20-436

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

Union Calendar No. 14

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

Union Calendar No. 14

seneagle

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

1st Session

Part 1

--BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005

[To accompany S. 256]

[Including cost estimate of the Congressional Budget Office]

The Committee on the Judiciary, to whom was referred the bill (S. 256) to amend title 11 of the United States Code, and for other purposes, having considered the same, reports favorably thereon without amendment and recommends that the bill do pass.

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

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:

Like all other business expenses, when creditors are unable to collect debts because of bankruptcy, some of those losses are inevitably passed on to responsible Americans who live up to their financial obligations. Every phone bill, electric bill, mortgage, furniture purchase, medical bill, and car loan contains an implicit bankruptcy `tax' that the rest of us pay to subsidize those who do not pay their bills. Exactly how much of these bankruptcy losses is passed on from lenders to consumer borrowers is unclear, but economics tells us that at least some of it is. We all pay for bankruptcy abuse in higher down payments, higher interest rates, and higher costs for goods and services. 9

[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).]

According to some analyses, the increase in consumer bankruptcy filings has adverse financial consequences for our nation's economy. For instance, it was estimated that in 1997 alone more than $44 billion of debt was discharged by debtors who filed for bankruptcy relief, 10

[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:]

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:]

[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:

1. Ìan amendment by Senator Edward Kennedy (D-MA) clarifying that a debtor's reasonably necessary expenses for health insurance, disability insurance, and health savings accounts for the debtor and for the debtor's spouse and dependents are allowed expenses under the bill's needs-based test;

2. Ìan amendment by Senator Kennedy limiting retention bonuses, severance pay, and other payments to insiders of the debtor, under certain circumstances;

3. Ìan amendment by Senator Russell Feingold (D-WI) increasing the monetary threshold with respect to the venue of a proceeding to recover a consumer debt;

4. Ìan amendment by Senator Patrick Leahy (D-VT) clarifying that a debt based on a Federal or state securities law violation is nondischargeable; and

5. Ìan amendment by Senator Kennedy requiring the United States trustee to apply to the court for the appointment of a chapter 11 trustee if there are reasonable grounds to suspect fraud, under certain circumstances.

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

1. Ìan amendment by Senator Jeff Sessions (R-AL) clarifying that the special circumstances exception to the bill's needs-based test includes a debtor with a serious medical condition or a debtor on active duty in the military to the extent these factors justify adjustment to income or expenses as well as clarifying the safe harbor from the needs-based test with respect to veterans;

2. Ìan amendment by Senator Leahy restricting public access to certain personal information regarding an individual contained in bankruptcy case files to the extent the court finds that disclosure of such information would create undue risk of identity theft or other unlawful injury to such individual or the individual's property;

3. Ìan amendment by Senator Arlen Specter (R-PA) increasing the filing fees for chapter 7 and chapter 11 bankruptcy cases, reducing the filing fees for chapter 13, and adjusting the allocation of such fees among various governmental entities;

4. Ìan amendment by Senator Feingold providing for the automatic periodic adjustment for inflation of certain monetary amounts specified in the Bankruptcy Code;

5. Ìan amendment by Senator Feingold authorizing a court to: (a) seal all public records pertaining to a fraudulent involuntary bankruptcy petition, under certain circumstances, (b) prohibit any consumer reporting agency from issuing any consumer report containing any reference to such petition; and (c) expunge all records pertaining to such petition upon the expiration of the statute of limitations for the crimes associated with the filing of a fraudulent involuntary bankruptcy petition. It also amends the Federal criminal statute to make it a criminal offense to file a fraudulent involuntary bankruptcy petition; 40

[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.]

6. Ìan amendment by Senator Feingold creating an exception to the bill's mandatory consumer credit counseling and financial management training requirements for a debtor who is unable to complete these requirements because of incapacity, disability, or active duty in a military combat zone;

7. Ìan amendment by Senator Richard Durbin (D-IL) creating an exception from the bill's needs-based test for a disabled veteran whose indebtedness occurred primarily during a period when the individual was on active duty or performing a homeland defense activity; and

8. Ìan amendment by Senator James Talent (R-MO) authorizing a bankruptcy trustee to avoid any transfer of property by a debtor to a self-settled trust made within ten years preceding the filing of the debtor's bankruptcy case if the debtor is a beneficiary of such trust and the debtor made such transfer with actual intent to hinder, delay, or defraud a creditor.

HIGHLIGHTS OF BANKRUPTCY REFORMS

Consumer Creditor Bankruptcy Protections.

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

[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.

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:]

[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.

[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.

[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

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                            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

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                            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

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                            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         

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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

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                            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         

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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

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                            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         

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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

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                            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         

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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         

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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:

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

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

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

Sincerely,

Douglas Holtz-Eakin.

Enclosure

cc:

Honorable John Conyers, Jr.

Ranking Member

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

SUMMARY

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

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

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

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

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

MAJOR PROVISIONS

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

ÌRequire the Executive Office for the U.S. Trustees to establish a test program to educate debtors on financial management;

ÌAuthorize 28 new temporary judgeships and extend four existing judgeships;

ÌPermit courts to waive chapter 7 filing fees and other fees for debtors who could not pay such fees in installments;

ÌRequire that at least one of every 250 bankruptcy cases under chapter 13 or chapter 7 be audited by an independent certified public accountant;

ÌRequire the Administrative Office of the United States Courts (AOUSC) to receive and maintain tax returns for certain chapter 7 and chapter 13 debtors;

ÌRequire the AOUSC and the U.S. Trustees to collect and publish certain statistics on bankruptcy cases; and

ÌIncrease chapter 7 and chapter 11 bankruptcy filing fees, decrease chapter 13 filing fees, and change the budgetary treatment of such fees over a specified period of time.

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

ESTIMATED COST TO THE FEDERAL GOVERNMENT

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

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 

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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

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                                     2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 

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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 

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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:

ÌConsumer bankruptcy attorneys would have to make reasonable inquires to confirm that the information in documents they submit to the court or to the bankruptcy trustee is well-grounded in fact;

ÌCreditors would have to make disclosures in their agreements with debtors and provide certain notices to the courts and debtors;

ÌPreparers of bankruptcy petitions and debt-relief agencies would also have to provide certain notices to debtors;

ÌFederal bankruptcy judges would have the authority to prohibit consumer reporting agencies from issuing a report containing any information relating to certain involuntary bankruptcy petitions the court has dismissed; and

ÌCredit and charge-card companies would have to disclose specified information in monthly billing statements, introductory rate offers for new accounts, Internet-based solicitations, credit extensions secured by a dwelling, and for late payment deadlines and penalties.

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

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

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

Sec. 1. Short Title; References; Table of Contents. The short title of this measure is the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ( the `Act').

TITLE I. NEEDS-BASED BANKRUPTCY

Sec. 101. Conversion. Under current law, section 706(c) of the Bankruptcy Code provides that a court may not convert a chapter 7 case unless the debtor requests such conversion. Section 101 of the Act amends this provision to allow a chapter 7 case to be converted to a case under chapter 12 or chapter 13 on request or consent of the debtor.

Section 102. Dismissal or Conversion. Section 102 implements needs-based debt relief, the legislation's principal consumer bankruptcy reform. Under section 707(b) of the Bankruptcy Code, a chapter 7 case filed by a debtor who is an individual may be dismissed for substantial abuse only on motion of the court or the United States trustee. It specifically prohibits such dismissal at the suggestion of any party in interest.

Section 102 of the Act revises current law in several significant respects. First, it amends section 707(b) of the Bankruptcy Code to permit--in addition to the court and the United States trustee--a trustee, bankruptcy administrator, or a party in interest to seek dismissal or conversion of a chapter 7 case to one under chapter 11 or 13 on consent of the debtor, under certain circumstances. In addition, section 102 of the Act changes the current standard for dismissal from `substantial abuse' to `abuse.' Section 102 of the Act also amends Bankruptcy Code section 707(b) to mandate a presumption of abuse if the debtor's current monthly income (reduced by certain specified amounts) when multiplied by 60 is not less than the lesser of 25 percent of the debtor's nonpriority unsecured claims or $6,000 (whichever is greater), or $10,000.

To determine whether the presumption of abuse applies under section 707(b) of the Bankruptcy Code, section 102(a) of the Act specifies certain monthly expense amounts that are to be deducted from the debtor's `current monthly income' (a defined term). These expense items include:

Ìthe applicable monthly expenses for the debtor as well as for the debtor's dependents and spouse in a joint case (if the spouse is not otherwise a dependent) specified under the Internal Revenue Service's National Standards (with provision for an additional five percent for food and clothing if the debtor can demonstrate that such additional amount is reasonable and necessary) and the IRS Local Standards;

Ìthe actual monthly expenses for the debtor, the debtor's dependents, and the debtor's spouse in a joint case (if the spouse is not otherwise a dependent) for the categories specified by the Internal Revenue Service as Other Necessary Expenses;

Ìreasonably necessary expenses incurred to maintain the safety of the debtor and the debtor's family from family violence as specified in section 309 of the Family Violence Prevention and Services Act or other applicable Federal law, with provision for the confidentiality of these expenses;

Ìreasonably necessary expenses for health insurance, disability insurance, and health savings account expenditures for the debtor, the debtor's spouse, and dependents of the debtor;

Ìthe debtor's average monthly payments on account of secured debts and priority claims as explained below; and

Ìif the debtor is eligible to be a debtor under chapter 13, the actual administrative expenses of administering a chapter 13 plan for the district in which the debtor resides, up to 10 percent of projected plan payments, as determined under schedules issued by the Executive Office for United States Trustees.

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.'

Sec. 103. Sense of Congress and Study. Section 103(a) of the Act expresses the sense of Congress that the Secretary of the Treasury has the authority to alter the Internal Revenue Service expense standards to set guidelines for repayment plans as needed to accommodate their use under section 707(b) of the Bankruptcy Code, as amended. Section 103(b) requires the Executive Office for United States Trustees to submit a report within two years from the date of the Act's enactment regarding the utilization of the Internal Revenue Service expense standards for determining the current monthly expenses of a debtor under section 707(b) and the impact that the application of these standards has had on debtors and the bankruptcy courts. The report may include recommendations for amendments to the Bankruptcy Code that are consistent with the report's findings.

Sec. 104. Notice of Alternatives. Section 104 of the Act amends section 342(b) of the Bankruptcy Code to require the clerk, before the commencement of a bankruptcy case by an individual whose debts are primarily consumer debts, to supply such individual with a written notice containing: (1) a brief description of chapters 7, 11, 12, and 13 and the general purpose, benefits, and costs of proceeding under each of these chapters; (2) the types of services available from credit counseling agencies; (3) a statement advising that a person who knowingly and fraudulently conceals assets or makes a false oath or statement under penalty of perjury in connection with a bankruptcy case shall be subject to fine, imprisonment, or both; and (4) a statement warning that all information supplied by a debtor in connection with the case is subject to examination by the Attorney General.

Sec. 105. Debtor Financial Management Training Test Program. Section 105 of the Act requires the Director of the Executive Office for United States Trustees to: (1) consult with a wide range of debtor education experts who operate financial management education programs; and (2) develop a financial management training curriculum and materials that can be used to teach individual debtors how to manage their finances better. The Director must select six judicial districts to test the effectiveness of the financial management training curriculum and materials for an 18-month period beginning not later than 270 days after the Act's enactment date. For these six districts, the curricula and materials must be used as the instructional personal financial management course required under Bankruptcy Code section 111. Over the period of the study, the Director must evaluate the effectiveness of the curriculum and materials as well as consider a sample of existing consumer education programs (such as those described in the Report of the National Bankruptcy Review Commission) that are representative of consumer education programs sponsored by the credit industry, chapter 13 trustees, and consumer counseling groups. Not later than three months after concluding such evaluation, the Director must submit to Congress a report with findings regarding the effectiveness and cost of the curricula, materials, and programs.

Sec. 106. Credit Counseling. Section 106(a) of the Act amends section 109 of the Bankruptcy Code to require an individual--as a condition of eligibility for bankruptcy relief--to receive credit counseling within the 180-day period preceding the filing of a bankruptcy case by such individual. The credit counseling must be provided by an approved nonprofit budget and credit counseling agency consisting of either an individual or group briefing (which may be conducted telephonically or via the Internet) that outlined opportunities for available credit counseling and assisted the individual in performing a budget analysis. This requirement does not apply to a debtor who resides in a district where the United States trustee or bankruptcy administrator has determined that approved nonprofit budget and credit counseling agencies in that district are not reasonably able to provide adequate services to such individuals. Although such determination must be reviewed annually, the United States trustee or bankruptcy administrator may disapprove a nonprofit budget and credit counseling agency at any time.

