. 

This stems in part from the costs and potential hardships associated with developing excessive barriers to chapter 7 eligibility, the 

belief that the ‘‘honest but unfortunate debtor’’ should be entitled 

to a ‘‘fresh start,’’ the importance of encouraging risk-taking and 

entrepreneurship, and avoiding situations where it is impossible for 

individuals to escape aggressive creditor collection tactics.30 Section 

707(b) is not the only provision in the Bankruptcy Code that prevents individuals from misusing chapter 7. For example, creditors 

may request that certain debts be held nondischargeable under 

§ 523(a) or that the debtor be denied a discharge altogether under 

§ 727. 

A separate bankruptcy alternative available to individual debtors 

is chapter 13, which was formerly known as a wage earner’s plan.31

Under chapter 13, a debtor is permitted to retain his or her property, but is required to pay to creditors over a 3–5 year period out 

of future income at least as much as the creditors would have received under a chapter 7 liquidation, and is also required to pay 

all priority debts in full. To accomplish this, the debtor must propose a plan, administered by a trustee, that pays creditors in full 

or that devotes the debtor’s ‘‘disposable income’’ after accounting 

for necessary support of the debtor, his or her family, or a business. 

In order to encourage the use of chapter 13 plans, which are currently voluntary to the debtor, Congress determined that persons 

who meet their chapter 13 obligations are entitled to a broader discharge of their unpaid debts than is available under chapter 7. 

This ‘‘superdischarge’’ results in the discharge of several types of 

debt that chapter 7 does not discharge. In addition, debtors are 

permitted to retain property whether or not the property is encumbered by liens and the debtor committed a prepetition default, so 

long as the chapter 13 plan cures any arrearages. In this manner, 

debtors can use chapter 13 to save their homes from foreclosure. 

In addition, in chapter 13 a debtor is permitted to bifurcate a loan 

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32This is known as a ‘‘stripdown.’’ Specifically, except for certain home mortgages, a debtor 

in chapter 13 may be able to bifurcate a debt to a secured creditor, treating only the current 

value of the collateral as secured, even if it is less than the full amount of the loan, and treating 

the remaining debt as a non-priority unsecured debt. 33Subsection (a) of section 102 amends 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 party in interest, to dismiss a chapter 7 case for abuse if it was filed by an 

individual debtor whose debts are primarily consumer debts. 

on personal property, such as an automobile, into secured and unsecured portions based on its present value, and treat only the secured portion as a secured claim that must be paid in full with interest.32 Also, chapter 13 plans can provide for the payment of priority debts, such as taxes and family support obligations, before 

payment on general unsecured debts. 

H.R. 975 would institute a number of major changes to consumer 

bankruptcy, in general, and chapter 7 and 13, in particular, that 

some have argued may reduce the number of bankruptcy filings 

(but will not reduce the number of cases of financial hardship) and 

that are likely to serve as procedural and legal impediments to 

bankruptcy relief. These changes are designed to increase pay-outs 

to non-priority unsecured creditors, particularly credit card companies, as well as to certain secured lenders, especially those extending credit for automobile loans. 

1. Means Testing 

The most far-reaching change, set forth in section 102 of the bill, 

would institute a so-called ‘‘means testing’’ approach to consumer 

bankruptcy.33 This new standard would create a presumption of 

abuse of the bankruptcy system and deny chapter 7 relief to debtors who fail a ‘‘means test.’’ The means test applies only to debtors 

with primarily consumer debts. The means test in general works 

as follows: 

First, the debtor’s ‘‘current monthly income’’ is computed. This is 

the average of the debtor(s)’ monthly income over the last 6 months 

before the bankruptcy, excluding Social Security benefits, reparations to victims of war crimes and crimes against humanity, and 

payments to victims of terrorism. 

Second, the debtor’s expenses, as provided in the IRS National 

Standards and Local Standards and the IRS Other Necessary Expenses rather than the debtors actual expenses not to include:

a. total priority debts divided by 60

b. the scheduled payments on secured debts over the next 60 

months, divided by 60

c. arrears on secured debts such as mortgages and car payments

d. monthly expenses permitted by the Internal Revenue Service collection guidelines, with possible 5% increase for food 

and clothing allowances if demonstrated to be ‘‘reasonable 

and necessary’’, long-term care expenses for the elderly or 

chronically ill, expenses due to domestic violence, and private school expenses up to $1500 per child annually if there 

is an explanation of why they are reasonable and necessary, 

documented home energy costs in excess of the IRS allowance, and health insurance costs.

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34Two forms of ‘‘safe harbors’’ are recognized under section 102(a). One provides that only a 

judge, United States trustee, bankruptcy administrator, or private trustee may bring a motion 

under section 707(b) of the Bankruptcy Code if the chapter 7 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) may be filed by a judge, United States trustee, bankruptcy administrator, private trustee, or other party in interest if the debtor 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. 35 11 USC 1325(b). 

e. if debtor is eligible for chapter 13, hypothetical administrative expenses for chapter 13, but only up to 10% of projected 

plan payments.

All of the calculations must be done as part of the debtor’s schedules. If after deducting the allowed expenses, the debtor has 

enough ‘‘disposable income’’ over 60 months to pay either the greater of 25% of the debtor’s nonpriority unsecured claims or $6,000, 

or, if it is more than the 25%, $10,000. 

Put more plainly, if the debtor is able to pay as little as $100 per 

month to non-priority unsecured creditors (such as credit card 

banks) for 5 years, after working through a means test that relies 

neither on her real income nor her real expenses, the debtor will 

be presumed to have ‘‘abused’’ ch. 7, and will be subject to dismissal or conversion to ch. 13. 

If a debtor is presumed to be abusing chapter 7, the U.S. trustee 

must move to dismiss or file a report about why no motion is filed. 

Any creditor may also move to dismiss under the means test. However, no motion under § 707(b) may be filed by a creditor if the 

debtor(s) are under state median income. No motion under the 

means test may be filed by a trustee or U.S. trustee if the current 

monthly income of the debtor and the debtor’s spouse is less than 

the state median income. If a motion is filed under the means test, 

the court has little discretion to deny it. The presumption of abuse 

can be overcome only if there are ‘‘special circumstances’’ that can 

be documented that require adjustment of the debtor’s income or 

expenses for which there is ‘‘no reasonable alternative.’’

Although the means test is only applicable above median income,34 all debtors must complete the means test calculations. This 

gives rise to the possibility that trustees or U.S. trustees will bring 

motions for abuse under § 707(b)’s new looser standard (‘‘totality of 

the circumstances’’ or ‘‘bad faith’’) and use the means test calculations to support the argument that the debtor could afford to pay 

creditors, especially since chapter 7 trustees could receive compensation under the chapter 13 plan. 

The bill also makes substantial changes to ch. 13 by substituting 

the IRS expense standards to calculate disposable income, rather 

than the existing standard that uses the debtor’s actual expenses 

‘‘reasonably necessary for the maintenance and support of the debtor or a dependant of the debtor.35

Accordingly, under section 102(h) of the bill, debtors would be required to dedicate all of their available income to unsecured debt, 

again after allowing deductions for secured and priority debts and 

living expenses per the means test and its IRS collection standards, 

even if the debtor’s actual reasonably necessary expenses exceed 

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36 H.R. 975, § 102(h) (proposed amendment to 11 U.S.C. § 1325(b)). 37 H.R. 975, § 102 (proposed amendment to 11 U.S.C. § 707). 38 H.R. 975, § 314(b) proposed amendment to 11 U.S.C. § 1328(a)). 39 H.R. 975, § 310 (proposed amendment to 11 U.S.C. § 523(a)(2)(C)). 40 11 U.S.C. 523(a)(2)(C). 41 H.R. 975, § 314 (proposed amendment to 11 U.S.C. § 523(a)). 42 H.R. 975, § 315. 

the IRS permitted, but arbitrarily-created, expenses.36 Although 

the provisions clarifying the means test allow for adjustments for 

‘‘special circumstances that require additional expenses or adjustments of current monthly total income, for which there is no reasonable alternative,’’ no such appeal is available under the revised 

1325(b). Under the revised 707(b) the debtor would be required to 

file a motion with the court to rebut the presumption of abuse, 

which may be challenged by the trustee or any creditor, with the 

burden of proof lying with the debtor.37

The bill also goes on for these debtors to calculate the means test 

using expenses over 5 years rather than 3 years. That guarantees 

that, if the means test pushes a debtor into chapter 13, the repayment capacity assumptions would force the debtor into a 5-year repayment plan. This legislation also greatly curtails the broader discharge currently available to debtors who have successfully completed a chapter 13 plan, eliminating a significant inducement for 

voluntary debtor participation in chapter 13.38

2. Exceptions to Discharge & Loan Bifurcations 

H.R. 975 would make two significant additions to the types of 

debts that a debtor may not discharge under chapters 7 or 13 and 

proscribe a debtor’s ability to bifurcate a loan into secured and unsecured portions based upon the value of the collateral. 

Section 310 would create a presumption of non-dischargeability 

for credit card debts of $500 or more in the aggregate (as opposed 

to $1,150 under current law) or more owed to a single creditor for 

‘‘luxury goods or services’’ incurred within 90 days prior to the 

bankruptcy filing (as opposed to 60 days under current law).39 Additionally, § 310 also makes presumptively nondischargeable cash 

advances aggregating at least $750 incurred within 70 days before 

the order for relief, to one or more creditors in an open-ended credit 

plan. This means that, if a debtor uses several cards to purchase 

basic household needs (there is no requirement that these cash advances be used for luxury goods) over a 70 day period, even if the 

debt to each creditor is a fraction of the $750 threshold, all the 

debts would be nondischargeable. Current law makes cash advances aggregating more than $1,150 nondischargeable if they are 

incurred within 90 days before the order for relief.40 Section 314 

adds another exception to discharge when the ‘‘debtor incurred the 

debt to pay a tax to a governmental unit that would be nondischargeable.’’ 41 Therefore, regardless of the debtor’s intent, any 

debts incurred to pay a nondischargeable tax debt would be nondischargeable.42 This particular change will have a devastating impact on taxpayers who, at the urging of the IRS, pay their taxes 

electronically using a credit card. 

The legislation would also largely eliminate the possibility of 

loan bifurcations in chapter 13 cases. Under current law a debtor 

is permitted to bifurcate a loan between the secured and unsecured 

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43 H.R. 975, § 211 (proposed amendment to 11 U.S.C. § 101). 44 11 USC 523(a)(6). 45 Id. 46See H.R. 975, § 211 et seq. 47 H.R. 975, § 212 (proposed amendment to 11 U.S.C. § 507(a)). In the current enumeration of 

priorities, for example, the unsecured claims of person who raise grain or operate fish-processing 

facilities have fifth priority. 11 U.S.C. § 507(a)(5). 48 H.R. 975, § 213 (proposed amendments to title 11, United States Code). 49 H.R. 975, § 214 (proposed amendment to 11 U.S.C. § 362(b)). This includes the interception 

of tax refunds, the enforcement of medical obligations, or actions to withhold, suspend, or restrict licenses of the debtor for delinquency in support obligations. 50 H.R. 975, § 216 (proposed amendment to 11 U.S.C. § 522). 51 H.R. 975, § 217 (proposed amendment to 11 U.S.C. § 547(c)(7)). 

portions. The debt is treated as a secured debt up to the value of 

the property securing the debt. The remainder of the debt is treated as a non-priority unsecured debt. Section 306 of the legislation 

prevents such bifurcations (including with regard to interest and 

penalty provisions) with respect to any loan for the purchase of a 

vehicle in the 2 years before bankruptcy, as well as all loans secured by other property incurred within 1 year before bankruptcy. 

