20-436

2005
109TH CONGRESS 1ST SESSION
HOUSE OF REPRESENTATIVES
Rept. 109-31

Part 1

Union Calendar No. 14

BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005

R E P O R T

of the

COMMITTEE ON THE JUDICIARY

HOUSE OF REPRESENTATIVES

to accompany

S. 256

together with

DISSENTING, ADDITIONAL DISSENTING, AND ADDITIONAL MINORITY VIEWS

seneagle

APRIL 8, 2005- Committed to the Committee of the Whole House on the State of the Union and ordered to be printed

BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005

20-436

2005
109TH CONGRESS 1ST SESSION
HOUSE OF REPRESENTATIVES
Rept. 109-31

Part 1

Union Calendar No. 14

BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005

R E P O R T

of the

COMMITTEE ON THE JUDICIARY

HOUSE OF REPRESENTATIVES

to accompany

S. 256

together with

DISSENTING, ADDITIONAL DISSENTING, AND ADDITIONAL MINORITY VIEWS

seneagle

APRIL 8, 2005- Committed to the Committee of the Whole House on the State of the Union and ordered to be printed

Union Calendar No. 14

109TH CONGRESS

REPT. 109-31

HOUSE OF REPRESENTATIVES

1st Session

Part 1

--BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005

APRIL 8, 2005- Committed to the Committee of the Whole House on the State of the Union and ordered to be printed

Mr. SENSENBRENNER, from the Committee on the Judiciary, submitted the following

R E P O R T

together with

DISSENTING VIEWS, ADDITIONAL DISSENTING VIEWS, AND ADDITIONAL MINORITY VIEWS

[To accompany S. 256]

[Including cost estimate of the Congressional Budget Office]

CONTENTS Page
Purpose and Summary 2
Background and Need for the Legislation 3
Hearings 22
Committee Consideration 22
Votes of the Committee 22
Committee Oversight Findings 33
New Budget Authority and Tax Expenditures 33
Congressional Budget Office Cost Estimate 33
Performance Goals and Objectives 47
Constitutional Authority Statement 47
Section-by-Section Analysis and Discussion 47
Changes in Existing Law Made by the Bill, as Reported 155
Committee Jurisdiction Letters 370
Markup Transcript 373
Dissenting Views 537
Additional Dissenting Views 591
Additional Minority Views 597

PURPOSE AND SUMMARY

S. 256, the `Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,' is a comprehensive package of reform measures pertaining to both consumer and business bankruptcy cases. The purpose of the bill is to improve bankruptcy law and practice by restoring personal responsibility and integrity in the bankruptcy system and ensure that the system is fair for both debtors and creditors.

With respect to the interests of creditors, the proposed reforms respond to many of the factors contributing to the increase in consumer bankruptcy filings, such as lack of personal financial accountability, 1

[Footnote] the proliferation of serial filings, and the absence of effective oversight to eliminate abuse in the system. The heart of the bill's consumer bankruptcy reforms consists of the implementation of an income/expense screening mechanism (`needs-based bankruptcy relief' or `means testing'), which is intended to ensure that debtors repay creditors the maximum they can afford. S. 256 also establishes new eligibility standards for consumer bankruptcy relief and includes provisions intended to deter serial and abusive bankruptcy filings. It substantially augments the responsibilities of those charged with administering consumer bankruptcy cases as well as those who counsel debtors with respect to obtaining such relief. In addition, the bill caps the amount of homestead equity a debtor may shield from creditors, under certain circumstances.

[Footnote 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).

S. 256 also includes various consumer protection reforms. The bill penalizes a creditor who unreasonably refuses to negotiate a pre-bankruptcy debt repayment plan with a debtor. It strengthens the disclosure requirements for reaffirmation agreements (agreements by which debtors obligate themselves to repay otherwise dischargeable debts) so that debtors will be better informed about their rights and responsibilities. The legislation requires certain monthly credit card billing statements to include specified explanatory statements regarding the increased amount of interest and repayment time associated with making minimum payments. The bill requires certain home equity loan and credit card solicitations to include enhanced consumer disclosures. It also prohibits a creditor from terminating an open end consumer credit plan simply because the consumer has not incurred finance charges on the account. S. 256 allows debtors to shelter from the claims of creditors certain education IRA plans and retirement pension funds. It requires debtors to receive credit counseling before they can be eligible for bankruptcy relief so that they will make an informed choice about bankruptcy, its alternatives, and consequences. The bill also 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, S. 256 includes several significant provisions intended to heighten administrative scrutiny and judicial oversight of small business bankruptcy cases, which often are the least likely to reorganize successfully. In addition, it contains provisions designed to reduce systemic risk in the financial marketplace, the enactment of which Federal Reserve Board Chairman Alan Greenspan described as being `extremely important.' 2

[Footnote] 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.

[Footnote 2: Letter from Alan Greenspan, Chairman, Federal Reserve Board, to F. James Sensenbrenner, Jr., Chairman, Committee on the Judiciary (Sept. 3, 2002) (on file with the Subcommittee on Commercial and Administrative Law).]

BACKGROUND AND NEED FOR THE LEGISLATION

On February 1, 2005, Senator Charles Grassley (R-IA) (for himself and seven original cosponsors) introduced S. 256, the `Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.' Thereafter, F. James Sensenbrenner, Jr., Chairman of the House Committee on the Judiciary, (for himself and 60 original cosponsors) introduced legislation (H.R. 685) identical to S. 256 on February 9, 2005.

S. 256, as introduced, is substantively identical to legislation that the House passed in the prior Congress on two separate occasions with overwhelming bipartisan support. 3

[Footnote] It is also substantively similar to a modified version of a bankruptcy reform conference report that the House passed in the 107th Congress by a vote of 244 to 116. 4

[Footnote]

[Footnote 3: On March 19, 2003, the House passed H.R. 975, the `Bankruptcy Abuse Prevention and Consumer Prevention Act of 2003,' by a vote of 315 to 113. 149 CONG. REC. H2099-00 (daily ed. Mar. 19, 2003). Thereafter, the House, on January 28, 2004, passed S. 1920, as amended, the text of which was substituted with the text of H.R. 975, as passed by the House, by a vote of 265 to 99. 150 CONG. REC. H218-19 (daily ed. Jan. 28, 2004).]

[Footnote 4: H.R. Rep. No. 107-617 (2002). The modifications consisted of the deletion of two provisions, one dealing with unlawful protest activities and the other authorizing additional bankruptcy judgeships. The text of the conference report, as modified, was introduced as H.R. 5545, the `Bankruptcy Abuse Prevention and Consumer Protection Act of 2003.' H.R. 5545, 107th Cong. (2002). In turn, the text of H.R. 5545 was substituted as an amendment to H.R. 333. The House, thereafter, passed H.R. 333, as amended. 148 CONG. REC. H8876-77 (daily ed. Nov. 14, 2002).]

FACTORS SUPPORTING BANKRUPTCY REFORM

Representing the most comprehensive set of reforms in more than 25 years, S. 256's consumer bankruptcy provisions respond to several factors. First, the recent escalation of consumer bankruptcy filings does not appear to be just a temporary event, but part of a generally consistent upward trend. 5

[Footnote] In 1998, for example, bankruptcy filings exceeded one million for the first time in our nation's history. Over the past decade, the number of bankruptcy filings has nearly doubled to more than 1.6 million cases filed in fiscal year 2004. 6

[Footnote] As a result, there is a growing perception that bankruptcy relief may be too readily available and is sometimes used as a first resort, rather than a last resort. 7

[Footnote] Despite the view of opponents of bankruptcy reform that abuse in the system is not widespread and that most bankruptcy filings result from causes beyond debtors' control, such as family illness, job loss or disruption, or divorce, 8

[Footnote] the Committee concluded that reforms were nevertheless necessary.

[Footnote 5: Press 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').]

[Footnote 6: See Press Release, Administrative Office of the U.S. Courts, Bankruptcy Filings Down in Fiscal Year 2004, at 1 (Dec. 3, 2004) (noting that `[d]espite the drop in filings, bankruptcies remain at historic highs, well above the 1.5 million record first set in 2002'); Becky Yerak, Bankrupt Filings in E. Mich. Skyrocket; High Debt, Slow Economy Spur 22% Increase in 2002, Biggest Jump in the United States, THE DETROIT NEWS, Feb. 24, 2003, at 1A (noting that in the Eastern District of Michigan alone, bankruptcy filings for 2002 increased by 22 percent over the prior year).]

[Footnote 7: See, 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').]

[Footnote 8: See, e.g., Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: Hearing on S. 256 Before the Senate Comm. on the Judiciary, 109th Cong. (2005) (statement of Prof. Elizabeth Warren).]

Second, there are significant losses asserted to be associated with bankruptcy filings. As one witness explained during the Senate Judiciary Committee's hearing on S. 256 earlier this year:

[Footnote]

[Footnote 9: Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: Hearing on S. 256 Before the Senate Comm. on the Judiciary, 109th Cong. (2005) (prepared statement of Prof. Todd Zywicki).]

[Footnote] a figure when amortized on a yearly basis amounts to a loss of at least $110 million every day. 11

[Footnote] These losses, according to one estimate, translate into a $400 annual `tax' on every household in our nation. 12

[Footnote] In 2003, 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,' an increase of 15.1 percent over the prior year. 13

[Footnote] The Credit Union National Association (CUNA) reported that credit unions, as of 2002, lost `nearly $3 billion from bankruptcies' since Congress began its consideration of bankruptcy reform legislation in 1998. 14

[Footnote] CUNA estimates that over 40% of all credit union losses in 2004 will be bankruptcy-related, and those losses will total approximately $900 million. 15

[Footnote]

[Footnote 10: Bankruptcy Reform Act of 1998 (Pt. I): Hearings on H.R. 3150 Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary, 105th Cong. 147 (1998) (statement of Mark Lauritano, Senior Vice President, WEFA, Inc.).]

[Footnote 11: Bankruptcy Reform: Joint Hearing Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary and the Subcomm. on Administrative Oversight and the Courts of the Senate Comm. on the Judiciary, 106th Cong. 26 (1999) (statement of Dean Sheaffer on behalf of the National Retail Federation).]

[Footnote 12: Bankruptcy Reform Act of 1998 (Pt. I): Hearings on H.R. 3150 Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary, 105th Cong. 147 (1998) (statement of Mark Lauritano, Senior Vice President, WEFA, Inc.).]

[Footnote 13: Bankruptcy Losses on Cards, THE NILSON REPORT, Jan. 2003, at 1.]

[Footnote 14: John K. McKechnie, III, Letter to Editor, Credit Union J. 6 (June 24, 2002); see William R. Mapother, Counseling Could Overturn Losses, CREDIT UNION MAG. 34 (Dec. 2002) (quoting CUNA President Dan Mica).]

[Footnote 15: Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: Hearing on S. 256 Before the Senate Comm. on the Judiciary, 109th Cong. (2005) (prepared statement of Kenneth Beine).]

A third factor motivating comprehensive reform is that the present bankruptcy system has loopholes and incentives that allow and--sometimes--even encourage opportunistic personal filings and abuse. A civil enforcement initiative undertaken in 2002 by the United States Trustee Program (a component of the Justice Department charged with administrative oversight of bankruptcy cases) has `consistently identified' such problems as `debtor misconduct and abuse, misconduct by attorneys and other professionals, problems associated with bankruptcy petition preparers, and instances where a debtor's discharge should be challenged.' 16

[Footnote] According to the United States Trustee Program, `Abuse of the system is more widespread than many would have estimated.' 17

[Footnote] Such abuse ultimately hurts consumers as well as creditors.

[Footnote 16: Antonia G. Darling & Mark A. Redmiles, Protecting the Integrity of the System: the Civil Enforcement Initiative, AM. BANKR. INSTITUTE J. 12 (Sept. 2002).]

[Footnote 17: J. Christopher Marshall, Civil Enforcement: An Early Report, JOURNAL OF THE NAT'L ASS'N OF BANKR. TRUSTEES (NABTALK) 39 (Fall 2002).]

A fourth factor relates to the fact that some bankruptcy debtors are able to repay a significant portion of their debts, according to several studies. 18

[Footnote] Current law, however, has no clear mandate requiring these debtors to repay their debts. Accordingly, `[w]hile there is a universal agreement among the courts that an individual debtor's ability to repay his or her debts from future earnings is, at the very least, a factor in determining whether substantial abuse would occur in a chapter 7 case, there are differences among the courts as to the extent to which they rely on a debtor's ability to repay.' 19

[Footnote]

[Footnote 18: See, 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').]

[Footnote 19: Robert C. Furr & Marc P. Barmat, 11 U.S.C. Section 707(b)--The U.S. Trustee's Weapon Against Abuse, NAT'L ASS'N BANKR. TRUSTEES (NABTALK) 11, 14 (Winter 2002-03).]

PRIOR CONGRESSIONAL CONSIDERATION OF BANKRUPTCY REFORM

Proposed reforms to bankruptcy law and practice have been under consideration by Congress for nearly eight years 20

[Footnote] and have generally enjoyed broad support from the business community, banking and financial services industries as well as other groups such as family farmers and child support enforcement agencies. In Congress, support for bankruptcy reform legislation has likewise been overwhelming, bipartisan and bicameral.

[Footnote 20: Comprehensive bankruptcy reform legislation (H.R. 2500, the `Responsible Borrower Protection Bankruptcy Act') was first formally introduced in the House on September 18, 1997. H.R. 2500, 105th Cong. (1997).]

Since the 105th Congress, the House has passed bankruptcy reform legislation on eight separate occasions. In the 105th Congress, for example, the House passed both H.R. 3150, the `Bankruptcy Reform Act of 1998,' and the conference report on that bill by veto-proof margins. 21

[Footnote] In the 106th Congress, the House passed H.R. 833, the successor to H.R. 3150, by a veto-proof margin of 313 to 108 22

[Footnote] and agreed to the conference report 23

[Footnote] by voice vote. 24

[Footnote] Although the Senate subsequently passed this legislation by a vote of 70 to 28, 25

[Footnote] President Clinton pocket-vetoed it. In the 107th Congress, the House again registered its overwhelming support for bankruptcy reform on two more occasions. On March 1, 2001, the House passed H.R. 333, the `Bankruptcy Abuse Prevention and Consumer Protection Act,' by a vote of 306 to 108. 26

[Footnote] The House thereafter passed a modified version of the conference report on H.R. 333, as previously noted. 27

[Footnote] In the last Congress, the House passed H.R. 975, the `Bankruptcy Abuse Prevention and Consumer Protection Act of 2003,' by a vote of 315 to 113 and S. 1920, which consisted of the text of H.R. 975, as passed by the House, by a vote of 265 to 99. 28

[Footnote]

[Footnote 21: 144 CONG. REC. H4442 (daily ed. June 10, 1998) (vote on final passage of H.R. 3150 was 306 to 118); 144 CONG. REC. H10239-40 (daily ed. Oct. 9, 1998) (vote on final passage of the conference report on H.R. 3150 was 300 to 125).]

[Footnote 22: 145 CONG. REC. H2771 (daily ed. May 5, 1999).]

[Footnote 23: H.R. REP. NO. 106-970 (2000).]

[Footnote 24: 146 CONG. REC. H9840 (daily ed. Oct. 12, 2000).]

[Footnote 25: 146 CONG. REC. S11730 (daily ed. Dec. 7, 2000).]

[Footnote 26: 147 CONG. REC. H600-01 (daily ed. Mar. 1, 2001).]

[Footnote 27: See supra note 3.]

[Footnote 28: 149 CONG. REC. H2099-00 (daily ed. Mar. 19, 2003);150 Cong. Rec. H218-19 (daily ed. Jan. 28, 2004).]

Likewise, the Senate has on numerous occasions expressed strong bipartisan support for bankruptcy reform legislation. In the 105th Congress, the Senate passed bankruptcy reform legislation by a vote of 97 to 1. 29

[Footnote] In the 106th Congress, the Senate passed similar legislation by a vote of 83 to 14 30

[Footnote] and a subsequent conference report by a vote of 70 to 28. 31

[Footnote] In the 107th Congress, the Senate passed a bankruptcy reform bill by a vote of 82 to 16. 32

[Footnote] Last month, the Senate passed S. 256, as amended, by a vote of 74 to 25. 33

[Footnote]

[Footnote 29: 144 CONG. REC. S10767 (daily ed. Sept. 23, 1998).]

[Footnote 30: 146 CONG. REC. S255 (daily ed. Feb. 2, 2000).]

[Footnote 31: 146 CONG. REC. S11730 (daily ed. Dec. 7, 2000).]

[Footnote 32: 147 CONG. REC. S2379 (daily ed. Mar. 15, 2001).]

[Footnote 33: 151 CONG. REC. S2474 (daily ed. Mar. 10, 2005).]

The Committee and the Subcommittee on Commercial and Administrative Law (Subcommittee), beginning in the 105th Congress, have held a total of 18 days of hearings on the operation of the bankruptcy system and the need for reform. 34

[Footnote] Eleven of these hearings were devoted solely to consideration of S. 256's predecessors, H.R. 3150 (105th Congress), H.R. 833 (106th Congress), H.R. 333 (107th Congress), and H.R. 975 (108th Congress). Over the course of these hearings, nearly 130 witnesses, representing nearly every major constituency in the bankruptcy community, testified. With regard to H.R. 833 alone, testimony was received from 69 witnesses, representing 23 organizations, with additional material submitted by other groups.

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

April 16, 1997:

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

April 30, 1997:

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.

The Senate likewise has held numerous hearings on the subject of bankruptcy reform and related issues. Since the 105th Congress, the Senate has held eleven hearings, including a hearing held earlier this year on S. 256. 35

[Footnote] In fact, the inaugural hearing on H.R. 833 during the 106th Congress was held jointly by the Subcommittee together with the Senate Subcommittee on Administrative Oversight and the Courts on March 11, 1999, 36

[Footnote] marking the first time in more than 60 years that a bicameral hearing was held on the subject of bankruptcy reform. 37

[Footnote]

[Footnote 35: The Subcommittee on Administrative Oversight and the Courts of the Senate Committee on the Judiciary conducted the following hearings:]

April 11, 1997:

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

August 1, 1997:

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

August 8, 1997:

Hearing regarding bankruptcy laws for family farmers.

September 22, 1997:

Hearing on the Bankruptcy Code's effect on religious freedom and a review of the need for additional bankruptcy judgeships.

October 21, 1997:

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

December 7, 1997:

Hearing regarding international bankruptcy laws.

March 11, 1998:

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

May 19, 1998:

Hearing to review business bankruptcy issues.

March 11, 1999:

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

November 2, 1999:

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

February 10, 2005:

Hearing on S. 256, the `Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.'

[Footnote 36: Representatives on behalf of the Commercial Law League of America, CUNA, MBNA America Bank, N.A., National Retail Federation, and the National Consumer Law Center also testified. Some of the nation's leading jurists and academics presented testimony as well. Bankruptcy Reform: Hearing Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary and the Subcomm. on Administrative Oversight and the Courts of the Senate Comm. on the Judiciary, 106th Cong. (1999).]

[Footnote 37: Senators 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 (R-TX) and Nick Smith (R-MI). Id.]

It is also important to note that bankruptcy reform legislation is the product of extensive bipartisan and bicameral negotiation and compromise. For example, conferees during the 106th Congress spent nearly seven months engaged in an informal conference to reconcile differences between the House and Senate passed versions of bankruptcy reform legislation. In the 107th Congress, conferees formally met on three occasions and ultimately agreed--after an 11-month period of negotiations--to a bipartisan conference report. 38

[Footnote]

[Footnote 38: H.R. REP. NO. 107-617 (2002). Signatories on behalf of the House included: F. James Sensenbrenner, Jr. (R-WI), Henry Hyde (R-IL), George Gekas (R-PA), Lamar Smith (R-TX), Steve Chabot (R-OH), Bob Barr (R-GA), Rick Boucher (D-VA), Michael Oxley (R-OH), Spencer Bachus (R-AL), Billy Tauzin (R-LA), Joe Barton (R-TX), John Boehner (R-OH), and Michael Castle (R-DE). 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).]

On February 10, 2005, the Senate Committee on the Judiciary held a hearing on S. 256 that provided an opportunity to review the reasons why the current bankruptcy system needs reform and how this legislation would implement those reforms. 39

[Footnote] Testimony was received from eight witnesses, including: Kenneth Beine on behalf of CUNA; Maria Vullo, a partner with the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP; Malcom Bennett on behalf of the National Multi Housing Council/National Apartment Association; Philip Strauss on behalf of the National Child Support Enforcement Association; Dave McCall on behalf of the United Steel Workers of America, AFL-CIO; R. Michael Stewart Menzies, Sr. on behalf of the Independent Community Bankers of America; Prof. Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School; and Prof. Todd J. Zywicki, Visiting Professor of Law at Georgetown University Law Center.

[Footnote 39: Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: Hearing on S. 256 Before the Subcomm. on Administrative Oversight and the Courts of the Senate Comm. on the Judiciary, 109th Cong. (2005).]

Among the matters considered at the hearing were: (1) the adequacy of the current bankruptcy system with respect to the detection of fraud and abuse; (2) how abuse and fraud in the current bankruptcy system impact on American businesses and our nation's citizens generally; (3) whether the legislation adversely impacts individuals deserving of bankruptcy relief; (4) whether the proposed reforms would assist those who are charged with administrative oversight of bankruptcy cases and law enforcement matters; and (5) whether, given current economic circumstances, the need for comprehensive bankruptcy reform still exists.

On February 17, 2005, the Senate Judiciary Committee marked up S. 256 and ordered the bill, as amended, to be favorably reported by a vote of 12 to 5. Over the course of the markup, five amendments were passed. These amendments consisted of the following:

On March 10, 2005, the Senate passed S. 256, as amended, by a vote of 74 to 25. Nearly 130 amendments were filed. Of the amendments that were offered, 24 failed, 24 were withdrawn, eight were passed either by vote or unanimous consent. The amendments that were accepted consisted of the following:

[Footnote]

[Footnote 40: This amendment is similar to legislation considered by the House in the 108th Congress. H.R. 1529, 108th Cong. (2003). The bill was ordered favorably reported without amendment by the House Judiciary Committee, H.R. REP. NO. 108-110 (2003), and passed by voice vote by the House. 149 CONG. REC. H5104 (daily ed. June 10, 2003). The principal difference between this legislation and section 332 of the Act is that the bill would have permitted the court to expunge the case upon dismissal of the fraudulent involuntary petition.]

HIGHLIGHTS OF BANKRUPTCY REFORMS

Consumer Creditor Bankruptcy Protections.

Needs-Based Reforms. Chapter 7 is a form of bankruptcy relief by which an individual debtor receives an immediate unconditional discharge of personal liability for certain debts in exchange for relinquishing his or her nonexempt assets to a bankruptcy trustee for liquidation and distribution to creditors. 41

[Footnote] 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. 42

[Footnote]

[Footnote 41: Under the Bankruptcy Code, only an individual may obtain a chapter 7 discharge. Thus, a corporation is not eligible to receive a discharge under chapter 7. 11 U.S.C. Sec. 727(a)(1).]

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


[W]hen an honest man is hopelessly down financially, nothing is gained for the public by keeping him down, but, on the contrary, the public good will be promoted by having his assets distributed ratably as far as they will go among his creditors and letting him start anew.

H.R. REP. NO. 55-65, at 43 (1897).

The concept of needs-based bankruptcy relief has long been debated in the United States. President Herbert Hoover, for instance, recommended to Congress in 1932, `The discretion of the courts in granting or refusing discharges should be broadened, and they should be authorized to postpone discharges for a time and require bankrupts, during the period of suspension, to make some satisfaction out of after-acquired property as a condition to the granting of a full discharge.' 43

[Footnote] In 1938, chapter XIII (the predecessor to chapter 13 of the Bankruptcy Code) was enacted as a purely voluntary form of bankruptcy relief that allowed a debtor to propose a plan to repay creditors out of future earnings. 44

[Footnote]

[Footnote 43: President's Special Message to the Congress on Reform of Judicial Procedure, 69 Pub. Papers 83, 90 (Feb. 29, 1932).]

[Footnote 44: Chandler Act of 1938, 52 Stat. 840 (1938).]

Over the ensuing years, there continued to be repeated expressions of support for and opposition to means-testing bankruptcy reform. 45

[Footnote] In 1967, various organizations testifying before Congress in support of such reform included the American Bar Association, the American Bankers Association, the Chamber of Commerce of the United States, CUNA, the National Federation of Independent Businesses, and the American Industrial Bankers Association. 46

[Footnote] The Commission on the Bankruptcy Laws of the United States, while supporting the concept that repayment plans should be `fostered,' nevertheless concluded in 1973 that `forced participation by a debtor in a plan requiring contributions out of future income has so little prospect for success that it should not be adopted as a feature of the bankruptcy system.' 47

[Footnote] The Bankruptcy Reform Act of 1978 48

[Footnote] retained the principle that a debtor's decision to choose relief premised on repayment to creditors should be `completely voluntary.' 49

[Footnote]

[Footnote 45: See, 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').]

[Footnote 46: Hearings on H.R. 1057 and H.R. 5771 Before the Subcomm. No. 4 of the House Comm. on the Judiciary, 90th Cong. (1967).]

[Footnote 47: See, 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).]

[Footnote 48: Pub. L. No. 95-598, 92 Stat. 2549 (1978).]

[Footnote 49: H.R. REP. NO. 95-595, at 120 (1977) (observing that `[t]he thirteenth amendment prohibits involuntary servitude' and suggesting that `a mandatory chapter 13, by forcing an individual to work for creditors, would violate this prohibition').]

Although the Bankruptcy Code as originally enacted in 1978 provided that a chapter 7 case could only be dismissed for `cause,' the Code was amended in 1984 to permit the court to dismiss a chapter 7 case for `substantial abuse.' 50

[Footnote] This provision, codified in section 707(b) of the Bankruptcy Code, 51

[Footnote] was added `as part of a package of consumer credit amendments designed to reduce perceived abuses in the use of chapter 7.' 52

[Footnote] It was intended to respond `to concerns that some debtors who could easily pay their creditors might resort to chapter 7 to avoid their obligations.' 53

[Footnote] In 1986, section 707(b) was further amended to allow a United States trustee (a Department of Justice official) to move for dismissal. 54

[Footnote]

[Footnote 50: Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, Sec. 312, 98 Stat. 333, 335 (1984).]

[Footnote 51: 11 U.S.C. Sec. 707(b).]

[Footnote 52: 6 LAWRENCE P. KING ET AL., COLLIER ON BANKRUPTCY Sec. 707.LH[2], at 707-30 (15th ed. rev. 2002).]

[Footnote 53: Id. at Sec. 707.04.]

[Footnote 54: Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, Pub. L. No. 99-554, Sec. 219, 100 Stat. 3088, 3101 (1986).]

The utility of section 707(b) is limited for several reasons. Under current law, neither the court nor the United States trustee is required to file a motion to dismiss a chapter 7 case for substantial abuse under section 707(b). In addition, other parties in interest, such as chapter 7 trustees and creditors, are prohibited from filing such motions. In fact, section 707(b) specifies that a motion under that provision may not even be made `at the request or suggestion of any party in interest.' 55

[Footnote] The standard for dismissal--substantial abuse--is inherently vague, which has lead to its disparate interpretation and application by the bankruptcy bench. 56

[Footnote] Some courts, for example, hold that a debtor's ability to repay a significant portion of his or her debts out of future income constitutes substantial abuse and therefore is cause for dismissal; 57

[Footnote] others do not. 58

[Footnote] A further reason militating against filing section 707(b) motions is that the Bankruptcy Code codifies a presumption that favors granting a debtor a discharge. 59

[Footnote]

[Footnote 55: 11 U.S.C. Sec. 707(b).]

[Footnote 56: See, 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).]

[Footnote 57: See, 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').]

[Footnote 58: See, 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.]

[Footnote 59: Section 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. Sec. 707(b).]

Over the course of its hearings since the 105th Congress, the Committee received testimony explaining that if needs-based reforms and other measures were implemented, the rate of repayment to creditors would increase as more debtors were shifted into chapter 13 (a form of bankruptcy relief where the debtor commits to repay a portion or all of his debts in exchange for receiving a broad discharge of debt) as opposed to chapter 7 (a form of bankruptcy relief where the debtor receives an immediate discharge of personal liability on certain debts in exchange for turning over his or her nonexempt assets to the bankruptcy trustee for distribution to creditors).

Needs-based reforms would amend section 707(b) of the Bankruptcy Code to permit a court, on its own motion, or on motion of the United States trustee, private trustee, bankruptcy administrator, or other party in interest (including a creditor), to dismiss a chapter 7 case for abuse if it was filed by an individual debtor whose debts are primarily consumer debts. Alternatively, the chapter 7 case could be converted to a case under chapter 11 or chapter 13 on consent of the debtor.