A debtor may be temporarily exempted from this requirement if he or she submits to the court a certification that: (1) describes exigent circumstances meriting a waiver of this requirement; (2) 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.

Sec. 107. Schedules of Reasonable and Necessary Expenses. For purposes of section 707(b) of the Bankruptcy Code, section 107 of the Act requires the Director of the Executive Office for United States Trustees to issue schedules of reasonable and necessary administrative expenses (including reasonable attorneys' fees) relating to the administration of a chapter 13 plan for each judicial district not later than 180 days after the date of enactment of the Act.

TITLE II. ENHANCED CONSUMER PROTECTION

Subtitle A. Penalties for Abusive Creditor Practices

Sec. 201. Promotion of Alternative Dispute Resolution. Subsection (a) of section 201 of the Act amends section 502 of the Bankruptcy Code to permit the court, after a hearing on motion of the debtor, to reduce a claim based in whole on an unsecured consumer debt by up to 20 percent if: (1) the claim was filed by a creditor who unreasonably refused to negotiate a reasonable alternative repayment schedule proposed by an approved credit counseling agency on behalf of the debtor; (2) the debtor's offer was made at least 60 days before the filing of the case; (3) the offer provided for payment of at least 60 percent of the debt over a period not exceeding the loan's repayment period or a reasonable extension thereof; and (4) no part of the debt is nondischargeable. The debtor has the burden of proving by clear and convincing evidence that: (1) the creditor unreasonably refused to consider the debtor's proposal; and (2) the proposed alternative repayment schedule was made prior to the expiration of the 60-day period. Section 201(b) amends section 547 of the Bankruptcy Code to prohibit the avoidance as a preferential transfer a payment by a debtor to a creditor pursuant to an alternative repayment plan created by an approved credit counseling agency.

Sec. 202. Effect of Discharge. Section 202 of the Act amends section 524 of the Bankruptcy Code in two respects. First, it provides that the willful failure of a creditor to credit payments received under a confirmed chapter 11, 12, or 13 plan constitutes a violation of the discharge injunction if the creditor's action to collect and failure to credit payments in the manner required by the plan caused material injury to the debtor. This provision does not apply if the order confirming the plan is revoked, the plan is in default, or the creditor has not received payments required to be made under the plan in the manner prescribed by the plan. Second, section 202 amends section 524 of the Bankruptcy Code to provide that the discharge injunction does not apply to a creditor having a claim secured by an interest in real property that is the debtor's principal residence if the creditor communicates with the debtor in the ordinary course of business between the creditor and the debtor and such communication is limited to seeking or obtaining periodic payments associated with a valid security interest in lieu of the pursuit of in rem relief to enforce the lien.

Sec. 203. Discouraging Abuse of Reaffirmation Agreement Practices. Section 203 of the Act effectuates a comprehensive overhaul of the law applicable to reaffirmation agreements. Subsection (a) amends section 524 of the Bankruptcy Code to mandate that certain specified disclosures be provided to a debtor at or before the time he or she signs a reaffirmation agreement. These specified disclosures, which are the only disclosures required in connection with a reaffirmation agreement, must be in writing and be made clearly and conspicuously. In addition, the disclosure must include certain advisories and explanations. At the election of the creditor, the disclosure statement may include a repayment schedule. If the debtor is represented by counsel, section 203(a) mandates that the attorney file a certification stating that the agreement represents a fully informed and voluntary agreement by the debtor, that the agreement does not impose an undue hardship on the debtor or any dependent of the debtor, and that the attorney fully advised the debtor of the legal effect and consequences of such agreement as well as of any default thereunder. In those instances where the presumption of undue hardship applies, the attorney must also certify that the debtor is able to make the payments required under the reaffirmation agreement. Further, the debtor must submit a statement setting forth the debtor's monthly income and actual current monthly expenditures. If the debtor is represented by counsel and the debt being reaffirmed is owed to a credit union, a modified version of this statement must be used.

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

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

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

Sec. 204. Preservation of Claims and Defenses Upon Sale of Predatory Loans. Section 204 of the Act adds a provision to section 363 of the Bankruptcy Code with respect to sales of any interest in a consumer transaction that is subject to the Truth in Lending Act or any interest in a consumer credit contract (as defined in section 433.1 of title 16 of the Code of Federal Regulations). It provides that the purchaser of such interest remains subject to all claims and defenses that are related to such assets to the same extent as that person would be subject to if the sale was not conducted under section 363.

Sec. 205. GAO Study and Report on Reaffirmation Agreement Process. Section 205 of the Act directs the Comptroller General of the United States to report to Congress on how consumers are treated in connection with the reaffirmation agreement process. This report must include: (1) the policies and activities of creditors with respect to reaffirmation agreements; and (2) whether such consumers are fully, fairly, and consistently informed of their rights under the Bankruptcy Code. The report, which must be completed not later than 18 months after the date of enactment of this Act, may include recommendations for legislation to address any abusive or coercive tactics found in connection with the reaffirmation process.

Subtitle B. Priority Child Support

Sec. 211. Definition of Domestic Support Obligation. Section 211 of the Act amends section 101 of the Bankruptcy Code to define a domestic support obligation as a debt that accrues before, on, or after the date of the order for relief and that it includes interest that accrues pursuant to applicable nonbankruptcy law. As defined in the Act, the term includes a debt owed to or recoverable by: (1) a spouse, former spouse, or child of the debtor, or such child's parent, legal guardian, or responsible relative; or (2) a governmental unit. To qualify as a domestic support obligation, the debt must be in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit), without regard to whether such debt is expressly so designated. It must be established or subject to establishment before, on, or after the date of the order of relief pursuant to: (1) a separation agreement, divorce decree, or property settlement agreement; (2) an order of a court of record; or (3) a determination made in accordance with applicable nonbankruptcy law by a governmental unit. It does not apply to a debt assigned to a nongovernmental entity, unless it was assigned voluntarily by the spouse, former spouse, child, or parent solely for the purpose of collecting the debt.

Sec. 212. Priorities for Claims for Domestic Support Obligations. Section 212 of the Act amends section 507(a) of the Bankruptcy Code to accord first priority in payment to allowed unsecured claims for domestic support obligations that, as of the petition date, are owed to or recoverable by a spouse, former spouse, or child of the debtor, or the parent, legal guardian, or responsible relative of such child, without regard to whether such claim is filed by the claimant or by a governmental unit on behalf of such claimant, on the condition that funds received by such unit under this provision be applied and distributed in accordance with nonbankruptcy law. Subject to these claims, section 212 accords the same payment priority to allowed unsecured claims for domestic support obligations that, as of the petition date, were assigned by a spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative to a governmental unit (unless the claimant assigned the claim voluntarily for the purpose of collecting the debt), or are owed directly to or recoverable by a governmental unit under applicable nonbankruptcy law, on the condition that funds received by such unit under this provision be applied and distributed in accordance with nonbankruptcy law. Where a trustee administers assets that may be available for payment of domestic support obligations under section 507(a)(1) (as amended), administrative expenses of the trustee allowed under section 503(b)(1)(A), (2) and (6) of the Bankruptcy Code must be paid before such claims to the extent the trustee administers assets that are otherwise available for the payment of these claims.

Sec. 213. Requirements To Obtain Confirmation and Discharge in Cases Involving Domestic Support Obligations. With respect to chapter 11 cases, section 213(1) adds a condition for confirmation of a plan. It amends section 1129(a) of the Bankruptcy Code to provide that if a chapter 11 debtor is required by judicial or administrative order or statute to pay a domestic support obligation, then the debtor must pay all amounts payable under such order or statute that became payable postpetition as a prerequisite for confirmation.

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

With respect to chapter 13 cases, section 213(7) of the Act amends Bankruptcy Code section 1307(c) to provide that the failure of a debtor to pay any domestic support obligation that first becomes payable postpetition is cause for conversion or dismissal of the debtor's case. Section 213(8) amends Bankruptcy Code section 1322(a) to permit a chapter 13 debtor to propose a plan paying less than the full amount of a claim entitled to priority under Bankruptcy Code section 507(a)(1)(B) if the plan provides that all of the debtor's projected disposable income over a five-year period will be applied to make payments under the plan. Section 213(9) amends Bankruptcy Code section 1322(b) to permit a chapter 13 debtor to propose a plan that pays postpetition interest on nondischargeable debts under section 1328(a), but only to the extent that the debtor has disposable income available to pay such interest after payment in full of all allowed claims. Section 213(10) amends Bankruptcy Code section 1325(a) to provide that if a chapter 13 debtor is required by judicial or administrative order or statute to pay a domestic support obligation, then the debtor must pay all such obligations pursuant to such order or statute that became payable postpetition as a condition of confirmation. Section 213(11) amends Bankruptcy Code section 1328(a) to condition the granting of a chapter 13 discharge on the debtor's payment of certain postpetition domestic support obligations.

Sec. 214. Exceptions To Automatic Stay in Domestic Support Proceedings. Under current law, section 362(b)(2) of the Bankruptcy Code excepts from the automatic stay the commencement or continuation of an action or proceeding: (1) for the establishment of paternity; or (2) the establishment or modification of an order for alimony, maintenance or support. It also permits the collection of such obligations from property that is not property of the estate. Section 214 makes several revisions to Bankruptcy Code section 362(b)(2). First, it replaces the reference to `alimony, maintenance or support' with `domestic support obligations.' Second, it adds to section 362(b)(2) actions or proceedings concerning: (1) child custody or visitation; (2) the dissolution of a marriage (except to the extent such proceeding seeks division of property that is property of the estate); and (3) domestic violence. Third, it permits the withholding of income that is property of the estate or property of the debtor for payment of a domestic support obligation under a judicial or administrative order as well as the withholding, suspension, or restriction of a driver's license, or a professional, occupational or recreational license under state law, pursuant to section 466(a)(16) of the Social Security Act. Fourth, it authorizes the reporting of overdue support owed by a parent to any consumer reporting agency pursuant to section 466(a)(7) of the Social Security Act. Fifth, it permits the interception of tax refunds as authorized by sections 464 and 466(a)(3) of the Social Security Act or analogous state law. Sixth, it allows medical obligations, as specified under title IV of the Social Security Act, to be enforced notwithstanding the automatic stay.

Sec. 215. Nondischargeability of Certain Debts for Alimony, Maintenance, and Support. Section 215 of the Act amends Bankruptcy Code section 523(a)(5) to provide that a `domestic support obligation' (as defined in section 211 of the Act) is nondischargeable and eliminates Bankruptcy Code section 523(a)(18). Section 215(2) amends Bankruptcy Code section 523(c) to delete the reference to section 523(a)(15) in that provision. Section 215(3) amends section 523(a)(15) to provide that obligations to a spouse, former spouse, or a child of the debtor (not otherwise described in section 523(a)(5)) incurred in connection with a divorce or separation or related action are nondischargeable irrespective of the debtor's inability to pay such debts.

Sec. 216. Continued Liability of Property. Section 216(1) of the Act amends section 522(c) of the Bankruptcy Code to make exempt property liable for nondischargeable domestic support obligations notwithstanding any contrary provision of applicable nonbankruptcy law. Section 216(2) and (3) make conforming amendments to sections 522(f)(1)(A) and 522(g)(2) of the Bankruptcy Code.

Sec. 217. Protection of Domestic Support Claims Against Preferential Transfer Motions. Section 217 of the Act makes a conforming amendment to Bankruptcy Code section 547(c)(7) to provide that a bona fide payment of a debt for a domestic support obligation may not be avoided as a preferential transfer.

Sec. 218. Disposable Income Defined. Section 218 of the Act amends section 1225(b)(2)(A) of the Bankruptcy Code to provide that disposable income in a chapter 12 case does not include payments for postpetition domestic support obligations.

Sec. 219. Collection of Child Support. Section 219 amends sections 704, 1106, 1202, and 1302 of the Bankruptcy Code to require trustees in chapter 7, 11, 12, and 13 cases to provide certain notices to child support claimants and governmental enforcement agencies. In addition, the Act conforms internal statutory cross references to Bankruptcy Code section 523(a)(14A) and deletes the reference to Bankruptcy Code section 523(a)(14) with respect to chapter 13, as this provision is inapplicable to that chapter.