3. Domestic Support 

Sections 211–219 of the bill make a number of changes to current 

law are purportedly intended to enhance the status of child support 

and alimony payments in bankruptcy. These changes are presumably being made in an effort to offset the considerable criticism the 

legislation has received from children and family advocates. 

Section 211 creates a new definition of ‘‘domestic support obligation.’’ 43 In addition to applying to debts owed on account of child 

support and alimony, which are already nondischargeable under 

current law 44, the new definition includes alimony and child support debts owed or recoverable to a governmental unit.45 This definition is in turn relevant to new sections of the Bankruptcy Code 

that give certain enhanced rights to the holders of domestic support obligations in terms of priorities, payments, automatic stay, 

preferences, and foreclosure placing the rights of children and custodial parents in conflict with the claims of governmental entities.46

Section 212 grants alimony and child care creditors a first priority in bankruptcy (they are currently seventh, although most of 

the higher priority debts are seen rarely in consumer bankruptcy 

cases).47 Section 213 prevents the confirmation of a reorganization 

plan unless the debtor has paid all domestic support obligations.48

Section 214 provides that the automatic stay does not prevent legal 

actions enforcing wage orders for domestic support obligations and 

similar actions.49 Section 215 makes nondischargeable all domestic 

support obligations, including obligations owed to government support agencies. Section 216 permits nondischargeable domestic support obligations to be collected from property—notwithstanding 

state laws making that property exempt from collection or attachment—after bankruptcy.50 Section 217 makes clear that a transfer 

that was a bona fide payment for a domestic support obligation will 

not be considered a fraudulent or preferential prepetition transfer.51 Section 218 specifies that alimony and child support payments are not included in the definition of disposable income in 

chapter 12 cases. Finally, section 219 of the bill requires trustees 

to send written notice to recipients of alimony and child support 

570

52 Notices to domestic support recipients must also state that they can use the services of a 

government support enforcement agency to collect the support. 53March 11, 1999 Hearing (written statement of Professor Elizabeth Warren). 54 H.R. 975, § 312. 55 H.R. 975, § 311. 56 H.R. 975, § 313. 57Only two members of the National Bankruptcy Review Commission signed onto a dissenting 

statement supporting the consideration of various means testing options. National Bankruptcy 

Review Commission, Final Report: Bankruptcy—The Next Twenty Years (Oct. 20, 1997) (Chapter 5, Additional Dissent to Recommendations for Reform of Consumer Bankruptcy Law Submitted by the Honorable Edith H. Jones and Commissioner James I. Shepard). 58 Bankruptcy: The Next Twenty Years, National Bankruptcy Review Commission Final Report 

90–91 (Oct. 20, 1997).

payments, and to the local and state child support agencies, notifying them that a debtor of such payments has filed for bankruptcy.52

4. Other Anti-Debtor Provisions 

The legislation makes a host of additional changes to the consumer provisions of the bankruptcy laws. The majority of the provisions are designed to increase creditor pay outs and would greatly 

harm low- and middle-class debtors. As Harvard Law Professor 

Elizabeth Warren writes, the bill ‘‘has more than 120 pages of 

amendments affecting consumer cases, and they all head in the 

same direction: They give a few creditor interests more opportunities to try to recover from their debtors while they reduce the protection for other creditors and debtors.’’ 53 In 1999, Chairman Hyde 

himself noted that the bill contains at least 75 provisions detrimental to debtors and favorable to creditors. Among other things, 

the bill extends the period permitted between chapter 7 filings 

from 6 years (under current law) to 8 years; 54 expands the ability 

of residential landlords to evict tenants without seeking permission 

from the court; 55 and significantly narrows the definition of household goods exempt from repossession in bankruptcy.56

B. Principal Problems with Proposed Changes 

1. H.R. 975’s Means Testing is Arbitrary and Unworkable in 

Practice 

The National Bankruptcy Review Commission’s majority specifically rejected the so-called ‘‘means testing’’ approach,57 observing: 

The credit industry has sought means testing consistently for 

at least 30 years, but Congress has consistently refused to 

change the basic structure of the consumer bankruptcy 

laws. . . . Access to chapter 7 and to chapter 13, the central 

feature of the consumer bankruptcy system for nearly 60 years, 

should be preserved.58

The 1973 Commission on Bankruptcy Laws similarly considered 

and rejected industry calls for mandatory chapter 13’s, noting that 

Congress had itself rejected similar proposals in 1967, and observed:

[B]usiness debtors are not subject to any limitation on the 

availability of straight bankruptcy relief, including discharge 

from debts, and it was pointed out that, quite apart from bankruptcy, business debtors are able to incorporate and to limit 

their liability to their investments in corporate assets. To force 

571

59Report of the Commission on Bankruptcy Laws, H.R. Doc. No. 137, Part I, 93rd Congress, 

158–59 (1973) (citation omitted). 60The Committee had initially approved an amendment offered by Chairman Hyde eliminating the IRS collection standards from the means test. Subsequently, however, Rep. Graham 

(R-SC) offered an amendment reintroducing the IRS collection standards into the means test; 

effectively reversing the Chairman’s earlier amendment. The Committee accepted this amendment by a 17–14 largely party line vote, with Chairman Hyde and Rep. Baccus (R-AL), crossing 

party lines to join with most Democrats in opposing the reinsertion of the IRS standards. 61 IRS Manual § 5323.432. 62 IRS Manual § 5323.433. 63 IRS Manual § 5323.12. 64 Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105–206, 

§ 3462 (1998). 

unwilling wage earners to devote their future earnings to payment of past debts smacked to some of debt peonage, particularly when business debtors could not be subjected to the same 

kind of regimen under the Bankruptcy Act. . . . The Commission concluded 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.59

The principal problem with the means test is that the rigid onesize-fits-all test used in determining eligibility for chapter 7 and 

the operation of chapter 13 will often operate in an arbitrary fashion. Many of these flaws were highlighted in 1999 by Chairman 

Hyde when he unsuccessfully sought to delete the use of the rigid 

IRS standards and instead substitute a more fact specific test 

based on the court’s assessment of the debtor’s actual reasonable 

and necessary expenses.60

Rather than relying on the debtor’s actual costs of living, the bill 

relies upon IRS collection standards, which lay out no comprehensive or specific standards for the deduction of living expenses. Part 

of the problem arises from the fact that the IRS standards referenced by the bill are not automatic in many cases. Although the 

IRS does set forth national standards for some expenses, such as 

food and clothing,61 and local standards for expenses such as housing and transportation,62 it leaves the determination of ‘‘other necessary expenses’’ to the discretion of the relevant IRS employee.63

Moreover, where the IRS has specific local expense standards, 

those standards do not always provide adequately for normal expenses. Ironically, Congress itself has recognized the inadequacy of 

such collection standards. The Internal Revenue Service Restructuring and Reform Act of 1998 directs the IRS to ‘‘determine, on 

the basis of the facts and circumstances of each taxpayer, whether 

the use of the schedules . . . is appropriate’’ and to ensure that 

they not be used ‘‘to result in the taxpayer not having adequate 

means to provide for basic living expenses.’’64 However, neither 

that law nor H.R. 975 grants this safeguard in the bankruptcy context. 

The seemingly arbitrary allowances for such expenses points to 

another problem with the means test under H.R. 975—its bias 

against debtors without secured debts. This is because the bill allows all secured debt payments to be deducted from monthly income, but limits rental and lease payments to the amount permitted by the IRS standards. This means that persons renting 

apartments and leasing cars may not be able to deduct the full 

572

65 Higher income debtors can also easily plan around the means test by, for example, purchasing a new expensive car shortly before bankruptcy, or deferring tax and child support payments, thereby increasing priority claims. 66 § 102, new 11 U.S.C. 707(b)(2)(B)(i) 67 H.R. 975, § 102 (proposed amendment to 11 U.S.C. § 707(b)(2)(B)). 68 Bankruptcy Rule 9011(b) provides, in part, ‘‘By presenting to the court (whether by signing, 

filing, submitting, or later advocating) a petition pleading, written motion, or other paper, an 

attorney or unrepresented party is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances . . . it is not being 

amount of their housing and transportation costs in bankruptcy, 

while persons with mortgages and automobile debt will be able to 

do so.65 There is no legitimate policy rationale for this discrepancy, 

which appears to punish people who rent and lease and nonetheless had to resort to bankruptcy. 

Also, it is important to note that the IRS collection standards can 

change the manner in which the bankruptcy laws are applied. The 

collection standards serve as internal guidelines for the IRS; they 

are not regulations that are subject to the Administrative Procedures Act. As such, the IRS does not need to provide notice or seek 

public comment when introducing new standards or when changing 

the existing ones. If the bankruptcy law was amended to incorporate the collection standards, as H.R. 975 proposes, and the IRS 

were to change the collection standards in the future, the alteration 

in the standards would completely change how the Bankruptcy 

Code is applied. In effect, H.R. 975 would delegate authority to the 

IRS to amend the Bankruptcy Code without notice. 

It is no answer to assert, as the legislation’s proponents have 

done, that the ‘‘glitches’’ in the collection standards can be resolved 

through the bill’s allowance that ‘‘the presumption of abuse may 

only be rebutted by demonstrating special circumstances that justify additional expenses or adjustments of current monthly income 

for which there is no reasonable alternative.’’ 66 This is a new 

standard with no clear definition. It is unclear how the courts will 

apply it. Establishing ‘‘special circumstances’’ will be costly and 

burdensome. Special circumstances may be established only upon 

a debtor’s motion to the court.67 It is the debtor’s burden to show 

special circumstances. The debtor must present detailed documentation for expenses for adjustments to income and a detailed 

explanation of the special circumstances which make such expenses 

or adjustment to income the only reasonable alternative for the 

debtor. These requirements make it very difficult for debtors to 

claim special circumstances, since many expenses are paid in cash 

and cannot be documented. This risk provides a tremendous disincentive for debtors to claim extraordinary circumstances, let 

alone incur the legal costs the debtor himself is required to pay to 

bring the motion. 

By the same token, the sanctions against creditors who file abusive motions under § 707(b) are weak. The court may grant attorney’s fees and costs only under a Rule 9011 standard or if the motion was brought solely to coerce a debtor to waive bankruptcy 

rights, an almost impossible standard to meet. (If the motion was 

brought both for illegally coercive purposes and other purposes, 

fees would not be awarded.) In motions brought by small businesses with small claims, no fees are awarded even if Rule 9011 

is violated.68 Conversely, debtors’ counsel are subject to both costs 

573

presented for any improper purpose, such as to harass or to cause unnecessary delay or needless 

increase in the costs of litigation.’’ Under the bill, should a court grant a section 707(b) motion made by a trustee and find that 

the action of debtor’s counsel in filing the chapter 7 case violated Federal Rules of Bankruptcy 

Procedure 9011, section 102(a) mandates that the court order the attorney to reimburse the 

trustee for all reasonable costs in prosecuting the motion, including reasonable attorneys’ fees. 