In addition, these reforms contemplate replacing the current law's presumption in favor of the debtor with a mandatory presumption of abuse that would arise under certain conditions. As amended, section 707(b) of the Bankruptcy Code would require a court to presume that abuse exists if the amount of the debtor's remaining income, after certain expenses and other specified amounts are deducted from the debtor's current monthly income (a defined term) 60

[Footnote] when multiplied by 60, exceeds the lower of the following: (1) 25 percent of the debtor's nonpriority unsecured claims, or $6000 (whichever is greater); or (2) $10,000. Section 102 mandates that the debtor's expenses include reasonably necessary expenditures for health insurance, disability insurance, and health savings accounts for the debtor, the debtor's spouse, and dependents of the debtor. In addition, the debtor's expenses must include those incurred to maintain the safety of the debtor and the debtor's family from family violence as identified in section 309 of the Family Violence Prevention and Services Act or other applicable law. In addition to other specified expenses, 61

[Footnote] 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 62

[Footnote] as Necessary Expenses 63

[Footnote] under the National 64

[Footnote] and Local Standards 65

[Footnote] categories and the debtor's actual monthly expenditures for items categorized as Other Necessary Expenses. 66

[Footnote]

[Footnote 60: Section 102(b) of the bill defines `current monthly income' as the average monthly income from all sources that the debtor receives (or, in a joint case, the debtor and the debtor's spouse receive), without regard to whether it is taxable income, in the six-month period preceding the bankruptcy filing. It includes any amount paid on a regular basis by any entity (other than the debtor or, in a joint case, the debtor and the debtor's spouse) to the household expenses of the debtor or the debtor's dependents and, in a joint case, the debtor's spouse, if not otherwise a dependent. It excludes Social Security Act benefits and payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes. It also excludes payments to victims of international terrorism or domestic terrorism (as defined in 18 U.S.C. Sec. 2331) on account of their status as victims of such terrorism.]

[Footnote 61: Under section 102(a), a debtor's monthly expenses may also include:]

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

╠the debtor's average monthly payments on account of secured debts, including any additional payments to secured creditors that a chapter 13 debtor must make to retain possession of a debtor's primary residence, motor vehicle, or other property necessary for the support of the debtor and the debtor's dependents that collateralizes such debts;

╠claims and expenses entitled to priority under section 507 of the Bankruptcy Code, such as child support and alimony;

╠the continuation of actual expenses paid by the debtor that are reasonable and necessary for the care and support of an elderly, chronically ill, or disabled household member or member of the debtor's immediate family who is otherwise unable to pay such expenses;

╠housing and utility expenses in excess of those specified by the Internal Revenue Service, under certain circumstances;

╠the actual administrative expenses (including reasonable attorneys' fees) of administering a chapter 13 plan for the district in which the debtor resides up to ten percent of projected plan payments, as determined under schedules issued by the Executive Office for United States Trustees; and

╠the actual expenses for each dependent child under the age of 18 years up to $1,500 per year per child to attend a private elementary or secondary school, under certain circumstances.

[Footnote 62: INTERNAL REVENUE SERVICE, INTERNAL REVENUE MANUAL--Financial Analysis Handbook pt. 5.15.1 (rev. May 1, 2004).]

[Footnote 63: The Internal Revenue Manual defines the term `necessary expenses' as expenses:]


that are necessary to provide for a taxpayer's and his or her family's health and welfare and/or production of income. The expenses must be reasonable. The total necessary expenses establish the minimum a taxpayer and family need to live.

Id. at pt. 5.15.1.7.

[Footnote 64: The Internal Revenue Manual's `National Standards' establish standards for five types of expenses: food (includes all meals, home and away), housekeeping supplies (includes laundry and cleaning supplies; other household products such as cleaning and toilet tissue, paper towels and napkins; lawn and garden supplies; postage and stationary), apparel and services (includes shoes and clothing, laundry and dry cleaning, and shoe repair), personal care products and services (includes hair care products, haircuts, oral hygiene products, electric personal care appliances), and miscellaneous (a discretionary allowance of $100 for one person and $25 for each additional person in a taxpayer's family). Except for miscellaneous expenses, these expense standards are derived from Bureau of Labor Statistics Consumer Expenditure Survey and are stratified by income and household size. Id. at pt. 5.15.1.8.]

[Footnote 65: `Local Standards,' under the Internal Revenue Manual, establish expense standards for housing (e.g., mortgage or rent, property taxes, interest, parking, necessary maintenance and repair, homeowner's or renter's insurance, and homeowner dues and condominium fees) and transportation expenditures (e.g., vehicle insurance, vehicle payment, maintenance, fuel, state and local registration, parking fees, tolls, driver's license fees, and public transportation). Utilities (e.g., gas, electricity, water, fuel, oil, bottled gas, wood and other fuels, trash and garbage collection, septic cleaning, and telephone) are included under the housing expense category. Housing standards are established for each county within a state. Transportation standards are determined on a regional basis. Id. at pt. 5.15.1.9.]

[Footnote 66: The Internal Revenue Manual does not establish monetary amounts with regard to necessary expenses that it characterizes as `Other Expenses.' Rather, it provides a non-exclusive list of these expenses, that must otherwise satisfy the `necessary expense test,' described in note 63 supra. The list includes expenditures for certain accounting and legal fees, child care, dependent care for an elderly or disabled person, health care, taxes, court-ordered payments, life insurance, involuntary deductions (e.g., union dues, uniforms, work shoes), charitable contributions, and certain education expenses. Id. at pt. 5.15.1.10.]

The means test permits the mandatory presumption of abuse to be rebutted only if: (1) the debtor demonstrates special circumstances justifying any additional expense or adjustment to the debtor's current monthly income for which there is no reasonable alternative; and (2) such additional expense or income adjustment caused the debtor's current monthly income (reduced by various amounts) when multiplied by 60 to be less than the lesser of either: (i) 25 percent of the debtor's nonpriority unsecured claims, or $6,000 (whichever is greater), or (ii) $10,000. 67

[Footnote] Special circumstances include such factors as whether the debtor has a serious medical condition or is on active duty in the Armed Services to the extent these factors justify adjustment to income or expenses.

[Footnote 67: The 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.]

Where the mandatory presumption of abuse does not apply or has been rebutted, the court, in order to determine whether the granting of relief under chapter 7 would constitute an abuse, must consider: (1) whether the debtor filed the chapter 7 case in bad faith; or (2) whether the totality of circumstances of the debtor's financial situation (including whether the debtor seeks to reject a personal services contract and the financial need for such rejection) demonstrates abuse.

Should a court grant a section 707(b) motion made by a trustee and find that the action of the debtor's counsel in filing the chapter 7 case violated Federal Rule of Bankruptcy Procedure 9011, 68

[Footnote] S. 256 authorizes the court to order the attorney to reimburse the trustee for all reasonable costs in prosecuting the motion, including reasonable attorneys' fees. In addition, the court may assess an appropriate civil penalty. 69

[Footnote]

[Footnote 68: Fed. 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 actions or files other inappropriate documents in violation of this Rule's requirements.]

[Footnote 69: Section 102(a) of S. 256 specifies that the signature of an attorney on a bankruptcy petition, pleading, or written motion constitutes a certification that the attorney has: (1) performed a reasonable investigation into the circumstances giving rise to such petition, pleading or motion; and (2) determined that the document is well grounded in fact and warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and does not constitute an abuse under section 707(b)(1) of the Bankruptcy Code. Pursuant to section 102(a), the signature of an attorney on a bankruptcy petition constitutes a certification that the attorney has no knowledge after an inquiry that the information in the schedules filed with such petition is incorrect.]

Two types of `safe harbors' apply to the means test. One provides that only a judge, United States trustee, bankruptcy administrator, or private trustee may file a motion to dismiss a chapter 7 case under section 707(b) of the Bankruptcy Code if the debtor's income (or in a joint case, the income of debtor and the debtor's spouse) does not exceed the state median family income for a family of equal or lesser size (adjusted for larger sized families), or the state median family income for one earner in the case of a one-person household. The second safe harbor provides that no motion under section 707(b)(2) (dismissal based on a chapter 7 debtor's ability to repay) may be filed by a judge, United States trustee, bankruptcy administrator, private trustee, or other party in interest if the debtor (including the circumstance where the debtor is a veteran) and the debtor's spouse combined have income that does not exceed the state median family income for a family of equal or lesser size (adjusted for larger sized families), or the state median family income for one earner in the case of a one-person household. 70

[Footnote] In addition, the bill includes a safe harbor from the bill's needs-based test for a disabled veteran whose indebtedness occurred primarily during a period when the individual was on active duty (as defined in 10 U.S.C. Sec. 101(d)(1)) or performing a homeland defense activity (as defined in 32 U.S.C. 901(1)).

[Footnote 70: In a case that is not a joint case, current monthly income of the debtor's spouse is not considered if the debtor and the debtor's spouse are separated under applicable nonbankruptcy law or the debtor and the debtor's spouse are living separate and apart (other than for the purpose of evading this provision) and the debtor files a statement under penalty of perjury containing certain specified information.]

Other Reforms Dealing with Abuse. S. 256 contains various reforms tailored to remedy certain types of fraud and abuse within the present bankruptcy system. For example, the bill substantially limits a debtor's ability to file successive bankruptcy cases. It also addresses abusive practices by consumer debtors who, for example, knowingly load up with credit card purchases or recklessly obtain cash advances and then file for bankruptcy relief. In addition, S. 256 prevents the discharge of debts based on fraud, embezzlement, and malicious injury in a chapter 13 case. Other abuse reforms include a provision authorizing the court to dismiss a chapter 7 case filed by an individual debtor convicted of a crime of violence or a drug trafficking crime on motion of the victim, under certain circumstances. And, the court, as a condition of confirming a chapter 13 plan, must find that the debtor filed the chapter 13 case in good faith.

The bill also restricts the so-called `mansion loophole.' Under current bankruptcy law, debtors living in certain states can shield from their creditors virtually all of the equity in their homes. In light of this, some debtors actually relocate to these states just to take advantage of their `mansion loophole' laws. S. 256 closes this loophole for abuse by requiring a debtor to be a domiciliary in the state for at least two years before he or she can claim that state's homestead exemption; the current requirement can be as little as 91 days. 71

[Footnote] The bill further reduces the opportunity for abuse by requiring a debtor to own the homestead for at least 40 months before he or she can use state exemption law; current law imposes no such requirement. 72

[Footnote] S. 256 prevents securities law violators and others who have engaged in criminal conduct from shielding their homestead assets from those whom they have defrauded or injured. If a debtor was convicted of a felony, violated a securities law, or committed a criminal act, intentional tort, or engaged in reckless misconduct that caused serious physical injury or death, the bill overrides state homestead exemption law and caps the debtor's homestead exemption at $125,000. To the extent a debtor's homestead exemption was obtained through the fraudulent conversion of nonexempt assets (e.g., cash) during the ten-year period preceding the filing of the bankruptcy case, S. 256 requires such exemption to be reduced by the amount attributable to the debtor's fraud.

[Footnote 71: See 11 U.S.C. Sec. 522(b)(2)(2)(A).]

[Footnote 72: If the debtor owns the homestead for less than 40 months, the provision imposes a $125,000 homestead cap. In effect, this provision overrides state exemption law authorizing a homestead exemption in excess of this amount and allows such law to control if it authorizes a homestead exemption in a lesser amount.]

S. 256 also authorizes a trustee to avoid any transfer of property that a debtor made to a self-settled trust (of which the debtor is a beneficiary) within the ten-year period preceding the filing of the debtor's bankruptcy case if the debtor made the transfer with actual intent to hinder, delay, or defraud a creditor of the debtor.

Protections for Creditors--In General. S. 256 includes provisions intended to provide greater protections for creditors, while ensuring that the claims of those creditors entitled to priority treatment, such as spousal and child support claimants, are not adversely impacted. These include provisions: (1) ensuring that creditors receive proper and timely notice of important events and proceedings in a bankruptcy case; (2) prohibiting abusive serial filings and extending the period between successive discharges; and (3) implementing various provisions designed to improve the accuracy of the information contained in debtors' schedules, statements of financial affairs. They also clarify that creditors holding consumer debts may participate without counsel at the section 341 meeting of creditors (which provides an opportunity for creditors to examine the debtor under oath).

Enforcement of Family Support Obligations. S. 256 accords domestic and child support claimants a broad spectrum of special protections. The legislation creates a uniform and expanded definition of domestic support obligations to include debts that accrue both before or after a bankruptcy case is filed. It gives the highest payment priority for these debts (current law only accords them a seventh-level priority), 73

[Footnote] 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.

[Footnote 73: 11 U.S.C. Sec. 507(a)(7).]

Protections for Secured Creditors. S. 256's protections for secured creditors include a prohibition against bifurcating a secured debt incurred within the 910-day period preceding the filing of a bankruptcy case if the debt is secured by a purchase money security interest in a motor vehicle acquired for the debtor's personal use. Where the collateral consists of any other type of property having value, S. 256 prohibits bifurcation of specified secured debts if incurred during the one-year period preceding the filing of the bankruptcy case. The bill clarifies current law to specify that the value of a claim secured by personal property is the replacement value of such property without deduction for the secured creditor's costs of sale or marketing. In addition, the bill terminates the automatic stay with respect to personal property if the debtor does not timely reaffirm the underlying obligation or redeem the property. 74

[Footnote] S. 256 also specifies that a secured claimant retains its lien in a chapter 13 case until the underlying debt is paid or the debtor receives a discharge.

[Footnote 74: Redemption is a method by which a chapter 7 debtor can retain certain types of personal property by paying the holder of a lien on such property the allowed amount of the holder's secured lien. 11 U.S.C. Sec. 722.]

Protections for Lessors. With respect to the interests of lessors, S. 256 requires chapter 13 debtors to remain current on their personal property leases and to provide proof of adequate insurance. The bill specifies that a lessor may condition assumption of a personal property lease on cure of any outstanding default and it provides that a lessor is not required to permit such assumption. The bill also addresses a problem faced by thousands of large and small residential landlords across the nation whose tenants file for bankruptcy relief solely for the purpose of staying pending eviction proceedings so that they can live `rent free.'

Consumer Debtor Bankruptcy Protections. The bill's consumer protections include provisions strengthening professionalism standards for attorneys and others who assist consumer debtors with their bankruptcy cases. S. 256 mandates that certain services and specified notices be given to consumers by professionals and others who provide bankruptcy assistance. To ensure compliance with these provisions, the bill institutes various enforcement mechanisms.

In addition, S. 256 amends the Truth in Lending Act to require certain credit card solicitations, monthly billing statements, and related materials to include important disclosures and explanatory statements regarding introductory interest rates and minimum payments, among other matters. These additional disclosures are intended to give debtors important information to enable them to better manage their financial affairs.

S. 256 contains provisions to help debtors better understand their rights and obligations with respect to reaffirmation agreements. To enforce these protections, the bill requires the Attorney General to designate a United States Attorney for each judicial district and a FBI agent for each field office to have primary law enforcement responsibility regarding abusive reaffirmation practices, among other matters.

The legislation also expands a debtor's ability to exempt certain tax-qualified retirement accounts and pensions. It creates a new provision that allows a consumer debtor to exempt certain education IRAs and state tuition plans for his or her child's postsecondary education from the claims of creditors.

Most importantly, S. 256 requires debtors to participate in credit counseling programs before filing for bankruptcy relief (unless special circumstances do not permit such participation). The legislation's credit counseling provisions are intended to give consumers in financial distress an opportunity to learn about the consequences of bankruptcy--such as the potentially devastating effect it can have on their credit rating 75

[Footnote] --before they decide to file for bankruptcy relief. The bill also requires debtors, after they file for bankruptcy relief, to receive financial management training that will provide them with guidance about how to manage their finances, so that they can avoid future financial difficulties. The mandatory credit counseling and financial management training requirements do not apply if the debtor is unable to complete these requirements because of incapacity or disability, or because he or she is on active duty in a military combat zone.

[Footnote 75: Under current law, for example, a bankruptcy filing may be reported on a consumer's credit report for ten years. 15 U.S.C. Sec. 1681c (2002).]

Other debtor protections include expanded notice requirements for consumers. Under the bill, individuals with primarily consumer debts must receive notice of alternatives to bankruptcy relief before they file for bankruptcy and it requires them to be informed of other matters pertaining to the integrity of the bankruptcy system. The legislation also permits certain filing fees and related charges to be waived, in appropriate cases, for individuals who lack the ability to pay these costs.

Highlights of Business Bankruptcy Reforms.

S. 256 contains a comprehensive set of reforms pertinent to business bankruptcies. They include provisions addressing the special problems presented by small business bankruptcies and single asset real estate debtors as well as provisions dealing with business bankruptcy cases in general. S. 256 establishes a new form of bankruptcy relief for transnational insolvencies intended to promote international comity and greater certainty. It also includes provisions concerning the treatment of certain financial contracts under the banking laws as well as under the Bankruptcy Code. S. 256 responds to the special needs of family farmers by making chapter 12 of the Bankruptcy Code (a form of bankruptcy relief available only to eligible family farmers) permanent. For the first time, it also allows certain family fishermen to qualify for chapter 12 relief.

Protections Against Excessive Payments To a Debtor's Insiders and Fraud by a Debtor's Management. S. 256 significantly restricts a corporate debtor's ability to pay bonuses, severance payments, and other payments to insiders of the debtor after the bankruptcy case is filed and requires the court to approve any such payment. In addition, it requires the United States trustee to apply for the appointment of a trustee if there are reasonable grounds to suspect that current members of a chapter 11 debtor's governing body, chief executive officer, chief financial officer, or members of the debtor's governing body who selected the debtor's chief executive officer or chief financial officer participated in actual fraud, dishonesty, or criminal conduct in the management of the debtor or the debtor's public financial reporting.

Protections for Employees. S. 256 provides heightened protections for employees. It requires certain back pay awards granted as a result of a debtor's violation of Federal or state law to receive one of the highest payment priorities in a bankruptcy case. In addition, the bill streamlines the appointment of an ERISA administrator for an employee benefit plan, under certain circumstances, to minimize the disruption that results when an employer files for bankruptcy relief. S. 256 also increases the monetary cap on wage and employee benefit claims entitled to priority under the Bankruptcy Code from $4,650 to $10,000 and lengthens the reachback period for wage claims from 90 days to 180 days. The bill amends the Bankruptcy Code to facilitate the recovery of avoidable transfers and excessive pre- and post-petition compensation, such as bonuses, paid to insiders of a debtor. In addition, S. 256 limits the ability of chapter 11 debtors to unilaterally terminate retiree benefit plans on the eve of bankruptcy.

Small Business/Single Asset Real Estate Debtors. S. 256 includes provisions with respect to small business and single asset real estate debtors largely derived from recommendations of the National Bankruptcy Review Commission. 76

[Footnote]

[Footnote 76: See generally REPORT OF THE NATIONAL BANKRUPTCY REVIEW COMMISSION, at 303-706 (Oct. 20, 1997).]

Most chapter 11 cases are filed by small business debtors. Although the Bankruptcy Code envisions that creditors should play a major role in the oversight of chapter 11 cases, this often does not occur with respect to small business debtors. The main reason is that creditors in these smaller cases do not have claims large enough to warrant the time and money to participate actively in these cases. The resulting lack of creditor oversight creates a greater need for the United States trustee to monitor these cases closely. Nevertheless, the monitoring of these debtors by United States trustees varies throughout the nation. S. 256 addresses the special problems presented by small business cases by instituting a variety of time frames and enforcement mechanisms designed to weed out small business debtors who are not likely to reorganize. It also requires these cases to be more actively monitored by United States trustees and the bankruptcy courts.

With regard to the Bankruptcy Code's treatment of single asset real estate debtors, S. 256 makes several amendments. First, it eliminates the monetary cap from the single asset real estate debtor definition. Second, it makes these debtors subject to the bill's small business reforms. Third, S. 256 amends the automatic stay provisions by permitting a single asset real estate debtor to make requisite interest payments out of rents or other proceeds generated by the real property.

Financial Contracts. S. 256 contains a series of provisions pertaining to the treatment of certain financial transactions under the Bankruptcy Code and relevant banking laws. 77

[Footnote] These provisions are intended to reduce `systemic risk' in the banking system and financial marketplace. 78

[Footnote] To minimize the risk of disruption when parties to these transactions become bankrupt or insolvent, the bill amends provisions of the banking and investment laws, as well as the Bankruptcy Code, to allow the expeditious termination or netting of certain types of financial transactions. Many of these provisions are derived from recommendations issued by the President's Working Group on Financial Markets 79

[Footnote] and revisions espoused by the financial industry.

[Footnote 77: In addition to the Bankruptcy Code, the bill amends the Federal Deposit Insurance Act, the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Federal Deposit Insurance Corporation Improvement Act of 1991, the Federal Reserve Act, and the Securities Investor Protection Act of 1971.]

[Footnote 78: The report on H.R. 4393, a bill substantially similar to title IX of S. 256 that was introduced in the 105th Congress, explained as follows:]


Systemic risk is the risk that the failure of a firm or disruption of a market or settlement system will cause widespread difficulties at other firms, in other market segments or in the financial system as a whole. If participants in certain financial activities are unable to enforce their rights to terminate financial contracts with an insolvent entity in a timely manner, or to offset or net their various contractual obligations, the resulting uncertainty and potential lack of liquidity could increase the risk of an inter-market disruption.

H.R. REP. NO. 105-688, pt. 1, at 2 (1998).

[Footnote 79: The 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.]

Family Farmers and Family Fishermen. S. 256 helps small family farmers facing financial distress. While current bankruptcy law has a specialized form of bankruptcy relief--chapter 12--that is specifically designed for family farmers, its benefits for farmers are limited because of its restrictive eligibility requirements. S. 256 responds to this problem in several key respects: it more than doubles the debt eligibility limit and requires it to be periodically adjusted for inflation; it lowers the requisite percentage of a farmer's income that must be derived from farming operations; and it gives farmers more flexibility with respect to how certain creditors can be repaid. As a result, many more deserving family farmers facing financial hard times will be able to avail themselves of chapter 12. In addition, S. 256 makes chapter 12 a permanent component of the bankruptcy laws and extends the benefits of this form of bankruptcy relief to family fishermen.

Transnational Insolvencies. In response to the increasing globalization of business enterprises and operations, S. 256 establishes a separate chapter under the Bankruptcy Code devoted to transnational insolvencies. These provisions are intended to provide greater legal certainty for trade and investment as well as to provide for the fair and efficient administration of these cases. They reflect consensus recommendations of the National Bankruptcy Review Commission. 80

[Footnote]

[Footnote 80: REPORT OF THE NATIONAL BANKRUPTCY REVIEW COMMISSION, at 351-70 (Oct. 20, 1997).]

Protections for Small Business Owners. Under current bankruptcy law, a business can be sued by a bankruptcy trustee and forced to pay back--as a preferential transfer--monies previously paid to it by a firm that later files for bankruptcy protection. S. 256 contains provisions making it easier--particularly for small businesses--to defend against these suits. These provisions largely reflect recommendations of the National Bankruptcy Review Commission. 81

[Footnote]

[Footnote 81: Id. at 793-803.]

Health Care Providers. S. 256 adds a provision to the Bankruptcy Code intended to give patients of bankrupt health care providers various protections. These include provisions specifying requirements for the disposal of patient records so that a patient's privacy and the confidentiality of such records when they are in the custody of a health care business in bankruptcy are protected. In addition, the bill includes a provision according administrative expense priority to the actual, necessary costs and expenses of closing a health care business (including the disposal of patient records or transferral of patients) incurred by a trustee, Federal agency, or a department or state agency. If warranted, it also authorizes the court to order the appointment of an ombudsman to monitor the quality of patient care and to represent the interests of the patients. Other provisions include the requirement that a bankruptcy trustee use all reasonable and best efforts to transfer patients from a health care business that is being closed to an appropriate alternative facility that meets certain specified criteria.

Other Provisions Having General Impact.

Privacy Protections. Under current law, nearly every item of information filed in a bankruptcy case is made available to the public. S. 256 restricts public access to certain personal information pertaining to an individual contained a bankruptcy case file to the extent the court finds that disclosure of such information would create undue risk of identity theft or other unlawful injury to the individual or the individual's property. In addition, the bill prohibits the disclosure of the names of the debtor's minor children and requires such information to be kept in a nonpublic record, which can be made available for inspection only by the court and certain other designated entities. Further, S. 256 prohibits the sale of customers' personally identifiable information by a business debtor unless certain conditions are satisfied.

Additional Bankruptcy Judgeships. S. 256 authorizes 28 additional bankruptcy judgeships on a temporary basis and extends three currently existing temporary judgeships. 82

[Footnote] 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. 83

[Footnote]

[Footnote 82: Districts authorized additional bankruptcy judgeships under S. 256 include the following: Eastern District of California (one), Central District of California (three), Delaware (four), Southern District of Florida (two), Southern District of Georgia (one), Maryland (three), Eastern District of Michigan (one), Southern District of Mississippi (one), New Jersey (one), Nevada (one), Eastern District of New York (one), Northern District of New York (one), Southern District of New York (one), Eastern District of North Carolina (one), Eastern District of Pennsylvania (one), Middle District of Pennsylvania (one), Puerto Rico (one), South Carolina (one), Western District of Tennessee (one), Eastern District of Virginia (one).]

[Footnote 83: Press 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').]

Miscellaneous Provisions. Under current law, an appeal from a bankruptcy court decision must be heard by a Federal district court or bankruptcy appellate panel before it may be heard by a Federal court of appeals. S. 256 authorizes a direct appeal from a bankruptcy court decision to the court of appeals, under certain circumstances. Other general provisions include allowing attorneys to share compensation with bona fide public service attorney referral programs, and mandating that a bankruptcy court conduct scheduling conferences in a bankruptcy case if necessary to further its expeditious and economical resolution. In addition, the bill requires the United States Trustee Program to compile various statistics regarding chapter 7, 11 and 13 cases and to make these data available to the public. S. 256 also permits a court to seal all public records pertaining to a fraudulent involuntary bankruptcy petition, under certain circumstances, and to prohibit a consumer reporting agency from issuing a consumer report containing any reference to such petition.

HEARINGS

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

COMMITTEE CONSIDERATION

On March 16, 2005, the Committee met in open session and ordered favorably reported the bill S. 256 without an amendment by a recorded vote of 22 to 13, a quorum being present.

VOTES OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of the House of Representatives, the Committee notes that the following roll call votes occurred during the Committee's consideration of S. 256.

1. An amendment by Mr. Conyers disallowing: (a) claims resulting from an assignment of a debtor's right to receive military pay, or military pension or disability benefits; (b) certain claims owed by a servicemember or a dependent of a servicemember that are either secured or conditioned upon a personal check held for future deposit or electronic access to a bank account; or (3) claims owed by a servicemember or dependent of a servicemember requiring the payment of interest and other charges in excess of 36 percent. The amendment also allows the discharge of certain debts based on the debtor's right to receive military pay, or military pension or disability benefits. Defeated 15 to 20.

ROLLCALL NO. 1
----------------------------------------------
                            Ayes Nays Present 
----------------------------------------------
Mr. Hyde                                      
Mr. Coble                           X         
Mr. Smith (Texas)                   X         
Mr. Gallegly                        X         
Mr. Goodlatte                                 
Mr. Chabot                          X         
Mr. Lungren                         X         
Mr. Jenkins                         X         
Mr. Cannon                          X         
Mr. Bachus                          X         
Mr. Inglis                          X         
Mr. Hostettler                      X         
Mr. Green                                     
Mr. Keller                          X         
Mr. Issa                            X         
Mr. Flake                           X         
Mr. Pence                           X         
Mr. Forbes                          X         
Mr. King                            X         
Mr. Feeney                          X         
Mr. Franks                          X         
Mr. Gohmert                         X         
Mr. Conyers                    X              
Mr. Berman                     X              
Mr. Boucher                                   
Mr. Nadler                     X              
Mr. Scott                      X              
Mr. Watt                       X              
Ms. Lofgren                    X              
Ms. Jackson Lee                X              
Ms. Waters                     X              
Mr. Meehan                     X              
Mr. Delahunt                   X              
Mr. Wexler                                    
Mr. Weiner                     X              
Mr. Schiff                     X              
Ms. Sanchez                    X              
Mr. Smith                      X              
Mr. Van Hollen                 X              
Mr. Sensenbrenner, Chairman         X         
Total                         15   20         
----------------------------------------------

2. An amendment by Mr. Watt and Mr. Delahunt disallowing a claim for a debt based on an extension of credit on which the annual rate of interest in excess of 50 percent was imposed or in excess of a limit on allowable interest under applicable nonbankruptcy law. Defeated 9 to 15.