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

Sec. 220. Nondischargeability of Certain Educational Benefits and Loans. Section 220 of the Act amends section 523(a)(8) of the Bankruptcy Code to provide that a debt for a qualified education loan (as defined in section 221(e)(1) of the Internal Revenue Code) is nondischargeable, unless excepting such debt from discharge would impose an undue hardship on the debtor and the debtor's dependents.

Subtitle C. Other Consumer Protections

Sec. 221. Amendments To Discourage Abusive Bankruptcy Filings. Section 221 of the Act makes a series of amendments to section 110 of the Bankruptcy Code. First, section 221 clarifies that the definition of a bankruptcy petition preparer does not include an attorney for a debtor or an employee of an attorney under the direct supervision of such attorney. Second, it amends subsections (b) and (c) of section 110 to provide that if a bankruptcy petition preparer is not an individual, then an officer, principal, responsible person, or partner of the preparer must sign certain documents filed in connection with the bankruptcy case as well as state the person's name and address on such documents. Third, it requires a bankruptcy petition preparer to give the debtor written notice (as prescribed by the Judicial Conference of the United States) explaining that the preparer is not an attorney and may not practice law or give legal advice. The notice may include examples of legal advice that a preparer may not provide. Such notice must be signed by the preparer under penalty of perjury and the debtor and be filed with any document for filing. Fourth, the petition preparer is prohibited from giving legal advice, including with respect to certain specified items. Fifth, it permits the Supreme Court to promulgate rules or the Judicial Conference of the United States to issue guidelines for setting the maximum fees that a bankruptcy petition preparer may charge for services. Sixth, section 221 requires the preparer to notify the debtor of such maximum fees. Seventh, it specifies that the bankruptcy petition preparer must certify that it complied with this notification requirement. Eighth, it requires the court to order the turnover of any fees in excess of the value of the services rendered by the preparer within the 12-month period preceding the bankruptcy filing. Ninth, section 221 provides that all fees charged by a preparer may be forfeited if the preparer fails to comply with certain requirements specified in Bankruptcy Code section 110, as amended by this provision. Tenth, it allows a debtor to exempt fees recovered under this provision pursuant to Bankruptcy Code section 522(b). Eleventh, it specifically authorizes the court to enjoin a bankruptcy petition preparer who has violated a court order issued under section 110. Twelfth, it generally revises section 110's penalty provisions and requires such penalties to be paid into a special fund of the United States trustee for the purpose of funding the enforcement of section 110 on a national basis. With respect to Bankruptcy Administrator districts, the funds are to be deposited as offsetting receipts pursuant to section 1931 of title 28 of the United States Code.

Sec. 222. Sense of Congress. Section 222 of the Act expresses the sense of Congress that the states should develop personal finance curricula for use in elementary and secondary schools.

Sec. 223. Additional Amendments to Title 11, United States Code. Section 223 of the Act amends section 507(a) of the Bankruptcy Code to accord a tenth-level priority to claims for death or personal injuries resulting from the debtor's operation of a motor vehicle or vessel while intoxicated.

Sec. 224. Protection of Retirement Savings in Bankruptcy. The intent of section 224 is to expand the protection for tax-favored retirement plans or arrangements that may not be already protected under Bankruptcy Code section 541(c)(2) pursuant to Patterson v. Shumate, 84

[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.

Sec. 225. Protection of Education Savings in Bankruptcy. Subsection (a) of section 225 of the Act amends section 541 of the Bankruptcy Code to provide that funds placed not later than 365 days before the filing of the bankruptcy case in an education individual retirement account are not property of the estate if certain criteria are met. First, the designated beneficiary of such account must be a child, stepchild, grandchild or step-grandchild of the debtor for the taxable year during which funds were placed in the account. A legally adopted child or a foster child, under certain circumstances, may also qualify as a designated beneficiary. Second, such funds may not be pledged or promised to an entity in connection with any extension of credit and they may not be excess contributions (as described in section 4973(e) of the Internal Revenue Code). Funds deposited between 720 days and 365 days before the filing date are protected to the extent they do not exceed $5,000. Similar criteria apply with respect to funds used to purchase a tuition credit or certificate or to funds contributed to a qualified state tuition plan under section 529(b)(1)(A) of the Internal Revenue Code. Section 225(b) amends Bankruptcy Code section 521 to require a debtor to file with the court a record of any interest that the debtor has in an education individual retirement account or qualified state tuition program.

Sec. 226. Definitions. Subsection (a) of section 226 of the Act amends section 101 of the Bankruptcy Code to add certain definitions with respect to debt relief agencies. Section 226(a)(1) defines an `assisted person' as a person whose debts consist primarily of consumer debts and whose nonexempt assets are less than $150,000. Section 226(a)(2) defines `bankruptcy assistance' as any goods or services sold or otherwise provided to an assisted person with the express or implied purpose of giving information, advice, or counsel; preparing documents for filing; or attending a meeting of creditors pursuant to section 341; appearing in a case or proceeding on behalf of a person; or providing legal representation in a case or proceeding under the Bankruptcy Code. Section 226(a)(3) defines a `debt relief agency' as any person (including a bankruptcy petition preparer) who provides bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration. The definition specifically excludes certain entities. First, it does not apply to a person who is an officer, director, employee, or agent of a person who provides bankruptcy assistance or of a bankruptcy petition preparer. Second, it is not applicable to a nonprofit organization exemption from taxation under section 501(c)(3) of the Internal Revenue Code. Third, it is inapplicable to a creditor who assisted such person to the extent the assistance pertained to the restructuring of any debt owed by the person to the creditor. Fourth, the definition does not apply to a depository institution (as defined in section 3 of the Federal Deposit Insurance Act), or any Federal or state credit union (as defined in section 101 of the Federal Credit Union Act), as well as any affiliate or subsidiary of such depository institution or credit union. Fifth, an author, publisher, distributor, or seller of works subject to copyright protection under title 17 of the United States Code when acting in such capacity is not within the ambit of this definition.

Section 226(b) amends section 104(B)(1) of the Bankruptcy Code to permit the monetary amount set forth in the definition of an `assisted person' to be automatically adjusted to reflect the change in the Consumer Price Index.

Sec. 227. Restrictions on Debt Relief Agencies. Section 227 of the Act creates a new provision in the Bankruptcy Code intended to proscribe certain activities of a debt relief agency. It prohibits such agency from: (1) failing to perform any service that it informed an assisted person it would provide; (2) advising an assisted person to make an untrue and misleading statement (or that upon the exercise of reasonable care, should have been known to be untrue or misleading) in a document filed in a bankruptcy case; (3) misrepresenting the services it provides and the benefits and risks of bankruptcy; and (4) advising an assisted person or prospective assisted person to incur additional debt in contemplation of filing for bankruptcy relief or for the purpose of paying fees for services rendered by an attorney or petition preparer in connection with the bankruptcy case. Any waiver by an assisted person of the protections under this provision are unenforceable, except against a debt relief agency.

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

Sec. 228. Disclosures. Section 228 of the Act requires a debt relief agency to provide certain specified written notices to an assisted person. These include the notice required under section 342(b)(1) (as amended by this Act) as well as a notice advising that: (1) all information the assisted person provides in connection with the case must be complete, accurate and truthful; (2) all assets and liabilities must be completely and accurately disclosed in the documents filed to commence the case, including the replacement value of each asset (if required) after reasonable inquiry to establish such value; (3) current monthly income, monthly expenses and, in a chapter 13 case, disposable income, must be stated after reasonable inquiry; and (4) the information an assisted person provides may be audited and that the failure to provide such information may result in dismissal of the case or other sanction including, in some instances, criminal sanctions. In addition, the agency must supply certain specified advisories and explanations regarding the bankruptcy process. Further, this provision requires the agency to advise an assisted person (to the extent permitted under nonbankruptcy law) concerning asset valuation, the calculation of disposable income, and the determination of exempt property.

Sec. 229. Requirements for Debt Relief Agencies. Section 229 adds a provision to the Bankruptcy Code requiring a debt relief agency--not later than five business days after the first date on which it provides any bankruptcy assistance services to an assisted person (but prior to such assisted person's bankruptcy petition being filed)--to execute a written contract with the assisted person. The contract must specify clearly and conspicuously the services the agency will provide, the basis on which fees will be charged for such services, and the terms of payment. The assisted person must be given a copy of the fully executed and completed. The debt relief agency must include certain specified mandatory statements in any advertisement of bankruptcy assistance services or regarding the benefits of bankruptcy that is directed to the general public whether through the general media, seminars, specific mailings, telephonic or electronic messages, or otherwise.

Sec. 230. GAO Study. Section 230 of the Act directs the Comptroller General of the United States to study and prepare a report on the feasibility, efficacy and cost of requiring trustees to supply certain specified information about a debtor's bankruptcy case to the Office of Child Support Enforcement for the purpose of determining whether a debtor has outstanding child support obligations.

Sec. 231. Protection of Personally Identifiable Information. Section 231 of the Act clarifies that it applies to personally identifiable information and does not preempt applicable nonbankruptcy law. In addition, the provision specifies that court approval must be preceded by the appointment of a privacy ombudsman to effectuate the intent of this provision.

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

Section 231(b) amends Bankruptcy Code section 101 to add a definition of `personally identifiable information.' The term applies to information provided by an individual to the debtor in connection with obtaining a product or service from the debtor primarily for personal, family, or household purposes. It includes the individual's: (1) first name or initial and last name (whether given at birth or adoption or legally changed); (2) physical home address; (3) electronic address, including an e-mail address; (4) home telephone number; (5) Social Security account number; or (vi) credit card account number. The term also includes information if it is identified in connection with the above items: (1) an individual's birth date, birth or adoption certificate number, or place of birth; or (2) any other information concerning an identified individual that, if disclosed, will result in the physical or electronic contacting or identification of that person.

Sec. 232. Consumer Privacy Ombudsman. Section 232 implements the preceding provision of the Act with respect to the appointment and responsibilities of a consumer privacy ombudsman. It provides that if a hearing is required under section 363(b)(1)(B) (as amended), the court must order the United States trustee to appoint a disinterested person to serve as the consumer privacy ombudsman and to provide timely notice of the hearing to such person. It permits the ombudsman to appear and be heard at such hearing. The ombudsman must provide the court with information to assist its consideration of the facts, circumstances and conditions of the proposed sale or lease of personally identifiable information. The information may include a presentation of the debtor's privacy policy, potential losses or gains of privacy to consumers if the sale or lease is approved, potential costs or benefits to consumers if the sale or lease is approved, and possible alternatives that would mitigate potential privacy losses or costs to consumers. Section 232 prohibits the ombudsman from disclosing any personally identifiable information obtained in the case by such individual. In addition, the provision amends Bankruptcy Code section 330(a)(1) to permit an ombudsman to be compensated.

Sec. 233. Prohibition on Disclosure of Name of Minor Children. Section 233 of the Act adds a new provision to the Bankruptcy Code (section 112) specifying that a debtor may be required to provide information regarding his or her minor child in connection with the bankruptcy case, but such debtor may not be required to disclose the child's name in the public records. It provides, however, that the debtor may be required to disclose this information in a nonpublic record maintained by the court, which may be available for inspection by the United States trustee, trustee or an auditor, if any. Section 233 prohibits the court, United States trustee, trustee, or auditor from disclosing such minor child's name.

Sec. 234. Protection of Personal Information. Bankruptcy Code section 107, with certain exceptions, provides that all papers filed in a bankruptcy case are public records. Exceptions include trade secrets, confidential research, and scandalous or defamatory matter. Section 234(a) adds a new provision to section 107 that permits a bankruptcy court to prohibit the disclosure of certain types of information concerning an individual to the extent the court finds that disclosure of such information would create undue risk of identity theft or other unlawful injury to the individual or the individual's property. The protected information includes any means of identification as defined in 18 U.S.C. Sec. 1028(d) that is contained in a document filed in a bankruptcy case. The bankruptcy court must provide access to information protected under this new provision to an entity acting pursuant to the police or regulatory power of a domestic governmental unit upon ex parte application demonstrating cause. The provision also provides that the United States trustee, bankruptcy administrator, trustee, and any auditor serving pursuant to section 586(f) of title 28 of the United States Code shall have access to all information contained in a bankruptcy case and that such persons shall not disclose information specifically protected by the court. Section 234(b) amends Bankruptcy Code section 342(c), which requires a debtor to disclose in any notice required by the debtor to be given to a creditor to include the debtor's taxpayer identification number. Section 234(b) requires the debtor only to supply the last four digits of the taxpayer identification number. If, however, the notice concerns an amendment that adds a creditor to the schedules of assets or liabilities, the debtor must include the full taxpayer identification number in the notice sent to such creditor. The notice filed with the court must only include the last four digits of such notice.