In addition, the court must assess an appropriate civil penalty, payable to the private trustee, 

bankruptcy administrator, or the United States trustee. 69 NATIONAL BANKRUPTCY REVIEW COMMISSION, FINAL REPORT: BANKRUPTCY—THE NEXT

TWENTY YEARS 90–91 (Oct. 20, 1997). 70March 17, 1999 Hearing (written statement of Robert H. Waldschmidt, National Association 

of Bankruptcy Trustees at 3).

and civil penalties, and must certify that the client’s statement 

about her financial circumstances are true.

There are also several serious interpretive problems caused by 

the drafting of the means test, which combines debt payment 

amounts with IRS allowances. For example, it is not clear whether 

a debtor who has two payments remaining on a secured car loan 

is allowed the IRS car ownership allowance for the remaining 58 

months. If not, the debtor may have no funds to replace a car that 

is already seven or 8 years old at the outset of the 5 year period 

and is essential for a long commute to work during the 5-year term 

of the plan. 

Finally, making chapter 13 the only avenue for bankruptcy relief 

for some individuals and imposing the bill’s strict income and expense tests will undoubtedly result in an even smaller proportion 

of successful chapter 13 plans. It is also somewhat unrealistic to 

expect many chapter 13 cases to result in successful completion of 

repayment plans. The current chapter 13 completion rate is less 

than one-third,69 for chapter 13 plans which are voluntary and 

with disposable income tests are less rigid than that proposed in 

this bill. Moreover, changes to ch. 13, such as the elimination of 

stripdown, will make it more difficult for even debtors who file for 

ch. 13 voluntarily to confirm or complete a plan. 

2. Means Testing Will be Costly and Bureaucratic 

The bill’s attempt to impose rigid financial criteria on debtors’

eligibility for chapter 7 and the operation of chapter 13 will impose 

substantial new costs on the bankruptcy system—both the portions 

paid for by private parties (through payment for private chapter 7 

and chapter 13 trustees and higher attorneys’ fees) and the Federal 

Government (through the bankruptcy courts and the U.S. Trustees 

Program). 

Testifying about the costs to private trustees, the National Association of Bankruptcy Trustees has complained:

[U]nder the bill, trustees must (1) review the debtor’s income 

and expenses prior to 5 days before the § 341 hearing, (2) file 

a ‘certification’that the debtor is qualified to be a chapter 7 

debtor at least 5 days before the § 341 hearing, (3) filed motions to dismiss under § 707(b) where the debtor’s disposable 

income would yield [specified payments] to a chapter 13 trustee over a 5-year plan. This is a great deal of work for trustees 

who only receive $60 in the typical chapter 7 case. In addition, 

the plight of the trustee is multiplied when, even if he is successful, he cannot count on any compensation.70

574

71 Congressional Budget Office, Cost Estimate: H.R. 333 Bankruptcy Abuse Prevention and 

Consumer Protection Act of 2001 as reported by the House Committee on the Judiciary on February 26, 2001, at 1 (February 27, 2001)(Hereinafter referred to as ‘‘CBO 2001 ’’). 72 Id. 73 Henry E. Hildebrand, The Hidden Costs of Bankruptcy Reform 2 (1998)(unpublished manuscript on file with the Committee on the Judiciary, minority staff). 74 Henry E. Hildebrand, The Hidden Costs of Bankruptcy Reform 2 (1998)(unpublished manuscript on file with the Committee on the Judiciary, minority staff). 75 H.R. 975, § 603. Although there is broad support for audits, which were a National Bankruptcy Review Commission proposal, the purpose of the proposal (to ensure honesty and accuracy) will fail unless a reasonable requirement is set on the ratio of cases to audit and unless 

the appropriate substantive standard is applied to the audits. 76March 17, 1999 Hearing (testimony of the Honorable William Houston Brown). 

The most recent CBO estimate of the bill’s cost to the Federal 

Government is $256 million over the next 5 years 71. An additional 

cost of $18 million is estimated for additional judges necessary to 

administer the new rules. This estimate was made before the recent recommendations of the Judicial Conference which seeks significantly more judges than are contained in the bill. This request 

is based on current needs, not on projected needs if the bill passes. 

Hence the estimate of costs to the judiciary must be considered unrealistically low. Part of this cost estimate derives from implementing the complex and paperwork heavy means testing program. 

CBO estimates it will cost some $38 million over the next 5 

years 72. However, this estimate may well be far too low. For example, Henry E. Hildebrand, Chair of the Legislative Committee of 

the National Association of Chapter Thirteen Trustees estimated 

that: 

Assuming that one out of nine cases filing for chapter 7 relief 

would be contested and further assuming that the contest 

would require about 2 hours of pretrial preparation and 1 hour 

of court time, the litigation would require 276,000 additional 

hours, about 90,000 of which would occupy the court.73

Another source of higher costs for the government is the requirement that one in every 250 cases in each Federal district 74 be randomly audited by independent certified public accountants or independent licensed public accountants, at taxpayer expense under 

generally-accepted auditing standards.75 CBO estimated it will cost 

the Federal Government $58 million over 5 years to effectuate this 

requirement. It is unclear whether such costs will yield any comparable benefits. For example, the Honorable William Houston 

Brown, a U.S. Bankruptcy Judge in the Western District of Tennessee, testified on behalf of the ABI that the audits required ‘‘are 

likely to be very expensive, and such formal audits are likely unnecessary to determine significant misstatements in debtors’ petitions and schedules.’’ 76

Other costs to the government under the bill include, the costs 

of the U.S. Trustee certifying the availability of credit counseling 

($17 million over 5 years) and requiring the U.S. Trustee to visit 

sites in chapter 11 cases ($12 million over 5 years). 

CBO also found that it would ‘‘impose private-sector mandates, 

as defined by UMRA, on bankruptcy attorneys, creditors bankruptcy petition preparers, debt-relief agencies, and credit and 

charge-card companies. CBO estimates that the direct costs of 

575

77 CBO 2001, at 1. 78March 17, 1999 Hearing (written statement of the Honorable Randall J. Newsome, President, National Conference of Bankruptcy Judges at 1). 79 CBO 2001 at 1. 80 A recent study, by the University of Maryland Department of Economics, illuminates the 

phenomenon of ‘‘informal bankruptcy’’, whereby debtors, especially those who are difficult to find 

or those with few attachable assets, may choose simply to stop making payments altogether and 

enter the underground economy. Amanda E. Dawsey and Lawrence M. Ausubel, Informal BankContinued

these mandates would exceed the annual threshold established by 

UMRA ($109 million in 2000, adjusted annually for inflation).’’ 77

Another concern is the many, many new opportunities for litigation and confusion created by the bill. Judge Randall Newsome testified on behalf of the National Conference of Bankruptcy Judges 

that at least 16 potential sources of litigation are contained in the 

means testing provisions alone, and that another 42 litigation 

points have been identified in the other consumer provisions, noting that ‘‘[t]his is probably only the tip of the iceberg.’’ 78

Costs imposed on the private sector will also be substantial. According to CBO, ‘‘H.R. 333 would impose private-sector mandates, 

as defined by UMRA [the Unfunded Mandates Reform Act] on 

bankruptcy attorneys, creditors, bankruptcy petition preparers, 

debt relief agencies and credit and charge-card companies. CBO estimates that the direct costs of these mandates would exceed the 

annual threshold established by UMRA ($109 million in 200, adjusted annually for inflation).’’ 79

3. Means Testing and the Other Consumer Provisions Will 

Harm Low- and Middle-Income People 

a. Concerns Regarding the Means Test 

It is incorrect to assume that the effect of H.R. 975’s harmful 

provisions would be limited to individuals seeking bankruptcy relief who earn more than the regional median income. 

The definition of ‘‘current monthly income’’ used in the means 

test measures a debtor’s income based upon how much the debtor 

earned in the 6 months prior to bankruptcy. If the debtor lost a 

good job in month three and has been working at a low-wage job 

ever since, the income from that good job, and help from family 

members, would be counted as if that is what his future income 

would be. The debtor would be expected to pay out of income that 

may no longer exist. Also, the means test will pickup a variety of 

revenue sources—such as disaster assistance, and Veterans’ benefits—which will result in lower- and middle-income individuals 

being cast as bankruptcy ‘‘abusers’’ with income above the median. 

In addition, due to the fact that H.R. 975, unlike current law, 

will permit creditors and other parties-in-interest to bring motions 

to dismiss or convert, more aggressive and well-funded creditors 

will have extremely wide latitude to use such motions as a tool for 

making bankruptcy an expensive, protracted, and contentious process for honest debtors, their families, and other creditors. Creditors 

could use such motions as leverage to obtain reaffirmation agreements so that their unsecured debts survive bankruptcy 

The inability to obtain bankruptcy relief will force more families 

out of the above ground economy and into a permanent state of unmanageable indebtedness.80

576

ruptcy, U. MD. Dept. Econ., Jan. 2001, at 2. This then puts the burden on the creditors to collect. While informal bankruptcy lacks the legal protections afforded by (formal) bankruptcy, the 

incentives of informal bankruptcy cannot be underestimated, not the least of which is the lack 

of any administrative or legal costs initially. Importantly, little consideration has been given to 

informal bankruptcy with respect to legislation, yet in 1996 some 65.2 % of credit card loans 

were charged off for reasons other than bankruptcy. 1997 Annual Bankruptcy Survey, Visa 

U.S.A. Inc., September 1998. 81 H.R. 975, §§ 310 (proposed amendment to 11 U.S.C. § 523(a)(2)(C)), and sec. 314. 82Letter from Jacob J. Lew, Director, Office of Management and Budget, to the Honorable 

Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and Admin. Law 2 (Mar. 23, 

1999). 83 Hearing on Consumer Bankruptcy Issues in H.R. 3150, the ‘‘Bankruptcy Reform Act of 1999,’’

Before the House Subcomm. on Commercial and Admin. Law, 105th Cong., 2d Sess. (Mar. 10, 

1998) (written statement of Henry J. Sommer). 84 H.R. 975, § 306. 

b. Other Concerns 

The bill makes nondischargeable a wider range of debts including 

cash advances and debts incurred for so-called luxury goods and 

debts incurred to pay nondischargeable tax debts.81 These new exceptions from discharge obviate many of the benefits that debtors 

may realize from filing for bankruptcy, under chapter 7 or 13 and 

increase the opportunity for creditor abuse. The provisions were opposed by President Clinton. In a communication to the Congress, 

that administration wrote that it is ‘‘generally inappropriate to 

make post-bankruptcy credit card debt a new category of nondischargeable debt. . . . We remain skeptical that the current protections against fraud and debt run-up prior to bankruptcy are ineffective and that the additional debts made nondischargeable by 

[H.R. 975] meet the standard of an overriding public purpose.’’ 82

Consumer bankruptcy expert Henry Sommer also has explained 

that such provisions:

increase the opportunity for creditors to file the types of abusive fraud complaints which have been found by many courts 

to be baseless and unjustified attempts to coerce reaffirmations 

by debtors who cannot afford to defend them. The new presumptions of nondischargeability will fall mainly on low income debtors who are unsophisticated, do not have the time, 

budget flexibility, or attorney advice to plan their bankruptcy 

cases carefully, have to file on short notice to prevent utility 

shutoffs or other impending creditor actions and will not have 

the funds to defend dischargeability complaints.’’ 83

The new ban on loan bifurcations for car loans less than 2 years 

old will further erode the possibility of obtaining a fresh start 

through bankruptcy.84 Automobiles depreciate rapidly once they 

leave the showroom. Before the loan is repaid, the value of the vehicle is less than the unpaid balance of the loan. By prohibiting bifurcation, a lender with a secured loan that is underwater would 

be unjustly enriched by being able to treat the unsecured portion 

of that loan as fully secured to the detriment of other unsecured 

creditors. Such a prohibition on automobile bifurcation is likely to 

render many chapter 13 plans unfeasible because a debtor may be 

able to repay the entire secured value, but not the entire purchase 

price of the car along with penalties. The provision also permits the 

lender to come out of the bankruptcy in a superior position than 

if it had foreclosed on the loan under applicable non-bankruptcy 

law. 