ROLLCALL NO. 2
----------------------------------------------
                            Ayes Nays Present 
----------------------------------------------
Mr. Hyde                                      
Mr. Coble                           X         
Mr. Smith (Texas)                   X         
Mr. Gallegly                        X         
Mr. Goodlatte                                 
Mr. Chabot                          X         
Mr. Lungren                         X         
Mr. Jenkins                         X         
Mr. Cannon                          X         
Mr. Bachus                                    
Mr. Inglis                                    
Mr. Hostettler                      X         
Mr. Green                           X         
Mr. Keller                                    
Mr. Issa                            X         
Mr. Flake                                     
Mr. Pence                                     
Mr. Forbes                                    
Mr. King                            X         
Mr. Feeney                          X         
Mr. Franks                          X         
Mr. Gohmert                         X         
Mr. Conyers                    X              
Mr. Berman                                    
Mr. Boucher                                   
Mr. Nadler                     X              
Mr. Scott                      X              
Mr. Watt                       X              
Ms. Lofgren                                   
Ms. Jackson Lee                X              
Ms. Waters                                    
Mr. Meehan                     X              
Mr. Delahunt                   X              
Mr. Wexler                                    
Mr. Weiner                                    
Mr. Schiff                     X              
Ms. Sanchez                    X              
Mr. Smith (Washington)                        
Mr. Van Hollen                                
Mr. Sensenbrenner, Chairman         X         
Total                          9   15         
----------------------------------------------

3. An amendment by Mr. Watt amending section 102 of the bill to permit a debtor to claim as an expense, in addition to elementary and secondary school educational expenses, the actual tuition costs per each child (exclusive of room and board) to attend a postsecondary education institution, and certain other educational programs. Defeated 10 to 17.

ROLLCALL NO. 3
----------------------------------------------
                            Ayes Nays Present 
----------------------------------------------
Mr. Hyde                                      
Mr. Coble                           X         
Mr. Smith (Texas)                             
Mr. Gallegly                        X         
Mr. Goodlatte                                 
Mr. Chabot                          X         
Mr. Lungren                         X         
Mr. Jenkins                         X         
Mr. Cannon                          X         
Mr. Bachus                          X         
Mr. Inglis                                    
Mr. Hostettler                      X         
Mr. Green                           X         
Mr. Keller                          X         
Mr. Issa                            X         
Mr. Flake                                     
Mr. Pence                                     
Mr. Forbes                                    
Mr. King                            X         
Mr. Feeney                          X         
Mr. Franks                          X         
Mr. Gohmert                         X         
Mr. Conyers                    X              
Mr. Berman                                    
Mr. Boucher                         X         
Mr. Nadler                     X              
Mr. Scott                      X              
Mr. Watt                       X              
Ms. Lofgren                                   
Ms. Jackson Lee                X              
Ms. Waters                                    
Mr. Meehan                     X              
Mr. Delahunt                   X              
Mr. Wexler                                    
Mr. Weiner                     X              
Mr. Schiff                     X              
Ms. Sanchez                    X              
Mr. Smith (Washington)                        
Mr. Van Hollen                                
Mr. Sensenbrenner, Chairman         X         
Total                         10   17         
----------------------------------------------

4. An amendment by Mr. Nadler amending sections 404, 411, 417, 436, 437, and 438 of the bill to permit the court, under specified circumstances, to extend certain time periods specified therein. Defeated 13 to 18.

ROLLCALL NO. 4
----------------------------------------------
                            Ayes Nays Present 
----------------------------------------------
Mr. Hyde                                      
Mr. Coble                           X         
Mr. Smith (Texas)                   X         
Mr. Gallegly                        X         
Mr. Goodlatte                                 
Mr. Chabot                          X         
Mr. Lungren                         X         
Mr. Jenkins                         X         
Mr. Cannon                          X         
Mr. Bachus                          X         
Mr. Inglis                          X         
Mr. Hostettler                      X         
Mr. Green                           X         
Mr. Keller                          X         
Mr. Issa                            X         
Mr. Flake                                     
Mr. Pence                                     
Mr. Forbes                                    
Mr. King                            X         
Mr. Feeney                          X         
Mr. Franks                          X         
Mr. Gohmert                         X         
Mr. Conyers                    X              
Mr. Berman                     X              
Mr. Boucher                                   
Mr. Nadler                     X              
Mr. Scott                      X              
Mr. Watt                       X              
Ms. Lofgren                                   
Ms. Jackson Lee                               
Ms. Waters                     X              
Mr. Meehan                     X              
Mr. Delahunt                   X              
Mr. Wexler                     X              
Mr. Weiner                     X              
Mr. Schiff                     X              
Ms. Sanchez                    X              
Mr. Smith (Washington)         X              
Mr. Van Hollen                                
Mr. Sensenbrenner, Chairman         X         
Total                         13   18         
----------------------------------------------

5. An amendment by Mr. Schiff amending section 102 of the bill to prohibit a judge, United States trustee, trustee, or other party in interest from dismissing a chapter 7 case on the basis of the debtor's ability to repay if the debtor is an identity theft victim, under certain circumstances. Defeated 13 to 15.

ROLLCALL NO. 5
----------------------------------------------
                            Ayes Nays Present 
----------------------------------------------
Mr. Hyde                                      
Mr. Coble                           X         
Mr. Smith (Texas)                   X         
Mr. Gallegly                        X         
Mr. Goodlatte                                 
Mr. Chabot                          X         
Mr. Lungren                         X         
Mr. Jenkins                         X         
Mr. Cannon                          X         
Mr. Bachus                          X         
Mr. Inglis                          X         
Mr. Hostettler                                
Mr. Green                           X         
Mr. Keller                                    
Mr. Issa                                      
Mr. Flake                                     
Mr. Pence                                     
Mr. Forbes                                    
Mr. King                            X         
Mr. Feeney                          X         
Mr. Franks                          X         
Mr. Gohmert                         X         
Mr. Conyers                    X              
Mr. Berman                     X              
Mr. Boucher                                   
Mr. Nadler                     X              
Mr. Scott                      X              
Mr. Watt                       X              
Ms. Lofgren                                   
Ms. Jackson Lee                               
Ms. Waters                     X              
Mr. Meehan                     X              
Mr. Delahunt                   X              
Mr. Wexler                                    
Mr. Weiner                     X              
Mr. Schiff                     X              
Ms. Sanchez                    X              
Mr. Smith (Washington)         X              
Mr. Van Hollen                 X              
Mr. Sensenbrenner, Chairman         X         
Total                         13   15         
----------------------------------------------

6. An amendment by Mr. Delahunt amending Bankruptcy Code section 548 to authorize a trustee to avoid a transfer of an interest of a debtor made within the ten-year period preceding the bankruptcy filing to an asset protection trust if the amount of the transfer or aggregate amount of all transfers during such period exceeds $125,000, with certain exceptions. Defeated 10 to 15.

ROLLCALL NO. 6
----------------------------------------------
                            Ayes Nays Present 
----------------------------------------------
Mr. Hyde                                      
Mr. Coble                           X         
Mr. Smith (Texas)                             
Mr. Gallegly                        X         
Mr. Goodlatte                                 
Mr. Chabot                          X         
Mr. Lungren                         X         
Mr. Jenkins                         X         
Mr. Cannon                          X         
Mr. Bachus                                    
Mr. Inglis                                    
Mr. Hostettler                      X         
Mr. Green                                     
Mr. Keller                          X         
Mr. Issa                                      
Mr. Flake                           X         
Mr. Pence                                     
Mr. Forbes                          X         
Mr. King                            X         
Mr. Feeney                          X         
Mr. Franks                          X         
Mr. Gohmert                                   
Mr. Conyers                    X              
Mr. Berman                     X              
Mr. Boucher                         X         
Mr. Nadler                     X              
Mr. Scott                      X              
Mr. Watt                       X              
Ms. Lofgren                                   
Ms. Jackson Lee                X              
Ms. Waters                     X              
Mr. Meehan                                    
Mr. Delahunt                   X              
Mr. Wexler                                    
Mr. Weiner                     X              
Mr. Schiff                     X              
Ms. Sanchez                                   
Mr. Smith (Washington)                        
Mr. Van Hollen                                
Mr. Sensenbrenner, Chairman         X         
Total                         10   15         
----------------------------------------------

7. An amendment by Mr. Berman and Mr. Meehan amending Bankruptcy Code section 522 to create a uniform Federal homestead exemption floor in the amount of $150,000 for a medically distressed debtor. Defeated 13 to 18.

ROLLCALL NO. 7
----------------------------------------------
                            Ayes Nays Present 
----------------------------------------------
Mr. Hyde                                      
Mr. Coble                           X         
Mr. Smith (Texas)                             
Mr. Gallegly                        X         
Mr. Goodlatte                                 
Mr. Chabot                                    
Mr. Lungren                         X         
Mr. Jenkins                         X         
Mr. Cannon                          X         
Mr. Bachus                          X         
Mr. Inglis                          X         
Mr. Hostettler                      X         
Mr. Green                           X         
Mr. Keller                          X         
Mr. Issa                            X         
Mr. Flake                           X         
Mr. Pence                                     
Mr. Forbes                          X         
Mr. King                            X         
Mr. Feeney                          X         
Mr. Franks                          X         
Mr. Gohmert                                   
Mr. Conyers                    X              
Mr. Berman                     X              
Mr. Boucher                         X         
Mr. Nadler                     X              
Mr. Scott                      X              
Mr. Watt                       X              
Ms. Lofgren                                   
Ms. Jackson Lee                X              
Ms. Waters                     X              
Mr. Meehan                     X              
Mr. Delahunt                   X              
Mr. Wexler                     X              
Mr. Weiner                     X              
Mr. Schiff                     X              
Ms. Sanchez                                   
Mr. Smith (Washington)                        
Mr. Van Hollen                 X              
Mr. Sensenbrenner, Chairman         X         
Total                         13   18         
----------------------------------------------

8. An amendment by Mr. Nadler amending Bankruptcy Code section 523(a) to provide that a debt that results from any judgment, order, consent order, or decree entered in any Federal or state court or contained in any settlement agreement entered into by the debtor that arises from: (a) the violation of certain specified offenses under title 18 of the United States Code; (b) an offense under state law that would be a civil rights crime (as described in the preceding clause); (c) a violation under 42 U.S.C. Sec. 1983; or (d) the intentional actions of a debtor that violate a valid court order enforcing a civil rights law described in (a) or (b). It also amends Bankruptcy Code section 523(a)(13) to include an order of restitution under the criminal law of a state. Defeated 11 to 17.

ROLLCALL NO. 8
----------------------------------------------
                            Ayes Nays Present 
----------------------------------------------
Mr. Hyde                                      
Mr. Coble                           X         
Mr. Smith (Texas)                   X         
Mr. Gallegly                        X         
Mr. Goodlatte                                 
Mr. Chabot                          X         
Mr. Lungren                         X         
Mr. Jenkins                         X         
Mr. Cannon                          X         
Mr. Bachus                          X         
Mr. Inglis                                    
Mr. Hostettler                      X         
Mr. Green                           X         
Mr. Keller                                    
Mr. Issa                                      
Mr. Flake                                     
Mr. Pence                                     
Mr. Forbes                          X         
Mr. King                            X         
Mr. Feeney                          X         
Mr. Franks                          X         
Mr. Gohmert                         X         
Mr. Conyers                    X              
Mr. Berman                     X              
Mr. Boucher                         X         
Mr. Nadler                     X              
Mr. Scott                      X              
Mr. Watt                       X              
Ms. Lofgren                                   
Ms. Jackson Lee                               
Ms. Waters                     X              
Mr. Meehan                     X              
Mr. Delahunt                   X              
Mr. Wexler                     X              
Mr. Weiner                     X              
Mr. Schiff                     X              
Ms. Sanchez                                   
Mr. Smith (Washington)                        
Mr. Van Hollen                                
Mr. Sensenbrenner, Chairman         X         
Total                         11   17         
----------------------------------------------

9. An amendment by Mr. Meehan amending section 102 of the bill to provide that the needs-based requirements under Bankruptcy Code section 707(b)(2)(A) through (C) (as amended by section 102) shall not apply to, and the court may not dismiss or convert a chapter 7 case filed by, a debtor who is a disabled veteran based on any form of means testing, under certain specified circumstances. Defeated 12 to 19.

ROLLCALL NO. 9
----------------------------------------------
                            Ayes Nays Present 
----------------------------------------------
Mr. Hyde                                      
Mr. Coble                           X         
Mr. Smith (Texas)                   X         
Mr. Gallegly                        X         
Mr. Goodlatte                                 
Mr. Chabot                          X         
Mr. Lungren                         X         
Mr. Jenkins                         X         
Mr. Cannon                          X         
Mr. Bachus                          X         
Mr. Inglis                          X         
Mr. Hostettler                      X         
Mr. Green                                     
Mr. Keller                          X         
Mr. Issa                            X         
Mr. Flake                                     
Mr. Pence                                     
Mr. Forbes                          X         
Mr. King                            X         
Mr. Feeney                          X         
Mr. Franks                          X         
Mr. Gohmert                         X         
Mr. Conyers                    X              
Mr. Berman                     X              
Mr. Boucher                         X         
Mr. Nadler                     X              
Mr. Scott                      X              
Mr. Watt                       X              
Ms. Lofgren                                   
Ms. Jackson Lee                X              
Ms. Waters                     X              
Mr. Meehan                     X              
Mr. Delahunt                                  
Mr. Wexler                                    
Mr. Weiner                     X              
Mr. Schiff                     X              
Ms. Sanchez                    X              
Mr. Smith (Washington)                        
Mr. Van Hollen                 X              
Mr. Sensenbrenner, Chairman         X         
Total                         12   19         
----------------------------------------------

10. An amendment by Ms. Jackson Lee amending section 102 of the bill to increase the amount of actual expenses a chapter 7 debtor may claim under the provision's needs-based test for certain educational costs for a debtor's dependent child from $1,500 to $3,000. Defeated 12 to 21.

ROLLCALL NO. 10
----------------------------------------------
                            Ayes Nays Present 
----------------------------------------------
Mr. Hyde                                      
Mr. Coble                           X         
Mr. Smith (Texas)                   X         
Mr. Gallegly                        X         
Mr. Goodlatte                       X         
Mr. Chabot                          X         
Mr. Lungren                         X         
Mr. Jenkins                         X         
Mr. Cannon                          X         
Mr. Bachus                          X         
Mr. Inglis                          X         
Mr. Hostettler                                
Mr. Green                           X         
Mr. Keller                          X         
Mr. Issa                            X         
Mr. Flake                                     
Mr. Pence                           X         
Mr. Forbes                          X         
Mr. King                            X         
Mr. Feeney                          X         
Mr. Franks                          X         
Mr. Gohmert                         X         
Mr. Conyers                    X              
Mr. Berman                     X              
Mr. Boucher                         X         
Mr. Nadler                     X              
Mr. Scott                      X              
Mr. Watt                       X              
Ms. Lofgren                                   
Ms. Jackson Lee                X              
Ms. Waters                     X              
Mr. Meehan                                    
Mr. Delahunt                                  
Mr. Wexler                                    
Mr. Weiner                     X              
Mr. Schiff                     X              
Ms. Sanchez                    X              
Mr. Smith (Was1hington)        X              
Mr. Van Hollen                 X              
Mr. Sensenbrenner, Chairman         X         
Total                         12   21         
----------------------------------------------

11. Three en bloc amendments by Ms. Jackson Lee as follows: (a) amending Bankruptcy Code section 523(a) to provide that a debt arising from certain sex offenses in which the victim was an individual who had not attained the age of 17 years is nondischargeable; (b) amending Bankruptcy Code section 523(a) to provide that a debt arising from a judicial, administrative, or other action related to the consumption or consumer purchase of a tobacco product that is based in whole or in part on false pretenses, a false representation, or actual fraud is nondischargeable; and (c) amending section 708 of the bill to provide that the confirmation of a chapter 11 plan under Bankruptcy Code section 1141 does not discharge a debtor that is corporation from a debt specified in Bankruptcy Code section 523(a)(9). Defeated 9 to 20.

ROLLCALL NO. 11
----------------------------------------------
                            Ayes Nays Present 
----------------------------------------------
Mr. Hyde                                      
Mr. Coble                           X         
Mr. Smith (Texas)                   X         
Mr. Gallegly                        X         
Mr. Goodlatte                       X         
Mr. Chabot                          X         
Mr. Lungren                         X         
Mr. Jenkins                         X         
Mr. Cannon                          X         
Mr. Bachus                          X         
Mr. Inglis                          X         
Mr. Hostettler                                
Mr. Green                                     
Mr. Keller                          X         
Mr. Issa                            X         
Mr. Flake                                     
Mr. Pence                           X         
Mr. Forbes                          X         
Mr. King                            X         
Mr. Feeney                          X         
Mr. Franks                          X         
Mr. Gohmert                         X         
Mr. Conyers                    X              
Mr. Berman                     X              
Mr. Boucher                         X         
Mr. Nadler                                    
Mr. Scott                      X              
Mr. Watt                       X              
Ms. Lofgren                                   
Ms. Jackson Lee                X              
Ms. Waters                     X              
Mr. Meehan                     X              
Mr. Delahunt                                  
Mr. Wexler                                    
Mr. Weiner                     X              
Mr. Schiff                                    
Ms. Sanchez                                   
Mr. Smith (Washington)                        
Mr. Van Hollen                 X              
Mr. Sensenbrenner, Chairman         X         
Total                          9   20         
----------------------------------------------

12. Motion to report S. 256 favorably. Passed 22 to 13.

ROLLCALL NO. 12
----------------------------------------------
                            Ayes Nays Present 
----------------------------------------------
Mr. Hyde                                      
Mr. Coble                      X              
Mr. Smith (Texas)              X              
Mr. Gallegly                   X              
Mr. Goodlatte                  X              
Mr. Chabot                     X              
Mr. Lungren                    X              
Mr. Jenkins                    X              
Mr. Cannon                     X              
Mr. Bachus                     X              
Mr. Inglis                     X              
Mr. Hostettler                                
Mr. Green                      X              
Mr. Keller                     X              
Mr. Issa                       X              
Mr. Flake                      X              
Mr. Pence                      X              
Mr. Forbes                     X              
Mr. King                       X              
Mr. Feeney                     X              
Mr. Franks                     X              
Mr. Gohmert                    X              
Mr. Conyers                         X         
Mr. Berman                          X         
Mr. Boucher                    X              
Mr. Nadler                          X         
Mr. Scott                           X         
Mr. Watt                            X         
Ms. Lofgren                                   
Ms. Jackson Lee                     X         
Ms. Waters                          X         
Mr. Meehan                          X         
Mr. Delahunt                        X         
Mr. Wexler                                    
Mr. Weiner                          X         
Mr. Schiff                          X         
Ms. Sanchez                         X         
Mr. Smith (Washington)                        
Mr. Van Hollen                      X         
Mr. Sensenbrenner, Chairman    X              
Total                         22   13         
----------------------------------------------

COMMITTEE OVERSIGHT FINDINGS

In compliance with clause 3(c)(1) of Rule XIII of the Rules of the House of Representatives, the Committee reports that the findings and recommendations of the Committee, based on oversight activities under clause 2(b)(1) of Rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report.

NEW BUDGET AUTHORITY AND TAX EXPENDITURES

In compliance with clause 3(c)(2) of Rule XIII of the Rules of the House of Representatives, the Committee adopts as its own the estimate of budget authority, or tax expenditures or revenues contained in the cost estimate prepared by the Director of the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974.

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

In compliance with clause 3(c)(3) of Rule XIII of the Rules of the House of Representatives, the Committee sets forth, with respect to the bill, S. 256, the following estimate and comparison prepared by the Director of the Congressional Budget Office under section 402 of the Congressional Budget Act of 1974:

U.S. Congress,

Congressional Budget Office,

Washington, DC, April 4, 2005.

Hon. F. JAMES SENSENBRENNER, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for S. 256, the `Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,' as reported by the House Committee on the Judiciary. This version of S. 256 is identical to the legislation as passed by the Senate on March 10, 2005.

If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contacts are Gregory Waring (for Federal spending), who can be reached at 226-2860, Annabelle Bartsch (for Federal revenues), who can be reached at 226-2720, Melissa Merrell (for the State and local impact), who can be reached at 225-3220, and Paige Piper/Bach (for the private-sector impact), who can be reached at 226-2940.

Sincerely,

Douglas Holtz-Eakin.

S. 256--Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

SUMMARY

CBO estimates that implementing S. 256 would result in gross discretionary costs of $392 million over the 2006-2010 period, primarily to pay for increased responsibilities of the United States Trustees (U.S. Trustees), assuming appropriation of the necessary amounts. At the same time, the act would increase the fees charged for filing certain bankruptcy cases and would change how some of these fees are currently recorded in the budget during the first 5 years after enactment. We estimate that implementing the act would increase the amount of bankruptcy fees that are treated as an offset to appropriations by $75 million over the 5-year period, resulting in an estimated net increase in discretionary spending of approximately $318 million over this period.

In addition, CBO estimates that enacting S. 256 would increase revenues by about $60 million over the 2006-2010 period and by about $140 million over the 2006-2015 period primarily because of provisions that temporarily amend the Treasury's allocation of filing fees. Finally, enactment of S. 256 would authorize additional judgeships, and we estimate that the mandatory pay and benefits for those positions would cost $26 million over the next 5 years and $45 million over the 2006-2015 period.

On balance and assuming appropriation of the necessary amounts to implement the act, CBO estimates that its enactment would increase budget deficits by about $280 million over the 2006-2010 period.

S. 256 contains two intergovernmental mandates as defined in the Unfunded Mandates Reform Act (UMRA), but CBO estimates that the costs would be insignificant and would not exceed the threshold established in UMRA ($62 million in 2005, adjusted annually for inflation). Overall, CBO expects that enacting this bill would benefit State and local governments by enhancing their ability to collect outstanding obligations in bankruptcy cases.

S. 256 would impose private-sector mandates, as defined in UMRA, on bankruptcy attorneys, creditors, bankruptcy petition preparers, debt-relief agencies, consumer reporting agencies, and credit and charge-card companies. CBO estimates that the direct costs of those mandates would exceed the annual threshold established by UMRA ($123 million in 2005, adjusted annually for inflation).

MAJOR PROVISIONS

In addition to establishing means-testing for determining eligibility for chapter 7 bankruptcy relief, S. 256 would:

Other provisions would make various changes affecting the bankruptcy provisions for municipalities and the treatment of tax liabilities in bankruptcy cases.

ESTIMATED COST TO THE FEDERAL GOVERNMENT

As shown in Table 1, CBO estimates that implementing S. 256 would result in a net increase in discretionary spending of about $318 million over the 2006-2010 period, subject to future appropriation actions. In addition, we estimate that mandatory spending for the salaries and benefits of bankruptcy judges would increase by less than $100,000 in 2005 and by $26 million over the 2006-2010 period. Enacting the legislation's provisions for adjusting filing fees would increase revenues by about $60 million over the next 5 years. The costs of this legislation fall within budget function 750 (administration of justice).

TABLE 1. ESTIMATED BUDGETARY EFFECTS OF S. 256
By Fiscal Year, in Millions of Dollars
--------------------------------------------------------------------------------------------------
                                                                    2005 2006 2007 2008 2009 2010 
--------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION                                                      
Means-Testing (Section 102)                                                                       
 Estimated Authorization Level                                         0   16   24   39   39   36 
 Estimated Outlays                                                     0   14   23   39   39   36 
Studies by U.S. Trustees, GAO, and SBA (Sections 103, 230, and 443)                               
 Estimated Authorization Level                                         0    1    *    0    0    0 
 Estimated Outlays                                                     0    1    *    0    0    0 
Debtor Financial Management Training (Section 105)                                                
 Estimated Authorization Level                                         0    3    1    0    0    0 
 Estimated Outlays                                                     0    2    1    *    0    0 
Credit Counseling Certification (Section 106)                                                     
 Estimated Authorization Level                                         0    4    7    8    8    7 
 Estimated Outlays                                                     0    4    6    8    8    7 
Maintenance of Tax Returns (Section 315)                                                          
 Estimated Authorization Level                                         0    2    2    2    2    2 
 Estimated Outlays                                                     0    2    2    2    2    2 
Changes in Bankruptcy Filing Fees (Sections 325 and 418)                                          
 Estimated Authorization Level                                         0  -46  -49    6    7    7 
 Estimated Outlays                                                     0  -46  -49    6    7    7 
U.S. Trustee Site Visits (Section 439)                                                            
 Estimated Authorization Level                                         0    3    3    3    3    3 
 Estimated Outlays                                                     0    3    3    3    3    3 
Compiling and Publishing Data (Sections 601-602)                                                  
 Estimated Authorization Level                                         0    1    7    8    8    8 
 Estimated Outlays                                                     0    1    7    8    8    8 
Audit Procedures (Section 603)                                                                    
 Estimated Authorization Level                                         0    0   16   17   17   16 
 Estimated Outlays                                                     0    0   16   17   17   16 
Additional Judgeships--Support Costs (Section 1223)                                               
 Estimated Authorization Level                                         *    8   17   17   18   18 
 Estimated Outlays                                                     *    7   16   17   18   18 
FTC Toll-Free Hotline (Section 1301)                                                              
 Estimated Authorization Level                                         0    2    1    1    1    1 
 Estimated Outlays                                                     0    2    1    1    1    1 
 Total Discretionary Changes                                                                      
  Estimated Authorization Level                                        *   -6   29  101  103   98 
  Estimated Outlays                                                    *  -10   26  101  103   98 
CHANGES IN DIRECT SPENDING                                                                        
Additional Judgeships (Section 1223)                                                              
 Estimated Budget Authority                                            *    3    6    6    6    6 
 Estimated Outlays                                                     *    3    5    6    6    6 
CHANGES IN REVENUES                                                                               
Changes in Revenue from Filing Fees                                                               
 Estimated Revenues                                                    0   -6  -12   30   24   24 
--------------------------------------------------------------------------------------------------

BASIS OF ESTIMATE

For this estimate, CBO assumes that S. 256 will be enacted by July 2005 and that the amounts necessary to implement the act will be appropriated for each fiscal year. Many of the act's new provisions would be effective 180 days after enactment. However, a few provisions would be effective 18 months after enactment. CBO assumes those provisions would take effect in fiscal year 2007.

Spending Subject to Appropriation

Most of the estimated increases in discretionary spending under S. 256 would be required to fund the additional workload that would be imposed on the U.S. Trustees. Those increases would be partially offset for fiscal years 2006 and 2007 by changes in bankruptcy filing fees that would be recorded as offsetting collections under the act. CBO estimates that implementing S. 256 would result in a net increase in discretionary costs of about $318 million over the 2006-2010 period, with most of the increase falling after 2007.

Means-Testing (Section 102). This section would establish a system of means-testing for determining a debtor's eligibility for relief under chapter 7. Under the proposed means test, if the amount of debtor income remaining after certain expenses and other specified amounts are deducted from the debtor's current monthly income exceeds the threshold specified in section 102, then the debtor would be presumed ineligible for chapter 7 relief. A debtor who could not demonstrate `special circumstances,' which would cause the expected disposable income to fall below the threshold, could file under other chapters of the bankruptcy code.

Although the private trustees would be responsible for conducting the initial review of a debtor's income and expenses and filing the majority of motions for dismissal or conversion, CBO expects that the workload of the U.S. Trustees would increase under the means-testing provision. The U. S. Trustees would provide increased oversight of the work performed by the private trustees, file additional motions for dismissal or conversion, and take part in additional litigation that is expected to occur as the courts and debtors debate allowable expenses and other related issues. Although CBO cannot predict the amount of such litigation, we expect that, during the first few years following enactment of the act, the amount of litigation could be significant as parties test the new law's standards. In subsequent years, litigation could begin to subside as precedents are established. Based on information from the U.S. Trustees, CBO estimates that the U.S. Trustees would require 200 additional attorneys, paralegals, and analysts to address the increased workload. As a result, CBO estimates that implementing this provision would cost about $150 million over the 2006-2010 period, assuming appropriation of the necessary funds.

Studies by the U.S. Trustees, Government Accountability Office (GAO), and Small Business Administration (SBA) (Sections 103, 205, 230, and 443). Section 103 would require the U.S. Trustees to conduct a study regarding the use of Internal Revenue Service expense standards for determining a debtor's current monthly expenses and the impact of those standards on debtors and bankruptcy courts. Section 230 would require GAO to conduct a study regarding the feasibility of requiring trustees to provide the Office of Child Support Enforcement information about outstanding child support obligations of debtors. Section 205 would require GAO to conduct a study on the treatment of consumers by creditors with respect to reaffirmation agreements. Section 443 would require the Administrator of SBA, in consultation with the Attorney General, the U.S. Trustees, and the AOUSC, to conduct a study on small business bankruptcy issues. Based on information from the U.S. Trustees, GAO, and SBA, CBO estimates that completing the necessary studies would cost about $1 million in 2006 and less than $500,000 in 2007, subject to the availability of appropriated funds.