TITLE III. DISCOURAGING BANKRUPTCY ABUSE

Sec. 301. Technical Amendments. Section 301 of the Act makes a clarifying amendment to section 523(a)(17) of the Bankruptcy Code concerning the dischargeability of court fees incurred by prisoners. Section 523(a)(17) was added to the Bankruptcy Code by the Omnibus Consolidated Rescissions and Appropriations Act of 1996 85

[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).]

Sec. 302. Discouraging Bad Faith Repeat Filings. Section 302 of the Act amends section 362(c) of the Bankruptcy Code to terminate the automatic stay within 30 days in a chapter 7, 11, or 13 case filed by or against an individual if such individual was a debtor in a previously dismissed case pending within the preceding one-year period. The provision does not apply to a case refiled under a chapter other than chapter 7 after dismissal of the prior chapter 7 case pursuant to section 707(b) of the Bankruptcy Code. Upon motion of a party in interest, the court may continue the automatic stay after notice and a hearing completed prior to the expiration of the 30-day period if such party demonstrates that the latter case was filed in good faith as to the creditors who are stayed by the filing.

For purposes of this provision, a case is presumptively not filed in good faith as to all creditors (but such presumption may be rebutted by clear and convincing evidence) if: (1) more than one bankruptcy case under chapter 7, 11 or 13 was previously filed by the debtor within the preceding one-year period; (2) the prior chapter 7, 11, or 13 case was dismissed within the preceding year for the debtor's failure to (a) file or amend without substantial excuse a document required under the Bankruptcy Code or court order, (b) provide adequate protection ordered by the court, or (c) perform the terms of a confirmed plan; or (3) there has been no substantial change in the debtor's financial or personal affairs since the dismissal of the prior case, or there is no reason to conclude that the pending case will conclude either with a discharge (if a chapter 7 case) or confirmation (if a chapter 11 or 13 case). In addition, section 302 provides that a case is presumptively deemed not to be filed in good faith as to any creditor who obtained relief from the automatic stay in the prior case or sought such relief in the prior case and such action was pending at the time of the prior case's dismissal. The presumption may be rebutted by clear and convincing evidence. A similar presumption applies if two or more bankruptcy cases were pending in the one-year preceding the filing of the pending case.

Sec. 303. Curbing Abusive Filings. Section 303 of the Act is intended to reduce abusive filings. Subsection (a) amends Bankruptcy Code section 362(d) to add a new ground for relief from the automatic stay. Under this provision, cause for relief from the automatic stay may be established for a creditor whose claim is secured by an interest in real property, if the court finds that the filing of the bankruptcy case was part of a scheme to delay, hinder and defraud creditors that involved either: (1) a transfer of all or part of an ownership interest in real property without such creditor's consent or without court approval; or (2) multiple bankruptcy filings affecting the real property. If recorded in compliance with applicable state law governing notice of an interest in or a lien on real property, an order entered under this provision is binding in any other bankruptcy case for two years from the date of entry of such order. A debtor in a subsequent case may move for relief based upon changed circumstances or for good cause shown after notice and a hearing. Section 303(a) further provides that any federal, state or local governmental unit that accepts a notice of interest or a lien in real property, must accept a certified copy of an order entered under this provision.

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

Sec. 304. Debtor Retention of Personal Property Security. Section 304(1) of the Act amends section 521(a) of the Bankruptcy Code to provide that an individual who is a chapter 7 debtor may not retain possession of personal property securing, in whole or in part, a purchase money security interest unless the debtor, within 45 days after the first meeting of creditors, enters into a reaffirmation agreement with the creditor, or redeems the property. If the debtor fails to so act within the prescribed period, the property is not subject to the automatic stay and is no longer property of the estate. An exception applies if the court: (1) determines on motion of the trustee filed before the expiration of the 45-day period that the property has consequential value or would benefit the bankruptcy estate; (2) orders adequate protection of the creditor's interest; and (3) directs the debtor to deliver any collateral in the debtor's possession. Section 304(2) amends section 722 to clarify that a chapter 7 debtor must pay the redemption value in full at the time of redemption.

Sec. 305. Relief from the Automatic Stay When the Debtor Does Not Complete Intended Surrender of Consumer Debt Collateral. Paragraph (1) of section 305 of the Act amends Bankruptcy Code section 362 to terminate the automatic stay with respect to personal property of the estate or of the debtor in a chapter 7, 11, or 13 case (where the debtor is an individual) that secures a claim (in whole or in part) or is subject to an unexpired lease if the debtor fails to: (1) file timely a statement of intention as required by section 521(a)(2) of the Bankruptcy Code with respect to such property; or (2) indicate in such statement whether the property will be surrendered or retained, and if retained, whether the debtor will redeem the property or reaffirm the debt, or assume an unexpired lease, if the trustee does not. Likewise, the automatic stay is terminated if the debtor fails to take the action specified in the statement of intention in a timely manner, unless the statement specifies reaffirmation and the creditor refuses to enter into the reaffirmation agreement on the original contract terms. In addition to terminating the automatic stay, this provision renders such property to be no longer property of the estate. An exception pertains where the court determines, on the motion of the trustee made prior to the expiration of the applicable time period under section 521(a)(2), and after notice and a hearing, that such property is of consequential value or benefit to the estate, orders adequate protection of the creditor's interest, and directs the debtor to deliver any collateral in the debtor's possession.

Section 305(2) amends section 521 of the Bankruptcy Code to make the requirement to file a statement of intention applicable to all secured debts, not just secured consumer debts. In addition, it requires the debtor to effectuate his or her stated intention within 30 days from the first date set for the meeting of creditors. If the debtor fails to timely undertake certain specified actions with respect to property that a lessor or bailor owns and has leased, rented or bailed to the debtor or in which a creditor has a security interest (not otherwise avoidable under section 522(f), 544, 545, 547, 548 or 549 of the Bankruptcy Code), then nothing in the Bankruptcy Code shall prevent or limit the operation of a provision in a lease or agreement that places the debtor in default by reason of the debtor's bankruptcy or insolvency.

Sec. 306. Giving Secured Creditors Fair Treatment in Chapter 13. Subsection (a) of section 306 of the Act amends Bankruptcy Code section 1325(a)(5)(B)(i) to require--as a condition of confirmation--that a chapter 13 plan provide that a secured creditor retain its lien until the earlier of when the underlying debt is paid or the debtor receives a discharge. If the case is dismissed or converted prior to completion of the plan, the secured creditor is entitled to retain its lien to the extent recognized under applicable nonbankruptcy law.

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

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

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

Sec. 307. Domiciliary Requirements for Exemptions. Section 307 of the Act amends section 522(b)(2)(A) of the Bankruptcy Code to extend the time that a debtor must be domiciled in a state from 180 days to 730 days before he or she may claim that state's exemptions. If the debtor's domicile has not been located in a single state for the 730-day period, then the state where the debtor was domiciled in the 180-day period preceding the 730-day period (or the longer portion of such 180-day period) controls. If the effect of this provision is to render the debtor ineligible for any exemption, the debtor may elect to exempt property of the kind described in the Federal exemption notwithstanding the state has opted out of the Federal exemption allowances.

Sec. 308. Reduction of Homestead Exemption for Fraud. Section 308 amends section 522 of the Bankruptcy Code to reduce the value of a debtor's interest in the following property that may be claimed as exempt under certain circumstances: (i) real or personal property that the debtor or a dependent of the debtor uses as a residence, (ii) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, (iii) a burial plot, or (iv) real or personal property that the debtor or dependent of the debtor claims as a homestead. Where nonexempt property is converted to the above-specified exempt property within the ten-year period preceding the filing of the bankruptcy case, the exemption must be reduced to the extent such value was acquired with the intent to hinder, delay or defraud a creditor.

Sec. 309. Protecting Secured Creditors in Chapter 13 Cases. Section 309(a) of the Act amends Bankruptcy Code section 348(f)(1)(B) to provide that valuations of property and allowed secured claims in a chapter 13 case only apply if the case is subsequently converted to one under chapter 11 or 12. If the chapter 13 case is converted to one under chapter 7, then the creditor holding security as of the petition date shall continue to be secured unless its claim was paid in full as of the conversion date. In addition, unless a prebankruptcy default has been fully cured at the time of conversion, then the default in any bankruptcy proceeding shall have the effect given under applicable nonbankruptcy law.

Section 309(b) amends section 365 of the Bankruptcy Code to provide that if a lease of personal property is rejected or not assumed by the trustee in a timely manner, such property is no longer property of the estate and the automatic stay under 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.

Sec. 310. Limitation on Luxury Goods. Section 310 amends section 523(a)(2)(C) of the Bankruptcy Code. Under current law, consumer debts owed to a single creditor that, in the aggregate, exceed $1,075 for luxury goods or services incurred within 60 days before the commencement of the case are presumed to be nondischargeable. As amended, the presumption applies if the aggregate amount of consumer debts for luxury goods or services is more than $500 for luxury goods or services incurred by an individual debtor within 90 days before the order for relief. With respect to cash advances, current law provides that cash advances aggregating more than $1,075 that are extensions of consumer credit under an open-end credit plan obtained by an individual debtor within 60 days before the case is filed are presumed to be nondischargeable. As amended, section 523(a)(2)(C) presumes that cash advances aggregating more than $750 and that are incurred within 70 days are nondischargeable. The term, `luxury goods or services,' does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor. In addition, `an extension of consumer credit under an open-end credit plan' has the same meaning as this term has under the Consumer Credit Protection Act.

Sec. 311. Automatic Stay. Section 311 of the Act amends section 362(b) of the Bankruptcy Code to except from the automatic stay a judgment of eviction with respect to a residential leasehold under certain circumstances. It is the intent of this provision to create an exception to the automatic stay of section 362(a)(3) to permit the recovery of possession by rental housing providers of their property in certain circumstances where a judgment for possession has been obtained against a debtor/resident before the filing of the petition for bankruptcy. Section 311 is intended to apply to manufactured housing communities, where tenants own their own homes and pay monthly rent to community owners for the land upon which their home sits. Tenants who fail to pay rent for the land beneath their homes located in manufactured housing communities would no longer be able to avoid their rental obligations under the protection of the automatic stay. It is also the intent of this section to permit eviction actions based on illegal use of controlled substances or endangering property in certain circumstances.

Section 311 gives tenants a reasonable amount of time after filing the petition to cure the default giving rise to the judgment for possession as long as there are circumstances in which applicable 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).]

Sec. 312. Extension of Period Between Bankruptcy Discharges. Section 312 of the Act amends section 727(a)(8) of the Bankruptcy Code to extend the period before which a chapter 7 debtor may receive a subsequent chapter 7 discharge from six to eight years. It also amends section 1328 to prohibit the issuance of a discharge in a subsequent chapter 13 case if the debtor received a discharge in a prior chapter 7, 11, or 12 case within four years preceding the filing of the subsequent chapter 13 case. In addition, it prohibits the issuance of a discharge in a subsequent chapter 13 case if the debtor received a discharge in a chapter 13 case filed during the two-year period preceding the date of the filing of the subsequent chapter 13 case.

Sec. 313. Definition of Household Goods and Antiques. Subsection (a) of section 313 of the Act amends section 522(f) of the Bankruptcy Code to codify a modified version of the Federal Trade Commission's definition of `household goods' for purposes of the avoidance of a nonpossessory, nonpurchase money lien in such property. It also specifies various items that are expressly not household goods. Section 313 specifies a monetary threshold for the exclusions pertaining to electronic entertainment equipment, antiques, and jewelry. In addition, it provides that works of art are not household goods, unless by or of the debtor or by any relative of the debtor. Section 313(b) requires the Director of the Executive Office for United States Trustees to prepare a report containing findings with respect to the use of this definition. The report may include recommendations for amendments to the definition of `household goods' as codified in section 522(f)(4).