577

85 H.R. 975, § 311. 86 H.R. 975, § 312 (proposed amendments to 11 U.S.C. §§ 727(a)(8), 1328). 87The Biblical origin of debt forgiveness may be found in Deuteronomy 15:1–3: ‘‘[a]t the end 

of every 7 years you shall grant a release of debts. And this is the form of the release: Every 

creditor who has lent anything to his neighbor shall release it; he shall not require it of his 

neighbor or his brother, because it is called the Lord’s release. Of a foreigner you may require 

it; but you shall give up your claim to what is owed by your brother.’’ In Deuteronomy 15:9, 

we are instructed, ‘‘See that you do not harbor iniquitous thoughts when you find that the seventh year, the year of remission, is near and look askance at your needy countryman and give 

him nothing. If you do, he will appeal to the Lord against you and you will be found guilty of 

sin.’’

88 H.R. 975, § 313. 89 H.R. 975, § 102. 90 H.R. 975, §§ 310, 314. 91 H.R. 975, § 310. 

Several other consumer provisions also will impose significant 

hardships on all debtors, regardless of income level or degree of 

culpability. For example, by allowing landlords to continue eviction 

or unlawful detainer actions even after debtors have obtained an 

automatic stay, the bill will force many battered women and families with children and seniors out onto the streets, without ever 

having an opportunity to use bankruptcy to catch up on their 

rent.85

Extending the permitted period between bankruptcy filings to 8 

years 86 exceeds the period between filings set forth in the Bible,87

and could prove a substantial hardship to families in already unstable economic situations. The bill’s narrow definition of exempt 

household goods could allow creditors to threaten foreclosure on 

economic necessities, such as personal computers, in order to obtain preferential treatment for itself.88 This provision would work 

to the benefit of predatory and subprime lenders that take a security in interest in the borrower’s personal effects. 

4. The Consumer Provisions Will Have a Significant, Adverse 

Impact on Women, Children, Minorities, and Seniors, as 

well as Victims of Crimes and Severe Torts 

a. Women and Children 

H.R. 975 will have an adverse impact upon single mothers and 

their children, both as debtors and as creditors. On the debtor side, 

the means test will make it far more difficult for women to access 

the bankruptcy system. For example, women whose average income 

was at the median during the last 180 days, before the support 

checks stopped, may be denied access to chapter 7 and forced into 

restrictive chapter 13 repayment plans. Second, the bill does not 

exempt child support or foster care payments from the means test 

definition of disposable income, and does not exclude alimony and 

child support payments received within 6 months after filing for 

bankruptcy from the property of the estate.89 In addition, the bill 

will also make it more difficult for women to hold onto the car they 

need to get to work, or the refrigerator or washing machine they 

need to care for their families if a creditor claims a security interest in such items.90 The new nondischargeability categories also 

are problematic. Even if a mother filing for bankruptcy, who obtained cash advances to purchase basic necessities such as diapers 

or food, it will be more difficult for her to litigate a credit card company’s claim of nondischargeability.91

578

92The reported data are from the Consumer Bankruptcy Project, Phase II. Principal researchers are Dr. Teresa Sullivan, Vice-President of the University of Texas; Jay Westbrook, Benno 

Schmidt, Chair in Business Law, University of Texas; and Elizabeth Warren, Leo Gottlieb Professor of Law, Harvard Law School. These estimates are based on data collected in 1991 in 16 

judicial districts around the country. For more details about the study, see Teresa Sullivan et 

al., Consumer Debtors Ten Years Later: A Financial Comparison of Consumer Bankrupts 1981–

91, 68 AM. BANKRUPTCY L.J. 121 (1994). 

93 11 U.S.C. §§ 507(a)(7) & 523(a)(5). 94 CONGRESSIONAL RESEARCH SERVICE, IMPACT OF CONSUMER BANKRUPTCY REFORM PROPOSALS ON CHILD SUPPORT OBLIGATIONS (May 13, 1998). 

The bill will have a particularly adverse impact on the payment 

of domestic support to women and children as holders of claims for 

alimony and child support. These concerns are by no means insignificant given that an estimated 243,000–325,000 bankruptcy cases 

involved child support and alimony orders during the most recent 

years.92

Under current law, alimony and child support are treated as priority debt and are not subject to discharge.93 This preferential 

treatment dates from as early as 1903 and is based on Congress’s 

determination that the payment of these debts is so important to 

society that it should come ahead of most general creditors. Although H.R. 975 does not revoke this special treatment, viewed as 

a whole, the legislation will have the effect of diminishing the likelihood of full payment of alimony and child support. This arises as 

a result of several features of the bill: its creation of significant 

new categories of nondischargeable debt, the extension of the 

length and onerousness of chapter 13 plans, and the bill’s general 

limitations on the availability of chapter 7 relief. 

Each one of these changes will make it less likely that a former 

spouse will be able to make his required alimony and child support 

payments. First, by making significant amounts of credit card debt 

nondischargeable, more of these debts will survive bankruptcy. 

Since most chapter 7 and 13 debtors do not have the ability to 

repay most of their unsecured debts, financial pressure on the debtor will continue after bankruptcy, decreasing his ability to handle 

important support obligations. 

Collectively considered, these changes will help foster an environment where unsecured and credit card debt is far more likely to 

compete against alimony and child support obligations in the state 

law collection process. As a Congressional Research Service Memorandum analyzing predecessor legislation concluded under [a predecessor] bill ‘‘child support and credit card obligations could be ‘pitted against’ one another. . . . Both the domestic creditor and the 

commercial credit card creditor could pursue the debtor and attempt to collect from post-petition assets, but not in the bankruptcy 

court.’’ 94

Outside of the bankruptcy court is precisely the arena where sophisticated credit card companies have the greatest advantages. 

While Federal bankruptcy court enforces a strict set of priority and 

payment rules and generally seeks to provide equal treatment of 

creditors with similar legal rights, state law collection is far more 

akin to ‘‘survival of the fittest.’’ Whichever creditor engages in the 

most aggressive tactic—be it through repeated collection demands 

and letters, cutting off access to future credit, garnishment of 

wages or foreclose on assets—is most likely to be repaid. As Marshall Wolf has written on behalf of the Governing Counsel of the 

579

95Statement of Marshall J. Wolf (May 13, 1998) (on file with the House Comm. on the Judiciary). 96March 18, 1999 Hearing (written statement of Karen Gross, New York Law School). 97 Id. (written statement of Joan Entmacher, National Women’s Law Center). 98Letter from Representative George W. Gekas, et al., to Members of Congress (Apr. 29, 

1998). 99 Under current law, domestic support owed to families is a priority debt; support owed to 

the government is nondischargeable, but is not priority debt. 100 Although the bill gives priority to support claims owed to actual people over those owed 

to the government in chapter 7 cases where there are assets to distribute, those cases are few, 

and the new definition could serve to hurt women and children, the most likely creditors of domestic support. 

Family Law Section of the American Bar Association, ‘‘if credit card 

debt is added to the current list of items that are now not dischargeable after a bankruptcy of a support payer, the alimony and 

child support recipient will be forced to compete with the well organized, well financed, and obscenely profitable credit card companies 

to receive payments from the limited income of the poor guy who 

just went through a bankruptcy. It is not a fair fight and it is one 

that women and children who rely on support will lose.’’ 95

It is for these reasons that groups concerned with the payment 

of alimony and child support have expressed their strong opposition 

to the bill and its predecessors. Professor Karen Gross of New York 

Law School stated succinctly that ‘‘the proposed legislation does not 

live up to its billing; it fails to protect women and children adequately.’’ 96 Joan Entmacher, on behalf of the National Women’s 

Law Center, testified that ‘‘the child support provisions of the bill 

fail to ensure that the increased rights the bill would give to commercial creditors do not come at the expense of families owed support.’’ 97

Assertions by the legislation’s supporters that any disadvantages 

to women and children under H.R. 975 are offset by supposedly 

pro-child support provisions are not persuasive. It is useful to recall 

the context in which these provisions were added. In the 105th 

Congress, the bill’s proponents adamantly denied that the bill created any problems with regard to alimony and child support.98 Although the proponents have now changed course, the child support 

and alimony provisions included do not respond to the provisions 

in the bill causing the problem—namely the provisions limiting the 

ability of struggling, single mothers to file for bankruptcy; enhancing the bankruptcy and post-bankruptcy status of credit card debt; 

and making it more difficult for debtors to eliminate debts and 

focus on domestic support obligations. In some instances, the new 

sections are counterproductive in furthering the goal of payment of 

support obligations to ex-spouses and children. 