Debtor Financial Management Test Training Program (Section 105). This section would require the U.S. Trustees to establish a test training program to educate debtors on financial management. The test training program would be authorized for six judicial districts over an 18-month period. Based on information from the U.S. Trustees, CBO estimates that about 90,000 debtors would participate if such a program were administered by the U.S. Trustees in fiscal years 2006 and 2007. At a projected cost of about $40 per debtor, CBO estimates that implementing this provision would cost nearly $4 million over the 2006-2007 period.

Credit Counseling Certification (Section 106). This section would require the U.S. Trustees to certify, on an annual basis, that certain credit counseling services could provide adequate services to potential debtors. Based on information from the U.S. Trustees, CBO estimates that the U.S. Trustees would require additional attorneys and analysts to handle the greater workload associated with certification. CBO estimates that implementing this provision would cost $33 million over the 2006-2010 period.

Maintenance of Tax Returns (Section 315). This section would authorize the AOUSC to receive and retain debtors' tax returns for the year prior to the commencement of the bankruptcy for chapter 7 and chapter 13 filings. Such collection and storage of tax returns would commence only at the request of a creditor. Based on information from the AOUSC, CBO expects that creditors will request tax information in about 25 percent of such cases. CBO estimates that implementing section 315 would cost $10 million over the 2006-2010 period to store and provide access to about two million tax returns.

Changes in Bankruptcy Filing Fees (Sections 325 and 418). Section 325 would increase chapter 7 and chapter 11 bankruptcy filing fees, decrease the chapter 13 filing fee, and change the distribution of such fees during the first 5 years after enactment. Considering the expected reduction in the use of chapter 7 because of means-testing and a provision in section 418 that would allow fee waivers, CBO estimates that implementing the new fee structure and changes in fee classifications would result in a net increase in offsetting collections totaling $75 million over the 2006-2010 period.

Current Law Filing Fees. Under current law, the filing fee for chapter 7 and chapter 13 is $155 and is divided between the U.S. Trustee System Fund (recorded as an offsetting collection), the AOUSC (recorded as an offsetting receipt), the private trustee assigned to the case, and the remainder is recorded as a governmental receipt (i.e., revenue). The filing fee for chapter 11 relief is currently set at $800 and is divided between the U.S. Trustee System Fund and the AOUSC, and the remainder is also recorded as a governmental receipt. Section 325 would change the filing fees for chapters 7, 13, and 11 to $200, $1,000, and $150, respectively.

Distribution of Filing Fees. During the first 2 years after enactment, the S. 256 would allow the U.S. Trustee System Fund to retain (as an offset to appropriations) a larger portion of the current-law chapter 7, 13, and 11 filing fees. At the same time, the act would temporarily reduce for 2 years the percentage of current-law filing fees allocated to the AOUSC, and, because current law sets the private trustee's portion of the filing fee at a flat amount ($45), no portion of the current-law filing fees would be recorded as governmental receipts during fiscal years 2006 and 2007. After 2 years, the distribution of the filing fees under S. 256 would revert to the distribution formula in current law.

Under S. 256, the general fund of the Treasury would receive any increase in bankruptcy filing fees due to enactment of the legislation over the 2006-2010 period. Beginning in 2011, the full amount of the proposed fees would be allocated according to the formula specified in current law. Of the $200 fee for chapter 7 filers, about $55 would be recorded as an offsetting collection to the appropriation for the U.S. Trustees System Fund, and almost $68 would be recorded as an offsetting receipt and spent without further appropriation by the AOUSC. The private trustee assigned to the case would receive $45 and the remainder of the fee would be recorded as a governmental receipt. Of the $150 fee for a chapter 13 case, the U.S. Trustee System Fund would receive about $41, and the AOUSC would receive almost $51 per case to spend without further appropriation. Finally, of the $1,000 fee per chapter 11 case, the U.S. Trustee System Fund would receive $500, the AOUSC would receive $250, and the remainder of the fee would be recorded as a governmental receipt.

Fee Waivers. Section 418 would permit a bankruptcy court or district court to waive the chapter 7 filing fee and other fees for a debtor who is unable to pay such fees in installments. Based on information from the AOUSC, CBO expects that, in fiscal year 2006, chapter 7 filing fees would be waived for about 3.5 percent of all chapter 7 filers and that the percentage waived would gradually increase to about 10 percent by fiscal year 2009.

U.S. Trustee Site Visits in Chapter 11 Cases (Section 439). This section would expand the responsibilities of the U.S. Trustees in small business bankruptcy cases to include site visits to inspect the debtor's premises, review records, and verify that the debtor has filed tax returns. Based on information from the U.S. Trustees, CBO estimates that implementing section 439 would require about 20 additional analysts to conduct over 2,300 site visits each year. CBO estimates that implementing this provision would cost about $15 million over the 2006-2010 period for the salaries, benefits, and travel expenses associated with those additional personnel.

Compilation and Publication of Bankruptcy Data and Statistics (Sections 601-602). Beginning 18 months after enactment, the act would require the AOUSC to collect data on chapter 7, chapter 11, and chapter 13 cases and the U.S. Trustees to make such information available to the public. CBO estimates that it would cost about $32 million over the 2006-2010 period to meet these requirements. Of the total estimated cost, about $25 million would be required for additional legal clerks, analysts, and data base support. The remainder would be incurred by the U.S. Trustees for compiling data and providing Internet access to records pertaining to bankruptcy cases.

Audit Procedures (Section 603). Beginning 18 months after enactment, S. 256 would require that at least one out of every 250 bankruptcy cases under chapter 7 and chapter 13, plus other selected cases under those chapters, be audited by an independent certified public accountant. Based on information from the U.S. Trustees, CBO estimates that less than 1 percent of about 1.6 million cases a year would be subject to potential audits. Each audit would cost roughly $1,000 (in 2005 dollars). CBO also expects that the U.S. Trustees would need about 10 additional analysts and attorneys to support the follow-up work associated with the audits. We estimate that implementing this provision would cost $66 million over the 2006-2010 period.

Additional Judgeships--Support Costs (Section 1223). This provision would extend four temporary bankruptcy judgeships and authorize 28 new temporary bankruptcy judgeships. Based on information from the AOUSC, CBO assumes that about half of the 28 new positions would be filled by the beginning of fiscal year 2006 and the rest would be filled by the start of fiscal year 2007. Also, we anticipate that all four temporary judgeships would be filled by fiscal year 2007. We expect that discretionary expenditures for support costs associated with each judgeship would average about $500,000 annually (in 2005 dollars). CBO estimates that the administrative support of additional bankruptcy judges would cost less than $200,000 in fiscal year 2005 and $76 million over the 2006-2010 period. (Salaries and benefits for the judges are classified as mandatory spending, and those costs are described below.)

Federal Trade Commission Toll-Free Hotline (Section 1301). This section would require the Federal Trade Commission (FTC) to operate a toll-free number for consumers to calculate how long it would take to pay off a credit card debt if they were to make only the minimum monthly payments. Based on information from the FTC about the demand for similar services, CBO expects that the FTC would receive about 20,000 calls each month. CBO estimates that the equipment and personnel necessary to serve this volume of inquires would cost $2 million in 2006 and $6 million over the 2006-2010 period, subject to appropriation of the necessary amounts.

Direct Spending and Revenues

By adding additional judgeships and changing the budgetary classification of bankruptcy filing fees, CBO estimates that enacting S. 256 would increase direct spending by about $45 million over the 2006-2015 period and increase revenues by approximately $140 million over the 2006-2015 period as shown in Table 2.

TABLE 2. ESTIMATED CHANGES IN DIRECT SPENDING AND REVENUES UNDER S. 256
By Fiscal Year, in Millions of Dollars
--------------------------------------------------------------------------------------------
                                     2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 
--------------------------------------------------------------------------------------------
CHANGES IN DIRECT SPENDING                                                                  
Additional Judgeships (Section 1223)                                                        
 Estimated Budget Authority             *    3    6    6    6    6    6    5    3    3    2 
 Estimated Outlays                      *    3    5    6    6    6    6    5    3    3    2 
CHANGES IN REVENUES                                                                         
Changes in Revenue from Filing Fees                                                         
 Estimated Revenues                     0   -6  -12   30   24   24   16   16   16   16   16 
--------------------------------------------------------------------------------------------

Additional Judgeships (Section 1223). CBO estimates that enacting the means-testing provision (section 102) would impose some additional workload on the courts. Section 128 would authorize 28 new temporary bankruptcy judgeships and extend four existing temporary judgeships. Based on information from the AOUSC and other bankruptcy experts, CBO expects that the increase in the number of bankruptcy judges would be sufficient to meet the increased workload. Assuming that the salary and benefits of a bankruptcy judge would average about $177,000 a year (in 2005 dollars), CBO estimates that the mandatory costs associated with the salaries and benefits of those additional judgeships would be less than $100,000 in fiscal year 2005, about $26 million over the 2006-2010 period, and about $45 million over the 2006-2015 period.

Changes in Bankruptcy Filing Fees (Sections 102, 325, and 418). Section 325 would increase the fees charged for filing bankruptcy cases and change the classification of where bankruptcy filing fees are recorded in the budget. Under current law, filing fees are divided between the U.S. Trustee System Fund, the AOUSC, the private trustee assigned to the case, and the remainder are recorded as governmental receipts (i.e., revenues). The percentage of the fees allocated to those different parts of the budget varies by chapter.

During the first 5 years of the new fee structure proposed in S. 256, the increase in the chapter 7, chapter 11, and chapter 13 filing fees above the amounts expected to be collected under current law would be recorded as revenues. During the first 2 years after enactment of S. 256, however, the portion of the fees charged under current law for chapters 7, 13, and 11 that are now recorded as revenues would be recorded as offsetting collections or offsetting receipts. The allocation of those fees would return to the same allocation as under current law after 2 years. In sum, CBO estimates that enacting S. 256 would increase revenues by about $60 million over the 2006-2010 period and by about $144 million over the 2006-2015 period. (The change in offsetting receipts would be matched by additional spending, resulting in no net change in direct spending.)

Tax Provisions (Title VII). Title VII of S. 256 would alter several provisions related to tax claims. It would alter the treatment of certain tax liens, disallow the discharge of taxes resulting from fraudulent tax returns under chapter 11 or chapter 13 of the bankruptcy code, require periodic cash payments of priority tax claims, and specify the rate of interest on tax claims. Title VII also would change the status of assessment periods for tax claims and would alter various administrative requirements. Based on information from the Internal Revenue Service and the Joint Committee on Taxation, CBO estimates that these provisions would increase revenues, but that any increase would be negligible.

ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS

S. 256 contains intergovernmental mandates as defined in UMRA, but CBO estimates that any resulting costs would not be significant and would not exceed the threshold established in UMRA ($62 million in 2005, adjusted annually for inflation). Overall, CBO expects that enacting this act would benefit State and local governments by enhancing their ability to collect outstanding obligations in bankruptcy cases.

Mandates

Section 227 of the act would preempt State laws governing contracts between a debt relief agency and a debtor but only to the extent that those State laws are inconsistent with the Federal requirements set forth in S. 256. Such preemptions are mandates as defined in UMRA. Because the preemption would not require States to take any action, CBO estimates that the costs to comply with this mandate would not be significant.

Section 719 would require State and local income tax procedures to conform to the Internal Revenue Code with regard to dividing tax liabilities and responsibilities between the estate and the debtor, the tax consequences of partnerships and transfers of property, and the taxable period of the debtor. CBO estimates that this provision would increase costs for the administration of State and local tax laws but would not require State and local tax rates to conform to the Federal rates. Such administrative costs would not be significant and would likely be offset by increased collections by State and local governments.

Other Impacts

The changes to bankruptcy law in the act would affect State and local governments primarily as creditors and holders of claims against debtors for taxes or child support payments. In addition, it would change some of the State statutes that govern which of a debtor's assets are protected from creditors in a bankruptcy proceeding.

According to the Federation of Tax Administrators, while total bankruptcy filings have increased in the last decade, the proportion of claims collected by States from taxpayers in bankruptcy has remained relatively constant--about 5 percent of claims owed. CBO cannot predict how much more money might be collected under this legislation; however, we think that it is likely that State and local governments would collect a greater share of future claims than they would under current law.

Domestic Support Obligations. S. 256 would enhance a State's ability to collect domestic support obligations, including child support. Domestic support obligations owed to State or local governments would be given priority over all other claims except those same obligations owed to individuals. The act would make those debts nondischargeable (not able to be written-off at the end of bankruptcy). The act also would require that filers under chapter 11 and 13 cases pay domestic support obligations owed to government agencies or individuals in order to receive a discharge of outstanding debts. In addition, under S. 256, the automatic stay that is triggered by filing bankruptcy would not apply to domestic support obligations owed by debtors or withheld from regular income as it currently does. The act also would require bankruptcy trustees to notify individuals with domestic support claims of their right to use the services of a State child support enforcement agency and to notify the agency that it has done so. The last known address of the debtor would be a part of the notification.

Exemptions. Although bankruptcy is regulated according to Federal statute, States are allowed to provide debtors with certain exemptions for property, insurance, and other items that are different from those allowed under the Federal bankruptcy code. (Exempt property remains in possession of the debtor and is not available to pay off creditors.) In some States debtors can choose the Federal or State exemption; other States require a debtor to use only the State exemptions. The act would reduce the value of a debtor's homestead exemption under certain circumstances. It also would place a monetary cap on the value of certain property that the debtor may claim as exempt under State or local law. The act would exempt certain types of retirement and education savings as well as contributions to specified employee benefit plans.

These exemption standards would apply regardless of the State policy on exemptions. The new property-value limitations could make more money available to creditors in some cases, while the exemptions on some retirement, education, and other savings generally would make less money available.

Time Limits on Tax Collection. Under some circumstances, a tax claim can qualify for priority status, making it more likely that a State or local government can collect the debt. However, this status is granted only if a tax is assessed within a specific period of time from the date of the bankruptcy filing. If that filing is subsequently dismissed and a new filing is made, the tax claim may lose its priority status. The act would make adjustments to this provision, allowing more time to pass in some circumstances, thus increasing the likelihood that State or local tax claims would maintain their priority status.

Taxes and Administrative Expenses. Under current law, certain expenses and the priority of claims reduce the funds that would otherwise be available to pay tax liens on property. The act would increase the priority of those liens in certain circumstances against certain expenses and claims, thereby making it more likely that funds would remain available to cover tax obligations. The act would allow State and local governments to claim administrative expenses for costs incurred by closing a health care business. The act would provide for a more uniform interest rate on all tax claims and administrative expenses, determined in accordance with applicable nonbankruptcy law rather than at the discretion of a bankruptcy judge.

Tax Return Filing. A number of provisions in the act would require debtors to have filed tax returns before a bankruptcy case may continue. Those provisions would help States identify potential claims in bankruptcy cases where they may be owed delinquent taxes.

Priority of Payments. In some circumstances under current law, debtors have borrowed money or incurred some new obligation that is dischargeable (able to be written-off at the end of bankruptcy) to pay for an obligation that would not be dischargeable. S. 256 would give the new debt the same priority as the underlying debt. If the underlying debt had a priority higher than that of State or local tax liabilities, State and local governments could lose access to some funds. However, it is possible that the underlying debt could be for a tax claim, in which case, the taxing authority would face no loss. Because it is unclear what types of nondischargeable debts are covered by new debt and the degree to which this new provision would discourage such activity, CBO can estimate neither the direction nor the magnitude of the provision's impact on States and localities.

Municipal Bankruptcy. Title V would clarify regulations governing municipal bankruptcy actions and allow municipalities that have filed for bankruptcy to liquidate certain financial contracts.

Fuel Tax Claims. Under current law, all States owed fuel tax under the International Fuel Tax Agreement must file separate claims against debtors under the bankruptcy code. A provision in title VII would allow a State designated under the agreement to file a single claim on behalf of all States owed the fuel taxes. That provision would simplify the filing process.

Single Asset Cases. Title XII includes a provision that would allow expedited bankruptcy proceedings in certain cases where the debtor's principal asset is some form of real estate. Enacting this provision could benefit State and local governments to the extent that real property is returned to productive tax rolls earlier.

ESTIMATED IMPACT ON THE PRIVATE SECTOR

S. 256 would establish means-testing of individual debtors for determining eligibility for relief under chapter 7 of the bankruptcy code. Under UMRA, duties arising from participation in voluntary Federal programs are not mandates. The bankruptcy process is largely voluntary for debtors, and debtor-initiated bankruptcies are equivalent to participation in a voluntary Federal program. Consequently, new duties imposed by the act on individuals who file as debtors do not meet the definition of private-sector mandates, and additional cost for debtors would not be counted as direct costs for purposes of UMRA.

Mandates

S. 256 would impose private-sector mandates on bankruptcy attorneys, creditors, preparers of bankruptcy petitions, debt-relief agencies, consumer reporting agencies, and credit and charge-card companies. Under the act:

In addition, the act would prohibit credit and charge-card companies from terminating a consumer credit account before its expiration date because the consumer has not incurred finance charges. CBO estimates that the direct costs of the mandates in the act would exceed the annual threshold established by UMRA ($123 million in 2005, adjusted annually for inflation).

Requirements For Attorneys. Section 102 of the act would make bankruptcy attorneys liable for misleading statements and inaccuracies in schedules and documents submitted to the court or to the trustee. To avoid sanctions and potential civil penalties, attorneys would need to verify the information given to them by their clients regarding the list of creditors, assets and liabilities, and income and expenditures. Completing a reasonable investigation of debtors' financial affairs and, for chapter 7 cases, computing debtor eligibility, would require attorneys to expend additional effort. Information from the American Bar Association indicates that this requirement would increase attorney costs by $150 to $500 per case. Based on the 1.6 million projected filings under chapter 7 (liquidation) and chapter 13 (rehabilitation), CBO estimates that the direct cost of complying with this mandate would be between $240 million and $800 million in fiscal year 2007, the first full year of implementation, and would remain in that range through fiscal year 2010. CBO expects that some of the additional costs incurred by attorneys would most likely be passed on to their clients.

Notice and Disclosure Requirements. The act would require certain notices to be disclosed as part of the bankruptcy process. Section 203 would require a creditor with an unsecured consumer debt seeking a reaffirmation agreement with a debtor to provide certain disclosures. The agreement reaffirms the debt discharged in bankruptcy between a holder of a claim and the debtor. Those disclosures must be made clearly and conspicuously in writing and include certain advisories and explanations. The required disclosures could be incorporated into existing standard reaffirmation agreements. Section 221 would require preparers of bankruptcy petitions who are not attorneys to give debtors written notice explaining that the preparer may not provide legal advice. Section 228 would require a debt-relief agency providing bankruptcy assistance to give certain written notices to those assisted and to execute written contracts. The act also would require such agencies also to supply certain advisories and explanations regarding the bankruptcy process. Most attorneys and debt-relief counselors currently provide similar information, and CBO estimates that the direct costs of complying with those mandates would be small.

S. 256 also would require credit lenders to provide additional disclosures to consumers. It would require credit and charge-card companies to include certain disclosures in billing statements with respect to various open-end credit plans regarding the disadvantages of making only the minimum payment. Other disclosures would be required to be included in application and solicitation materials involving introductory rate offers, Internet-based credit card solicitations, credit extensions secured by a dwelling, and for late payment deadlines and penalties. Based on information from credit lenders, CBO estimates that the incremental costs of complying with the additional disclosure requirements would not be substantial.

Prohibition on Consumer Reporting Agencies. Section 332 would give Federal bankruptcy judges the authority to prohibit consumer reporting agencies from issuing a report containing any information relating certain involuntary bankruptcy petitions the court has dismissed. In the event that the court uses such authority, the duty to comply with the prohibition would be considered a private-sector mandate under UMRA. According to industry representatives, the current practice of consumer reporting agencies is to not report any information when a court dismisses an involuntary bankruptcy petition. Therefore, CBO estimates that the cost of complying with such a mandate would be minimal if any.

Requirement for Closing Credit Accounts. In addition, S. 256 would prohibit termination of a credit account before its expiration date because the consumer has not incurred finance charges. According to industry representatives, credit and charge-card companies do not close accounts based solely on the fact that a consumer has not incurred any finance charges. Thus, CBO expects there would be no direct cost to comply with this prohibition.

Other Impacts on the Private Sector

S. 256 also contains many provisions that would benefit creditors. Most significant for creditors are provisions that are expected to shift some debtors from chapter 7 to chapter 13 bankruptcy proceedings and provisions that would expand the types of debts that would be nondischargeable. By expanding the types of debts that are nondischargeable, some creditors would continue to receive payments on debts that would be discharged under current law. Means-testing in the bankruptcy system would likely result in more individuals being required to seek relief under chapter 13 rather than chapter 7. Because chapter 13 requires debtors to develop a plan to repay creditors over a specified period, the total pool of funds available for distribution for creditors would likely increase. As long as the likelihood of repayment by debtors and the pool of funds increases by an amount greater than the cost to creditors of administering the new bankruptcy code, creditors would be made better off under the act.

PREVIOUS CBO ESTIMATE

On February 28, 2005, CBO transmitted a cost estimate for S. 256 as ordered reported by the Senate Committee on the Judiciary on February 17, 2005. The House Committee on the Judiciary approved the same version of S. 256 as passed by the Senate on March 10, 2005. The Senate-passed version of the legislation and the version ordered reported by the Senate Judiciary Committee have different provisions regarding the distribution of bankruptcy filing fees. Our cost estimates reflect those differences.

The private-sector mandates and cost estimates in the two versions of S. 256 are identical, except for the mandate in section 332 of the House Judiciary version. That mandate, prohibiting consumer reporting agencies from issuing a report containing any information relating to certain involuntary bankruptcy petitions the court has dismissed, was not in the previous version. CBO estimates that the aggregate cost of mandates in each version of S. 256 would exceed UMRA's annual threshold for private-sector mandates.

ESTIMATE PREPARED BY:

Federal Spending: Gregory Waring (226-2860)

Federal Revenues: Annabelle Bartsch (226-2720)

Impact on State, Local, and Tribal Governments: Melissa Merrell (225-3220)

Impact on the Private Sector: Paige Piper/Bach (226-2940)

ESTIMATE APPROVED BY:

Peter H. Fontaine

Deputy Assistant Director for Budget Analysis

PERFORMANCE GOALS AND OBJECTIVES

The Committee states that pursuant to clause 3(c)(4) of Rule XIII of the Rules of the House of Representatives, S. 256 is intended to improve the bankruptcy system by deterring abuse, setting enhanced standards for bankruptcy professionals, and streamlining case administration. It authorizes the appointment of 28 temporary bankruptcy judgeships to address the 59 percent increase in the caseload of bankruptcy judges since 1992, when additional bankruptcy judgeships were last authorized.

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of Rule XIII of the Rules of the House of Representatives, the Committee finds the authority for this legislation in Article I, Section 8, Clauses 3 and 4 of the Constitution.

SECTION-BY-SECTION ANALYSIS AND DISCUSSION

TITLE I. NEEDS-BASED BANKRUPTCY

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:

With respect to secured debts, Section 102(a)(2)(C) of the Act specifies that the debtor's average monthly payments on account of secured debts is calculated as the sum of the following divided by 60: (1) all amounts scheduled as contractually due to secured creditors for each month of the 60-month period following filing of the case; and (2) any additional payments necessary, in filing a plan under chapter 13, to maintain possession of the debtor's primary residence, motor vehicle or other property necessary for the support of the debtor and the debtor's dependents, that serves as collateral for secured debts.

With respect to priority claims, section 102(a)(2)(C) of the Act specifies that the debtor's expenses for payment of such claims (including child support and alimony claims) is calculated as the total of such debts divided by 60.

The provision permits a debtor, if applicable, to deduct from current monthly income the continuation of actual expenses paid by the debtor that are reasonable and necessary for the care and support of an elderly, chronically ill, or disabled household member or member of the debtor's immediate family (providing such individual is unable to pay for these expenses).

Under section 102, a debtor may also deduct the actual expenses for each dependent child of a debtor to attend a private or public elementary or secondary school up to $1,500 per child if the debtor: (1) documents such expenses, and (2) provides a detailed explanation of why such expenses are reasonable and necessary. In addition, the debtor must explain why such expenses are not already accounted for under any of the Internal Revenue Service National and Local Standards, and Other Expenses categories.

Other expenses that a debtor may claim include additional housing and utilities allowances based on the debtor's actual home energy expenses if the debtor documents such expenses and demonstrates that they are reasonable and necessary.

While the Act replaces the current law's presumption in favor of granting relief requested by a chapter 7 debtor with a presumption of abuse (if applicable under the income and expense analysis previously described), it does provide that this presumption may be rebutted under certain circumstances. Section 102(a)(2)(C) of the Act amends Bankruptcy Code section 707(b) to provide that the presumption of abuse may be rebutted only if: (1) the debtor demonstrates special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative; and (2) the additional expenses or adjustments cause the product of the debtor's current monthly income (reduced by the specified expenses) when multiplied by 60 to be less than the lesser of 25 percent of the debtor's nonpriority unsecured claims, or $6,000 (whichever is greater); or $10,000. In addition, the debtor must itemize and document each additional expense or income adjustment as well as provide a detailed explanation of the special circumstances that make such expense or adjustment necessary and reasonable. Further, the debtor must attest under oath to the accuracy of any information provided to demonstrate that such additional expense or adjustment to income is required.

To implement these needs-based reforms, the Act requires the debtor to file, as part of the schedules of current income and current expenditures, a statement of current monthly income. This statement must show: (1) the calculations that determine whether a presumption of abuse arises under section 707(b) (as amended), and (2) how each amount is calculated.

An exception to the needs-based test applies with respect to a debtor who is a disabled veteran whose indebtedness occurred primarily during a period when the individual was on active duty (as defined in 10 U.S.C. Sec. 101(d)(1)) or performing a homeland defense activity (as defined in 32 U.S.C. 901(1)).

In a case where the presumption of abuse does not apply or has been rebutted, section 102(a)(2)(C) of the Act amends Bankruptcy Code section 707(b) to require a court to consider whether: (1) the debtor filed the chapter 7 case in bad faith; or (2) the totality of the circumstances of the debtor's financial situation demonstrates abuse, including whether the debtor wants to reject a personal services contract and the debtor's financial need for such rejection.

Under section 102(a)(2)(C) of the Act, a court may on its own initiative or on motion of a party in interest in accordance with rule 9011 of the Federal Rules of Bankruptcy Procedure, order a debtor's attorney to reimburse the trustee for all reasonable costs incurred in prosecuting a section 707(b) motion if: (1) a trustee files such motion; (2) the motion is granted; and (3) the court finds that the action of the debtor's attorney in filing the case under chapter 7 violated rule 9011. If the court determines that the debtor's attorney violated rule 9011, it may on its own initiative or on motion of a party in interest in accordance with such rule, order the assessment of an appropriate civil penalty against debtor's counsel and the payment of such penalty to the trustee, United States trustee, or bankruptcy administrator. This provision clarifies that a motion for costs or the imposition of a civil penalty must be made by a party in interest or by the court itself in accordance with rule 9011.

Section 102(a)(2)(C) of the Act provides that the signature of an attorney on a petition, pleading or written motion shall constitute a certification that the attorney has: (1) performed a reasonable investigation into the circumstances that gave rise to such document; and (2) determined that such document is well-grounded in fact and warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law and does not constitute an abuse under section 707(b)(1). In addition, such attorney's signature on the petition constitutes a certification that the attorney has no knowledge after an inquiry that the information in the schedules filed with the petition is incorrect.

Section 102(a)(2)(C) of the Act amends section 707(b) of the Bankruptcy Code to permit a court on its own initiative or motion by a party in interest in accordance with rule 9011 of the Federal Rules of Bankruptcy Procedure to award a debtor reasonable costs (including reasonable attorneys' fees) in contesting a section 707(b) motion filed by a party in interest (other than a trustee, United States trustee or bankruptcy administrator) if the court: (1) does not grant the section 707(b) motion; and (2) finds that either the movant violated rule 9011, or the attorney (if any) who filed the motion did not comply with section 707(b)(4)(C) and such was made solely for the purpose of coercing a debtor into waiving a right guaranteed under the Bankruptcy Code to such debtor. An exception applies with respect to a movant that is a `small business' with a claim in an aggregate amount of less than $1,000. A small business, for purposes of this provision, is defined as an unincorporated business, partnership, corporation, association or organization that engages in commercial or business activities and employs less than 25 full-time employees. The number of employees of a wholly owned subsidiary includes the employees of the parent and any other subsidiary corporation of the parent. Section 102(a)(2)(C) of the Act clarifies that the motion for costs must be made by a party in interest or by the court. The use of the phraseology in this provision, `in accordance with rule 9011 of the Federal Rules of Bankruptcy Procedure,' is intended to indicate that the procedures for the motion of a party in interest or a court acting on its own initiative are the procedures outlined in rule 9011(c).