Sec. 314. Debt Incurred To Pay Nondischargeable Debts. Subsection (a) of section 314 of the Act amends section 523(a) of the Bankruptcy Code to make a debt incurred to pay a nondischargeable tax owed to a governmental unit (other than a tax owed to the United States) nondischargeable. Section 314(b) amends section 1328(a) of the Bankruptcy Code to make the following additional debts nondischargeable in a chapter 13 case: (1) debts for money, property, services, or extensions of credit obtained through fraud or by a false statement in writing under section 523(a)(2)(A) and (B) of the Bankruptcy Code; (2) consumer debts owed to a single creditor that aggregate to more than $500 for luxury goods or services incurred by an individual debtor within 90 days before the filing of the bankruptcy case, and cash advances aggregating more than $750 that are extensions of consumer credit obtained by a debtor under an open-end credit plan within 70 days before the order for relief under section 523(a)(2)(C) (as amended); (3) pursuant to section 523(a)(3) of the Bankruptcy Code, debts that require a timely request for a dischargeability determination, if the creditor lacks notice or does not have actual knowledge of the case in time to make such request; (4) debts resulting from fraud or defalcation by the debtor acting as a fiduciary under section 523(a)(4) of the Bankruptcy Code; and (5) debts for restitution or damages, awarded in a civil action against the debtor as a result of willful or malicious conduct by the debtor that caused personal injury to an individual or the death of an individual.

Sec. 315. Giving Creditors Fair Notice in Chapters 7 and 13 Cases. Section 315 of the Act amends several provisions of the Bankruptcy Code. Subsection (a) amends Bankruptcy Code section 342(c) to delete the provision specifying that the failure of a notice to include certain information required to be given by a debtor to a creditor does not invalidate the notice's legal effect. It adds a provision requiring a debtor to send any notice he or she must provide under the Bankruptcy Code to the address stated by the creditor and to include in such notice the current account number, if within 90 days prior to the date that the debtor filed for bankruptcy relief the creditor in at least two communications sent to the debtor set forth such address and account number. If the creditor would be in violation of applicable nonbankruptcy law by sending any such communication during this time period, then the debtor must send the notice to the address provided by the creditor stated in the last two communications containing the creditor's address and such notice shall include the current account number. Section 315(a) also permits a creditor in a chapter 7 or 13 case (where the debtor is an individual) to file with the court and serve on the debtor the address to be used to notify such creditor in that case. Five days after receipt of such notice, the court and the debtor, respectively, must use the address so specified to provide notice to such creditor.

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

Section 315(b) amends section 521 to specify additional duties of a debtor. This provision requires the debtor to file a certificate executed by the debtor's attorney or bankruptcy petition preparer stating that the attorney or preparer supplied the debtor with the notice required under Bankruptcy Code section 342(b). If the debtor is not represented by counsel and did not use the services of a 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.

Sec. 316. Dismissal for Failure To Timely File Schedules or Provide Required Information. Section 316 of the Act amends section 521 of the Bankruptcy Code to provide that if an individual debtor in a voluntary chapter 7 or chapter 13 case fails to file all of the information required under section 521(a)(1) within 45 days of the date on which the case is filed, the case must be automatically dismissed, effective on the 46th day. The 45-day period may be extended for an additional 45-day period providing the debtor requests such extension prior to the expiration of the original 45-day period and the court finds justification for such extension. Upon request of a party in interest, the court must enter an order of dismissal within 5 days of such request. Section 316 provides that a court may decline to dismiss the case if: (1) the trustee files a motion before the stated time periods; (2) the court finds, after notice and a hearing, that the debtor in good faith attempted to file all the information required under section 521(a)(1)(B)(iv); and (3) the court finds that the best interests of creditors would be served by continued administration of the case.

Sec. 317. Adequate Time To Prepare for Hearing on Confirmation of the Plan. Section 317 of the Act amends section 1324 of the Bankruptcy Code to require the chapter 13 confirmation hearing to be held not earlier than 20 days following the first date set for the meeting of creditors and not later than 45 days from this date, unless the court determines that it would be in the best interests of creditors and the estate to hold such hearing at an earlier date and there is no objection to such earlier date.

Sec. 318. Chapter 13 Plans To Have a 5-Year Duration in Certain Cases. Paragraph (1) of section 318 of the Act amends Bankruptcy Code sections 1322(d) and 1325(b) to specify that a chapter 13 plan may not provide for payments over a period that is not less than five years if the current monthly income of the debtor and the debtor's spouse combined exceeds certain monetary thresholds. If the current monthly income of the debtor and the debtor's spouse fall below these thresholds, then the duration of the plan may not be longer than three years, unless the court, for cause, approves a longer period up to five years. The applicable commitment period may be less if the plan provides for payment in full of all allowed unsecured claims over a shorter period. Section 318(2), (3), and (4) make conforming amendments to sections 1325(b) and 1329(c) of the Bankruptcy Code.

Sec. 319. Sense of Congress Regarding Expansion of Rule 9011 of the Federal Rules of Bankruptcy Procedure. Section 319 of the Act expresses a sense of the Congress that Federal Rule of Bankruptcy Procedure 9011 be modified to require that all documents (including schedules), whether signed or unsigned, supplied to the court or the trustee by a debtor may be submitted only after the debtor or the debtor's attorney has made reasonable inquiry to verify that the information contained in such documents is well-grounded in fact and warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law.

Sec. 320. Prompt Relief from Stay in Individual Cases. Section 320 of the Act amends section 362(e) of the Bankruptcy Code to terminate the automatic stay in a chapter 7, 11, or 13 case of an individual debtor within 60 days following a request for relief from the stay, unless the bankruptcy court renders a final decision prior to the expiration of the 60-day time period, such period is extended pursuant to agreement of all parties in interest, or a specific extension of time is required for good cause as described in findings made by the court.

Sec. 321. Chapter 11 Cases Filed by Individuals. Section 321(a) of the Act creates a new provision under chapter 11 of the Bankruptcy Code specifying that property of the estate of an individual debtor includes, in addition to that identified in section 541 of the Bankruptcy Code, all property of the kind described in section 541 that the debtor acquires after commencement of the case, but before the case is closed, dismissed or converted to a case under chapter 7, 12, or 13 (whichever occurs first). In addition, it includes earnings from services performed by the debtor after commencement of the case, but before the case is closed, dismissed or converted to a case under chapter 7, 12, or 13. Except as provided in section 1104 of the Bankruptcy Code or the order confirming a chapter 11 plan, section 321(a) provides that the debtor remains in possession of all property of the estate.

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

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

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

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

Sec. 322. Limitations on Homestead Exemption. Section 322(a) amends section 522 of the Bankruptcy Code to impose an aggregate monetary limitation of $125,000, subject to Bankruptcy Code sections 544 and 548, on the value of property that the debtor may claim as exempt under State or local law pursuant to section 522(b)(3)(A) under certain circumstances. The monetary cap applies if the debtor acquired such property within the 1,215-day period preceding the filing of the petition and the property consists of any of the following: (1) real or personal property of the debtor or that a dependent of the debtor uses as a residence; (2) an interest in a cooperative that owns property, which the debtor or the debtor's dependent uses as a residence; (3) a burial plot for the debtor or the debtor's dependent; or (4) real or personal property that the debtor or dependent of the debtor claims as a homestead. This limitation does not apply to a principal residence claimed as exempt by a family farmer. In addition, the limitation does not apply to any interest transferred from a debtor's principal residence (which was acquired prior to the beginning of the specified time period) to the debtor's current principal residence, if both the previous and current residences are located in the same State.

Section 322(a) further amends section 522 to add a provision that does not allow a debtor to exempt any amount of an interest in property described in the preceding paragraph in excess of $125,000 if any of the following applies:

1. ÌThe court determines, after notice and a hearing, that the debtor has been convicted of a felony (as defined in section 3156 of title 18), which under the circumstance demonstrates that the filing of the case was an abuse of the provisions of the Bankruptcy Code; or

2. Ìdebtor owes a debt arising from:

a. Ìany violation of the Federal securities laws defined in section 3(a)(47) of the Securities and Exchange Act of 1934, any state securities laws, or any regulation or order issued under Federal securities laws or state securities laws;

b. Ìfraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934, or under section 6 of the Securities Act of 1933;

c. Ìany civil remedy under section 1964 of title 18 of the United States Code; or

d. Ìany criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death to another individual in the preceding five years.

An exception to the monetary limit applies to the extent the value of the homestead property is reasonably necessary for the support of the debtor and any dependent of the debtor. The monetary limitation set forth in section 322(a) is subject to automatic adjustment pursuant to section 104 of the Bankruptcy Code.

Sec. 323. Excluding Employee Benefit Plan Participant Contributions and Other Property from the Estate. Section 323 of the Act amends section 541(b) of the Bankruptcy Code to exclude as property of the estate funds withheld or received by an employer from its employees' wages for payment as contributions to specified employee retirement plans, deferred compensation plans, and tax-deferred annuities. Such contributions do not constitute disposable income as defined in section 1325(b)(2) of the Bankruptcy Code. Section 323 also excludes as property of the estate funds withheld by an employer from the wages of its employees for payment as contributions to health insurance plans regulated by State law.

Sec. 324. Exclusive Jurisdiction in Matters Involving Bankruptcy Professionals. Section 324 of the Act amends section 1334 of title 28 of the United State Code to give a district court exclusive jurisdiction of all claims or causes of action involving the construction of section 327 of the Bankruptcy Code or rules relating to disclosure requirements under such provision.

Sec. 325. United States Trustee Program Filing Fee Increase. Section 325(a) of the Act amends section 1930(a) of title 28 of the United States Code to increase the chapter 7 filing fee from $155 to $200 and decrease the chapter 13 filing fee from $155 to $150. It also increases the chapter 11 filing fee from $800 to $1,000. Subsection 325(b) amends section 589a of title 28 of the United States Code to reallocate the percentage of certain filing fees collected for the United States Trustee Fund. Subsection 325(c) amends section 406(b) of the Judiciary Appropriations Act of 1990 to reallocate the percentage of certain filing fees collected under section 1930 of title 28 of the United States Code to fund the operation and maintenance of the Federal court system. Section 325(d) provides that the amendments made by subsections (b) and (c) are effective for the two-year period beginning on the Act's date of enactment. Section 325(e)(1) mandates that the amount of fees collected under 28 U.S.C. Sec. 1930(a)(1) (chapter 7 filing fees) and 28 U.S.C. 1930(a)(3) (chapter 11 filing fees) that is greater than the amount that would have been collected if these provisions were not amended by section 325 be allocated to the extent necessary to pay for the salaries and benefits of judges appointed pursuant to section 1223 of this Act. Section 325(e)(2) provides that any amount of fees in excess of that used to pay the salaries and benefits of judges appointed pursuant to section 1223 be deposited in the Treasury to the extent necessary to offset the decrease in governmental receipts resulting from the amendments made by section 325(b) (United States Trustee Fund) and section 325(c) (federal court system fund).

Sec. 326. Sharing of Compensation. Section 326 amends Bankruptcy Code section 504 to create a limited exception to the prohibition against fee sharing. The provision allows the sharing of compensation with bona fide public service attorney referral programs that operate in accordance with non-federal law regulating attorney referral services and with rules of professional responsibility applicable to attorney acceptance of referrals.

Sec. 327. Fair Valuation of Collateral. Section 327 of the Act amends section 506(a) of the Bankruptcy Code to provide that the value of an allowed claim secured by personal property that is an asset in an individual debtor's chapter 7 or 13 case is determined based on the replacement value of such property as of the filing date of the bankruptcy case without deduction for selling or marketing costs. With respect to property acquired for personal, family, or household purposes, replacement value is the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time its value is determined.

Sec. 328. Defaults Based on Nonmonetary Obligations. Subsection (a)(1) of section 328 of the Act amends section 365(b) to provide that a trustee does not have to cure a default that is a breach of a provision (other than a penalty rate or penalty provision) relating to a default arising from any failure to perform a nonmonetary obligation under an unexpired lease of real property, if it is impossible for the trustee to cure the default by performing such nonmonetary act at and after the time of assumption. If the default arises from a failure to operate in accordance with a nonresidential real property lease, the default must be cured by performance at and after the time of assumption in accordance with the lease. Pecuniary losses resulting from such default must be compensated pursuant to section 365(b)(1). In addition, section 328(a)(1) amends section 365(b)(2)(D) to clarify that it applies to penalty provisions. Section 328(a)(2) through (4) make technical revisions to section 365(c), (d) and (f) by deleting language that is no longer effective pursuant to the Rail Safety Enforcement and Review Act. 87

[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.