For example, section 211 provides a definition of ‘‘domestic support obligation’’ that includes funds owed to government units.99 If 

the government is acting as the debt collector for a woman or child, 

this is appropriate; the benefits of this inure to women and children directly. However, if the government is collecting for its own 

benefit (say, for example, the woman recipient is on welfare and 

the government is collecting arrearages to reduce a state or Federal 

deficit), then the result is inappropriate and will put the government collection agency in direct competition with single mothers 

and children, particularly in chapter 13.100

Section 212 purportedly increases to first priority from seventh 

priority obligations for domestic support, including debts owed to 

580

101Those priorities—which would likely apply in less than 1% of all cases—deal with debts 

of grain storage facility operators, debts of fishermen, employee wage claims, retail layaway 

claims, and the like. 11 U.S.C. § 507(a). 102 11 USC 1332(a)(1). 103 H.R. 975, § 214 (proposed amendment to 11 U.S.C. § 362(b)). Specifically, the bill creates 

exceptions to the automatic stay for enforcement actions undertaken by government child support agencies, including income withholding in cases being enforced by public agencies; actions 

to withhold, suspend or restrict drivers’, professional and occupational, or recreational licenses; 

reporting overdue support to credit bureaus; intercepting tax refunds; and enforcing medical 

support. 104March 18, 1999 Hearing (written statement of Joan Entmacher, National Women’s Law 

Center) (citing U.S. DEPT. OF HEALTH AND HUMAN SERVS., OFFICE OF CHILD SUPPORT ENFORCE- MENT, PRELIMINARY DATA REPORT: CHILD SUPPORT ENFORCEMENT FY 1997 (Aug. 1998). 105 11 U.S.C. § 523(a)(6). 106Kawaauchau v. Geiger, 523 U.S. 57 (1998) (holding that the actor must intend the consequences of the act, injury to someone or something, not just the act, itself). If, therefore, the 

actor intends only to damage the building and not any person inside, but does injure a person 

inside, he may be able to discharge the debts arising out of the injury to the person because 

that injury was not intended. See id.

the government. It is misleading to suggest that moving up to ‘‘first 

priority’’ from ‘‘seventh priority’’ makes a significant difference: the 

debts that have second through sixth priorities almost never appear in consumer cases.101

In most cases, the place in the priority order is meaningless. In 

ch. 13, all priority debts must be paid in full.102 In approximately 

97% of all individual ch. 7 cases, the debtor has no non-exempt assets and so is unable to pay any priority or non-priority unsecured 

debts, regardless of their placement in the priority order. Outside 

bankruptcy, of course, the priorities in the Bankruptcy Code are inapplicable and unenforceable. It is in state court, after the case is 

over that the mother must compete with newly non-dischargeable 

credit card debts. Being first priority is of no help. 

Section 214 creates additional exceptions to the automatic 

stay 103 that, like other provisions in the bill, have the potential of 

placing women and children at a disadvantage. First, these provisions apply only to income withholding orders issued by government agencies under the Social Security Act, even though an estimated 40–50% of all child support cases, and all alimony-only 

cases, are enforced privately, not by government child support 

agencies. Second, income withholding is helpful only if such orders 

are placed against debtors with regular income. Yet, in 1997, more 

than four out of ten cases in state child support systems across the 

country lacked a support order.104

Section 216, which allows domestic support creditors to levy otherwise exempt homesteads and other exempt property, also does 

not go far enough. Like the other provisions, it is effective only if 

a single mother goes to the time and expense of hiring an attorney 

to enforce her new rights. 

The legislation also totally ignores another very serious problem 

facing women as a result of the Bankruptcy Code—the fear that 

violent and reckless individuals will be able to terrorize and blockade abortion clinics and eliminate their liability from that action 

through the bankruptcy process. Although the current bankruptcy 

laws prevent discharge for ‘‘willful and malicious injuries,’’ 105 Supreme Court precedent has raised doubt whether this standard applies to a clinic bombing where a particular victim was not targeted.106 It is also unclear whether the law applies to damages resulting for barricading clinic entrances. At the same time, notorious 

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107Operation Rescue Founder Files for Bankruptcy due to Lawsuits, WASH. POST, Nov. 8, 1998, 

at A29; An Anti-Abortion Leader Files for Bankruptcy, N.Y. TIMES, Nov. 8, 1998, at 45. 108Memorandum of NARAL 8 (Mar. 30, 1999). 109Letter from LCCR to Members of Congress (Apr. 21, 1999). 110 Id. 111Letter from Dan Schulder, Director Legislation, National Council of Senior Citizens, to the 

Honorable Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and Admin. Law 

(June 9, 1998).

cally filed for bankruptcy in order to void a $1.6 million judgment 

he owed to the National Organization for Women and Planned Parenthood,107 and many of the notorious ‘‘Nuremberg files’’ defendants have filed for bankruptcy. 

Although a bankruptcy discharge has proved elusive for these 

law-breakers, they have succeeded in abusing the bankruptcy 

courts to hinder, delay and defraud the women whose rights they 

have violated, imposing substantial costs on them to collect lawful 

judgements. 

As NARAL Pro-Choice America has written, ‘‘[d]ebtors whose 

debts arise from their own clinic violence are not honest debtors 

and should not be able to escape the financial liabilities incurred 

by their illegal conduct.’’ 108

b. Minorities, Seniors, and Victims of Crimes and Severe 

Torts 

H.R. 975 will have a disparate impact upon minorities and victims of crimes and torts, also. The Leadership Conference on Civil 

Rights has warned that, under the predecessor legislation, ‘‘African 

American and Hispanic American families, suffering from discrimination in home mortgage lending and in housing purchases and 

facing inequality in hiring opportunities, wages, and health insurance coverage [will be less able to] turn to bankruptcy to stabilize 

their economic circumstances.’’ 109 We know this because the economic struggle for Hispanic American and African American homeowners is harder than for any other group. While 68% of whites 

own their own homes, only 44% of African Americans and Hispanic 

Americans own their homes. Both African American and Hispanic 

American families are likely to commit a larger fraction of their 

take-home pay for their mortgages, and their homes represent virtually all their family wealth. It is no surprise, then, that African 

American and Hispanic American homeowners are six hundred 

percent more likely to seek bankruptcy protection when a period of 

unemployment or uninsured medical loss puts them at risk for losing their homes.110 Experience has also shown that minorities are 

also particular targets of predatory lenders. 

Similar concerns have been raised on behalf of seniors, who could 

lose their retirement savings if forced into chapter 13 plans.111 The 

National Council of Senior Citizens has warned that legislation of 

this nature: 

would have a harsh impact on a group of people who are often 

subject to job loss or catastrophic health costs; instead of ameliorating these problems, this bill will only exacerbate 

them. . . . Since 1992, more than a million people over the 

age of 50 have filed for bankruptcy; in 1997, an estimated 

280,000 older Americans filed. For them it is particularly hard. 

If they are forced into prolonged repayment schedules, they 

582

112 Id. 113 11 U.S.C. §§ 523(a)(6), (9), (13). 114Letter from Marlene A. Young, Executive Director, NOVA, to the Honorable Henry J. 

Hyde, Chair, House Comm. on the Judiciary (Apr. 26, 1999). 115Letter from David Beatty, Director of Public Policy, The National Center for Victims of 

Crime, to the Honorable Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and 

Admin. Law (Apr. 28, 1999). 116Letter from Karolyn V. Nunnallee, National President, MADD, to Members of Congress 

(Apr. 26, 1999). 117 Id.

may not be able to maintain or accumulate savings for retirement. As you know, approximately two third of voluntary 

Chapter 13 workout plans fail, and we believe that retirement 

savings must be protected for that purpose.112

With regard to the concerns of victims’ groups, it is important to 

note that current law reserves the nondischargeability of debts for 

obligations arising out of willful or malicious injury, death or personal injury caused by the operation of a motor vehicle, or criminal 

restitution payments.113 However, making more credit card debt 

nondischargeable, encouraging more reaffirmations of general unsecured debt, and discouraging more financially troubled individuals from seeking debt relief will place these individual creditors 

at a relative disadvantage. As the National Organization for Victim 

Assistance has written, ‘‘more exempted creditors with rights to the 

same finite amount of resources means lower payments to all. Inevitably, for victim-creditors, that means either a smaller return on 

the restitution owed, or a longer period of repayment, or both.’’ 114

The National Center for Victims of Crime has similarly observed, 

‘‘to equate contractual losses of a commercial creditor with . . . 

personal obligations [for victim claims as the legislation does] is to 

belittle their importance and to directly reduce the likelihood that 

crime victims will ever be financially restored, despite obtaining an 

order of restitution or a civil judgment.’’ 115 Mothers Against Drunk 

Driving (‘‘MADD’’) has also complained that if ‘‘individuals [whose 

lives] have been shattered financially and emotionally by the death 

or serious injury of their family members . . . have to compete 

with credit card debt holders for the limited post-discharge income 

of debtors available [as the predecessor legislation requires], they 

may themselves end up in bankruptcy.’’ 116 MADD also noted that 

in contrast to crash victims, ‘‘lending institutions have the ability 

to provide some degree of protection to themselves when they issue 

credit cards to individuals and they are in a better financial position to absorb losses, which to them is a cost of doing business.’’ 117

5. The Bill Does not Address Abuses of the Bankruptcy System by Creditors 

Perhaps the bill’s most glaring omission is its failure to fully address the problem of abusive lending practices. At the same time 

the legislation responds to every conceivable debtor excess—whether real or imagined—it largely ignores the transgressions of the 

credit industry. The only significant ‘‘reform’’ with regard to lending industry disclosure is that requirement that credit card companies provide the consumer with an ‘‘800’’ number to call and unrealistic examples of credit card debt paydowns (which may not reflect the actual situation of the debtor and thus prove misleading), 

583

118 H.R. 975, Title XIII. 119March 16, 1999 Hearing (written statement of Joe Lee, Charts 5–6). In 1993, banks issued 

credit card loans in the amount of $223 billion; in the same year, there were approximately 

900,000 consumer bankruptcy filings. Id. (citing the FDIC and the Administrative Office of the 

U.S. Courts). In 1998, banks issued $455 billion in credit card loans; that year, there were 1.4 

million consumer bankruptcy filings. Id.

as well as a series of boilerplate warnings regarding real estate 

loans and teaser rates.118

As noted at the outset, the overwhelming weight of authority establishes that it is the massive increase in consumer debt, not any 

change in bankruptcy laws, which has brought about the increases 

in consumer filings. Indeed, there is an almost perfect correlation 

between the increasing amount of consumer debt and the number 

of consumer bankruptcy filings. For example, between 1993 and 

1998, bank credit card loans in the United States more than doubled from $223 billion to nearly $500 billion, and personal bankruptcy filings increased accordingly.119 The same basic correlation 

holds from 1946 through 1998, as the below chart indicates: 

584

120 439 U.S. 299 (1978). 

Review of this data indicates that the primary factor that led to 

the increase in bankruptcy filings after 1978 was not the enactment of the revised bankruptcy laws, but the deregulation of credit. 

The deregulation resulted from the Supreme Court decision in 

Marquette National Bank of Minneapolis v. First Omaha Service 

Corp.,120 which held that out-of-state banks were not subject to the 

usury laws of the state where the consumer was located. This deciVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00588 Fmt 6601 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1

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121See March 16, 1999 Hearing (written statement of Hon. Joseph Lee at 1–3). 122 Id. (written statement of Hon. Joseph Lee at 4–5). 123Press Release of the National Consumer Law Center, Consumers Union, Consumer Federation of America, and U.S. PIRG (Apr. 19, 1999). 124 Id. (quoting Agenda for Card Marketing Conference ’98 (Nov. 9–11, 1998)). Between 1990 

and 1995, the average student credit card debt more than doubled from $900 to $2,100. By 1997, 

graduate students averaged seven cards and carried a total balance of $5,800. That’s in addition 

to school loans, which are increasingly being used to pay off students’ credit card debt. To sup- port average post-college debts and other expenses, graduates need to earn more than $38,000— $4,000 more than the national average. (‘‘Bankrupt at 24, Susan Carpenter, LA Times January 

24, 2001.) 125 Id. 126 Id. 127 U.S. PUBLIC INTEREST RESEARCH GROUP, THE CAMPUS CREDIT CARD TRAP: RESULTS OF A

PIRG SURVEY OF COLLEGE STUDENTS AND CREDIT CARDS (Sept. 1998). 128Press Release of the National Consumer Law Center, Consumers Union, Consumer Federation of America, and U.S. PIRG (Apr. 19, 1999). 129Dan Herbeck, Where Credit Isn’t Due: Developmentally-Disable Become Victims, BUFFALO

NEWS, Apr. 7, 1998, at 1A. 

sion led credit card concerns to relocate to states with lax usury 

laws that gave banks the ability to charge exorbitant interest rates 

in all 50 states. Subsequently, other legal changes permitted a 

broad range of new entities to get into the ever-growing, and lucrative, credit card business.121 Among other things, we know that it 

was this unprecedented increase in high-cost credit, not the 

changed bankruptcy laws, that led to the change by virtue of Canada’s experience. In Canada, bankruptcy filings began to explode in 

the late 1960’s, simultaneous with the entry of VISA and 

MasterCard into that nation and the growth in credit card lending. 