The Act includes two `safe harbors' with respect to its needs-based reforms. One safe harbor allows only a judge, United States trustee, or bankruptcy administrator to file a section 707(b) motion (based on the debtor's ability to repay, bad faith, or the totality of the circumstances) if the chapter 7 debtor's current monthly income (or in a joint case, the income of the debtor and the debtor's spouse) falls below the state median family income for a family of equal or lesser size (adjusted for larger sized families), or the state median family income for one earner in the case of a one-person household.

The Act's second safe harbor only pertains to a motion under section 707(b)(2), that is, a motion to dismiss based on a debtor's ability to repay. It does not allow a judge, United States trustee, bankruptcy administrator or party in interest to file such motion if the income of the debtor (including a veteran, as that term is defined in 38 U.S.C. Sec. 101) and the debtor's spouse is less than certain monetary thresholds. This provision does not consider the nonfiling spouse's income if the debtor and the debtor's spouse are separated under applicable nonbankruptcy law, or the debtor and the debtor's spouse are living separate and apart, other than for the purpose of evading section 707(b)(2). The debtor must file a statement under penalty of perjury specifying that he or she meets one of these criteria. In addition, the statement must disclose the aggregate (or best estimate) of the amount of any cash or money payments received from the debtor's spouse attributed to the debtor's current monthly income.

Section 102(b) of the Act amends section 101 of the Bankruptcy Code to define `current monthly income' as the average monthly income that the debtor receives (or in a joint case, the debtor and debtor's spouse receive) from all sources, without regard to whether it is taxable income, in a specified six-month period preceding the filing of the bankruptcy case. The Act specifies that the six-month period is determined as ending on the last day of the calendar month immediately preceding the filing of the bankruptcy case, if the debtor files the statement of current income required by Bankruptcy Code section 521. If the debtor does not file such schedule, the court determines the date on which current income is calculated.

`Current monthly income' includes any amount paid by any entity other than the debtor (or, in a joint case, the debtor and the debtor's spouse if not otherwise a dependent) on a regular basis for the household expenses of the debtor or the debtor's dependents (and, the debtor's spouse in a joint case, if not otherwise a dependent). It excludes Social Security Act benefits and payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes. In addition, the Act provides that current monthly income does not include payments to victims of international or domestic terrorism as defined in section 2331 of title 18 of the United States Code on account of their status as victims of such terrorism.

Section 102(c) of the Act amends section 704 of the Bankruptcy Code to require the United States trustee or bankruptcy administrator in a chapter 7 case where the debtor is an individual to: (1) review all materials filed by the debtor; and (2) file a statement with the court (within ten days following the meeting of creditors held pursuant to section 341 of the Bankruptcy Code) as to whether or not the debtor's case should be presumed to be an abuse under section 707(b). The court must provide a copy of such statement to all creditors within five days after its filing. Within 30 days of the filing of such statement, the United States trustee or bankruptcy administrator must file either: (1) a motion under section 707(b); or (2) a statement setting forth the reasons why such motion is not appropriate in any case where the debtor's filing should be presumed to be an abuse and the debtor's current monthly income exceeds certain monetary thresholds.

In a chapter 7 case where the presumption of abuse applies under section 707(b), section 102(d) of the Act amends Bankruptcy Code section 342 to require the clerk to provide written notice to all creditors within ten days after commencement of the case stating that the presumption of abuse applies in such case.

Section 102(e) of the Act provides that nothing in the Bankruptcy Code limits the ability of a creditor to give information to a judge (except for information communicated ex parte, unless otherwise permitted by applicable law), United States trustee, bankruptcy administrator, or trustee.

Section 102(f) of the Act adds a provision to Bankruptcy Code section 707 to permit the court to dismiss a chapter 7 case filed by a debtor who is an individual on motion by a victim of a crime of violence (as defined in section 16 of title 18 of the United States Code) or a drug trafficking crime (as defined in section 924(c)(2) of title 18 of the United States Code). The case may be dismissed if the debtor was convicted of such crime and dismissal is in the best interest of the victim, unless the debtor establishes by a preponderance of the evidence that the filing of the case is necessary to satisfy a claim for a domestic support obligation.

Section 102(g) of the Act amends section 1325(a) of the Bankruptcy Code to require the court, as a condition of confirming a chapter 13 plan, to find that the debtor's action in filing the case was in good faith.

Section 102(h) of the Act amends section 1325(b)(1) of the Bankruptcy Code to specify that the court must find, in confirming a chapter 13 plan to which there has been an objection, that the debtor's disposable income will be paid to unsecured creditors. It also amends section 1325(b)(2)'s definition of disposable income. As defined under this provision, the term means income received by the debtor (other than child support payments, foster care payments, or certain disability payments for a dependent child) less amounts reasonably necessary to be expended for: (1) the maintenance or support of the debtor or the debtor's dependent; (2) a domestic support obligation that first becomes due after the case is filed; (3) charitable contributions (as defined in Bankruptcy Code section 548(d)(3)) to a qualified religious or charitable entity or organization (as defined in Bankruptcy Code section 548(d)(4)) in an amount that does not exceed 15 percent of the debtor's gross income for the year in which the contributions are made; and (4) if the debtor is engaged in business, the payment of expenditures necessary for the continuation, preservation, and operation of the business. Section 1325(b)(3) provides that the amounts reasonably necessary to be expended under section 1325(b)(2) are determined in accordance with section 707(b)(2)(A) and (B) if the debtor's income exceeds certain monetary thresholds.

Section 102(i) of the Act amends Bankruptcy Code section 1329(a) to require the amounts paid under a confirmed chapter 13 plan to be reduced by the actual amount expended by the debtor to purchase health insurance for the debtor and the debtor's dependents (if those dependents do not otherwise have such insurance) if the debtor documents the cost of such insurance and demonstrates such expense is reasonable and necessary, and the amount is not otherwise allowed for purposes of determining disposable income under section 1325(b). If the debtor previously paid for health insurance, the debtor must demonstrate that the amount is not materially greater than the amount the debtor previously paid. If the debtor did not previously have such insurance, the amount may not be not materially larger than the reasonable cost that would be incurred by a debtor with similar characteristics. Upon request of any party in interest, the debtor must file proof that a health insurance policy was purchased.

Section 102(j) of the Act amends section 104 of the Bankruptcy Code to provide for the periodic adjustment of monetary amounts specified in sections 707(b) and 1325(b)(3) of the Bankruptcy Code, as amended by this Act.

Section 102(k) adds to section 101 of the Bankruptcy Code a definition of `median family income.'

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 five-day period beginning on the date the debtor made the request; and (3) is satisfactory to the court. This exemption terminates when the debtor meets the requirements for credit counseling participation, but not longer than 30 days after the case is filed, unless the court, for cause, extends this period up to an additional 15 days.

In addition, the mandatory credit counseling requirement does not apply to a debtor whom the court determines, after notice and a hearing, is unable to complete this requirement because of incapacity, disability, or active military duty in a military combat zone. Incapacity, under this provision, means the debtor is impaired by reason of mental illness or mental deficiency so that the debtor is incapable of realizing and making rational decisions with respect to his or her financial responsibilities. Disability, under this provision, means the debtor is so physically impaired as to be unable, after reasonable effort, to receive credit counseling whether by participating in person, or via telephone or Internet briefing.

Section 106(b) of the Act amends section 727(a) of the Bankruptcy Code to deny a discharge to a chapter 7 debtor who fails to complete a personal financial management instructional course. This provision, however, does not apply if the debtor resides in a district where the United States trustee or bankruptcy administrator has determined that the approved instructional courses in that district are not adequate. Such determination must be reviewed annually by the United States trustee or bankruptcy administrator. In addition, it does not apply to a debtor whom the court determines, after notice and a hearing, is unable to complete this requirement because of incapacity, disability, or active military duty in a military combat zone.

Section 106(c) of the Act amends section 1328 of the Bankruptcy Code to deny a discharge to a chapter 13 debtor who fails to complete a personal financial management instructional course. This requirement does not apply if the debtor resides in a district where the United States trustee or bankruptcy administrator has determined that the approved instructional courses in that district are not adequate. Such determination must be reviewed annually by the United States trustee or bankruptcy administrator. In addition, it does not apply to a debtor whom the court determines, after notice and a hearing, is unable to complete this requirement because of incapacity, disability, or active military duty in a military combat zone.

Section 106(d) of the Act amends section 521 of the Bankruptcy Code to require a debtor who is an individual to file with the court: (1) a certificate from an approved nonprofit budget and credit counseling agency describing the services it provided the debtor pursuant to section 109(h); and (2) a copy of the repayment plan, if any, that was developed by the agency pursuant to section 109(h).

Section 106(e) of the Act adds section 111 to the Bankruptcy Code requiring the clerk to maintain a publicly available list of approved: (1) credit counseling agencies that provide the services described in section 109(h) of the Bankruptcy Code; and (2) personal financial management instructional courses. Section 106(e) further provides that the United States trustee or bankruptcy administrator may only approve an agency or course provider under this provision pursuant to certain specified criteria. These include, for example, if a fee is charged for such services by the agency or course provider, the fee must be reasonable and such services must be provided without regard to ability to pay the fee. If such agency or provider course is approved, the approval may only be for a probationary period of up to six months. At the conclusion of the probationary period, the United States trustee or bankruptcy administrator may only approve such agency or instructional course for an additional one-year period and, thereafter for successive one-year periods, which has demonstrated during such period that it met the standards set forth in this provision and can satisfy such standards in the future.

Within 30 days after any final decision occurring after the expiration of the initial probationary period or after any subsequent period, an interested person may seek judicial review of such decision in the appropriate United States district court. In addition, the district court, at any time, may investigate the qualifications of a credit counseling agency and request the production of documents to ensure the agency's integrity and effectiveness. The district court may remove a credit counseling agency that does not meet the specified qualifications from the approved list. The United States trustee or bankruptcy administrator must notify the clerk that a credit counseling agency or instructional course is no longer approved and the clerk must remove such entity from the approved list.

Section 106(e) prohibits a credit counseling agency from providing information to a credit reporting agency as to whether an individual debtor has received or sought personal financial management instruction. A credit counseling agency that willfully or negligently fails to comply with any requirement under the Bankruptcy Code with respect to a debtor shall be liable to the debtor for damages in an amount equal to: (1) actual damages sustained by the debtor as a result of the violation; and (2) any court costs or reasonable attorneys' fees incurred in an action to recover such damages.

Section 106(f) of the Act amends section 362 of the Bankruptcy Code to provide that if a chapter 7, 11, or 13 case is dismissed due to the creation of a debt repayment plan, the presumption that a case was not filed in good faith under section 362(c)(3) shall not apply to any subsequent bankruptcy case commenced by the debtor. It also provides that the court, on request of a party in interest, must issue an order under section 362(c) confirming that the automatic stay has terminated.

TITLE II. ENHANCED CONSUMER PROTECTION

Subtitle A. Penalties for Abusive Creditor Practices

Notwithstanding any other provision of the Bankruptcy Code, section 203(a) permits a creditor to accept payments from a debtor: (1) before and after the filing of a reaffirmation agreement with the court; or (2) pursuant to a reaffirmation agreement that the creditor believes in good faith to be effective. It further provides that the requirements specified in subsections (c)(2) and (k) of section 524 are satisfied if the disclosures required by these provisions are given in good faith.

Where the amount of the scheduled payments due on the reaffirmed debt (as disclosed in the debtor's statement) exceeds the debtor's available income, it is presumed for 60 days from the date on which the reaffirmation agreement is filed with the court that the agreement presents an undue hardship. The court must review such presumption, which can be rebutted by the debtor by a written statement explaining the additional sources of funds that would enable the debtor to make the required payments on the reaffirmed debt. If the presumption is not rebutted to the satisfaction of the court, the court may disapprove the reaffirmation agreement. No reaffirmation agreement may be disapproved without notice and hearing to the debtor and creditor. The hearing must be concluded before the entry of the debtor's discharge. The requirements set forth in this paragraph do not apply to reaffirmation agreements if the creditor is a credit union.

Section 203(b) amends title 18 of the United States Code to require the Attorney General to designate a United States Attorney for each judicial district and to appoint a Federal Bureau of Investigation agent for each field office to have primary law enforcement responsibilities for violations of sections 152 and 157 of title 18 with respect to abusive reaffirmation agreements and materially fraudulent statements in bankruptcy schedules that are intentionally false or misleading. In addition, section 203(b) provides that the designated United States Attorney has primary responsibility with respect to bankruptcy investigations under section 3057 of title 18. Section 203(b) further provides that the bankruptcy courts must establish procedures for referring any case in which a materially fraudulent bankruptcy schedule has been filed.

Subtitle B. Priority Child Support

With respect to chapter 12 cases, section 213(2) of the Act amends section 1208(c) of the Bankruptcy Code to provide that the failure of a debtor to pay any domestic support obligation that first becomes payable postpetition is cause for conversion or dismissal of the case. Section 213(3) amends Bankruptcy Code section 1222(a) to permit a chapter 12 debtor to propose a plan paying less than full payment of all amounts owed for a claim entitled to priority under Bankruptcy Code section 507(a)(1)(B) if all of the debtor's projected disposable income for a five-year period is applied to make payments under the plan. Section 213(4) of the Act amends Bankruptcy Code section 1222(b) to permit a chapter 12 debtor to propose a plan that pays postpetition interest on claims that are nondischargeable under Section 1228(a), but only to the extent that the debtor has disposable income available to pay such interest after payment of all allowed claims in full. Section 213(5) amends Bankruptcy Code section 1225(a) to provide that if a chapter 12 debtor is required by judicial or administrative order or statute to pay a domestic support obligation, then the debtor must pay such obligations pursuant to such order or statute that became payable postpetition as a condition of confirmation. Section 213(6) amends Bankruptcy Code section 1228(a) to condition the granting of a chapter 12 discharge upon the debtor's payment of certain postpetition domestic support obligations.

With respect to chapter 13 cases, section 213(7) of the Act amends Bankruptcy Code section 1307(c) to provide that the failure of a debtor to pay any domestic support obligation that first becomes payable postpetition is cause for conversion or dismissal of the debtor's case. Section 213(8) amends Bankruptcy Code section 1322(a) to permit a chapter 13 debtor to propose a plan paying less than the full amount of a claim entitled to priority under Bankruptcy Code section 507(a)(1)(B) if the plan provides that all of the debtor's projected disposable income over a five-year period will be applied to make payments under the plan. Section 213(9) amends Bankruptcy Code section 1322(b) to permit a chapter 13 debtor to propose a plan that pays postpetition interest on nondischargeable debts under section 1328(a), but only to the extent that the debtor has disposable income available to pay such interest after payment in full of all allowed claims. Section 213(10) amends Bankruptcy 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.

Section 219(a) requires a chapter 7 trustee to provide written notice to a domestic support claimant of the right to use the services of a state child support enforcement agency established under sections 464 and 466 of the Social Security Act in the state where the claimant resides for assistance in collecting child support during and after the bankruptcy case. The notice must include the agency's address and telephone number as well as explain the claimant's right to payment under the applicable chapter of the Bankruptcy Code. In addition, the trustee must provide written notice to the claimant and the agency of such claim and include the name, address, and telephone number of the child support claimant. At the time the debtor is granted a discharge, the trustee must notify both the child support claimant and the agency that the debtor was granted a discharge as well as supply them with the debtor's last known address, the last known name and address of the debtor's employer, and the name of each creditor holding a debt that is not discharged under section 523(a)(2), (4) or (14A) or holding a debt that was reaffirmed pursuant to Bankruptcy Code section 524. A claimant or agency may request the debtor's last known address from a creditor holding a debt that is not discharged under section 523(a)(2), (4) or (14A) or that is reaffirmed pursuant to section 524 of the Bankruptcy Code. A creditor who discloses such information, however, is not liable to the debtor or any other person by reason of such disclosure. Subsections (b), (c), and (d) of section 219 of the Act impose comparable requirements for chapter 11, 12, and 13 trustees.

Subtitle C. Other Consumer Protections

[Footnote] 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.

[Footnote 84: 504 U.S. 753 (1992).]

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, profit-sharing, stock bonus, or other plan established under Internal Revenue Code section 401, 403, 408, 408A, 414, 457, or 501(c) under a loan authorized under section 408(b)(1) of the Employee Retirement Income Security Act of 1974 or subject to Internal Revenue Code section 72(p) or with respect to a loan from certain thrift savings plans. Section 224(c) further provides that this exception to discharge may not be used to cause any loan made under a governmental plan under section 414(d) or a contract or account under section 403(b) of the Internal Revenue Code to be construed to be a claim or debt within the meaning of the Bankruptcy Code.

Section 224(d) amends Bankruptcy Code section 1322 to provide that a chapter 13 plan may not materially alter the terms of a loan described in section 362(b)(19) and that any amounts required to repay such loan shall not constitute `disposable income' under section 1325 of the Bankruptcy Code.

Section 224(e) amends section 522 of the Bankruptcy Code to impose a $1 million cap (periodically adjusted pursuant to section 104 of the Bankruptcy Code to reflect changes in the Consumer Price Index) on the value of the debtor's interest in an individual retirement account established under either section 408 or 408A of the Internal Revenue Code (other than a simplified employee pension account under section 408(k) or a simple retirement account under section 408(p) of the Internal Revenue Code) that a debtor may claim as exempt property. This limit applies without regard to amounts attributable to rollover contributions made pursuant to section 402(c), 402(e)(6), 403(a)(4), 403(a)(5), or 403(b)(8) of the Internal Revenue Code and earnings thereon. The cap may be increased if required in the interests of justice.

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.

In addition, section 227 imposes penalties for the violation of section 526, 527 or 528 of the Bankruptcy Code. First, any contract between a debt relief agency and an assisted person that does not comply with these provisions is void and may not be enforced by any state or Federal court or by any person, except an assisted person. Second, a debt relief agency is liable to an assisted person, under certain circumstances, for any fees or charges paid by such person to the agency, actual damages, and reasonable attorneys' fees and costs. The chief law enforcement officer of a state who has reason to believe that a person has violated or is violating section 526 may seek to have such violation enjoined and recover actual damages. Third, section 227 provides that the United States district court has concurrent jurisdiction of certain actions under section 526. Fourth, section 227 provides that sections 526, 527 and 528 preempt inconsistent state law. In addition, it provides that these provisions do not limit or curtail the authority of a Federal court, a state, or a subdivision or instrumentality of a state, to determine and enforce qualifications for the practice of law before the Federal court or under the laws of that state.

Subsection (a) amends Bankruptcy Code section 363(b)(1) to provide that if a debtor, in connection with offering a product or service, discloses to an individual a policy prohibiting the transfer of personally identifiable information to persons unaffiliated with the debtor, and the policy is in effect at the time of the bankruptcy filing, then the trustee may not sell or lease such information unless either of the following conditions is satisfied: (1) the sale is consistent with such policy; or (2) the court, after appointment of a consumer privacy ombudsman (pursuant to section 332 of the Bankruptcy Code, as amended) and notice and hearing, the court 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.

TITLE III. DISCOURAGING BANKRUPTCY ABUSE

[Footnote] 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.

[Footnote 85: PUB. L. NO. 104-134, Sec. 804(b) (1996).]

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 one-year period; (2) the prior chapter 7, 11, or 13 case was dismissed within the preceding year for the debtor's failure to (a) file or amend without substantial excuse a document required under the Bankruptcy Code or court order, (b) provide adequate protection ordered by the court, or (c) perform the terms of a confirmed plan; or (3) there has been no substantial change in the debtor's financial or personal affairs since the dismissal of the prior case, or there is no reason to conclude that the pending case will conclude either with a discharge (if a chapter 7 case) or confirmation (if a chapter 11 or 13 case). In addition, section 302 provides that a case is presumptively deemed not to be filed in good faith as to any creditor who obtained relief from the automatic stay in the prior case or sought such relief in the prior case and such action was pending at the time of the prior case's dismissal. The presumption may be rebutted by clear and convincing evidence. A similar presumption applies if two or more bankruptcy cases were pending in the one-year preceding the filing of the pending case.

Section 303(b) amends Bankruptcy Code section 362(b) to except from the automatic stay an act to enforce any lien against or security interest in real property within two years following the entry of an order entered under section 362(d)(4). A debtor, in a subsequent case, may move for relief from such order based upon changed circumstances or for other good cause shown after notice and a hearing. Section 303(b) also provides that the automatic stay does not apply in a case where the debtor: (1) is ineligible to be a debtor in a bankruptcy case pursuant to section 109(g) of the Bankruptcy Code; or (2) filed the bankruptcy case in violation of an order issued in a prior bankruptcy case prohibiting the debtor from being a debtor in a subsequent bankruptcy case.

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.

Section 306(b) adds a new paragraph to section 1325(a) of the Bankruptcy Code specifying that Bankruptcy Code section 506 does not apply to a debt incurred within the two and one-half year period preceding the filing of the bankruptcy case if the debt is secured by a purchase money security interest in a motor vehicle acquired for the personal use of the debtor within 910 days preceding the filing of the petition. Where the collateral consists of any other type of property having value, section 306(b) provides that section 506 of the Bankruptcy Code does not apply if the debt was incurred during the one-year period preceding the filing of the bankruptcy case.

Section 306(c)(1) amends section 101 of the Bankruptcy Code to define the term `debtor's principal residence' as a residential structure (including incidental property) without regard to whether or not such structure is attached to real property. The term includes an individual condominium or cooperative unit as well as a mobile or manufactured home, or a trailer.

Section 306(c)(2) amends section 101 of the Bankruptcy Code to define the term `incidental property' as property commonly conveyed with a principal residence in the area where the real property is located. The term includes all easements, rights, appurtenances, fixtures, rents, royalties, mineral rights, oil or gas rights or profits, water rights, escrow funds, and insurance proceeds. Further, the term encompasses all replacements and additions.

Section 309(b) amends section 365 of the Bankruptcy Code to provide that if a lease of personal property is rejected or not assumed by the trustee in a timely manner, such property is no longer property of the estate and the automatic stay under Bankruptcy Code section 362 with respect to such property is terminated. With regard to a chapter 7 case in which the debtor is an individual, the debtor may notify the creditor in writing of his or her desire to assume the lease. Upon being so notified, the creditor may, at its option, inform the debtor that it is willing to have the lease assumed and condition such assumption on cure of any outstanding default on terms set by the contract. If within 30 days after such notice the debtor gives written notice to the lessor that the lease is assumed, the debtor (not the bankruptcy estate) assumes the liability under the lease. Section 309(b) provides that the automatic stay of section 362 and the discharge injunction of section 524 are not violated if the creditor notifies the debtor and negotiates a cure under section 365(p)(2) (as amended). In a chapter 11 or 13 case where the debtor is an individual lessee with respect to a personal property lease and the lease is not assumed in the confirmed plan, the lease is deemed rejected as of the conclusion of the confirmation hearing. If the lease is rejected, the automatic stay under section 362 as well as the chapter 13 codebtor stay under section 1301 are automatically terminated with respect to such property.

Section 309(c)(1) amends Bankruptcy Code section 1325(a)(5)(B) to require that periodic payments pursuant to a chapter 13 plan with respect to a secured claim be made in equal monthly installments. Where the claim is secured by personal property, the amount of such payments shall not be less than the amount sufficient to provide adequate protection to the holder of such claim. Section 309(c)(2) amends section 1326(a) of the Bankruptcy Code to require a chapter 13 debtor to commence making payments within 30 days after the filing of the plan or the order for relief, whichever is earlier. The amount of such payment must be the amount proposed in the plan, scheduled in a personal property lease for that portion of the obligation that becomes due postpetition (which amount shall reduce the payment required to be made to such lessor pursuant to the plan), and provides adequate protection directly to a creditor holding an allowed claim secured by personal property to the extent the claim is attributable to the purchase of such property (which amount shall reduce the payment required to be made to such secured creditor pursuant to the plan). Payments made 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.

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 nonbankruptcy law allows a default to be cured after a judgment has been obtained. Where nonbankruptcy law applicable in the jurisdiction does not permit a tenant to cure a monetary default after the judgment for possession has been obtained, the automatic stay of section 362(a)(3) does not operate to limit action by a rental housing provider to proceed with, or a marshal, sheriff, or similar local officer to execute, the judgment for possession. Where the debtor claims that applicable law permits a tenant to cure after the judgment for possession has been obtained, the automatic stay operates only where the debtor files a certification with the bankruptcy petition asserting that applicable law permits such action and that the debtor or an adult dependent of the debtor has paid to the court all rent that will come due during the 30 days following the filing of the petition. If, within thirty days following the filing of the petition, the debtor or an adult dependent of the debtor certifies that the entire monetary default that gave rise to the judgment for possession has been cured, the automatic stay remains in effect. If a lessor has filed or wishes to file an eviction action based on the use of illegal controlled substances or property endangerment, the section allows the lessor in certain cases to file a certification of such circumstance with the court and obtain an exception to the stay.

For both the judgment based on monetary default and the controlled substance or endangerment exceptions, the section provides an opportunity for challenge by either the lessor or the tenant to certifications filed by the other party and a timely hearing for the court to resolve any disputed facts and rule on the factual or legal sufficiency of the certifications. Where the court finds for the lessor, the clerk shall immediately serve upon the parties a copy of the court's order confirming that an exception to the automatic stay is applicable. Where the court finds for the tenant, the stay shall remain in effect. It is the intent of this section that the clerk's certified copy of the docket or order shall be sufficient evidence that the exception under paragraph 22 or paragraph 23 is applicable for a marshal, sheriff, or similar local officer to proceed immediately to execute the judgment for possession if applicable law otherwise permits such action, or for an eviction action for use of illegal controlled substances or property endangerment to proceed. This section does not provide any new right to either landlords or tenants relating to evictions or defenses to eviction under otherwise applicable law.

Section 311 also excepts from the automatic stay a transfer that is not avoidable under Bankruptcy Code section 544 and that is not avoidable under Bankruptcy Code section 549. This amendment responds to a 1997 Ninth Circuit case in which two purchase money lenders (without knowledge that the debtor had recently filed an undisclosed chapter 11 case that was later converted to chapter 7), funded the debtor's acquisition of an apartment complex and recorded their purchase-money deed of trust immediately following recordation of the deed to the debtors. 86

[Footnote]

[Footnote 86: Thompson 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).]

In addition, section 315(a) specifies that an entity may file a notice with the court stating an address to be used generally by all bankruptcy courts for chapter 7 and 13 cases, or by particular bankruptcy courts, as specified by such entity. This address must be used by the court to supply notice in such cases within 30 days following the filing of such notice where the entity is a creditor. Notice given other than as provided in section 342 is not effective until it has been brought to the creditor's attention. If the creditor has designated a person or organizational subdivision to be responsible for receiving notices concerning bankruptcy cases and has established reasonable procedures so that these notices will be delivered to such person or subdivision, a notice will not be considered to have been brought to the attention of such creditor until it has been received by such person or subdivision. This provision also prohibits the imposition of any monetary penalty for violation of the automatic stay or for the failure to comply with the Bankruptcy Code sections 542 and 543 unless the creditor has received effective notice under section 342.

Section 315(b) amends section 521 to specify additional duties of a debtor. This provision requires the debtor to file a certificate executed by the debtor's attorney or bankruptcy petition preparer stating that the attorney or preparer supplied the debtor with the notice required under Bankruptcy Code section 342(b). If the debtor is not represented by counsel and did not use the services of a bankruptcy petition preparer, then the debtor must sign a certificate stating that he or she obtained and read such notice. In addition, the debtor must file: (1) copies of all payment advices or other evidence of payment, if any, from any employer within 60 days preceding the bankruptcy filing; (2) a statement of the amount of monthly net income, itemized to show how such amount is calculated; and (3) a statement disclosing any reasonably anticipated increase in income or expenditures in the 12-month period following the date of filing. Upon request of a creditor, section 315(b) of the Act requires the court to make the petition, schedules, and statement of financial affairs of an individual who is a chapter 7 or 13 debtor available to such creditor.

In addition, section 315(b) requires such debtor to provide the trustee not later than seven days before the date first set for the meeting of creditors a copy of his or her Federal income tax return or transcript (at the election of the debtor) for the latest taxable period ending prior to the filing of the bankruptcy case for which a tax return was filed. Should the debtor fail to comply with this requirement, the case must be dismissed unless the debtor demonstrates that such failure was due to circumstances beyond the debtor's control. Upon request, the debtor must provide a copy of the tax return or transcript to the requesting creditor at the time the debtor supplies the return or transcript to the trustee. A creditor in a chapter 13 case may, at any time, file a notice with the court requesting a copy of the plan. The court must supply a copy of the chapter 13 plan at a reasonable cost not later than 5 days after such request. In addition, the Act clarifies that this provision applies to Federal income tax returns.

During the pendency of a chapter 7, 11 or 13 case, the debtor must file with the court, at the request of the judge, United States trustee, or any party in interest, at the time filed with the taxing authority, copies of any Federal income tax returns (or transcripts thereof) that were not filed for the three-year period preceding the date on which the order for relief was entered. In addition, the debtor must file copies of any amendments to such tax returns.