Sec. 329. Clarification of Postpetition Wages and Benefits. Section 329 amends Bankruptcy Code section 503(b)(1)(A) to accord administrative expense status to certain back pay awards. This provision applies to a back pay award attributable to any period of time occurring postpetition as a result of a violation of Federal or state law by the debtor pursuant to an action brought in a court or before the National Labor Relations Board, providing the bankruptcy court determines that the award will not substantially increase the probability of layoff or termination of current employees or of nonpayment of domestic support obligations.

Sec. 330. Delay of Discharge During Pendency of Certain Proceedings. Section 330(a) of the Act amends section 727(a) of the Bankruptcy Code to require the court to withhold the entry of a debtor's discharge order if the court, after notice and a hearing, finds that there is reasonable cause to believe that there is a pending proceeding in which the debtor may be found guilty of a felony of the kind described in Bankruptcy Code section 522(q)(1) or liable for a debt of the kind described in Bankruptcy Code section 522(q)(2). Subsections (b), (c), and (d) make comparable revisions to the discharge provisions under chapter 11, 12, and 13, respectively.

Sec. 331. Limitation on Retention Bonuses, Severance Pay, and Certain Other Payments. Section 331 amends Bankruptcy Code section 503 to prohibit the allowance or payment of certain transfers or obligations, unless otherwise authorized by the court. It applies to transfers made to or obligations incurred for the benefit of an insider of the debtor for the purpose of inducing such person to remain with the debtor's business, unless the court makes certain specified findings. In addition, it prohibits a severance payment to an insider of a debtor, unless it satisfies certain criteria. Further, it prohibits the payment of other transfers or obligations that are outside the ordinary course of business and not justified by the facts and circumstances of the case, including transfers made to, or obligations incurred for the benefit of, officers, mangers, or consultants hired after the date of the filing of the petition.

Sec. 332. Fraudulent Involuntary Bankruptcy. Bankruptcy Code section 303 permits a creditor to force an individual or business into bankruptcy by filing an involuntary bankruptcy petition against such entity. Before an order for relief is entered in the case, the court must make certain findings that support granting such relief (e.g., the debtor is generally not paying debts as they become due; or a custodian was appointed within the 120-day period preceding the filing of the petition). If such findings are not made, the court may dismiss the case. As with most documents filed in connection with a bankruptcy case, the filing of an involuntary bankruptcy petition is a matter of public record and is open for examination by any entity. 88

[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

Sec. 401. Adequate Protection for Investors. Subsection (a) of section 401 of the Act amends section 101 of the Bankruptcy Code to define `securities self regulatory organization' as a securities association or national securities exchange registered with the Securities and Exchange Commission. Section 401(b) amends section 362 of the Bankruptcy Code to except from the automatic stay certain enforcement actions by a securities self regulatory organization.

Sec. 402. Meetings of Creditors and Equity Security Holders. Section 402 amends section 341 of the Bankruptcy Code to permit a court, on request of a party in interest and after notice and a hearing, to order the United States trustee not to convene a meeting of creditors or equity security holders if a debtor has filed a plan for which the debtor solicited acceptances prior to the commencement of the case.

Sec. 403. Protection of Refinance of Security Interest. Section 403 amends section 547(e)(2) of the Bankruptcy Code to increase the perfection period from ten to 30 days for the purpose of determining whether a transfer is an avoidable preference.

Sec. 404. Executory Contracts and Unexpired Leases. Subsection (a) of section 404 of the Act amends section 365(d)(4) of the Bankruptcy Code to establish a firm, bright line deadline by which an unexpired lease of nonresidential real property must be assumed or rejected. If such lease is not assumed or rejected by such deadline, then such lease shall be deemed rejected, and the trustee shall immediately surrender such property to the lessor. Section 404(a) permits a bankruptcy trustee to assume or reject a lease on a date which is the earlier of the date of confirmation of a plan or the date which is 120 days after the date of the order for relief. An extension of time may be granted, within the 120 day period, for an additional 90 days, for cause, upon motion of the trustee or lessor. Any subsequent extension can only be granted by the judge upon the prior written consent of the lessor either by the lessor's motion for an extension or on motion of the trustee, provided that the trustee has the prior written approval of the lessor. This provision is designed to remove the bankruptcy judge's discretion to grant extensions of the time for the retail debtor to decide whether to assume or reject a lease after a maximum possible period of 210 days from the time of entry of the order of relief. Beyond that maximum period, the judge has no authority to grant further time unless the lessor has agreed in writing to the extension.

Section 404(b) amends section 365(f)(1) to assure that section 365(f) does not override any part of section 365(b). Thus, section 404(b) makes a trustee's authority to assign an executory contract or unexpired lease subject not only to section 365(c), but also to section 365(b), which is given full effect. Therefore, for example, assumption or assignment of a lease of real property in a shopping center must be subject to the provisions of the lease, such as use clauses.

Sec. 405. Creditors and Equity Security Holders Committees. Subsection (a) of section 405 of the Act amends section 1102(a)(2) of the Bankruptcy Code to permit, after notice and a hearing, a court, on request of a party in interest, to order a change in a committee's membership if necessary to ensure adequate representation of creditors or equity security holders in a chapter 11 case. It specifies that the court may direct the United States trustee to increase the membership of a committee for the purpose of including a small business concern if the court determines that such creditor's claim is of the kind represented by the committee and that, in the aggregate, is disproportionately large when compared to the creditor's annual gross revenue.

Section 405(b) requires the committee to give creditors having claims of the kind represented by the committee access to information. In addition, the committee must solicit and receive comments from these creditors and, pursuant to court order, make additional reports or disclosures available to them.

Sec. 406. Amendment to Section 546 of Title 11, United States Code. Section 406 of the Act corrects an erroneous subsection designation in section 546 of the Bankruptcy Code. It redesignates the second subsection (g) as subsection (i). In addition, section 406 amends section 546(i) (as redesignated) to subject that provision to the prior rights of security interest holders. Further, section 406 adds a new provision to section 546 that prohibits a trustee from avoiding a warehouse lien for storage, transportation, or other costs incidental to the storage and handling of goods. It specifies that this prohibition must be applied in a manner consistent with any applicable state statute that is similar to section 7-209 of the Uniform Commercial Code.

Sec. 407. Amendments to Section 330(a) of Title 11, United States Code. Section 407 amends section 330(a)(3) of the Bankruptcy Code to clarify that this provision applies to examiners, chapter 11 trustees, and professional persons. This section also amends section 330(a) to add a provision that requires a court, in determining the amount of reasonable compensation to award to a trustee, to treat such compensation as a commission pursuant to section 326 of the Bankruptcy Code.

Sec. 408. Postpetition Disclosure and Solicitation. Section 408 amends section 1125 of the Bankruptcy Code to permit an acceptance or rejection of a chapter 11 plan to be solicited from the holder of a claim or interest if the holder was solicited before the commencement of the case in a manner that complied with applicable nonbankruptcy law.

Sec. 409. Preferences. Section 409 amends section 547(c)(2) of the Bankruptcy Code to provide that a trustee may not avoid a transfer to the extent such transfer was in payment of a debt incurred by the debtor in the ordinary course of the business or financial affairs of the debtor and the transferee and such transfer was made either: (1) in the ordinary course of the debtor's and the transferee's business or financial affairs; or (2) in accordance with ordinary business terms. Present law requires the recipient of a preferential transfer to establish both of these grounds in order to sustain a defense to a preferential transfer proceeding. In a case in which the debts are not primarily consumer debts, section 409 provides that a transfer may not be avoided if the aggregate amount of all property constituting or affected by the transfer is less than $5,000.

Sec. 410. Venue of Certain Proceedings. Section 1409(b) of title 28 of the United States Code provides that a proceeding to recover a money judgment of, or property worth less than, certain specified amounts must be commenced in the district where the defendant resides. Section 410 amends section 1409(b) to provide that a proceeding to recover a debt (excluding a consumer debt) against a noninsider of the debtor that is less than $10,000 must be commenced in the district where the defendant resides. In addition, section 410 increases the $5,000 threshold for a consumer debt 99

[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).]

Sec. 411. Period for Filing Plan under Chapter 11. Section 411 amends section 1121(d) of the Bankruptcy Code to mandate that a debtor's exclusive period for filing a plan may not be extended beyond a date that is 18 months after the order for relief in the chapter 11 case. In addition, it provides that the debtor's exclusive period for obtaining acceptances of the plan may not be extended beyond 20 months after the order for relief.

Sec. 412. Fees Arising from Certain Ownership Interests. Section 412 amends section 523(a)(16) of the Bankruptcy Code to broaden the protections accorded to community associations with respect to fees or assessments arising from the debtor's interest in a condominium, cooperative, or homeowners' association. Irrespective of whether or not the debtor physically occupies such property, fees or assessments that accrue during the period the debtor or the trustee has a legal, equitable, or possessory ownership interest in such property are nondischargeable.

Sec. 413. Creditor Representation at First Meeting of Creditors. Section 413 amends section 341(c) of the Bankruptcy Code to permit a creditor holding a consumer debt or any representative of such creditor, notwithstanding any local court rule, provision of a state constitution, or any otherwise applicable nonbankruptcy law, or any other requirement that such creditor must be represented by counsel, to appear at and participate in a section 341 meeting of creditors in chapter 7 and chapter 13 cases either alone or in conjunction with an attorney. In addition, the provision clarifies that it cannot be construed to require a creditor to be represented by counsel at any meeting of creditors.

Sec. 414. Definition of Disinterested Person. Section 414 amends section 101(14) of the Bankruptcy Code to eliminate the requirement that an investment banker be a disinterested person.

Sec. 415. Factors for Compensation of Professional Persons. Section 415 amends section 330(a)(3) of the Bankruptcy Code to permit the court to consider, in awarding compensation to a professional person, whether such person is board certified or otherwise has demonstrated skill and experience in the practice of bankruptcy law.

Sec. 416. Appointment of Elected Trustee. Section 416 of the Act amends section 1104(b) of the Bankruptcy Code to clarify the procedure for the election of a trustee in a chapter 11 case. Section 1104(b) permits creditors to elect an eligible, disinterested person to serve as the trustee in the case, provided certain conditions are met. Section 416 amends this provision to require the United States trustee to file a report certifying the election of a chapter 11 trustee. Upon the filing of the report, the elected trustee is deemed to be selected and appointed for purposes of section 1104 and the service of any prior trustee appointed in the case is terminated. Section 416 also clarifies that the court shall resolve any dispute arising out of a chapter 11 trustee election.

Sec. 417. Utility Service. Section 417 amends section 366 of the Bankruptcy Code to provide that assurance of payment, for purposes of this provision, includes a cash deposit, letter of credit, certificate of deposit, surety bond, prepayment of utility consumption, or other form of security that is mutually agreed upon by the debtor or trustee and the utility. It also specifies that an administrative expense priority does not constitute an assurance of payment. With respect to chapter 11 cases, section 417 permits a utility to alter, refuse or discontinue service if it does not receive adequate assurance of payment that is satisfactory to the utility within 30 days of the filing of the petition. The court, upon request of a party in interest, may modify the amount of this payment after notice and a hearing. In determining the adequacy of such payment, a court may not consider: (1) the absence of security before the case was filed; (2) the debtor's timely payment of utility service charges before the case was filed; or (3) the availability of an administrative expense priority. Notwithstanding any other provision of law, section 417 permits a utility to recover or set off against a security deposit provided prepetition by the debtor to the utility without notice or court order.

Sec. 418. Bankruptcy Fees. Section 418 of the Act amends section 1930 of title 28 of the United States Code to permit a district court or a bankruptcy court, pursuant to procedures prescribed by the Judicial Conference of the United States, to waive the chapter 7 filing fee for an individual and certain other fees under subsections (b) and (c) of section 1930 if such individual's income is less than 150 percent of the official poverty level (as defined by the Office of Management and Budget) and the individual is unable to pay such fee in installments. Section 418 also clarifies that section 1930, as amended, does not prevent a district or bankruptcy court from waiving other fees for creditors and debtors, if in accordance with Judicial Conference policy.

Sec. 419. More Complete Information Regarding Assets of the Estate. Section 419 of the Act directs the Judicial Conference of the United States, after consideration of the views of the Director of the Executive Office for United States Trustees, to propose official rules and forms directing chapter 11 debtors to disclose information concerning the value, operations, and profitability of any closely held corporation, partnership, or other entity in which the debtor holds a substantial or controlling interest. Section 419 is intended to ensure that the debtor's interest in any of these entities is used for the payment of allowed claims against debtor.