There was no change in Canada’s laws that could account for the 

increase.122

This deregulation of credit and the accompanying explosion in 

credit availability—the number of credit card solicitations in 1998 

reached 3.5 billion, an increase of 15 percent from the prior 

year 123—and consumer debt, have been accompanied by a wide variety of credit card abuses. For example, solicitations of minors and 

college students are a particular problem. Credit card companies 

purposefully solicit students and other minors who have little ability to pay their debts. Illustrative of the seriousness with which 

credit card companies target students is the following topic from 

the 1998 Card Marketing Conference: 

Targeting Teens: ‘‘You Never Forget Your First Card!’’ Most 

teens never forget their first love. Nor do they forget the issuer 

who dares to accept their application. Their brand loyalty and 

propensity to spend make consumers in their mid- to late-teens 

priced prospects for many card issuers.124

The credit card tactics are myriad, including offering gifts such 

as mugs, Slinkees, T-shirts, and Frisbees.125 Campus groups managing credit card tables receive large cash payments from credit 

card companies.126 Such tactics apparently work, as 61% of students responsible for their own bills have indicated that they received credit cards at college.127 Some colleges have become so fed 

up with card marketing practices that they banned the credit card 

companies from their campus 128—although they cannot stop mail 

solicitations. 

Credit card companies even go so far as to solicit business from 

the developmentally disabled.129 One developmentally disabled 

586

130 Id. 131 Id. 132 Id. 133March 11, 1999 Hearing (written statement of Gary Klein, National Consumer Law Center). 134Letter from American Bankruptcy Service to Michael Schwartz (Dec. 18, 1998). 135March 18, 1999 Hearing (written statement of Damon A. Silvers, AFL-CIO, n.9 [citing 

Debra Nussbaum, ′′Lenders Laud the Value of Home Sweet Equity,’’ N.Y. TIMES, Mar. 22, 1998, 

§ 3 at 10; Richard W. Stevenson, ′′How Serial Refinancings Can Rob Equity,’’ ?N.Y. TIMES, Mar. 

22, 1998, § 3 at 10. See also Julia Patterson Forrester, ′′Mortgaging the American Dream: A critical Evaluation of the Federal Government’s Promotion of Home Equity Financing,’’ 69 TULANE

L. REV. 373 (1994)]). 136Section 112 of the bill requires only that credit card companies disclose on customer account statements that making the minimum payments each month will increase the length of 

time it takes to pay off the account. This ‘‘disclosure’’ provision is meaningless because it would 

not require credit card companies to tell customers exactly how long it would take, and how 

much it would cost, if the minimum payments were made. 

man, aged 35, has the reading and mathematic skills of a secondgrader and an annual income of $7,000 from Social Security disability benefits; nevertheless, he has 13 credit cards, generating a 

debt of $11,745.130 When his counselor asked the bank to lower his 

credit limit to $500, his limit was instead raised to $4,900.131 Credit card companies have no answer for how this occurs other than 

to say that they screen all applicants to ensure they can handle the 

risk.132 Clearly, however, credit card companies have not been 

doing a sufficient job of screening their applicants. Unfortunately, 

H.R. 975 does nothing to discourage any of these practices. 

The bill also ignores the problem of credit card companies lending to individuals with already substantial debts and little prospect 

of repayment. Gary Klein of the National Consumer Law Center 

noted ‘‘offering additional credit . . . to families already struggling 

to pay their debts hurts not only borrowers, but also the borrowers’

honest creditors if the new credit pushes the family over the edge. 

Similarly, failure by one creditor to seriously consider payment arrangements outside bankruptcy for families facing hardship may 

lead to a bankruptcy filing which affects all creditors.’’ 133 One credit card company goes so far as to solicit debt counselors and offers 

them $10 for each chapter 7 client who requests a VISA card.134

A particularly pernicious credit card practice occurs in the socalled ‘‘subprime’’ market, where lenders seek out riskier borrowers 

and offer home equity financing at loan to value ratios in excess 

of 100%. Another lending abuse targets low income and minority 

neighborhoods with ‘‘serial’’ refinancing loans that carry high interest rates and other onerous terms.135 In essence this causes poor 

individuals to place their homes at risk in order to finance their 

credit card purchases. 

These problems are compounded by the fact that credit card companies fail to disclose clearly on their account statements the total 

amount and total time it would take to pay off balances if only the 

minimum amount due was paid each month.136 Unlike mortgage 

loans and car loans, credit card loans do not disclose the amortization rates or the total interest that will be paid if the cardholder 

makes only the minimum monthly payment. As a result, using a 

typical minimum monthly payment rate on a credit card, it could 

take 34 years to pay off a $2,500 loan, and total payments would 

exceed 300 percent of the original principle. This is why many lendVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00590 Fmt 6601 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
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137March 16, 1999 Hearing (written statement of Frank Torres, Consumers Union). 138The bill fails to effectively address the problem with reaffirmation agreements, since it provides for court review in only a limited group of cases and allows creditors to refuse to disgorge 

funds received even if a reaffirmation was illegal in many cases. 139Sec. 203(a) (creating a new 11 USC 524(m)). 140See Leslie Kaufman, Sears to Pay Fine of $60 Million in Bankruptcy Fraud Lawsuit, N.Y. 

TIMES, Feb. 10, 1999, at C2. 

ers encourage minimum payments that do not pay down the 

loan.137

Finally, the legislation fails to address adequately the problem of 

abuse in the area of reaffirmation agreements, by for example, 

placing effective and meaningful restrictions on their use with respect to unsecured and dischargeable loans.138 Although it requires 

lengthy and confusing ‘‘disclosures,’’ it exempts credit unions from 

any restrictions on unduly burdensome reaffirmations, defined as 

requiring the debtor to make monthly payments in excess of 100% 

of the debtor’s post-discharge monthly disposable income 139. This 

failing is especially glaring in view of the fact that the bill will provide numerous opportunities for creditors to coerce reaffirmations 

making the provisions of this bill, which will render it more difficult to obtain effective remedies against abusive creditors like 

Sears, even less defensible.140

Neither the witness representing the Credit Union National Association, nor any proponent of the bill has ever attempted to explain why a credit union should be permitted to reaffirm a debt requiring payments that, as a matter of simple arithmetic, the debtor 

will be unable to pay. This provision is unconscionable and runs 

counter to the historic commitment of credit unions as defenders of 

the rights of their members. 

III. SMALL BUSINESS AND SINGLE-ASSET REAL ESTATE PROVISIONS

Under current law, businesses may use chapter 11 of the Bankruptcy Code in an effort to obtain relief from the creditors while 

they seek to develop a plan to reorder their affairs and pay as 

much of their debts as their operations will allow. Under this chapter, businesses obtain an ‘‘automatic stay,’’ which forestalls creditor 

collection efforts. During this time period, debtors have an opportunity to examine their contracts and leases and determine which 

ones to assume and which ones to reject (with rejection leading to 

a claim for damages). Debtors are subject to a number of requirements during this period, such as the formation of creditor committees and various ongoing financial disclosures. 

The goal of chapter 11 is to determine whether there is ongoing 

business value that can be preserved to pay off creditors, while 

maintaining as many jobs and contractual relationships as possible. To this end, the debtor is given an exclusive 120-day period 

(unless lengthened or shortened for cause) in which to develop a reorganization plan that satisfies a host of statutory requirements 

and convince a majority of the creditors that the plan is in their 

best interests and is preferable to a liquidation ‘‘fire sale.’’ In 1994, Congress enacted two exceptions to the general rules of 

chapter 11. The first related to ‘‘small businesses,’’ defined as entities engaged in commercial or business activities whose aggregate 

debts do not exceed $2 million. Debtors that elect to be treated as 

small businesses are permitted to dispense with creditor commitVerDate Jan 31 2003 05:34 Mar 19, 2003 Jkt 085733 PO 00000 Frm 00591 Fmt 6601 Sfmt 6601 E:\HR\OC\HR40P1.XXX HR40P1
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141 H.R. 975, § 432 (proposed amendment to 11 U.S.C. § 101(51D)). 142See March 18, 1999 Hearing (written statement of Jere W. Glover, Chief Counsel for Advocacy, SBA). 143 H.R. 975, § 436 (proposed 11 U.S.C. § 1116). 144 H.R. 975, § 437 (proposed amendment to 11 U.S.C. § 1121(e)). 145Letter from Peggy Taylor, Director of Legislation, AFL-CIO, to the Honorable Henry J. 

Hyde, Chair, House Comm. on the Judiciary (Apr. 20, 1999). 

tees, receive only a 100-day plan exclusivity period, and are entitled to more flexible provisions for disclosure and solicitation for acceptances of their proposed reorganization plan. 

In 1994, Congress also developed a special set of rules applicable 

to ‘‘single asset real estate,’’ generally defined as cases in which the 

principal asset is a single piece of real estate subject to debt of no 

more than $4 million. In cases falling within this definition, secured creditors are permitted to foreclose on their collateral unless 

the debtor files a reorganization plan which is likely to be confirmed or commences payment on the secured loan within a 90-day 

period. This exception to chapter 11 procedures was justified on the 

grounds that single asset real estate cases were seen as essentially 

private two-party loan disputes, which did not implicate ongoing 

businesses or jobs. 

A. Small Business Provisions 

The business provisions of the bill would effectuate a number of 

changes in the manner in which corporations, partnerships and 

other business entities are permitted to reorganize their financial 

affairs. With respect to small business, H.R. 975 would expand the 

definition of covered small business to those companies having 

debts of less than $3 million,141 subsuming more than 80% of all 

chapter 11 cases.142 It would also make the small business requirements mandatory (rather than optional) and mandate the operation 

of numerous additional requirements on debtors.143 For example, 

under H.R. 975, small business debtors would be required to provide balance sheets, statements of operations, cash-flow statements, and income tax returns within 3 days after filing a bankruptcy petition, the time period the debtor has the exclusive right 

to file a plan of reorganization would be modified (to 180 days without the possibility of extension), and the standards for being able 

to seek an extension of this time period would be substantially narrowed.144

It is for these reasons that the AFL-CIO, and a number of other 

organizations representing both debtor and creditor interests are 

opposed to, or have serious concerns with, the small business provisions of the bill. The AFL-CIO has warned that the small business 

provisions in the bill will ‘‘threaten jobs by placing substantial procedural and substantive barriers in the way of small businesses’ access to the protections of Chapter 11; . . . threaten jobs by requiring commercial debtors to assume or reject commercial leases within a rigid timetable, which would force debtors to favor one class 

of creditors over others, and threaten their overall ability to successfully reorganize.’’ 145 All of these concerns are compounded at 

a time we are experiencing an economic slowdown, if not an outright recession. 