In a chapter 13 case, the debtor must file a statement, under penalty of perjury, of income and expenditures in the preceding tax year and monthly income showing how the amounts were calculated. The statement must be filed on the date that is the later of 90 days after the close of the debtor's tax year or one year after the order for relief, unless a plan has been confirmed. Thereafter, the statement must be filed on or before the date that is 45 days before the anniversary date of the plan's confirmation, until the case is closed. The statement must disclose the amount and sources of the debtor's income, the identity of any person responsible with the debtor for the support of the debtor's dependents, the identity of any person who contributed to the debtor's household expenses, and the amount of any such contributions.

Section 315(b)(2) mandates that the tax returns, amendments thereto, and the statement of income and expenditures of an individual who is a chapter 7 or chapter 13 debtor be made available to the United States trustee or bankruptcy administrator, the trustee, and any party in interest for inspection and copying, subject to procedures established by the Director of the Administrative Office for United States Courts within 180 days from the date of 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.

Section 321(b) amends Bankruptcy Code section 1123 to require the chapter 11 plan of an individual debtor to provide for the payment to creditors of all or such portion of the debtor's earnings from personal services performed after commencement of the case or other future income that is necessary for the plan's execution.

Section 321(c) amends Bankruptcy Code section 1129(a) to include an additional requirement for confirmation in a chapter 11 case of an individual debtor upon objection to confirmation by a holder of an allowed unsecured claim. In such instance, the value of property to be distributed under the plan on account of such claim, as of the plan's effective date, must not be less than the amount of such claim; or be not less than the debtor's projected disposable income (as defined in section 1325(b)(2)) to be received during the five-year period beginning on the date that the first payment is due under the plan or during the plan's term, whichever is longer. Section 321(c) also amends section 1129(b)(2)(B)(ii) of the Bankruptcy Code to provide that an individual chapter 11 debtor may retain property included in the estate under section 1115 (as added by the Act), subject to section 1129(a)(14).

Section 321(d)(1) amends Bankruptcy Code section 1141(d) to provide that a discharge under chapter 11 does not discharge a debtor who is an individual from any debt excepted from discharge under Bankruptcy Code section 523. Section 321(d)(2) of the Act provides that in a chapter 11 individual debtor is not discharged until all plan payments have been made. The court may grant a hardship discharge if the value of property actually distributed under the plan--as of the plan's effective date--is not less than the amount that would have been available for distribution if the case was liquidated under chapter 7 on such date, and modification of the plan is not practicable.

Section 321(e) of the Act amends section 1127 to permit a plan in a chapter 11case of an individual debtor to be modified postconfirmation for the purpose of increasing or reducing the amount of payments, extending or reducing the time period for such payments, or altering the amount of distribution to a creditor whose claim is provided for by the plan. Such modification may be made at any time on request of the debtor, trustee, United States trustee, or holder of an allowed unsecured claim. The provision specifies that sections 1121 through 1129 apply to such modification. In addition, it provides that the modified plan shall become the confirmed plan only if: (1) there has been disclosure pursuant to section 1125 (as the court directs); (2) notice and a hearing; and (3) such modification is approved.

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:

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.

[Footnote]

[Footnote 87: Pub. L. No. 102-365, 106 Stat. 972 (1992).]

Section 328(b) amends section 1124(2)(A) of the Bankruptcy Code to clarify that a claim is not impaired if section 365(b)(2) (as amended by this Act) expressly does not require a default with respect to such claim to be cured. In addition, it provides that any claim or interest that arises from the failure to perform a nonmonetary obligation (other than a default arising from the failure to operate a nonresidential real property lease subject to section 365(b)(1)(A)), is impaired unless the holder of such claim or interest (other than the debtor or an insider) is compensated for any actual pecuniary loss incurred by the holder as a result of such failure.

[Footnote] In addition, the Fair Credit Reporting Act 89

[Footnote] permits credit reporting agencies to note the involuntary bankruptcy filing on a person's credit report for up to ten years. 90

[Footnote] Although the Fair Credit Reporting Act permits a consumer to have his or her credit report revised to reflect the fact, for instance, that the involuntary bankruptcy case was dismissed prior to the entry of an order for relief, the report may, nevertheless, still refer to the filing of the case. 91

[Footnote]

[Footnote 88: 11 U.S.C. Sec. 107(a).]

[Footnote 89: 15 U.S.C. Sec. 1681.]

[Footnote 90: 15 U.S.C. Sec. 1681c(a)(1).]

[Footnote 91: See, e.g., 15 U.S.C. Sec. 1681i (2000); Letter from Ronald G. Isaac, Attorney, Federal Trade Commission--Division of Financial Practices/Bureau of Consumer Protection, to Anonymous (Nov. 5, 1999), available at http://www.ftc.gov/os/statutes/frca/anon.htm.]

Unfortunately, tax protesters and other extremists, in addition to other forms of obstreperous litigation (such as filing false liens), are now resorting to filing fraudulent involuntary bankruptcy petitions against public officials and other innocent parties. In 2002, for example, one tax protester filed fraudulent involuntary bankruptcy petitions against 36 local public officials in Wisconsin, 92

[Footnote] some of whom did not find out about the petitions until `they attempted to use a credit card or execute some other financial transaction.' 93

[Footnote] These fraudulent involuntary petition filings were subsequently dismissed by the bankruptcy court, which found that they were filed in bad faith without legal basis and were commenced `for the sole purpose of harassment of the named public officials.' 94

[Footnote] Nevertheless, `[d]espite the fact that the [fraudulent involuntary bankruptcy] petitions are often dismissed,' as one State assistant attorney general observed, `the filings continue to cause financial problems for the victims.' 95

[Footnote] The devastating effect of a fraudulent involuntary bankruptcy filing on an innocent person's credit rating is illustrated by what occurred in Wisconsin and its aftermath. Although the bankruptcy court in dismissing these cases also directed all credit reporting agencies to expunge any record of these filings from the officials' credit reports, 96

[Footnote] the bankruptcy petition filings nevertheless `caused some officials' credit cards to be canceled, almost caused the sale of one supervisor's house to be stopped, and caused continuing credit problems for other officials.' 97

[Footnote]

[Footnote 92: See In re Kenealy, No. 02-26100-MDM (Bankr. E.D. Wis. May 21, 2002). Involuntary petitions `were filed against all but one of the County Board supervisors,' the county corporation counsel, county sheriff, clerk of courts, and county circuit judge. Jeff Cole, Paperwork Used for Revenge; Protester's Bogus Bankruptcy Petitions Temporarily Disrupt Officials' Credit, MILWAUKEE J. SENTINEL, June 6, 2002, at 1B. The protester also filed numerous liens in the amount of $15 million against these individuals as well. Jeff Cole, Man Charged with Filing False Documents; Town of Fredonia Protester's Case is 5th Brought by State, MILWAUKEE J. SENTINEL, May 21, 2002, at 1B.]

[Footnote 93: Jeff Cole, Paperwork Used for Revenge; Protester's Bogus Bankruptcy Petitions Temporarily Disrupt Officials' Credit, MILWAUKEE J. SENTINEL, June 6, 2002, at 1B.]

[Footnote 94: In re Kenealy, No. 02-26100-MDM (Bankr. E.D. Wis. May 21, 2002).]

[Footnote 95: Roy Korte, Terrorism: A Law Enforcement Perspective, Anti-Defamation League (2002), available at http://www.adl.org/learn/columns/roy5%5korte.asp.]

[Footnote 96: In re Kenealy, No. 02-26100-MDM (Bankr. E.D. Wis. May 21, 2002).]

[Footnote 97: Jeff Cole, `Paper Terrorist' Gets Five Years in Prison, MILWAUKEE J. SENTINEL, Jan. 18, 2003, at 1B.]

Section 332 responds to these concerns by permitting the court to seal and subsequently expunge all records pertaining to a fraudulent involuntary petition. Section 332(a) sets forth the short title of the section as the `Involuntary Bankruptcy Improvement Act of 2005.' Section 332(b) amends Bankruptcy Code section 303 to permit the court, upon motion of the debtor, to seal all court records pertaining to an involuntary bankruptcy petition if: (1) the petition is false or contains any materially false, fictitious, or fraudulent statement; (2) the debtor is an individual; and (3) the court dismisses the petition. The provision further permits the court, if the debtor is an individual, to prohibit any consumer reporting agency from making any consumer report that contains any information relating to such petition or to the case commenced by the filing of such petition. It further provides that upon the expiration of the statute of limitations described in 18 U.S.C. Sec. 3282 for a violation of 18 U.S.C. 152 (concerning crimes for concealment of assets, false oaths and claims, and bribery) and 18 U.S.C. 157 (bankruptcy fraud), the court may, upon motion of the debtor and for good cause, expunge any records pertaining to such petition. Section 332(c) amends section 157 of title 18 to make it a criminal offense to file a fraudulent involuntary bankruptcy petition. Section 332 is similar to legislation considered by the House in the 108th Congress. 98

[Footnote]

[Footnote 98: H.R. 1529, 108th Cong. (2003). The bill was ordered favorably reported without amendment by the House Judiciary Committee, H.R. REP. NO. 108-110 (2003), and passed by voice vote by the House. 149 CONG. REC. H5104 (daily ed. June 10, 2003). The principal difference between this legislation and section 332 of the Act is that the bill would have permitted the court to expunge the case upon dismissal of the fraudulent involuntary petition.]

TITLE IV. GENERAL AND SMALL BUSINESS BANKRUPTCY PROVISIONS

Subtitle A. General Business Bankruptcy Provisions

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.

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.

[Footnote] to $15,000.

[Footnote 99: A consumer debt is defined as a `debt incurred by an individual primarily for a personal, family, or household purpose.' 11 U.S.C. Sec. 101(8).]

Subtitle B. Small Business Bankruptcy Provisions

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. 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:

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.

In addition, the provision specifies an exception to the provision's mandatory requirement applies if: (1) the debtor or a party in interest objects and establishes that there is a reasonable likelihood that a plan will be confirmed within the time periods set forth in sections 1121(e) and 1129(e), or if these provisions are inapplicable, within a reasonable period of time; (2) the grounds for granting such relief include an act or omission of the debtor for which there exists a reasonable justification for such act or omission; and (3) such act or omission will be cured within a reasonable period of time.

The court must commence the hearing on a section 1112(b) motion within 30 days of its filing and decide the motion not later than 15 days after commencement of the hearing unless the movant expressly consents to a continuance for a specified period of time or compelling circumstances prevent the court from meeting these time limits. Section 442 provides that the term `cause' under section 1112(b), as amended by this provision, includes the following:

Section 442(b) creates an additional ground for the appointment of a chapter 11 trustee or examiner under section 1104(a). It provides that should the bankruptcy court determine cause exists to convert or dismiss a chapter 11 case, it may appoint a trustee or examiner if it is in the best interests of creditors and the bankruptcy estate.

Section 442(b) is designed to benefit creditors when a chapter 11 case would otherwise be dismissed or converted to a chapter 7 case pursuant to section 1112 of the Bankruptcy Code. Section 442(b) allows the court to appoint a chapter 11 trustee or examiner, as an alternative to dismissing or converting the case to chapter 7, if in the best interest of creditors and the bankruptcy estate. Section 442(b) is not intended to ease the standards for appointing chapter 11 trustees. Practice under Chapter X of the Bankruptcy Act of 1898 demonstrated that routine appointment of trustees deters the use of reorganization statutes and increases the likelihood that by the time a company resorts to bankruptcy relief, it must liquidate. It is therefore important for section 442(b) to be used only for cases that would otherwise be dismissed or converted to chapter 7, and not as an alternative method for attaining the appointment of a chapter 11 trustee.

TITLE V. MUNICIPAL BANKRUPTCY PROVISIONS

TITLE VI. BANKRUPTCY DATA

Section 601 provides that the amendments in this provision take effect 18 months after the date of enactment of this Act.

Section 602 provides that final reports by trustees in chapter 7, 12, and 13 cases include the following information: (1) the length of time the case was pending; (2) assets abandoned; (3) assets exempted; (4) receipts and disbursements of the estate; (5) administrative expenses, including those associated with section 707(b) of the Bankruptcy Code, and the actual costs of administering chapter 13 cases; (6) claims asserted; (7) claims allowed; and (8) distributions to claimants and claims discharged without payment. With regard to chapter 11 cases, section 602 provides that periodic reports include the following information regarding:

Section 603(b) amends section 586 of title 28 of the United States Code to require the United States trustee to submit reports as directed by the Attorney General, including the results of audits performed under section 603(a). In addition, it authorizes the United States trustee to contract with auditors to perform the audits specified in this provision. Further, it requires the report of each audit to be filed with the court and transmitted to the United States trustee. The report must specify material misstatements of income, expenditures or assets. In a case where a material misstatement has been reported, the clerk must provide notice of such misstatement to creditors and the United States trustee must report it to the United States Attorney, if appropriate, for possible criminal prosecution. If advisable, the United States trustee must also take appropriate action, such as revoking the debtor's discharge.

Section 603(c) amends section 521 of the Bankruptcy Code to make it a duty of the debtor to cooperate with an auditor. Section 603(d) amends section 727 of the Bankruptcy Code to add, as a ground for revocation of a chapter 7 discharge the debtor's failure to: (a) satisfactorily explain a material misstatement discovered as the result of an audit pursuant to this provision; or (b) make available for inspection all necessary documents or property belonging to the debtor that are requested in connection with such audit. Section 603(e) provides that the amendments made by this provision take effect 18 months after the Act's date of enactment.

Sec. 604. Sense of Congress Regarding Availability of Bankruptcy Data. Section 604 expresses a sense of the Congress that it is a national policy of the United States that all data collected by bankruptcy clerks in electronic form (to the extent such data relates to public records pursuant to section 107 of the Bankruptcy Code) should be made available to the public in a useable electronic form in bulk, subject to appropriate privacy concerns and safeguards as determined by the Judicial Conference of the United States. It also states that a uniform bankruptcy data system should be established that uses a single set of data definitions and forms to collect such data and that data for any particular bankruptcy case should be aggregated in electronic format.

TITLE VII. BANKRUPTCY TAX PROVISIONS

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.

[Footnote] which held that the tax court did not have jurisdiction to hear a case involving a postpetition year. To address this issue, section 709 of the Act amends section 362(a)(8) of the Bankruptcy Code to specify that the automatic stay is limited to an individual debtor's prepetition taxes (taxes incurred before entering bankruptcy). The amendment clarifies that the automatic stay does not apply to an individual debtor's postpetition taxes. In addition, section 709 provides that the stay applies to both prepetition and postpetition tax liabilities of a corporation so long as it is a liability that the bankruptcy court may determine.

[Footnote 100: 96 T.C. 895 (1991).]

Section 716(c) amends section 1307 of the Bankruptcy Code to provide that if a chapter 13 debtor fails to file a tax return as required by section 1308, the court must dismiss the case or convert it to one under chapter 7 (whichever is in the best interests of creditors and the estate) on request of a party in interest or the United States trustee after notice and a hearing.

Section 716(d) amends section 502(b)(9) of the Bankruptcy Code to provide that in a chapter 13 case, a governmental unit's tax claim based on a return filed under section 1308 shall be deemed to be timely filed if the claim is filed within 60 days from the date on which such return is filed. Section 716(e) states the sense of the Congress that the Judicial Conference of the United States should propose for adoption official rules with respect an objection by a governmental unit to confirmation of a chapter 13 plan when such claim pertains to a tax return filed pursuant to section 1308.

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.

[Footnote] Cases brought under chapter 15 are intended to be ancillary to cases brought in a debtor's home country, unless a full United States bankruptcy case is brought under another chapter. Even if a full case is brought, the court may decide under section 305 to stay or dismiss the United States case under the other chapter and limit the United States' role to an ancillary case under this chapter. 102

[Footnote] 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.

[Footnote 101: The text of the Model Law and the Report of UNCITRAL on its adoption are found at U.N. G.A., 52d Sess., Supp. No. 17 (A/52/17) (`Report'). That Report and the Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency, U.N. Gen. Ass., UNCITRAL 30th Sess. U.N. Doc. A/CN.9/442 (1997) (`Guide'), which was discussed in the negotiations leading to the Model Law and published by UNCITRAL as an aid to enacting countries, should be consulted for guidance as to the meaning and purpose of its provisions. The development of the provisions in the negotiations at UNCITRAL, in which the United States was an active participant, is recounted in the interim reports of the Working Group that are cited in the Report.]

[Footnote 102: See section 1529 and commentary.]

[Footnote] It largely tracks the language of the Model Law with appropriate United States references. However, it adds in subsection (3) an exclusion of certain natural persons who may be considered ordinary consumers. Although the consumer exclusion is not in the text of the Model Law, the discussions at UNCITRAL recognized that such exclusion would be necessary in countries like the United States where there are special provisions for consumer debtors in the insolvency laws. 104

[Footnote]

[Footnote 103: Guide at 16-19.]

[Footnote 104: See id. at 18, 60; 19 66.]

The reference to section 109(e) essentially defines `consumer debtors' for purposes of the exclusion by incorporating the debt limitations of that section, but not its requirement of regular income. The exclusion adds a requirement that the debtor or debtor couple be citizens or long-term legal residents of the United States. This ensures that residents of other countries will not be able to manipulate this exclusion to avoid recognition of foreign proceedings in their home countries or elsewhere.

The first exclusion in subsection (c) constitutes, for the United States, the exclusion provided in article 1, subsection (2), of the Model Law. 105

[Footnote] 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.

[Footnote 105: Id. at 17.]

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.

[Footnote]

[Footnote 106: See section 1505.]

The definition of `within the territorial jurisdiction of the United States' in subsection (7) is not taken from the Model Law. It has been added because the United States, like some other countries, asserts insolvency jurisdiction over property outside its territorial limits under appropriate circumstances. Thus a limiting phrase is useful where the Model Law and this chapter intend to refer only to property within the territory of the enacting state. In addition, a definition of `recognition' supplements the Model Law definitions and merely simplifies drafting of various other sections of chapter 15.

Two key definitions of `foreign proceeding' and `foreign representative,' are found in sections 101(23) and (24), which have been amended consistent with Model Law article 2. 107

[Footnote] The definitions of `establishment,' `foreign court,' `foreign main proceeding,' and `foreign non-main proceeding' have been taken from Model Law article 2, with only minor language variations necessary to comport with United States terminology. Additionally, defined terms have been placed in alphabetical order. 108

[Footnote] In order to be recognized as a foreign non-main proceeding, the debtor must at least have an establishment in that foreign country. 109

[Footnote]

[Footnote 107: Guide at 19-21, 67-68.]

[Footnote 108: See 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).]

[Footnote 109: See id. at 21, 75.]

[Footnote] 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.

[Footnote 110: See id. at 22, Art. 3.]

[Footnote] Therefore, since the competent court has been determined in title 28, this section instead provides that a petition for recognition commences a `case,' an approach that also invokes a number of other useful procedural provisions. In addition, a new subsection (P) to section 157 of title 28 makes cases under this chapter part of the core jurisdiction of bankruptcy courts if referred by the district courts, thus completing the designation of the competent court. Finally, the particular bankruptcy court that will rule on the petition is determined pursuant to a revised section 1410 of title 28 governing venue and transfer. 112

[Footnote]

[Footnote 111: See id. at 23, Art. 4.]

[Footnote 112: New section 1410 of title 28 provides as follows:]

A case under chapter 15 of title 11 may be commenced in the district court for the district----

(1) ╠in which the debtor has its principal place of business or principal assets in the United States;

(2) ╠if the debtor does not have a place of business or assets in the United States, in which there is pending against the debtor an action or proceeding or enforcement of judgment in a Federal or State court; or

(3) ╠in a case other than those specified in paragraph (1) or (2), in which venue will be consistent with the interests of justice and the convenience of the parties having regard to the relief sought by the foreign representative.

The title `ancillary' in the title of this section and in the title of this chapter emphasizes the United States policy in favor of a general rule that countries other than the home country of the debtor, where a main proceeding would be brought, should usually act through ancillary proceedings in aid of the main proceedings, in preference to a system of full bankruptcies (often called `secondary' proceedings) in each state where assets are found. Under the Model Law, notwithstanding the recognition of a foreign main proceeding, full bankruptcy cases are permitted in each country (see sections 1528 and 1529). In the United States, the court will have the power to suspend or dismiss such cases where appropriate under section 305.

[Footnote]

[Footnote 113: See Guide at 24.]

The related amendment to section 586(a)(3) of title 28 makes acting pursuant to authorization under this section an additional power of a trustee or debtor in possession. While the Model Law automatically authorizes an administrator to act abroad, this section requires all trustees and debtors to obtain court approval before acting abroad. That requirement is a change from the language of the Model Law, but one that is purely internal to United States law. 114

[Footnote] 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.

[Footnote 114: See id. at 24, Art. 5.]

This section also contemplates the designation of an examiner or other natural person to act for the estate in one or more foreign countries where appropriate. One instance might be a case in which the designated person had a special expertise relevant to that assignment. Another might be where the foreign court would be more comfortable with a designated person than with an entity like a debtor in possession. Either are to be recognized under the Model Law. 115

[Footnote]

[Footnote 115: See id. at 23-24, 82.]

[Footnote]

[Footnote 116: See id. at 25.]

[Footnote] Subsection (2) makes the authority for additional relief (beyond that permitted under sections 1519-1521, below) subject to the conditions for relief heretofore specified in United States law under section 304, which is repealed. This section is intended to permit the further development of international cooperation begun under section 304, but is not to be the basis for denying or limiting relief otherwise available under this chapter. The additional assistance is made conditional upon the court's consideration of the factors set forth in the current subsection 304(c) in a context of a reasonable balancing of interests following current case law. The references to `estate' in section 304 have been changed to refer to the debtor's property, because many foreign systems do not create an estate in insolvency proceedings of the sort recognized under this chapter. Although the case law construing section 304 makes it clear that comity is the central consideration, its physical placement as one of six factors in subsection (c) of section 304 is misleading, since those factors are essentially elements of the grounds for granting comity. Therefore, in subsection (2) of this section, comity is raised to the introductory language to make it clear that it is the central concept to be addressed. 118

[Footnote]

[Footnote 117: Id. at 26.]

[Footnote 118: Id.]

[Footnote] 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.

[Footnote 119: Id. at 26, 91.]

[Footnote]

[Footnote 120: See id. at 23, Art. 4, 79-83; 27 Art. 9, 93.]

Although a petition under current section 304 is the proper method for achieving deference by a United States court to a foreign insolvency proceeding under present law, some cases in state and Federal courts under current law have granted comity suspension or dismissal of cases involving foreign proceedings without requiring a section 304 petition or even referring to the requirements of that section. Even if the result is correct in a particular case, the procedure is undesirable, because there is room for abuse of comity. Parties would be free to avoid the requirements of this chapter and the expert scrutiny of the bankruptcy court by applying directly to a state or Federal court unfamiliar with the statutory requirements. Such an application could be made after denial of a petition under this chapter. This section concentrates the recognition and deference process in one United States court, ensures against abuse, and empowers a court that will be fully informed of the current status of all foreign proceedings involving the debtor. 121

[Footnote]

[Footnote 121: See id. at 27, Art. 9; 34-35, Art. 15 and 116-119; 39-40, Art. 18, 133-134; see also sections 1515(3), 1518.]

Subsection (d) has been added to ensure that a foreign representative cannot seek relief in courts in the United States after being denied recognition by the court under this chapter. Subsection (e) makes activities in the United States by a foreign representative subject to applicable United States law, just as 28 U.S.C. section 959 does for a domestic trustee in bankruptcy. 122

[Footnote] 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.

[Footnote 122: Id. at 27, 93.]

[Footnote] Article 11 does not distinguish between voluntary and involuntary proceedings, but seems to have implicitly assumed an involuntary proceeding. 124

[Footnote] 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.

[Footnote 123: See id. at 28, Art. 11.]

[Footnote 124: Id. at 38, 97-99.]

[Footnote] The effect of this section is to make the recognized foreign representative a party in interest in any pending or later commenced United States bankruptcy case. 126

[Footnote] 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.

[Footnote 125: Id. at 29, Art. 12.]

[Footnote 126: Id. at 29, 10-102.]

[Footnote] The law as to priority for foreign claims that fit within a class given priority treatment under section 507 (for example, foreign employees or spouses) is unsettled. This section permits the continued development of case law on that subject and its general principle of national treatment should be an important factor to be considered. At a minimum, under this section, foreign claims must receive the treatment given to general unsecured claims without priority, unless they are in a class of claims in which domestic creditors would also be subordinated. 128

[Footnote] The Model Law allows for an exception to the policy of nondiscrimination as to foreign revenue and other public law claims. 129

[Footnote] 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.

[Footnote 127: Id. at 30, 103.]

[Footnote 128: See id. at 30, 104.]

[Footnote 129: See id. at 31, 105.]

[Footnote] As `foreign creditor' is not a defined term, foreign addresses are used as the distinguishing factor. The Federal Rules of Bankruptcy Procedure (`Rules') should be amended to conform to the requirements of this section, including a special form for initial notice to such creditors. In particular, the Rules must provide additional time for such creditors to file proofs of claim where appropriate and require the court to make specific orders in that regard in proper circumstances. The notice must specify that secured claims must be asserted, because in many countries such claims are not affected by an insolvency proceeding and need not be filed. 131

[Footnote] If a foreign creditor has made an appropriate request for notice, it will receive notices in every instance where notices would be sent to other creditors who have made such requests. Subsection (d) replaces the reference to `a reasonable time period' in Model Law article 14(3)(a). 132

[Footnote] 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.

[Footnote 130: See Model Law, Art. 14; Guide at 31-32, 106-109.]

[Footnote 131: Guide at 33, 111.]

[Footnote 132: Id. at 31, Art. 14(3)(a).]

[Footnote] The Rules will require amendment to provide forms for some or all of the documents mentioned in this section, to make necessary additions to Rules 1000 and 2002 to facilitate appropriate notices of the hearing on the petition for recognition, and to require filing of lists of creditors and other interested persons who should receive notices. Throughout the Model Law, the question of notice procedure is left to the law of the enacting state. 134

[Footnote]

[Footnote 133: Id. at 33.]

[Footnote 134: See id. at 36, 121.]

[Footnote] 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. 136

[Footnote] `Registered office' is the term used in the Model Law to refer to the place of incorporation or the equivalent for an entity that is not a natural person. 137

[Footnote] 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.

[Footnote 135: Id. at 36]

[Footnote 136: Id. at 36, Art. 16(3).]

[Footnote 137: Id.]

[Footnote] The decision to grant recognition is not dependent upon any findings about the nature of the foreign proceedings of the sort previously mandated by section 304(c) of the Bankruptcy Code. The requirements of this section, which incorporates the definitions in section 1502 and sections 101(23) and (24), are all that must be fulfilled to attain recognition. Reciprocity was specifically suggested as a requirement for recognition on more than one occasion in the negotiations that resulted in the Model Law. It was rejected by overwhelming consensus each time. The United States was one of the leading countries opposing the inclusion of a reciprocity requirement. 139

[Footnote] In this regard, the Model Law conforms to section 304, which has no such requirement.

[Footnote 138: Id. at 37.]

[Footnote 139: Report of the Working Group on Insolvency Law on the Work of Its Twentieth Session (Vienna, 7-18 Oct. 1996), at 6, 16-20.]

The drafters of the Model Law understood that only a main proceeding or a non-main proceeding meeting the standards of section 1502 (that is, one brought where the debtor has an establishment) were entitled to recognition under this section. The Model Law has been slightly modified to make this point clear by referring to the section 1502 definition of main and non-main proceedings, as well as to the general definition of a foreign proceeding in section 101(23). A petition under section 1515 must show that proceeding is a main or a qualifying non-main proceeding in order to obtain recognition under this section.

Consistent with the position of various civil law representatives in the drafting of the Model Law, recognition creates a status with the effects set forth in section 1520, so those effects are not viewed as orders to be modified, as are orders granting relief under sections 1519 and 1521. Subsection (4) states the grounds for modifying or terminating recognition. On the other hand, the effects of recognition (found in section 1520 and including an automatic stay) are subject to modification under section 362(d), made applicable by section 1520(2), which permits relief from the automatic stay of section 1520 for cause.

Paragraph 1(d) of section 17 of the Model Law has been omitted as an unnecessary requirement for United States purposes, because a petition submitted to the wrong court will be dismissed or transferred under other provisions of United States law. 140

[Footnote] 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. 141

[Footnote]

[Footnote 140: Guide at 37, Art. 17(1)(d).]

[Footnote 141: Id.]

[Footnote] 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.

[Footnote 142: Id. at 39-40, 133, 134.]

[Footnote] 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.

[Footnote 143: Id. at 40.]

[Footnote]

[Footnote 144: Id. at 42, Art. 20 1(a), (b).]

Subsections (a)(2) and (4) apply the Bankruptcy Code sections that impose the restrictions called for by subsection 1(c) of the Model Law. In both cases, the provisions are broader and more complete than those contemplated by the Model Law, but include all the restraints the Model Law provisions would impose. 145

[Footnote] 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.