Subtitle B. Small Business Bankruptcy Provisions

Sec. 431. Flexible Rules for Disclosure Statement and Plan. Section 431 of the Act amends section 1125 of the Bankruptcy Code to streamline the disclosure statement process and to provide for more flexibility. Section 431(1) amends section 1125(a)(1) of the Bankruptcy Code to require a bankruptcy court, in determining whether a disclosure statement supplies adequate information, to consider the complexity of the case, the benefit of additional information to creditors and other parties in interest, and the cost of providing such additional information. With regard to a small business case, section 431(2) amends section 1125(f) to permit the court to dispense with a disclosure statement if the plan itself supplies adequate information. In addition, it provides that the court may approve a disclosure statement submitted on standard forms approved by the court or adopted under section 2075 of title 28 of the United States Code. Further, section 431(2) provides that the court may conditionally approve a disclosure statement, subject to final approval after notice and a hearing, and allow the debtor to solicit acceptances of the plan based on such disclosure statement. The hearing on the disclosure statement may be combined with the confirmation hearing.

Sec. 432. Definitions. Section 432 of the Act amends section 101 of the Bankruptcy Code to define a `small business case' as a chapter 11 case in which the debtor is a small business debtor. Section 432, in turn, defines a `small business debtor' as a person engaged in commercial or business activities (including an affiliate of such person that is also a debtor, but excluding a person whose primary activity is the business of owning or operating real property or activities incidental thereto) having aggregate noncontingent, liquidated secured and unsecured debts of not more than $2 million (excluding debts owed to affiliates or insiders of the debtor) as of the date of the petition or the order for relief. This monetary definition applies only in a case where the United States trustee has not appointed a creditors' committee or where the court has determined that the creditors' committee is not sufficiently active and representative to provide effective oversight of the debtor. It does not apply to any member of a group of affiliated debtors that has aggregate noncontingent, liquidated secured and unsecured debts in excess of $2 million (excluding debts owed to one or more affiliates or insiders). This provision also requires this monetary figure to be periodically adjusted for inflation pursuant to section 104 of the Bankruptcy Code.

Sec. 433. Standard Form Disclosure Statement and Plan. Section 433 of the Act directs the Judicial Conference of the United States to propose for adoption standard form disclosure statements and reorganization plans for small business debtors. The provision requires the forms to achieve a practical balance between the needs of the court, case administrators, and other parties in interest to have reasonably complete information as well as the debtor's need for economy and simplicity.

Sec. 434. Uniform National Reporting Requirements. Subsection (a) of section 434 of the Act adds a provision to the Bankruptcy Code mandating additional reporting requirements for small business debtors. It requires a small business debtor to file periodic financial reports and other documents containing the following information with respect to the debtor's business operations: (1) profitability; (2) reasonable approximations of projected cash receipts and disbursements; (3) comparisons of actual cash receipts and disbursements with projections in prior reports; (4) whether the debtor is complying with postpetition requirements pursuant to the Bankruptcy Code and Federal Rules of Bankruptcy Procedure; (5) whether the debtor is timely filing tax returns and other government filings; and (6) whether the debtor is paying taxes and other administrative expenses when due. In addition, the debtor must report on such other matters that are in the best interests of the debtor and the creditors and in the public interest. If the debtor is not in compliance with any postpetition requirements pursuant to the Bankruptcy Code and Federal Rules of Bankruptcy Procedure, or is not filing tax returns or other required governmental filings, paying taxes and other administrative expenses when due, the debtor must report: (1) what the failures are, (2) how they will be cured; (3) the cost of their cure; and (4) when they will be cured. Section 434(b) specifies that the effective date of this provision is 60 days after the date on which the rules required under this provision are promulgated.

Sec. 435. Uniform Reporting Rules and Forms for Small Business Cases. Subsection (a) of section 435 of the Act directs the Judicial Conference of the United States to propose official rules and forms with respect to the periodic financial reports and other information that a small business debtor must file concerning its profitability, cash receipts and disbursements, filing of its tax returns, and payment of its taxes and other administrative expenses.

Section 435(b) requires the rules and forms to achieve a practical balance between the need for reasonably complete information by the bankruptcy court, United States trustee, creditors and other parties in interest, and the small business debtor's interest in having such forms be easy and inexpensive to complete. The forms should also be designed to help the small business debtor better understand its financial condition and plan its future.

Sec. 436. Duties in Small Business Cases. Section 436 of the Act is intended to implement greater administrative oversight and controls over small business chapter 11. The provision requires a chapter 11 trustee or debtor to:

1. Ìfile with a voluntary petition (or in an involuntary case, within seven days from the date of the order for relief) the debtor's most recent financial statements (including a balance sheet, statement of operations, cash flow statement, and Federal income tax return) or a statement explaining why such information is not available;

2. Ìattend, through its senior management personnel and counsel, meetings scheduled by the bankruptcy court or the United States trustee (including the initial debtor interview and meeting of creditors pursuant to section 341 of the Bankruptcy Code), unless the court waives this requirement after notice and a hearing upon a finding of extraordinary and compelling circumstances;

3. Ìtimely file all requisite schedules and the statement of financial affairs, unless the court, after notice and a hearing, grants an extension of up to 30 days from the order of relief, absent extraordinary and compelling circumstances;

4. Ìfile all postpetition financial and other reports required by the Federal Rules of Bankruptcy Procedure or by local rule of the district court;

5. Ìmaintain insurance that is customary and appropriate for the industry, subject to section 363(c)(2);

6. Ìtimely file tax returns and other required government filings;

7. Ìtimely pay all administrative expense taxes (except for certain contested claims), subject to section 363(c)(2); and

8. Ìpermit the United States trustee to inspect the debtor's business premises, books, and records at reasonable hours after appropriate prior written notice, unless notice is waived by the debtor.

Sec. 437. Plan Filing and Confirmation Deadlines. Section 437 of the Act amends section 1121(e) of the Bankruptcy Code with respect to the period of time within which a small business debtor must file and confirm a plan of reorganization. This provision provides that a small business debtor's exclusive period to file a plan is 180 days from the date of the order for relief, unless the period is extended after notice and a hearing, or the court, for cause, orders otherwise. It further provides that a small business debtor must file a plan and any disclosure statement not later than 300 days after the order for relief. These time periods and the time fixed in section 1129(e) may be extended only if: (1) the debtor, after providing notice to parties in interest, demonstrates by a preponderance of the evidence that it is more likely than not that the court will confirm a plan within a reasonable period of time; (2) a new deadline is imposed at the time the extension is granted; and (3) the order granting such extension is signed before the expiration of the existing deadline.

Sec. 438. Plan Confirmation Deadline. Section 438 of the Act amends Bankruptcy Code section 1129 to require the court to confirm a plan not later than 45 days after it is filed if the plan complies with the applicable provisions of the Bankruptcy Code, unless this period is extended pursuant to section 1121(e)(3).

Sec. 439. Duties of the United States Trustee. Section 439 of the Act amends section 586(a) of title 28 of the United States Code to require the United States trustee to perform the following additional duties with respect to small business debtors:

1. Ìconduct an initial debtor interview before the meeting of creditors for the purpose of (a) investigating the debtor's viability, (b) inquiring about the debtor's business plan, (c) explaining the debtor's obligation to file monthly operating reports, (d) attempting to obtain an agreed scheduling order setting various time frames (such as the date for filing a plan and effecting confirmation), and (e) informing the debtor of other obligations;

2. Ìif determined to be appropriate and advisable, inspect the debtor's business premises for the purpose of reviewing the debtor's books and records and verifying that the debtor has filed its tax returns;

3. Ìreview and monitor diligently the debtor's activities to determine as promptly as possible whether the debtor will be unable to confirm a plan; and

4. Ìpromptly apply to the court for relief in any case in which the United States trustee finds material grounds for dismissal or conversion of the case.

Sec. 440. Scheduling Conferences. Section 440 amends section 105(d) of the Bankruptcy Code to mandate that a bankruptcy court hold status conferences as are necessary to further the expeditious and economical resolution of a bankruptcy case.

Sec. 441. Serial Filer Provisions. Paragraph (1) of section 441 of the Act amends section 362 of the Bankruptcy Code to provide that a court may award only actual damages for a violation of the automatic stay committed by an entity in the good faith belief that subsection (h) of section 362 (as amended) applies to the debtor. Section 441(2) adds a new subsection to section 362 of the Bankruptcy Code specifying that the automatic stay does not apply where the chapter 11 debtor: (1) is a debtor in a small business case pending at the time the subsequent case is filed; (2) was a debtor in a small business case dismissed for any reason pursuant to an order that became final in the two-year period ending on the date of the order for relief entered in the pending case; (3) was a debtor in small business case in which a plan was confirmed in the two-year period ending on the date of the order for relief entered in the pending case; or (4) is an entity that has acquired substantially all of the assets or business of a small business debtor described in the preceding paragraphs, unless such entity establishes by a preponderance of the evidence that it acquired the assets or business in good faith and not for the purpose of evading this provision.

An exception to this provision applies to a chapter 11 case that is commenced involuntarily and involves no collusion between the debtor and the petitioning creditors. Also, it does not apply if the debtor proves by a preponderance of the evidence that: (1) the filing of the subsequent case resulted from circumstances beyond the debtor's control and which were not foreseeable at the time the prior case was filed; and (2) it is more likely than not that the court will confirm a feasible plan of reorganization (but not a liquidating plan) within a reasonable time.

Sec. 442. Expanded Grounds for Dismissal or Conversion and Appointment of Trustee. Subsection (a) of section 442 of the Act amends section 1112(b) of the Bankruptcy Code to mandate that the court convert or dismiss a chapter 11 case, whichever is in the best interests of creditors and the estate, if the movant establishes cause, absent unusual circumstances. In this regard, the court must specify the circumstances that support the court's finding that conversion or dismissal is not in the best interests of creditors and the estate.

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

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

1. Ìsubstantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation;

2. Ìgross mismanagement of the estate;

3. Ìfailure to maintain appropriate insurance that poses a material risk to the estate or the public;

4. Ìunauthorized use of cash collateral that is harmful to one or more creditors;

5. Ìfailure to comply with a court order;

6. Ìunexcused failure to timely satisfy any filing or reporting requirement under the Bankruptcy Code or applicable rule;

7. Ìfailure to attend the section 341 meeting of creditors or an examination pursuant to rule 2004 of the Federal Rules of Bankruptcy Procedure, without good cause shown by the debtor;

8. Ìfailure to timely provide information or to attend meetings reasonably requested by the United States trustee or bankruptcy administrator;

9. Ìfailure to timely pay taxes owed after the order for relief or to file tax returns due postpetition;

10. Ìfailure to file a disclosure statement or to confirm a plan within the time fixed by the Bankruptcy Code or pursuant to court order;

11. Ìfailure to pay any requisite fees or charges under chapter 123 of title 28 of the United States Code;

12. Ìrevocation of a confirmation order;

13. Ìinability to effectuate substantial consummation of a confirmed plan;

14. Ìmaterial default by the debtor with respect to a confirmed plan;

15. Ìtermination of a plan by reason of the occurrence of a condition specified in the plan; and

16. Ìthe debtor's failure to pay any domestic support obligation that first becomes payable postpetition

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

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

Sec. 443. Study of Operation of Title 11, United States Code, with Respect to Small Businesses. Section 443 of the Act directs the Administrator of the Small Business Administration, in consultation with the Attorney General, the Director of the Executive Office for United States Trustees, and the Director of the Administrative Office of the United States Courts, to conduct a study to determine: (1) the internal and external factors that cause small businesses (particularly sole proprietorships) to seek bankruptcy relief and the factors that cause small businesses to successfully complete their chapter 11 cases; and (2) how the bankruptcy laws may be made more effective and efficient in assisting small business to remain viable.

Sec. 444. Payment of Interest. Paragraph (1) of section 444 of the Act amends section 362(d)(3) of the Bankruptcy Code to require a court to grant relief from the automatic stay within 30 days after it determines that a single asset real estate debtor is subject to this provision. Section 444(2) amends section 362(d)(3)(B) to specify that relief from the automatic stay shall be granted unless the single asset real estate debtor has commenced making monthly payments to each creditor secured by the debtor's real property (other than a claim secured by a judgment lien or unmatured statutory lien) in an amount equal to the interest at the then applicable nondefault contract rate of interest on the value of the creditor's interest in the real estate. It allows a debtor in its sole discretion to make the requisite interest payments out of rents or other proceeds generated by the real property, notwithstanding section 363(c)(2).