This new bankruptcy mandate, particularly sections 437 through 

439, would impose substantial new costs on small businesses, both 

589

146March 18, 1999 Hearing (written statement of Jere W. Glover, Chief Counsel for Advocacy, 

SBA). 147Letter from Jere W. Glover, Chief Counsel for Advocacy, U.S. Small Business Administration, to the Honorable Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and 

Admin. Law (Apr. 22, 1998). 148March 18, 1999 Hearing (written statement of Jere W. Glover, Chief Counsel for Advocacy, 

SBA). 149 Id. (written statement of Damon A. Silvers, AFL-CIO at 4); March 17, 1999 Hearing (written statement of Kenneth Klee, National Bankruptcy Conference at 7). 

in terms of document production and legal fees, and limit the time 

frame that the business has to develop a reasonable reorganization 

plan.146 Section 437 provides an absolute limit on the period the 

business debtor has the exclusive right to file a plan of reorganization. Congress has previously enacted laws that have made it far 

more difficult for debtors to unduly delay filing a plan of reorganization, and these appear to have had a salutary effect. The proposed rigid deadline goes much farther and could work to detriment of debtors involved in complex reorganizations and force unnecessary liquidations and job losses. In turn, these changes will 

lead to the premature liquidation of small businesses with the attendant loss of jobs. The provisions are particularly unnecessary at 

a time when business bankruptcies have declined by one-third over 

the most recent 10-year period.147

Describing the earlier version of the bill, the SBA’s Office of Advocacy summed up the situation as follows: ‘‘the proposals in [the 

legislation] go too far in addressing the relatively small number of 

problem cases.’’ 148 Even more dangerously, it has been noted that 

many—if not most—of the business cases in the average district 

would fall prey to these harsh new rules.149

B. Single-Asset Real Estate Provisions 

A similar concern relates to single-asset real estate (‘‘SARE’’) 

debtors. The legislation would significantly expand the definition of 

SARE by eliminating the $4 million debt cap pursuant to a ‘‘technical correction’’ in section 1201(5) of Title XIII of H.R. 975, would 

take in SARE bankruptcies below that cap and treat them as small 

businesses. 

As a result of these changes, a much wider range of real estate 

operations would be required to conform with the SARE and small 

business requirements when they seek to reorganize, notwithstanding the fact that those requirements were drafted with a 

much smaller and simpler entity in mind. Large operating entities 

such as Rockefeller Center, as well as hotels and nursing homes, 

could be considered SARE and put back on the track set forth in 

§ 362(d)(3) of the Bankruptcy Code. It would also create new incentives for lenders to require that all of their real estate borrowers 

place their holdings in the single asset form in order to avoid ordinary bankruptcy rules in the future. The AFL-CIO noted, ‘‘the significant limiting factor in the application of these rules has been 

the $4 million cap. [Eliminating] the cap would place a wide variety of properties . . . at risk of foreclosure and threaten jobs at 

these properties. Absent rules that specifically exclude properties 

such as housing and those with significant business enterprises, 

590

150March 18, 1999 Hearing (written statement of Damon A. Silvers, Associate General Counsel, AFL-CIO). 151Letter from Peggy Taylor, Director of Legislation, AFL-CIO, to the Honorable Henry J. 

Hyde, Chair, House Comm. on the Judiciary (Apr. 20, 1999). 152 Id. 153March 18, 1999 Hearing (written statement of Damon A. Silvers, AFL-CIO); March 17, 

1999 Hearing (written statement of Kenneth Klee, National Bankruptcy Conference). 154 H.R. 975, § 411. 155 H.R. 975, § 912. 156 H.R. 975, § 441. 157 H.R. 975, § 417. 158Letter from Peggy Taylor, Director of Legislation, AFL-CIO, to the Honorable Henry J. 

Hyde, Chair, House Comm. on the Judiciary (Apr. 20, 1999). 159The value to the estate of retaining the ability to assign certain leases is often a significant 

issue in determining which leases to assume or reject because it impacts upon the ability to 

there should be no expansion in the definition of single asset real 

estate debtor.’’ 150

By design, the SARE changes will ‘‘broaden the scope of single 

asset real estate debtors subject to rules which increase the threat 

of disruptive summary foreclosures of commercial property.’’ 151

This, in turn, would likely lead to significant job losses.152 Even if 

a hotel or nursing home remains in existence, the new owner would 

not necessarily be required to honor any previously negotiated collective-bargaining agreements applicable to employees at the facility. In the case of a large real estate operation, premature foreclosure could also allow the new owner to terminate many leases, 

leading to further job losses to the extent the business is relying 

on these leases. 

C. Other Business Concerns 

A host of additional concerns have been raised by groups such as 

the AFL-CIO and the National Bankruptcy Conference regarding 

the business titles of the legislation. These include concerns about 

the expansion of remedies available to secured creditors in the 

transportation industry; 153 the imposition of mandatory deadlines 

for extensions of ‘‘exclusivity’’; 154 amendments regarding asset 

securitization limiting the assets available to a debtor during a 

bankruptcy case; 155 limits on subsequent filings for troubled small 

businesses,156 and provisions giving utility companies an enhanced 

position in bankruptcy.157 In general, the AFL-CIO has warned 

that ‘‘the real danger posed by H.R. 833 [the precursor to H.R. 975] 

is the threat it poses to our economy’s ability to weather 

downturns. The bill aims to make access to the bankruptcy process 

more difficult for our economy’s most vulnerable links—small businesses and consumers. This will likely result in increased business 

closures, job loss and home foreclosure, increasing the severity and 

length of any future economic downturn.’’ 158

Similar concerns relate to the power of creditors who lease retail 

property. Section 404 unfairly grants lessors of commercial property the ability to coerce debtor-tenants into deciding prematurely 

whether to assume or reject a lease. In a retail insolvency, a debtor 

may need to wait beyond the 210-day period—120 days with the 

ability to gain a 90-day extension upon a motion for cause and with 

the lessor’s consent—until the holiday season is complete to determine which locations have a realistic chance to succeed; a trustee 

or debtor in possession may decide to assume and reject some of 

the leases based upon this practical experience.159 If the trustee or 

591

pay other creditors. It should also be noted that the lessor already is entitled to get paid postpetition rent for the use of the property—the debtor is not using it for free. 160 In re Klein Sleep Prods., 78 F.3d 18 (2d Cir. 1996). 161 National Bankruptcy Conference, Report on H.R. 2415, 106th Cong., 2d Sess (H. Rept. 

106–970) at 17 (2001). 162 Hearing on Business Bankruptcy Issues Before the House Subcomm. on Commercial and 

Admin. Law, 105th Cong., 2d Sess., (Mar. 18, 1998) (statement of Paul H. Asofsky). 

debtor in possession assumes a nonresidential lease in chapter 11, 

and the case subsequently converts to chapter 7, under the bill, the 

rent due for a 1-year period following rejection of the lease becomes 

an administrative expense for compensation, gaining priority over 

all other unsecured claims and limiting the opportunity for other 

unsecured creditors to receive compensation.160 By giving the lessor veto power at the end of 210 days, as the bill now does, the 

legislation would have the effect of giving a single creditor inordinate bargaining power among creditors and with the debtor. 

Another problematic provision appears in section 442 of H.R. 

975. Section 442 amends section 1112(b) of the Code to expand the 

grounds on which the court can dismiss or convert a small business 

case. For example, a case will be presumptively dismissed when the 

debtor fails to comply with a lengthy list of requirements. To overcome the presumption, the debtor must show that a reasonable justification exists for the debtor’s action, that the debtor will rectify 

the situation within a reasonable time prescribed by the court, and 

that the plan will be confirmed within a reasonable period of time. 

Again, the concern is that § 442 may be too inflexible and could be 

used by some creditors to obtain leverage over other creditors,’’ 161

or the case could be converted to ch. 7 when it may have successfully reorganized, costing jobs and sacrificing going concern value 

for the creditors and the estate. 

IV. TAX PROVISIONS

The Bankruptcy Code seeks to effectuate a delicate balance between the rights of the Internal Revenue Service and state tax 

agencies to the repayment of any taxes, interest, and penalties 

owed them, and the rights of other creditors and the ability of individuals and corporations to be financially rehabilitated for the benefit of all parties. Title VII of the bill, on balance, manifests a 

strong preference for the IRS and other taxing authorities to the 

detriment of other participants in the bankruptcy system. Concerns 

have been expressed that, not only does H.R. 975 generally enhance the rights and position of the IRS and state authorities in 

bankruptcy, but the bill grants the IRS certain rights in bankruptcy cases that it does not enjoy outside of bankruptcy, and vests 

the IRS with new enforcement powers that ordinary creditors do 

not posses.162 Of particular concern is the fact that the bill varies 

in many significant respects from the nonpartisan, and often unanimous, recommendations of the Bankruptcy Commission and its 

Tax Advisory Committee. 

Title VII of the H.R. 975 deals with the treatment of tax debts 

owed to the government by a debtor. It is ironic that the bill, whose 

sponsors have normally taken such an anti-tax posture on most 

issues, not only uses the IRS collection standards for the means 

test but also presses for changes to the Bankruptcy Code that favor 

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163 National Bankruptcy Conference, Report on H.R. 2415, 106th Cong., 2d Sess (H. Rept. 

106–970) at 16 (2001). 164March 18, 1999 Hearing (written statement of Paul Asofsky). 165Letter from Paul Asofsky to the Honorable Jerrold Nadler, Ranking Member, House 

Subcomm. on Commercial and Admin. Law (Feb. 5, 1999) [hereinafter Asofsky Letter]. 166 Id. at 3–4. 167These are the same standards used in the means test in section 102 of H.R. 975. 

governmental collections over the rights of debtors and private sector creditors. 

Arguably one of the bill’s most important provisions affecting 

business bankruptcies appears in Section 708 of Title VII. This section provides that a corporation will not be discharged from a tax 

or customs duty where the debtor made a fraudulent return or willfully attempted to evade or defeat the tax or duty. More significantly, by referencing any debt in section 523(a)(2) of the Code, the 

provision even would encompass claims that were fraudulently incurred that are not tax claims. In its critique of section 708, the 

National Bankruptcy Conference wrote:

A rule such as the one proposed in § 708 advantages one creditor at the expense of others. It is a recipe for certain mischief, 

especially in large reorganizations. There is no public policy 

reason to grant this kind of leverage to some creditors as the 

purpose in making these assertions transparently will likely be 

to obtain a better deal that other creditors.163

In addition, Paul Asofsky, who served as the Chair of the Task 

Force on the Tax Recommendations of the National Bankruptcy Review Commission of the American Bar Association’s Tax Section, 

testifying about H.R. 833 on behalf of the American Bar Association’s Section on Taxation, observed that: ‘‘[T]here are many provisions in this legislation with which we agree as a matter of principle, but the specific provisions are either ambiguously drafted or 

cut against the grain of the principal proposal, causing us to oppose 

what should be noncontroversial proposals.’’ 164

Mr. Asofsky provided a somewhat more detailed discussion of his 

concerns in a letter to the Subcommittee’s Ranking Member.165

Section 704 of H.R. 975 provides for a significantly higher uniform 

interest rate to be applied to tax claims in a bankruptcy case. The 

Tax Advisory Committee, which included governmental representatives, concluded that the rate for all types of tax claims should be 

the regular tax deficiency rate for Federal income tax purposes. 