[Footnote 145: Id. at 42, 45.]

By applying sections 361 and 362, subsection (a) makes applicable the United States exceptions and limitations to the restraints imposed on creditors, debtors, and other in a case under this title, as stated in article 20(2) of the Model Law. 146

[Footnote] It also introduces the concept of adequate protection provided in sections 362 and 363. These exceptions and limitations include those set forth in sections 362(b), (c) and (d). As a result, the court has the power to terminate the stay pursuant to section 362(d), for cause, including a failure of adequate protection. 147

[Footnote]

[Footnote 146: Id. at 42, Art. 20(2); 44, 148, 150.]

[Footnote 147: Id. at 42, Art. 20(3); 44-45, 151 152.]

Subsection (a)(2), by its reference to sections 363 and 552 adds to the powers of a foreign representative of a foreign main proceeding an automatic right to operate the debtor's business and exercise the power of a trustee under sections 363 and 542, unless the court orders otherwise. A foreign representative of a foreign main proceeding may need to continue a business operation to maintain value and granting that authority automatically will eliminate the risk of delay. If the court is uncomfortable about this authority in a particular situation, it can `order otherwise' as part of the order granting recognition.

Two special exceptions to the automatic stay are embodied in subsections (b) and (c). To preserve a claim in certain foreign countries, it may be necessary to commence an action. Subsection (b) permits the commencement of such an action, but would not allow for its further prosecution. Subsection (c) provides that there is no stay of the commencement of a full United States bankruptcy case. This essentially provides an escape hatch through which any entity, including the foreign representative, can flee into a full case. The full case, however, will remain subject to subchapters IV and V on cooperation and coordination of proceedings and to section 305 providing for stay or dismissal. Section 108 of the Bankruptcy Code provides the tolling protection intended by Model Law article 20(3), so no exception is necessary for claims that might be extinguished under United States law. 148

[Footnote]

[Footnote 148: Id.]

[Footnote] The exceptions in subsection (a)(7) relate to avoiding powers. The foreign representative's status as to such powers is governed by section 1523 below. The avoiding power in section 549 and the exceptions to that power are covered by section 1520(a)(2). The word `adequately' in the Model Law, articles 21(2) and 22(1), has been changed to `sufficiently' in sections 1521(b) and 1522(a) to avoid confusion with a very specialized legal term in United States bankruptcy, `adequate protection.' 150

[Footnote] 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. 151

[Footnote] 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.

[Footnote 149: Id. at 45-46, Art. 21.]

[Footnote 150: Id. at 46, Art. 21(2); 47, Art. 22(1).]

[Footnote 151: See id. at 46-47, 158, 160.]

[Footnote] It gives the bankruptcy court broad latitude to mold relief to meet specific circumstances, including appropriate responses if it is shown that the foreign proceeding is seriously and unjustifiably injuring United States creditors. For a response to a showing that the conditions necessary to recognition did not actually exist or have ceased to exist, see section 1517. Concerning the change of `adequately' in the Model Law to `sufficiently' in this section, see section 1521. Subsection (d) is new and simply makes clear that Bankruptcy Code section 1104(d) shall apply to the appointment of an examiner appointed in a case under chapter 15 and such examiner shall be subject to certain duties and bonding requirements based on those imposed on trustees and examiners under other chapters of this title.

[Footnote 152: Id. at 47.]

[Footnote] It confers standing on a recognized foreign representative to assert an avoidance action but only in a pending case under another chapter of this title. The Model Law is not clear about whether it would grant standing in a recognized foreign proceeding if no full case were pending. This limitation reflects concerns raised by the United States delegation during the UNCITRAL debates that a simple grant of standing to bring avoidance actions neglects to address very difficult choice of law and forum issues. This limited grant of standing in section 1523 does not create or establish any legal right of avoidance nor does it create or imply any legal rules with respect to the choice of applicable law as to the avoidance of any transfer of obligation. 154

[Footnote] The courts will determine the nature and extent of any such action and what national law may be applicable to such action.

[Footnote 153: Id. at 48-49.]

[Footnote 154: See id. at 49, 166.]

[Footnote] This section gives the foreign representative whose foreign proceeding has been recognized the right to intervene in United States cases, state or federal, where the debtor is a party. Recognition being an act under Federal bankruptcy law, it must take effect in state as well as Federal courts. This section does not require substituting the foreign representative for the debtor, although that result may be appropriate in some circumstances.

[Footnote 155: Id. at 49.]

[Footnote] 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.

[Footnote 156: Id. at 50.]

[Footnote] 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.

[Footnote 157: Id. at 51.]

[Footnote] United States bankruptcy courts already engage in most of the forms of cooperation described here, but they now have explicit statutory authorization for acts like the approval of protocols of the sort used in cases. 159

[Footnote]

[Footnote 158: Guide at 51, 53.]

[Footnote 159: See e.g., In re Maxwell Communication Corp., 93 F.2d 1036 (2d Cir. 1996).]

[Footnote] 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.

[Footnote 160: Guide at 54-55.]

The court may use section 305 of this title to dismiss, stay, or limit a case as necessary to promote cooperation and coordination in a cross-border case. In addition, although the jurisdictional limitation applies only 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.

[Footnote] This provision is consistent with United States policy to act ancillary to a foreign main proceeding whenever possible.

[Footnote 161: Id. at 55-56.]

[Footnote] 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.

[Footnote 162: Id. at 57.]

[Footnote] 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.

[Footnote 163: Id. at 58.]

[Footnote]

[Footnote 164: Id. at 59.]

[Footnote]

[Footnote 165: Id. at 51-52, 71.]

Section 802(c) amends section 157(b)(2) of title 28 to provide that proceedings under chapter 15 will be core proceedings while other amendments to title 28 provide that the United States trustee's standing extends to cases under chapter 15 and that the United States trustee's duties include acting in chapter 15 cases. Although the United States will continue to assert worldwide jurisdiction over property of a domestic or foreign debtor in a full bankruptcy case under chapters 7 and 13 of this title, subject to deference to foreign proceedings under chapter 15 and section 305, the situation is different in a case commenced under chapter 15. There the United States is acting solely in an ancillary position, so jurisdiction over property is limited to that stated in chapter 15.

Section 802(d) amends section 109 of the Bankruptcy Code to permit recognition of foreign proceedings involving foreign insurance companies and involving foreign banks which do not have a branch or agency in the United States (as defined in 12 U.S.C. 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

Subsection (b) amends the definition of `securities contract' expressly to encompass margin loans, to clarify the coverage of securities options and to clarify the coverage of repurchase and reverse repurchase transactions. The inclusion of `margin loans' in the definition is intended to encompass only those loans commonly known in the securities industry as `margin loans,' such as credit permitted in a margin account under the Federal Reserve Board's Regulation T (whether or not effected in that account) or arrangements where a financial intermediary--a stockbroker, financial institution, financial participant, or securities agency--extends credit in connection with the purchase, sale, carrying, or trading of securities. `Margin loans' do not include, however, other loans that happen to be secured by securities collateral. The reference in subsection (b) to a `guarantee by or to any securities clearing agency' is intended to cover other arrangements, such as novation, that have an effect similar to a guarantee. The reference to a `loan' of a security in the definition is intended to apply to loans of securities, whether or not for a `permitted purpose' under margin regulations. The reference to `repurchase and reverse repurchase transactions' is intended to eliminate any inquiry under the qualified financial contract provisions of the FDIA or FCUA as to whether a repurchase or reverse repurchase transaction is a purchase and 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, equity securities, asset-backed securities, corporate bonds and commercial paper) are included under the definition of `securities contract.' Subsection (b) also specifies that purchase, sale and repurchase obligations under a participation in a commercial mortgage loan do not constitute `securities contracts.' While a contract for the purchase, sale or repurchase of a participation may constitute a `securities contract,' the purchase, sale or repurchase obligation embedded in a participation agreement does not make that agreement a `securities contract.'

A number of terms used in the qualified financial contract provisions, but not defined therein, are intended to have the meanings set forth in the analogous provisions of the Bankruptcy Code or Federal Deposit Insurance Corporation Improvement Act (`FDICIA'), such as, for example, `securities clearing agency.' The term `person,' however, is not intended to be so interpreted. Instead, `person' is intended to have the meaning set forth in section 1 of title 1 of the United States Code.

Section 901(c) amends with respect the definition of `commodity contract' in section 11(e)(8)(D)(iii) of the FDIA and in section 207(c)(8)(D)(iii) of the FCUA. Section 901(d) amends section 11(e)(8)(D)(iv) of the FDIA and section 207(c)(8)(D)(iv) of the FCUA with respect to the definition of a `forward contract.'

Subsection (e) amends the definition of `repurchase agreement' in the FDIA and the FCUA to codify the substance of the FDIC's 1995 regulation defining repurchase agreement to include those on qualified foreign government securities. 166

[Footnote] The term `qualified foreign government securities' is defined to include those that are direct obligations of, or fully guaranteed by, central governments of members of the Organization for Economic Cooperation and Development (OECD), as determined by rule, of the appropriate Federal banking agency. Subsection (e) reflects developments in the repurchase agreement markets, which increasingly use foreign government securities as the underlying asset. The securities are limited to those issued by or guaranteed by full members of the OECD, as well as countries that have concluded special lending arrangements with the International Monetary Fund associated with the Fund's General Arrangements to Borrow.

[Footnote 166: See 12 C.F.R. Sec. 360.5.]

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 particular, an agreement for the sale and repurchase of a security would continue to be a securities contract as defined in the FDIA or FCUA, even if not a `repurchase agreement' as defined in the FDIA or FCUA. Similarly, an agreement for the sale and repurchase of a commodity, even though not a `repurchase agreement' as defined in the FDIA or FCUA, would continue to be a forward contract for purposes of the FDIA or FCUA.

Subsection (e), like subsection (b) for `securities contracts,' specifies that repurchase obligations under a participation in a commercial mortgage loan do not make the participation agreement a `repurchase agreement.' Such repurchase obligations embedded in participations in commercial loans (such as recourse obligations) do not constitute a `repurchase agreement.' A repurchase agreement involving the transfer of participations in commercial mortgage loans with a simultaneous agreement to repurchase the participation on demand or at a date certain one year or less after such transfer, however, would constitute a `repurchase agreement' as well as a `securities contract.'

Section 901(f) of the Act amends the definition of `swap agreement' to include an `interest rate swap, option, future, or forward agreement, including a rate floor, rate cap, rate collar, cross-currency rate swap, and basis swap; a spot, same day-tomorrow, tomorrow-next, forward, or other foreign exchange or precious metals agreement; a currency swap, option, future, or forward agreement; an equity index or equity swap, option, future, or forward agreement; a debt index or debt swap, option, future, or forward agreement; a total return, credit spread or credit swap, option, future, or forward agreement; a commodity index or commodity swap, option, future, or forward agreement; or a weather swap, weather derivative, or weather option.' As amended, the definition of `swap agreement' will update the statutory definition and achieve contractual netting across economically similar transactions that are the subject of recurring dealings in the swap agreements.

The definition of `swap agreement' originally was intended to provide sufficient flexibility to avoid the need to amend the definition as the nature and uses of swap transactions matured. To that end, the phrase `or any other similar agreement' was included in the definition. (The phrase `or any similar agreement' has been added to the definitions of `forward contract,' `commodity contract,' `repurchase agreement' and `securities contract' for the same reason.) To clarify this, subsection (f) expands the definition of `swap agreement' to include `any agreement or transaction that is similar to any other agreement or transaction referred to in [section 11(e)(8)(D)(vi) of the FDIA] and is of a type that has been, is presently, or in the future becomes, the subject of recurrent dealings in the swap markets . . . and that is a forward, swap, future, or option on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities or other debt instruments, quantitative measures associated with an occurrence, extent of an occurrence, or contingency associated with a financial, commercial, or economic consequence, or economic or financial indices or measures of economic or financial risk or value.'

The definition of `swap agreement,' however, should not be interpreted to permit parties to document non-swaps as swap transactions. Traditional commercial arrangements, such as supply agreements, or other non-financial market transactions, such as commercial, residential or consumer loans, cannot be treated as `swaps' under the FDIA, the FCUA, or the Bankruptcy Code simply because the parties purport to document or label the transactions as `swap agreements.' In addition, these definitions apply only for purposes of the FDIA, the FCUA, and the Bankruptcy Code. These definitions, and the characterization of a certain transaction as a `swap agreement,' are not intended to affect the characterization, definition, or treatment of any instruments under any other statute, regulation, or rule including, but not limited to, the statutes, regulations or rules enumerated in subsection (f). Similarly, Section 17 and a new paragraph of Section 11(e) of the FDIA provide that the definitions of `securities contract,' `repurchase agreement,' `forward contract,' and `commodity contract,' and the characterization of certain transactions as such a contract or agreement, are not intended to affect the characterization, definition, or treatment of any instruments under any other statute, regulation, or rule including, but not limited to, the statutes, regulations or rules enumerated in subsection (f).

The definition also includes any security agreement or arrangement, or other credit enhancement, related to a swap agreement, including any guarantee or reimbursement obligation related to a swap agreement. This ensures that any such agreement, arrangement or enhancement is itself deemed to be a swap agreement, and therefore eligible for treatment as such for purposes of termination, liquidation, acceleration, offset and netting under the FDIA, FCUA, and the Bankruptcy Code. Similar changes are made in the definitions of `forward contract,' `commodity contract,' `repurchase agreement' and `securities contract.'

The use of the term `forward' in the definition of `swap agreement' is not intended to refer only to transactions that fall within the definition of `forward contract.' Instead, a `forward' transaction could be a `swap agreement' even if not a `forward contract.'

Section 901(g) amends the definition of `transfer' in the FDIA and FCUA, which is a key term used in both, to ensure that it is broadly construed to encompass dispositions of property or interests in property. The definition tracks the Bankruptcy Code's definition of this term in Bankruptcy Code section 101.

Section 901(h) makes clarifying technical changes to conform the receivership and conservatorship provisions of the FDIA and the FCUA. It also clarifies that the FDIA and the FCUA expressly protect rights under security agreements, arrangements or other credit enhancements related to one or more qualified financial contracts (QFCs). An example of a security arrangement is a right of setoff, and examples of other credit enhancements are letters of credit, guarantees, reimbursement obligations and other similar agreements.

Section 901(i) of the Act clarifies that no provision of Federal or state law relating to the avoidance of preferential or fraudulent transfers (including the anti-preference provision of the National Bank Act) can be invoked to avoid a transfer made in connection with any QFC of an insured depository institution in conservatorship or receivership, absent actual fraudulent intent on the part of the transferee.

The new FDIA and FCUA provisions specify that when the FDIC and NCUAB transfer QFCs that are cleared on or subject to the rules of a particular clearing organization, the transfer will not require the clearing organization to accept the transferee as a member of the organization. This provision gives the FDIC and NCUAB flexibility in resolving QFCs cleared on or subject to the rules of a clearing organization, while preserving the ability of such organizations to enforce appropriate risk reducing membership requirements. The amendment does not require the clearing organization to accept for clearing any QFCs from the transferee, except on the terms and conditions applicable to other parties permitted to clear through that clearing organization. `Clearing organization' is defined to mean a `clearing organization' within the meaning of FDICIA (as amended both by the CFMA and by Section 906 of the Act).

The new FDIA and FCUA provisions also permit transfers to an eligible financial institution that is a non-U.S. person, or the branch or agency of a non-U.S. person or a U.S. financial institution that is not an FDIC-insured institution if, following the transfer, the contractual rights of the parties would be enforceable substantially to the same extent as under the FDIA and the FCUA. It is expected that neither the FDIC nor the NCUAB would transfer QFCs to such a financial institution if there were an impending change of law that would impair the enforceability of the parties' contractual rights.

Section 903 amends the notification requirements following a transfer of the QFCs of a failed depository institution to require the FDIC and NCUAB to notify any party to a transferred QFC of such transfer by 5:00 p.m. (Eastern Time) on the business day following the date of the appointment of the FDIC acting as receiver or following the date of such transfer by the FDIC or NCUAB acting as a conservator. This amendment is consistent with the policy statement on QFCs issued by the FDIC on December 12, 1989.

Section 903 amends the FDIA to clarify the relationship between the FDIA and FDICIA. There has been some uncertainty whether FDICIA permits counterparties to terminate or liquidate a QFC before the expiration of the time period provided by the FDIA during which the FDIC may repudiate or transfer a QFC in a conservatorship or receivership. Subsection (c) provides that a party may not terminate a QFC based solely on the appointment of the FDIC as receiver until 5:00 p.m. (Eastern Time) on the business day following the appointment of the receiver or after the person has received notice of a transfer under FDIA section 11(d)(9), or based solely on the appointment of the FDIC as conservator, notwithstanding the provisions of FDICIA. This provides the FDIC with an opportunity to undertake an orderly resolution of the insured depository institution. Section 903 makes a similar change to the FCUA.

Section 903 also prohibits the enforcement of rights of termination or liquidation that arise solely because of the insolvency of the institution or are based on the `financial condition' of the depository institution in receivership or conservatorship. For example, termination based on a cross-default provision in a QFC that is triggered upon a default under another contract could be rendered ineffective if such other default was caused by an acceleration of amounts due under that other contract, and such acceleration was based solely on the appointment of a conservator or receiver for that depository institution. Similarly, a provision in a QFC permitting termination of the QFC based solely on a downgraded credit rating of a party will not be enforceable in an FDIC or NCUAB receivership or conservatorship because the provision is based solely on the financial condition of the depository institution in default. However, any payment, delivery or other 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 or NCUAB to meet its obligation to provide notice to parties to transferred QFCs by taking steps reasonably calculated to provide notice to such parties by the required time. This is consistent with the existing policy statement on QFCs issued by the FDIC on December 12, 1989.

Finally, the amendment permits the FDIC or NCUAB to transfer QFCs of a failed depository institution to a bridge bank or a depository institution organized by the FDIC or NCUAB for which a 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 or NCUAB and the institution. This provision clarifies that such institutions are not to be considered financial institutions that are ineligible to receive such transfers under FDIA section 11(e)(9). This is consistent with the existing policy statement on QFCs issued by the FDIC on December 12, 1989.

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 and its branches and agencies be treated as separate financial institutions for purposes of the bilateral netting provisions of FDICIA).

Subsection (a)(3) amends the FDICIA to provide that, for purposes of FDICIA, two or more clearing organizations that enter into a netting contract are considered `members' of each other. This assures the enforceability of netting arrangements involving two or more clearing organizations and a member common to all such organizations, thus reducing systemic risk in the event of the failure of such a member. Under the current FDICIA provisions, the enforceability of such arrangements depends on a case-by-case determination that clearing organizations could be regarded as members of each other for purposes of FDICIA.

Section 906(a)(4) of the Act amends the FDICIA definition of netting contract and the general rules applicable to netting contracts. The current FDICIA provisions require that the netting agreement must be governed by the law of the United States or a State to receive the protections of FDICIA. Many of these agreements, however, particularly netting arrangements covering positions taken in foreign exchange dealings, are governed by the laws of a foreign country. This subsection broadens the definition of `netting contract' to include those agreements governed by foreign law, and preserves the FDICIA requirement that a netting contract not be invalid under, or precluded by, Federal law.

Section 906(b) and (c) establish two exceptions to FDICIA's protection of the enforceability of the provisions of netting contracts between financial institutions and among clearing organization members. First, the termination provisions of netting contracts will not be enforceable based solely on (i) the appointment of a conservator for an insolvent depository institution under the FDIA or FCUA, or (ii) the appointment of a receiver or liquidating agent for such institution under the FDIA or FCUA, if such receiver or liquidating agent transfers or repudiates QFCs in accordance with the FDIA or FCUA and gives notice of a transfer by 5:00 p.m. on the business day following such appointment. This change is made to confirm the FDIC's and FCUA's flexibility to transfer or repudiate the QFCs of an insolvent depository institution in accordance with the terms of the FDIA or FCUA. This modification also provides important legal certainty regarding the treatment of QFCs under the FDIA and FCUA, because the current relationship between these statutes and FDICIA is unclear.

The second exception provides that FDICIA does not override a stay order under SIPA with respect to foreclosure on securities (but not cash) collateral of a debtor (section 911 of the Act makes a conforming change to SIPA). There is also an exception relating to insolvent commodity brokers. Subsections (b) and (c) also clarify that a security agreement or other credit enhancement related to a netting contract is enforceable to the same extent as the underlying netting contract.

Section 906(d) of the Act adds a new section 407 to FDICIA. This new section provides that, notwithstanding any other law, QFCs with uninsured national banks, uninsured Federal branches or agencies, or Edge Act corporations, or uninsured State member banks that operate, or operate as, a multilateral clearing organization and that are placed in receivership or conservatorship will be treated in the same manner as if the contract were with an insured national bank or insured Federal branch for which a receiver or conservator was appointed. This provision will ensure that parties to QFCs with these institutions will have the same rights and obligations as parties entering into the same agreements with insured depository institutions. The new section also specifically limits the powers of a receiver or conservator for such an institution to those contained in 12 U.S.C. Sec. 1821(e)(8), (9), (10), and (11), which address QFCs.

While the amendment would apply the same rules that apply to insured institutions, the provision would not change the rules that apply to insured institutions. Nothing in this section would amend the International Banking Act, the Federal Deposit Insurance Act, the National Bank Act, or other statutory provisions with respect to receiverships of insured national banks or Federal branches.

In connection with the definition of `repurchase agreement,' the term `qualified foreign government securities' is defined to include securities that are direct obligations of, or fully guaranteed by, central governments of members of the Organization for Economic Cooperation and Development (OECD). This language reflects developments in the repurchase agreement markets, which increasingly use foreign government securities as the underlying asset. The securities are limited to those issued by or guaranteed by full members of the OECD, as well as countries that have concluded special lending arrangements with the International Monetary Fund associated with the Fund's General Arrangements to Borrow.

Subsection (a)(1) also amends the definition of `repurchase agreement' to include those on mortgage-related securities, mortgage loans and interests therein, and to include principal and 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 defined in the Bankruptcy Code and thus also would be subject to the Bankruptcy Code provisions pertaining to securities contracts, even if not a `repurchase agreement' as defined in the Bankruptcy Code. Similarly, an agreement for the sale and repurchase of a commodity, even though not a `repurchase agreement' as defined in the Bankruptcy Code, would continue to be a forward contract for purposes of the Bankruptcy Code and would be subject to the Bankruptcy Code provisions pertaining to forward contracts.

Subsection (a)(1) specifies that repurchase obligations under a participation in a commercial mortgage loan do not make the participation agreement a `repurchase agreement.' These repurchase obligations embedded in participations in commercial loans (such as recourse obligations) do not constitute a `repurchase agreement.' However, a repurchase agreement involving the transfer of participations in commercial mortgage loans with a simultaneous agreement to repurchase the participation on demand or at a date certain one year or less after such transfer would constitute a `repurchase agreement' (as well as a `securities contract').

The definition of `swap agreement' is amended to include an `interest rate swap, option, future, or forward agreement, including a rate floor, rate cap, rate collar, cross-currency rate swap, and basis swap; a spot, same day-tomorrow, tomorrow-next, forward, or other foreign exchange or precious metals agreement; a currency swap, option, future, or forward agreement; an equity index or equity swap, option, future, or forward agreement; a debt index or debt swap, option, future, or forward agreement; a total return, credit spread or credit swap, option, future, or forward agreement; a commodity index or commodity swap, option, future, or forward agreement; or a weather swap, weather derivative, or weather option.' As amended, the definition of `swap agreement' will update the statutory definition and achieve contractual netting across economically similar transactions.

The definition of `swap agreement' originally was intended to provide sufficient flexibility to avoid the need to amend the definition as the nature and uses of swap transactions matured. To that end, the phrase `or any other similar agreement' was included in the definition. (The phrase `or any similar agreement' has been added to the definitions of `forward contract,' `commodity contract,' `repurchase agreement,' and `securities contract' for the same reason.) To clarify this, subsection (a)(1) expands the definition of `swap agreement' to include `any agreement or transaction that is similar to any other agreement or transaction referred to in [Section 101(53B) of the Bankruptcy Code] and that is of a type that has been, is presently, or in the future becomes, the subject of recurrent dealings in the swap markets' and [that] is a forward, swap, future, or option on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities or other debt instruments, quantitative measures associated with an occurrence, extent of an occurrence, or contingency associated with a financial, commercial, or economic consequence, or economic or financial indices or measures of economic or financial risk or value.'

The definition of `swap agreement' in this subsection should not be interpreted to permit parties to document non-swaps as swap transactions. Traditional commercial arrangements, such as supply agreements, or other non-financial market transactions, such as commercial, residential or consumer loans, cannot be treated as `swaps' under the FDIA, the FCUA, or the Bankruptcy Code because the parties purport to document or label the transactions as `swap agreements.' These definitions, and the characterization of a certain transaction as a `swap agreement,' are not intended to affect the characterization, definition, or treatment of any instruments under any other statute, regulation, or rule including, but not limited to, the statutes, regulations or rules enumerated in subsection (a)(1)(C). Similarly, the definitions of `securities contract,' `repurchase agreement,' and `commodity contract' and the characterization of certain transactions as such a contract or agreement, are not intended to affect the characterization, definition, or treatment of any instrument under any other statute, regulation, or rule including, but not limited to, the statutes, regulations or rules enumerated in subsection (f).

The definition also includes any security agreement or arrangement, or other credit enhancement, related to a swap agreement, including any guarantee or reimbursement obligation related to a swap agreement. This ensures that any such agreement, arrangement or enhancement is itself deemed to be a swap agreement, and therefore eligible for treatment as such for purposes of termination, liquidation, acceleration, offset and netting under the Bankruptcy Code, the FDIA and the FCUA. Similar changes are made in the definitions of `forward contract,' `commodity contract,' `repurchase agreement,' and `securities contract.' An example of a security arrangement is a right of setoff; examples of other credit enhancements are letters of credit and other similar agreements. A security agreement or arrangement or guarantee or reimbursement obligation related to a `swap agreement,' `forward contract,' `commodity contract,' `repurchase agreement' or `securities contract' will be such an agreement or contract only to the extent of the damages in connection with such agreement measured in accordance with Section 562 of the Bankruptcy Code (added by the Act). This limitation does not affect, however, the other provisions of the Bankruptcy Code (including Section 362(b)) relating to security arrangements in connection with agreements or contracts that otherwise qualify as `swap agreements,' `forward contracts,' `commodity contracts,' `repurchase agreements' or `securities contracts.'

The use of the term `forward' in the definition of `swap agreement' is not intended to refer only to transactions that fall within the definition of `forward contract.' Instead, a `forward' transaction could be a `swap agreement' even if not a `forward contract.'

Subsections (a)(2) and (a)(3) amend the Bankruptcy Code definitions of `securities contract' and `commodity contract,' respectively, to conform them to the definitions in the FDIA.

Subsection (a)(2), like the amendments to the FDIA and the FCUA, amends the definition of `securities contract' expressly to encompass margin loans, to clarify the coverage of securities options and to clarify the coverage of repurchase and reverse repurchase transactions. The inclusion of `margin loans' in the definition is intended to encompass only those loans commonly known in the securities industry as `margin loans,' such as credit permitted in a margin account under the Federal Reserve Board's Regulation T (whether or not effected in that account) or arrangements where a financial intermediary--a stockbroker, financial institution, financial participant, or securities clearing agency--extends credit in connection with the purchase, sale, carrying, or trading of securities. `Margin loans' do not include, however, other loans that happen to be secured by securities collateral. The reference in subsection (b) to a `guarantee' by or to a `securities clearing agency' is intended to cover other arrangements, such as novation, that have an effect similar to a guarantee. The reference to a `loan' of a security in the definition is intended to apply to loans of securities, whether or not for a `permitted purpose' under margin regulations. The reference to `repurchase and reverse repurchase transactions' is intended to eliminate any inquiry under section 555 and related provisions as to whether a repurchase or reverse repurchase transaction is a purchase and sale transaction or a secured financing. Repurchase and reverse repurchase transactions meeting certain criteria are already covered under the definition of `repurchase agreement' in the Bankruptcy Code. Repurchase and reverse repurchase transactions on all securities (including, for example, equity securities, asset-backed securities, corporate bonds and commercial paper) are included under the definition of `securities contract.' A repurchase or reverse repurchase transaction which is a `securities contract' but not a `repurchase agreement' would thus be subject to the `counterparty limitations' contained in section 555 of the Bankruptcy Code (i.e., only stockbrokers, financial institutions, securities clearing agencies and financial participants can avail themselves of section 555 and related provisions).

Subsection (a)(2) also specifies that purchase, sale and repurchase obligations under a participation in a commercial mortgage loan do not constitute `securities contracts.' While a contract for the purchase, sale or repurchase of a participation may constitute a `securities contract,' the purchase, sale or repurchase obligation embedded in a participation agreement does not make that agreement a `securities contract.' Section 907(a) clarifies the reference to guarantee or reimbursement obligation.

Section 907(b) amends the Bankruptcy Code definitions of `financial institution' and `forward contract merchant.' The definition for `financial institution' includes Federal Reserve Banks and the receivers or conservators of insolvent depository institutions. With respect to securities contracts, the definition of `financial institution' expressly includes investment companies registered under the Investment Company Act of 1940.

Subsection (b) also adds a new definition of `financial participant' to limit the potential impact of insolvencies upon other major market participants. This definition will allow such market participants to close-out and net agreements with insolvent entities under sections 362(b)(6), 555, and 556 even if the creditor could not qualify as, for example, a commodity broker. Sections 362(b)(6), 555 and 556 preserve the limitations of the right to close-out and net such contracts, in most cases, to entities who qualify under the Bankruptcy Code's counterparty limitations. However, where the counterparty has transactions with a total gross dollar value of at least $1 billion in notional or actual principal amount outstanding on any day during the previous 15-month period, or has gross mark-to-market positions of at least $100 million (aggregated across counterparties) in one or more agreements or transactions on any day during the previous 15-month period, sections 362(b)(6), 555 and 556 and corresponding amendments would permit it to exercise netting and related rights irrespective of its inability otherwise to satisfy those counterparty limitations. This change will help prevent systemic impact upon the markets from a single failure, and is derived from threshold tests contained in Regulation EE promulgated by the Federal Reserve Board in implementing the netting provisions of the Federal Deposit Insurance Corporation Improvement Act. It is intended that the 15-month period be measured with reference to the 15 months preceding the filing of a petition by or against the debtor.

`Financial participant' is also defined to include `clearing organizations' within the meaning of FDICIA (as amended by the CFMA and Section 906 of the Act). This amendment, together with the inclusion of `financial participants' as eligible counterparties in connection with `commodity contracts,' `forward contracts' and `securities contracts' and the amendments made in other Sections of the Act to include `financial participants' as counterparties eligible for the protections in respect of `swap agreements' and `repurchase agreements,' take into account the CFMA and will allow clearing organizations to benefit from the protections of all of the provisions of the Bankruptcy Code relating to these contracts and agreements. This will further the goal of promoting the clearing of derivatives and other transactions as a way to reduce systemic risk. The definition of `financial participant' (as with the other provisions of the Bankruptcy Code relating to `securities contracts,' `forward contracts,' `commodity contracts,' `repurchase agreements' and `swap agreements') is not mutually exclusive, i.e., an entity that qualifies as a `financial participant' could also be a `swap participant,' `repo participant,' `forward contract merchant,' `commodity broker,' `stockbroker,' `securities clearing agency' and/or `financial institution.'

Section 907(c) of the Act adds to the Bankruptcy Code new definitions for the terms `master netting agreement' and `master netting agreement participant.' The definition of `master netting agreement' is designed to protect the termination and close-out netting provisions of cross-product master agreements between parties. Such an agreement may be used: (i) to document a wide variety of securities contracts, commodity contracts, forward contracts, repurchase agreements and swap agreements, or (ii) as an umbrella agreement for separate master agreements between the same parties, each of which is used to document a discrete type of transaction. The definition includes security agreements or arrangements or other credit enhancements related to one or more such agreements and clarifies that a master netting agreement will be treated as such even if it documents transactions that are not within the enumerated categories of qualifying transactions (but the provisions of the Bankruptcy Code relating to master netting agreements and the other categories of transactions will not apply to such other transactions). A `master netting agreement participant' is any entity that is a party to an outstanding master netting agreement with a debtor before the filing of a bankruptcy petition.

Subsection (d) amends section 362(b) of the Bankruptcy Code to protect enforcement, free from the automatic stay, of setoff or netting provisions in swap agreements and in master netting agreements and security agreements or arrangements related to one or more swap agreements or master netting agreements. This provision parallels the other provisions of the Bankruptcy Code that protect netting provisions of securities contracts, commodity contracts, forward contracts, and repurchase agreements. Because the relevant definitions include related security agreements, the references to `setoff' in these provisions, as well as in section 362(b)(6) and (7) of the Bankruptcy Code, are intended to refer also to rights to foreclose on, and to set off against obligations to return, collateral securing swap agreements, master netting agreements, repurchase agreements, securities contracts, commodity contracts, or forward contracts. Collateral may be pledged to cover the cost of replacing the defaulted transactions in the relevant market, as well as other costs and expenses incurred or estimated to be incurred for the purpose of hedging or reducing the risks arising out of such termination. Enforcement of these agreements and arrangements free from the automatic stay is consistent with the policy goal of minimizing systemic risk.

Subsection (d) also clarifies that the provisions protecting setoff and foreclosure in relation to securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements, and master netting agreements free from the automatic stay apply to collateral pledged by the debtor but that cannot technically be `held by' the creditor, such as receivables and book-entry securities, and to collateral that has been repledged by the creditor and securities re-sold pursuant to repurchase agreements.

Subsections (e) and (f) of section 907 of the Act amend sections 546 and 548(d) of the Bankruptcy Code to provide that transfers made under or in connection with a master netting agreement may not be avoided by a trustee except where such transfer is made with actual intent to hinder, delay or defraud and not taken in good faith. This amendment provides the same protections for a transfer made under, or in connection with, a master netting agreement as currently is provided for margin payments, settlement payments and other transfers received by commodity brokers, forward contract merchants, stockbrokers, financial institutions, securities clearing agencies, repo participants, and swap participants under sections 546 and 548(d), except to the extent the trustee could otherwise avoid such a transfer made under an individual contract covered by such master netting agreement.

Subsections (g), (h), (i), and (j) of section 907 clarify that the provisions of the Bankruptcy Code that protect: (i) rights of liquidation under securities contracts, commodity contracts, forward contracts and repurchase agreements also protect rights of termination or acceleration under such contracts, and (ii) rights to terminate under swap agreements also protect rights of liquidation and acceleration.

Section 907(k) of the Act adds a new section 561 to the Bankruptcy Code to protect the contractual right of a master netting agreement participant to enforce any rights of termination, liquidation, acceleration, offset or netting under a master netting agreement. These rights include rights arising: (i) from the rules of a derivatives clearing organization, multilateral clearing organization, securities clearing agency, securities exchange, securities association, contract market, derivatives transaction execution facility or board of trade; (ii) under common law, law merchant; or (iii) by reason of normal business practice. This reflects the enactment of the CFMA and the current treatment of rights under swap agreements under section 560 of the Bankruptcy Code. Similar changes to reflect the enactment of the CFMA have been made to the definition of `contractual right' for purposes of Sections 555, 556, 559, and 560 of the Bankruptcy Code.

Subsections (b)(2)(A) and (b)(2)(B) of new Section 561 limit the exercise of contractual rights to net or to offset obligations where the debtor is a commodity broker and one leg of the obligations sought to be netted relates to commodity contracts traded on or subject to the rules of a contract market designated under the Commodity Exchange Act or a derivatives transaction execution facility registered under the Commodity Exchange Act. Under subsection (b)(2)(A) netting or offsetting is not permitted in these circumstances if the party seeking to net or to offset has no positive net equity in the commodity accounts at the debtor. Subsection (b)(2)(B) applies only if the debtor is a commodity broker, acting on behalf of its own customer, and is in turn a customer of another commodity broker. In that case, the latter commodity broker may not net or offset obligations under such commodity contracts with other claims against its customer, the debtor. Subsections (b)(2)(A) and (b)(2)(B) limit the depletion of assets available for distribution to customers of commodity brokers. Subsection (b)(2)(C) provides an exception to subsections (b)(2)(A) and (b)(2)(B) for cross-margining and other similar arrangements approved by, or submitted to and not rendered ineffective by, the Commodity Futures Trading Commission, as well as certain other netting arrangements.

For the purposes of Bankruptcy Code sections 555, 556, 559, 560, and 561, it is intended that the normal business practice in the event of a default of a party based on bankruptcy or insolvency is to terminate, liquidate or accelerate securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements and master netting agreements with the bankrupt or insolvent party. The protection of netting and offset rights in sections 560 and 561 is in addition to the protections afforded in sections 362(b)(6), (b)(7), (b)(17), and (b)(28) of the Bankruptcy Code.

Under the Act, the termination, liquidation or acceleration rights of a master netting agreement participant are subject to limitations contained in other provisions of the Bankruptcy Code relating to securities contracts and repurchase agreements. In particular, if a securities contract or repurchase agreement is documented under a master netting agreement, a party's termination, liquidation and acceleration rights would be subject to the provisions of the Bankruptcy Code relating to orders authorized under the provisions of SIPA or any statute administered by the SEC. In addition, the netting rights of a party to a master netting agreement would be subject to any contractual terms between the parties limiting or waiving netting or set off rights. Similarly, a waiver by a bank or a counterparty of netting or set off rights in connection with QFCs would be enforceable under the FDIA.

New section 561 of the Bankruptcy Code clarifies that the provisions of the Bankruptcy Code related to securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements and master netting agreements apply in a proceeding ancillary to a foreign insolvency proceeding under new section 304 of the Bankruptcy Code.

Subsections (l) and (m) of section 907 of the Act clarify that the exercise of termination and netting rights will not otherwise affect the priority of the creditor's claim after the exercise of netting, foreclosure and related rights.

Subsection (n) amends section 553 of the Bankruptcy Code to clarify that the acquisition by a creditor of setoff rights in connection with swap agreements, repurchase agreements, securities contracts, forward contracts, commodity contracts and master netting agreements cannot be avoided as a preference. This subsection also adds setoff of the kinds described in sections 555, 556, 559, 560, and 561 of the Bankruptcy Code to the types of setoff excepted from section 553(b).

Section 907(o), as well as other subsections of the Act, adds references to `financial participant' in all the provisions of the Bankruptcy Code relating to securities, forward and commodity contracts and repurchase and swap agreements.

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.

Section 562 provides an exception to the rules in (i) and (ii) if there are no commercially reasonable determinants of value as of such date or dates, in which case damages are to be measured as of the earliest subsequent date or dates on which there are commercially reasonable determinants of value. Although it is expected that in most circumstances damages would be measured as of the date or dates of either rejection or liquidation, termination or acceleration, in certain unusual circumstances, such as dysfunctional markets or liquidation of very large portfolios, there may be no commercially reasonable determinants of value for liquidating any such agreements or contracts or for liquidating all such agreements and contracts in a large portfolio on a single day. It is expected that measuring damages as of a date or dates before the date of liquidation, termination, or acceleration will occur only in very unusual circumstances.

The party determining damages is given limited discretion to determine the dates as of which damages are to be measured. Its actions are circumscribed unless there are no `commercially reasonable' determinants of value for it to measure damages on the date or dates of either rejection or liquidation, termination or acceleration. The references to `commercially reasonable' are intended to reflect existing state law standards relating to a creditor's actions in determining damages. New section 562 provides that if damages are not measured as of either the date of rejection or the date or dates of liquidation, termination or acceleration and the trustee challenges the timing of the measurement of damages by the non-defaulting party determining the damages, then the non-defaulting party, rather than the trustee, has the burden of proving the absence of any commercially reasonable determinants of value.

New section 562 is not intended to have any impact on the determination under the Bankruptcy Code of the timing of damages for contracts and agreements other than those specified in section 562. Also, section 562 does not apply to proceedings under the FDIA, and it is not intended that Section 562 have any impact on the interpretation of the provisions of the FDIA relating to timing of damages in respect of QFCs or other contracts.

TITLE X. PROTECTION OF FAMILY FARMERS AND FAMILY FISHERMEN

[Footnote] a defined term. 168

[Footnote] This form of bankruptcy relief permits eligible family farmers, under the supervision of a bankruptcy trustee, 169

[Footnote] to reorganize their debts pursuant to a repayment plan. 170

[Footnote] The special attributes of chapter 12 make it better suited to meet the particularized needs of family farmers in financial distress than other forms of bankruptcy relief, such as chapter 11 171

[Footnote] and chapter 13. 172

[Footnote]

[Footnote 167: 11 U.S.C. Sec. 109(f).]

[Footnote 168: 11 U.S.C. Sec. 101(19).]

[Footnote 169: 11 U.S.C. Sec. 1202.]

[Footnote 170: 11 U.S.C. Sec. 1222.]

[Footnote 171: For example, chapter 12 is typically less complex and expensive than chapter 11, a form of bankruptcy relief generally utilized to effectuate large corporate reorganizations.]

[Footnote 172: Chapter 13, a form of bankruptcy relief for individuals seeking to reorganize their debts, limits its eligibility to debtors with debts in lower amounts than permitted for eligibility purposes under chapter 12. Cf. 11 U.S.C. Sec. 109(e), 101(18).]

Chapter 12 was enacted on a temporary 7-year basis as part of the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986 173

[Footnote] in response to the farm financial crisis of the early- to mid-1980's. 174

[Footnote] It was subsequently reenacted and extended on several occasions. The most recent extension, authorized as part of the Farm Security and Rural Investment Act of 2002, provides that chapter remains in effect until December 31, 2002. 175

[Footnote]

[Footnote 173: Pub. L. No. 99-554, Sec. 255, 100 Stat. 3088, 3105 (1986).]

[Footnote 174: See U.S. DEPT. OF AGRICULTURE, INFO. BULL. NO. 724-09, ISSUES IN AGRICULTURAL AND RURAL FINANCE: DO FARMERS NEED A SEPARATE CHAPTER IN THE BANKRUPTCY CODE? (Oct. 1997).]

As one of the principal proponents of this legislation explained:

I doubt there will be anything that we do that will have such an immediate impact in the grassroots of our country with respect to the situation that exists in most of the heartland, and that is in the agricultural sector. . . .

You know, William Jennings Bryan in his famous speech, the Cross of Gold, almost 60 years ago [sic], stated these words: `Destroy our cities and they will spring up again as if by magic; but destroy our farms, and the grass will grow in every city in our country.'

This legislation will hopefully stem the tide that we have seen so recently in the massive bankruptcies in the family farm area.

132 CONG. REC. 28,147 (1986) (statement of Rep. Mike Synar (D-Okla.)).

[Footnote 175: Pub. L. No. 107-171, Sec. 10814 (2002).]

Section 1001(a) of the Act reenacts chapter 12 of the Bankruptcy Code and provides that such reenactment takes effect as of July 1, 2005. Section 1001(b) makes a conforming amendment to section 302 of the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986. As a result of this provision, chapter 12 becomes a permanent form of relief under the Bankruptcy Code.

TITLE XI. HEALTH CARE AND EMPLOYEE BENEFITS

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.

TITLE XII. TECHNICAL AMENDMENTS

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. 176

[Footnote] Specifically, it amends the definition of `transfer' in section 101(54) of the Bankruptcy Code to include the `creation of a lien.' This amendment gives expression to a widely held understanding since the enactment of the Bankruptcy Reform Act of 1978, 177

[Footnote] that is, a transfer includes the creation of a lien.

[Footnote 176: Thompson v. Margen (In re McConville), 110 F.3d 47 (9th Cir.), cert. denied, 522 U.S. 966 (1997).]

[Footnote 177: Pub. L. No. 95-598, 92 Stat. 2549 (1978).]

[Footnote]

[Footnote 178: For a description of these errors, see the appropriate footnote and amendment notes in the United States Code.]

[Footnote] allowed the trustee to `reach-back' and avoid a transfer to a noninsider creditor made within the 90-day to one-year time frame if an insider benefitted from the transfer in some way. This had the effect of discouraging lenders from obtaining loan guarantees, lest transfers to the lender be vulnerable to recapture by reason of the debtor's insider relationship with the loan guarantor. Section 202 of the Bankruptcy Reform Act of 1994 addressed the DePrizio problem by inserting a new section 550(c) into the Bankruptcy Code to prevent avoidance or recovery from a noninsider creditor during the 90-day to one-year period even though the transfer to the noninsider benefitted an insider creditor. The 1994 amendments, however, failed to make a corresponding amendment to section 547, which deals with the avoidance of preferential transfers. As a result, a trustee could still utilize section 547 to avoid a preferential lien given to a noninsider bank, more than 90 days but less than one year before bankruptcy, if the transfer benefitted an insider guarantor of the debtor's debt. Accordingly, section 1213 of the Act makes a perfecting amendment to section 547 to provide that if the trustee avoids a transfer given by the debtor to a noninsider for the benefit of an insider creditor between 90 days and one year before filing, that avoidance is valid only with respect to the insider creditor. Thus both the previous amendment to section 550 and the perfecting amendment to section 547 protect the noninsider from the avoiding powers of the trustee exercised with respect to transfers made during the 90-day to one year pre-filing period. This provision is intended to apply to any case, including any adversary proceeding, that is pending or commenced on or after the date of enactment of this Act.

[Footnote 179: Levit v. Ingersoll Rand Fin. Corp., 874 F.2d 1186 (7th Cir. 1989); see also Ray v. City Bank and Trust Co. (In re C-L Cartage Co.), 899 F.2d 1490 (6th Cir. 1990); Manufacturers Hanover Leasing Corp. v. Lowrey (In re Robinson Bros. Drilling, Inc.), 892 F.2d 850 (10th Cir. 1989).]

[Footnote]

[Footnote 180: See supra notes 86 and 176 and accompanying text.]

[Footnote]

[Footnote 181: For a description of the error, see the appropriate footnote and amendment notes in the United States Code.]

[Footnote]

[Footnote 182: For a description of the errors, see the appropriate footnote and amendment notes in the United States Code.]

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.

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.

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 two-step 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 by district court judges or bankruptcy appellate panels.

TITLE XIII. CONSUMER CREDIT DISCLOSURE

For a period not to exceed 24 months from the effective date of the Act, the Board is required to establish and maintain a toll-free telephone number (or provide a toll-free telephone number established and maintained by a third party) for use by creditors that are depository institutions (as defined in section 3 of the Federal Deposit Insurance Act), including a Federal or state credit union (as defined in section 101 of the Federal Credit Union Act), with total assets not exceeding $250 million. Not later than six months prior to the expiration of the 24-month period, the Board must 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 account where the primary purpose of which is to require payment of charges in full each month.

Section 1301(b)(1) requires the Federal Reserve Board to promulgate regulations implementing section 1301(a)'s amendments to section 127. Section 1301(b)(2) specifies that the effective date of the amendments under subsection (a) and the regulations required under this provision shall not take effect until the later of 18 months after the date of enactment of this Act or 12 months after the publication of final regulations by the Board.

Section 1301(c) authorizes the Federal Reserve Board to conduct a study to determine the types of information available to potential borrowers from consumer credit lending institutions regarding factors qualifying potential borrowers for credit, repayment requirements, and the consequences of default. The provision specifies the factors that should be considered. The study's findings must be submitted to Congress and include recommendations for legislative initiatives, based on the Board's findings.

With respect to non-open end credit extensions, section 1302(b)(1) amends section 128 of the Truth in Lending Act to require that a consumer receive a specified statement at the time he or she applies for credit with respect to a consumer credit transaction secured by the consumer's principal dwelling and where the credit extension may exceed the fair market value of the dwelling. The statement must disclose that the interest on the portion of the credit extension that exceeds the dwelling's fair market value is not tax deductible for Federal income tax purposes and that the consumer should consult a tax advisor for further information regarding the deductibility of interest and charges. Section 1302(b)(2) requires certain advertisements disseminated in paper form to the public or through the Internet that relate to a consumer credit transaction secured by a consumer's principal dwelling where the extension of credit may exceed the dwelling's fair market value to contain specified statements. These statements advise that the interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes and that the consumer should consult a tax advisor for further information regarding the deductibility of interest and charges.

Section 1302(c)(1) requires the Federal Reserve Board to promulgate regulations implementing the amendments effectuated by this provision. Section 1302(c)(2) provides that these regulations shall not take effect until the later of 12 months following the Act's enactment date or 12 months after the date of publication of such final regulations by the Board.

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 Act's enactment date or 12 months after the date of publication of such final regulations.

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.

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.

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.

Section 1307(b) provides that the Federal Reserve Board, in preparing its report, may include analysis of section 909 of the Electronic Fund Transfer Act to the extent this provision is in effect at the time of the report and the implementing regulations. In addition, the analysis may pertain to whether any voluntary industry rules have enhanced or may enhance the level of protection afforded consumers in connection with such unauthorized use liability and whether amendments to the Electronic Fund Transfer Act or implementing regulations are necessary to further address adequate protection for consumers concerning unauthorized use liability.

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. PREVENTING CORPORATE BANKRUPTCY ABUSE

TITLE XV. GENERAL EFFECTIVE DATE; APPLICATION OF AMENDMENTS

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

TITLE 11, UNITED STATES CODE

Chap. Sec.
1.
General Provisions
101
* * * * * * *
[Struck out->][ 12. ][<-Struck out]
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.

Sec. 101. Definitions

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

Sec. 103. Applicability of chapters

* * * * * * *

Sec. 104. Adjustment of dollar amounts

* * * * * * *

* * * * * * *

Sec. 105. Power of court

* * * * * * *

* * * * * * *

Sec. 107. Public access to papers

* * * * * * *

Sec. 108. Extension of time

* * * * * * *

Sec. 109. Who may be a debtor

* * * * * * *

* * * * * * *

Sec. 110. Penalty for persons who negligently or fraudulently prepare bankruptcy petitions

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

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

Sec. 112. Prohibition on disclosure of name of minor children

CHAPTER 3--CASE ADMINISTRATION

SUBCHAPTER I--COMMENCEMENT OF A CASE
Sec.
301. Voluntary cases.
* * * * * * *
[Struck out->][ 304. Cases ancillary to foreign proceedings. ][<-Struck out]
* * * * * * *
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.
* * * * * * *
[Struck out->][ 346. Special tax provisions. ][<-Struck out]
346. Special provisions related to the treatment of State and local taxes.
* * * * * * *
351. Disposal of patient records.

SUBCHAPTER I--COMMENCEMENT OF A CASE

Sec. 301. Voluntary cases

* * * * * * *

Sec. 303. Involuntary cases

* * * * * * *

* * * * * * *

[Struck out->][ Sec. 304. Cases ancillary to foreign proceedings ][<-Struck out]

Sec. 305. Abstention

* * * * * * *

Sec. 306. Limited appearance

* * * * * * *

Sec. 308. Debtor reporting requirements

SUBCHAPTER II--OFFICERS

* * * * * * *

Sec. 328. Limitation on compensation of professional persons

* * * * * * *

Sec. 330. Compensation of officers

* * * * * * *

* * * * * * *

* * * * * * *

Sec. 332. Consumer privacy ombudsman

Sec. 333. Appointment of patient care ombudsman

SUBCHAPTER III--ADMINISTRATION

Sec. 341. Meetings of creditors and equity security holders

* * * * * * *

* * * * * * *

Sec. 342. Notice

* * * * * * *

[Struck out->][ Sec. 346. Special tax provisions ][<-Struck out]

Sec. 346. Special provisions related to the treatment of State and local taxes

* * * * * * *

Sec. 348. Effect of conversion

* * * * * * *

* * * * * * *

Sec. 351. Disposal of patient records

SUBCHAPTER IV--ADMINISTRATIVE POWERS

* * * * * * *

Sec. 362. Automatic stay

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

(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

(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

* * * * * * *

Sec. 363. Use, sale, or lease of property

* * * * * * *

* * * * * * *

* * * * * * *

Sec. 365. Executory contracts and unexpired leases

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

Sec. 366. Utility service

* * * * * * *

* * * * * * *

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.
* * * * * * *
[Struck out->][ 555. Contractual right to liquidate a securities contract. ][<-Struck out]
[Struck out->][ 556. Contractual right to liquidate a commodity contract or forward contract. ][<-Struck out]
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.
* * * * * * *
[Struck out->][ 559. Contractual right to liquidate a repurchase agreement. ][<-Struck out]
[Struck out->][ 560. Contractual right to terminate a swap agreement. ][<-Struck out]
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

Sec. 501. Filing of proofs of claims or interests

* * * * * * *

Sec. 502. Allowance of claims or interests

* * * * * * *

* * * * * * *

* * * * * * *

Sec. 503. Allowance of administrative expenses

* * * * * * *

Sec. 504. Sharing of compensation

* * * * * * *

Sec. 505. Determination of tax liability

Sec. 506. Determination of secured status

* * * * * * *

Sec. 507. Priorities

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

Sec. 508. Effect of distribution other than under this title

* * * * * * *

Sec. 511. Rate of interest on tax claims

SUBCHAPTER II--DEBTOR'S DUTIES AND BENEFITS

Sec. 521. Debtor's duties

Sec. 522. Exemptions

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

Sec. 523. Exceptions to discharge

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

Sec. 524. Effect of discharge

* * * * * * *

* * * * * * *

* * * * * * *

Sec. 525. Protection against discriminatory treatment

* * * * * * *

Sec. 526. Restrictions on debt relief agencies

Sec. 527. Disclosures

Sec. 528. Requirements for debt relief agencies

SUBCHAPTER III--THE ESTATE

Sec. 541. Property of the estate

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Sec. 545. Statutory liens

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Sec. 546. Limitations on avoiding powers

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Sec. 547. Preferences

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Sec. 548. Fraudulent transfers and obligations

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Sec. 549. Postpetition transactions

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Sec. 552. Postpetition effect of security interest

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Sec. 553. Setoff

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[Struck out->][ Sec. 555. Contractual right to liquidate a securities contract ][<-Struck out]

Sec. 555. Contractual right to liquidate, terminate, or accelerate a securities contract

[Struck out->][ Sec. 556. Contractual right to liquidate a commodities contract or forward contract ][<-Struck out]

Sec. 556. Contractual right to liquidate, terminate, or accelerate a commodities contract or forward contract

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[Struck out->][ Sec. 559. Contractual right to liquidate a repurchase agreement ][<-Struck out]

Sec. 559. Contractual right to liquidate, terminate, or accelerate a repurchase agreement

[Struck out->][ Sec. 560. Contractual right to terminate a swap agreement ][<-Struck out]

Sec. 560. Contractual right to liquidate, terminate, or accelerate a swap agreement

Sec. 561. Contractual right to terminate, liquidate, accelerate, or offset under a master netting agreement and across contracts; proceedings under chapter 15

Sec. 562. Timing of damage measurement in connection with swap agreements, securities contracts, forward contracts, commodity contracts, repurchase agreements, and master netting agreements

CHAPTER 7--LIQUIDATION

SUBCHAPTER I--OFFICERS AND ADMINISTRATION
Sec.
701. Interim trustee.
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[Struck out->][ 707. Dismissal. ][<-Struck out]
707. Dismissal of a case or conversion to a case under chapter 11 or 13.
SUBCHAPTER II--COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE
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[Struck out->][ 728. Special tax provisions. ][<-Struck out]
SUBCHAPTER III--STOCKBROKER LIQUIDATION
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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
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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.

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SUBCHAPTER I--OFFICERS AND ADMINISTRATION

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Sec. 704. Duties of trustee

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Sec. 706. Conversion

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[Struck out->][ Sec. 707. Dismissal ][<-Struck out]

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

SUBCHAPTER II--COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE

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Sec. 722. Redemption

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Sec. 724. Treatment of certain liens

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Sec. 726. Distribution of property of the estate

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Sec. 727. Discharge

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[Struck out->][ Sec. 728. Special tax provisions ][<-Struck out]

SUBCHAPTER III--STOCKBROKER LIQUIDATION

Sec. 741. Definitions for this subchapter

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Sec. 752. Customer property

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Sec. 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

Sec. 761. Definitions for this subchapter

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Sec. 766. Treatment of customer property

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Sec. 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

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CHAPTER 9--ADJUSTMENT OF DEBTS OF A MUNICIPALITY

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SUBCHAPTER I--GENERAL PROVISIONS

Sec. 901. Applicability of other sections of this title

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SUBCHAPTER II--ADMINISTRATION

Sec. 921. Petition and proceedings relating to petition

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SUBCHAPTER III--THE PLAN

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Sec. 943. Confirmation

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CHAPTER 11--REORGANIZATION

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SUBCHAPTER I--OFFICERS AND ADMINISTRATION
Sec.
1101. Definitions for this chapter.
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1115. Property of the estate.
1116. Duties of trustee or debtor in possession in small business cases.

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SUBCHAPTER I--OFFICERS AND ADMINISTRATION

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Sec. 1102. Creditors' and equity security holders' committees

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Sec. 1104. Appointment of trustee or examiner

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Sec. 1106. Duties of trustee and examiner

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Sec. 1112. Conversion or dismissal

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Sec. 1114. Payment of insurance benefits to retired employees

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Sec. 1115. Property of the estate

Sec. 1116. Duties of trustee or debtor in possession in small business cases

SUBCHAPTER II--THE PLAN

Sec. 1121. Who may file a plan

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Sec. 1123. Contents of plan

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Sec. 1124. Impairment of claims or interests

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Sec. 1125. Postpetition disclosure and solicitation