The bill, however, provides that the rate shall be determined by applicable bankruptcy law. Of greater concern, local governments can 

set their own interest rates, many of which are substantially higher than either of the IRS rates.166

Section 707 severely limits the ‘‘superdischarge’’ available to 

debtors in chapter 13. It would prevent a debtor from discharging 

tax debts, which is now permitted in chapter 13, but not in chapter 

7. Eliminating the benefit of the superdischarge also eliminates the 

single greatest incentive for an individual debtor to choose chapter 

13. As Mr. Asofsky observed,

[T]he problem faced by many taxpayers who are delinquent in 

their obligations is that the IRS standard allowances for installment payment agreements 167 clearly do not leave many 

taxpayers with the minimum amounts necessary to provide for 

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168 Asofsky Letter at 4. 169 Id. at 5–6. 170 In re: Merry-Go-Round Enterprises, Inc. (Ernest & Young, LLP v. Devan), 222 B.R. 254 (D. 

Md. 1998). 

basic necessities, and so called ‘‘offers in compromise’’ are very 

difficult to obtain. Thus, for the most desperate of taxpayers, 

the chapter 13 superdischarge affords a safety net which is the 

only thing that provides them with the possibility of living 

somewhat of a normal life in dignity . . . elimination of the 

chapter 13 superdischarge would be devastating to large numbers of unfortunate individual debtors.168

Section 717 requires disclosure of the tax consequences of a chapter 11 plan of reorganization. Although originally an 

uncontroversial idea, the bill adds extra requirements which will 

likely cause confusion and may be impossible for debtors to comply 

with fully. The section now requires ‘‘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 interest in the case.’’ The use of a vague term 

such as ‘‘discussion’’—although an improvement over the requirement in the earlier version of a ‘‘full discussion’’—will likely lead 

to extensive litigation as these statements are scrutinized. In some 

instances, the precise tax consequences of a plan at all levels of 

government, and for a ‘‘typical’’ holder of claim, may be difficult to 

produce with great precision.169

Finally, section 718 requires that a debtor actually have commenced an action against the taxing authority to determine the 

amount of a disputed tax before a setoff can be prevented. Absent 

such an action by the debtor, a governmental entity generally is 

free to ‘‘setoff’’ any prepetition refund with a liability. The Advisory 

Committee had recommended that such setoff should only be permitted in cases where the liability was undisputed. The bill goes 

much further and to the disadvantage of the debtor and other, nongovernmental creditors. 

V. CORRUPTION OF THE BANKRUPTCY SYSTEM: 

Although the legislation purports to wring fraud and abuse from 

the bankruptcy system, there are a number of provisions which will 

open the door to further abuse by certain parties. 

Section 324 of the bill would overturn the result in the Merrygo-Round case in which the accounting firm of Ernst and Young 

was for fraud, fraudulent concealment, and negligence/malpractice 

for its conduct while serving as restructuring accountants and business advisors in the Merry-go-Round bankruptcy. The suit was 

brought in the Circuit Court for Baltimore City, but Ernst & Young 

attempted to move the case to the bankruptcy court. The case was 

remanded back to state court and the remand was ultimately 

upheld by the District Court.170 Faced with a jury trial in state 

court, Ernst & Young ultimately settled the case with the trustee 

for $185 million. 

The import of the Merry-Go-Round case is the issue of holding 

professionals, such as accounting firms, accountable for their actions in a bankruptcy case. As professionals, they are paid by funds 

594

171Letter to Hon. F. James Sensenbrenner, (Hon. Edith H. Jones)(March 11, 2003). 

from the estate before other creditors. They have a duty to the estate and the creditors. When they violate that duty, they can be denied fees by the bankruptcy court, or they may face an action for 

damages. Damages paid to the trustee are made available to the 

creditors. 

This change in the law was inserted for the express purpose of 

insulating accountants and other professionals from facing the consequences of their wrongdoing. At a time when public policy is 

moving in the direction of greater accountability, there is no excuse 

for this change. 

Section 414 would relieve investment bankers of the duty of 

being disinterested persons before they can be retrained as professionals by the trustee. The disinterestedness standard, which has 

been in existence since 1938, protects the estate from conflicts of 

interest by professionals in the case. Judge Edith Jones of the U.S. 

Court of Appeals for the Fifth Circuit has written, ‘‘such a standard 

can alone protect integrity in the bankruptcy process. If professionals who have previously been associated with the debtor continue to work for the debtor during a bankruptcy case, they will 

often be subject to conflicting loyalties that undermine their foremost fiduciary duty to the creditors. Strict disinterestedness, required by current law, eliminates such conflicts or potential conflicts . . . Section 414, in removing investment bankers from a rigorous standard of disinterestedness, is out of character with the 

rest of this important legislation, however, and it should be eliminated.’’ 171

Section 102 relieves certain creditors and their attorneys from 

penalties prescribed in the bill even if they violate Bankruptcy 

Rule 9011. As discussed earlier, there is never a justification for 

violating BR 9011. Granting such an exception would only encourage inexcusable abuse of the process. Moreover, because this exception is embedded in the attorney sanctions portion of the individual 

debtor provisions of this bill, it would open the door to creditors 

abusing the most vulnerable debtors with impunity. There are 

many instances in which this legislation makes such abuse possible. Enshrining this sort of exemption in the law exemplifies the 

dangerous distortion of the bankruptcy system this bill represents. 

For these reasons, we believe that H.R. 975 should not become 

law.

JOHN CONYERS, JR. 

HOWARD L. BERMAN. 

JERROLD NADLER. 

ROBERT C. SCOTT. 

MELVIN L. WATT. 

ZOE LOFGREN. 

SHEILA JACKSON LEE. 

MAXINE WATERS. 

WILLIAM D. DELAHUNT. 

TAMMY BALDWIN. 

LINDA T. SA ́ NCHEZ. 

(595)

1The following are the states have unlimited homestead exemptions: Florida, Iowa, Kansas, 

South Dakota, Texas, and the District of Colombia. 

ADDITIONAL DISSENTING VIEWS

In addition to the concerns raised in the general dissenting 

views, we are disappointed by the committee’s refusal to put an 

end to one of the most notorious abuses of the bankruptcy system—

the ‘‘financial planning’’ strategy by which debtors purchase expensive homes in states which allow an unlimited homestead exemption under 11 U.S.C. 522 (b) (2) (A), declare bankruptcy, and continue to enjoy a life of luxury while their creditors get little or 

nothing.1

During the committee markup, Mr. Delahunt offered an amendment to eliminate this abuse—and implement a key recommendation of the National Bankruptcy Review Commission—by retaining 

the $125,000 national cap on the homestead exemption, as provided 

under the bill, while striking the exceptions and loopholes to the 

cap contained in the current bill. 

The amendment would have helped to eliminate the biggest loophole in the Bankruptcy Code, and implement a key recommendation of the National Bankruptcy Review Commission, by placing a 

meaningful national cap on the homestead exemption. 

The amendment would have made the cap meaningful because, 

in the bill as reported, the $125,000 cap is qualified by a series of 

exemptions that assure that those who engage in flagrant abuse of 

the bankruptcy system by sheltering homestead assets can continue to do so. 

The Delahunt amendment, which was rejected on a party line vote by the Committee, would leave the cap at $125,000, but eliminate the exemptions for transactions conducted more than 1215 

days (roughly 3 years) preceding the bankruptcy filing and for interests transferred from a debtor’s previous principal residence acquired within the same state prior to that time. 

The rationale that has been given for the so-called ‘‘needs-based’’

reforms proposed in H.R. 975 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 we are truly serious about curtailing abuses, this is the place 

to start, with individuals like 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 

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2Larry Rohter, ‘‘Rich Debtors Finding Shelter Under a Populist Florida Law,’’ N.Y. Times A– 1 (July 25, 1993). 3 Id.

4 Id.

5David J. Morrow, ‘‘Key to a Cozier Bankruptcy: Location, Location, Location,’’ N.Y. Times, A–1 (Jan. 7, 1998). 

6 Id.

7 Eliot Kleinberg, ‘‘Reynolds Gets Out from under Bankruptcy,’’ The Palm Beach Post, (Oct. 

8, 1998) 8 Hearing Before the Senate Committee on the Judiciary on S. 220, (Written statement of 

Brady C. Williamson), at 6 (Feb. 8, 2001). 9 Judge A. Jay Cristol, quoted in Rohter, supra note 2. 

10David Wessel, ‘‘A Law’s Muddled Course,’’ The Wall Street Journal, at 1 (Feb. 22, 2001). 

claims while keeping his multi-million-dollar horse ranch near 

Ocala, Florida.2

Or 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.3

Or 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.4

Or 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.5

Or the 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.6

Or the 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.7

Or 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.8

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.’’ 9

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.’’ 10 Indeed, the Florida Supreme Court has ruled that even 

597

11 Havoco of America, Ltd. v. Hill, No. SC 99–98 (June 21, 2001). 

fraudulent transfers are protected by the unlimited homestead exemption under that state’s constitution.11

The sponsors of the bill will claim that they have closed the loophole, first, by applying the cap to property purchased within the 

1215-day period prior to the filing; second, by requiring the individual to wait for 730 days after moving from another state before 

claiming the new state’s exemption; and third, by disallowing the 

claim on any portion of the homestead acquired ‘‘with the intent to 

hinder, delay, or defraud a creditor.’’ While these features may eliminate a few of the abuses, they do 

not solve the problem. Wealthy debtors who are sophisticated 

enough to plan ahead—and those are, after all, the people we are 

talking about—can purchase a homestead to shelter their non-exempt assets and simply wait the 1215 days before filing their petition. And the bill expressly permits them to transfer their assets 

from a previous principal residence into a new one at any time 

prior to their bankruptcy filing without being subject to the cap, 

provided that the former residence is located in the same state. 

What message does it send when Congress subjects middle-class 

debtors to a means test while permitting the wealthy to continue 

to place their millions out of reach of their creditors? A bill that 

does that is not a ‘‘Bankruptcy Abuse Prevention and Consumer 

Protection Act’’ at all. 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. 

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 

loophole—the ‘‘millionaire’s loophole’’—intact.

JOHN CONYERS, JR. 

HOWARD L. BERMAN. 

JERROLD NADLER. 

ROBERT C. SCOTT. 

MELVIN L. WATT. 

ZOE LOFGREN. 

SHEILA JACKSON LEE. 

MAXINE WATERS. 

WILLIAM D. DELAHUNT. 

TAMMY BALDWIN. 

LINDA T. SA ́ NCHEZ.

Æ