Sec. 445. Priority for Administrative Expenses. Section 445 of the Act amends section 503(b) of the Bankruptcy Code to add a new administrative expense priority for a nonresidential real property lease that is assumed under section 365 and then subsequently rejected. The amount of the priority is the sum of all monetary obligations due under the lease (excluding penalties and obligations arising from or relating to a failure to operate) for the two-year period following the rejection date or actual turnover of the premises (whichever is later), without reduction or setoff for any reason, except for sums actually received or to be received from a nondebtor. Any remaining sums due for the balance of the term of the lease are treated as a claim under section 502(b)(6) of the Bankruptcy Code.

Sec. 446. Duties with Respect to a Debtor Who Is a Plan Administrator of an Employee Benefit Plan. Subsection (a) of section 446 of the Act amends Bankruptcy Code section 521(a) to require a debtor, unless a trustee is serving in the case, to serve as the administrator (as defined in the Employee Retirement Income Security Act of 1974) of an employee benefit plan if the debtor served in such capacity at the time the case was filed. Section 446(b) amends Bankruptcy Code section 704 to require the chapter 7 trustee to perform the obligations of such administrator in a case where the debtor or an entity designated by the debtor was required to perform such obligations. Section 446(c) amends Bankruptcy Code section 1106(a) to require a chapter 11 trustee to perform these obligations.

Sec. 447. Appointment of Committee of Retired Employees. This provision amends section 1114(d) of the Bankruptcy Code to clarify that it is the responsibility of the United States trustee to appoint members to a committee of retired employees.

TITLE V. MUNICIPAL BANKRUPTCY PROVISIONS

Sec. 501. Petition and Proceedings Related to Petition. Section 501 amends sections 921(d) and 301 of the Bankruptcy Code to clarify that the court must enter the order for relief in a chapter 9 case.

Sec. 502. Applicability of Other Sections to Chapter 9. Section 502 of the of the Act amends section 901 of the Bankruptcy Code to make the following sections applicable to chapter 9 cases:

1. Ìsection 555 (contractual right to liquidate, terminate or accelerate a securities contract);

2. Ìsection 556 (contractual right to liquidate, terminate or accelerate a commodities or forward contract);

3. Ìsection 559 (contractual right to liquidate, terminate or accelerate a repurchase agreement);

4. Ìsection 560 (contractual right to liquidate, terminate or accelerate a swap agreement);

5. Ìsection 561 (contractual right to liquidate, terminate, accelerate, or offset under a master netting agreement and across contracts); and

6. Ìsection 562 (damage measure in connection with swap agreements, securities contracts, forward contracts, commodity contracts, repurchase agreements, or master netting agreement).

TITLE VI. BANKRUPTCY DATA

Sec. 601. Improved Bankruptcy Statistics. This provision amends chapter 6 of title 28 of the United States Code to require the clerk for each district (or the bankruptcy court clerk if one has been certified pursuant to section 156(b) of title 28 of the United States Code) to collect certain statistics for chapter 7, 11, and 13 cases in a standardized format prescribed by the Director of the Administrative Office of the United States Courts and to make this information available to the public. Not later than July 1, 2008, the Director must submit a report to Congress concerning the statistical information collected and then must report annually thereafter. The statistics must be itemized by chapter of the Bankruptcy Code and be presented in the aggregate for each district. The specific categories of information that must be gathered include the following:

1. Ìscheduled total assets and liabilities of debtors who are individuals with primarily consumer debts under chapters 7, 11 and 13 by category;

2. Ìsuch debtors' current monthly income, average income, and average expenses;

3. Ìthe aggregate amount of debts discharged during the reporting period based on the difference between the total amount of scheduled debts and by categories that are predominantly nondischargeable;

4. Ìthe average time between the filing of the bankruptcy case and the closing of the case;

5. Ìthe number of cases in which reaffirmation agreements were filed, the total number of reaffirmation agreements filed, the number of cases in which the debtor was pro se and a reaffirmation agreement was filed, and the number of cases in which the reaffirmation agreement was approved by the court;

6. Ìfor chapter 13 cases, information on the number of: (a) final orders determining the value of secured property in an amount less than the amount of the secured claim, (b) final orders that determined the value of property securing a claim, (c) cases dismissed, (d) cases dismissed for failure to make payments under the plan, (e) cases refiled after dismissal, (f) cases in which the plan was completed (separately itemized with respect to the number of modifications made before completion of the plan, and (g) cases in which the debtor had previously sought bankruptcy relief within the six years preceding the filing of the present case;

7. Ìthe number of cases in which creditors were fined for misconduct and the amount of any punitive damages awarded for creditor misconduct; and

8. Ìthe number of cases in which sanctions under rule 9011 of the Federal Rules of Bankruptcy Procedure were imposed against a debtor's counsel and the damages awarded under this rule.

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

Sec. 602. Uniform Rules for the Collection of Bankruptcy Data. Section 602 of the Act amends chapter 39 of title 28 of the United States Code to require the Attorney General to promulgate rules mandating the establishment of uniform forms for final reports in chapter 7, 12 and 13 cases and periodic reports in chapter 11 cases. This provision also specifies that these reports be designed to facilitate compilation of data and to provide maximum public access by physical inspection at one or more central filing locations and by electronic access through the Internet or other appropriate media. The information should enable an evaluation of the efficiency and practicality of the bankruptcy system. In issuing rules, the Attorney General must consider: (1) the reasonable needs of the public for information about the Federal bankruptcy system; (2) the economy, simplicity, and lack of undue burden on persons obligated to file the reports; and (3) appropriate privacy concerns and safeguards.

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

1. Ìthe industry classification for businesses conducted by the debtor, as published by the Department of Commerce;

2. Ìthe length of time that the case was pending;

3. Ìthe number of full-time employees as of the date of the order for relief and at the end of each reporting period;

4. Ìcash receipts, cash disbursements, and profitability of the debtor for the most recent period and cumulatively from the date of the order for relief;

5. Ìthe debtor's compliance with the Bankruptcy Code, including whether tax returns have been filed and taxes have been paid;

6. Ìprofessional fees approved by the court for the most recent period and cumulatively from the date of the order for relief; and

7. Ìplans filed and confirmed, including the aggregate recoveries of holders by class and as a percentage of total claims of an allowed class.

Sec. 603. Audit Procedures. Subsection (a)(1) of section 603 of the Act requires the Attorney General (for judicial districts served by United States trustees) and the Judicial Conference of the United States (for judicial districts served by bankruptcy administrators) to establish procedures to determine the accuracy, veracity, and completeness of petitions, schedules and other information filed by debtors pursuant to sections 111, 521 and 1322 of the Bankruptcy Code. Section 603(a)(1) requires the audits to be conducted in accordance with generally accepted auditing standards and performed by independent certified public accountants or independent licensed public accountants. It permits the Attorney General and the Judicial Conference to develop alternative auditing standards not later than two years after the date of enactment of this Act. Section 603(a)(2) requires these procedures to: (1) establish a method of selecting appropriate qualified contractors to perform these audits; (2) establish a method of randomly selecting cases for audit, and that a minimum of at least one case out of every 250 cases be selected for audit; (3) require audits in cases where the schedules of income and expenses reflect greater than average variances from the statistical norm for the district if they occur by reason of higher income or higher expenses than the statistical norm in which the schedules were filed; and (4) require the aggregate results of such audits, including the percentage of cases by district in which a material misstatement of income or expenditures is reported, to be made available to the public on an annual basis.

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

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

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

TITLE VII. BANKRUPTCY TAX PROVISIONS

Sec. 701. Treatment of Certain Tax Liens. Subsection (a) of section 701 of the Act makes several amendments to section 724 of the Bankruptcy Code to provide greater protection for holders of tax liens on real or personal property of the estate, particularly holders of ad valorem tax liens. Many school boards obtain liens on real property to ensure collection of unpaid ad valorem taxes. Under current law, local governments are sometimes unable to collect these taxes despite the presence of a lien because they may be subordinated to certain claims and expenses as a result of section 724. Pursuant to section 701(a), subordination of ad valorem tax liens is still possible under section 724(b), but limited to the payment of: (1) claims for wages, salaries, and commissions entitled to priority under section 507(a)(4); and (2) claims for contributions to employee benefit plans entitled to priority under section 507(a)(5). Section 701(a) will also protect the holders of these tax liens as well as Federal tax liens from erosion of their claims' status by expenses incurred under chapter 11 of the Bankruptcy Code. Before a tax lien on real or personal property may be subordinated pursuant to section 724, the chapter 7 trustee must exhaust all other unencumbered estate assets and, consistent with section 506, recover reasonably necessary costs and expenses of preserving or disposing of such property.

Section 701(b) amends section 505(a)(2) of the Bankruptcy Code to prevent a bankruptcy court from determining the amount or legality of an ad valorem tax on real or personal property if the applicable period for contesting or redetermining the amount of the claim under nonbankruptcy law has expired.

Sec. 702. Treatment of Fuel Tax Claims. Section 702 of the Act amends section 501 of the Bankruptcy Code to simplify the process for filing of claims by states for certain fuel taxes. Rather than requiring each state to file a claim for these taxes (as is the case under current law), section 702 permits the designated `base jurisdiction' under the International Fuel Tax Agreement to file a claim on behalf of all states, which would then be allowed as a single claim.

Sec. 703. Notice of Request for a Determination of Taxes. Under current law, a trustee or debtor in possession may request a governmental unit to determine administrative tax liabilities in order to receive a discharge of those liabilities. There are no requirements as to the content or form of such notice to the government. Section 703 of the Act amends section 505(b) of the Bankruptcy Code to require the clerk of each district to maintain a list of addresses designated by governmental units for service of section 505 requests. In addition, the list may also include information concerning filing requirements specified by such governmental units. If a governmental entity does not designate an address and provide that address to the bankruptcy court clerk, any request made under section 505(b) of the Bankruptcy Code may be served at the address for the filing of a tax return or protest of the appropriate taxing authority of that governmental unit.

Sec. 704. Rate of Interest on Tax Claims. Under current law, there is no uniform rate of interest applicable to tax claims. As a result, varying standards have been used to determine the applicable rate. Section 704 of the Act amends the Bankruptcy Code to add section 511 for the purpose of simplifying the interest rate calculation. It provides that for all tax claims (federal, state, and local), including administrative expense taxes, the interest rate shall be determined in accordance with applicable nonbankruptcy law. With respect to taxes paid under a confirmed plan, the rate of interest is determined as of the calendar month in which the plan is confirmed.

Sec. 705. Priority of Tax Claims. Under current law, a tax claim is entitled to be treated as a priority claim if it arises within certain specified time periods. In the case of income taxes, a priority arises, among other time periods, if the tax return was due within three years of the filing of the bankruptcy petition or if the assessment of the tax was made within 240 days of the filing of the petition. The 240-day period is tolled during the time that an offer in compromise is pending (plus 30 days). Though the statute is silent, the Supreme Court in Young v. United States, 535 U.S. 93 (2002) held that the three-year period is tolled during the pendency of a previous bankruptcy case. Section 705 amends section 507(a)(8) of the Bankruptcy Code to codify the rule tolling priority periods during the pendency of a previous bankruptcy case during that three-year or 240-day period together with an additional 90 days. It also includes tolling provisions to adjust for the collection due process rights provided by the Internal Revenue Service Restructuring and Reform Act of 1998. During any period in which the government is prohibited from collecting a tax as a result of a request by the debtor for a hearing and an appeal of any collection action taken against the debtor, the priority is tolled, plus 90 days. Also, during any time in which there was a stay of proceedings in a prior bankruptcy case or collection of an income tax was precluded by a confirmed bankruptcy plan, the priority is tolled, plus 90 days.

Sec. 706. Priority Property Taxes Incurred. Under current law, many provisions of the Bankruptcy Code are keyed to the word `assessed.' While this term has an accepted meaning in the Federal system, it is not used in many state and local statutes and has created some confusion. To eliminate this problem with respect to real property taxes, section 706 amends section 507(a)(8)(B) of the Bankruptcy Code by replacing the word `assessed' with `incurred.'

Sec. 707. No Discharge of Fraudulent Taxes in Chapter 13. Under current law, a debtor's ability to discharge tax debts varies depending on whether the debtor is in chapter 7 or chapter 13. In a chapter 7 case, taxes that are not dischargeable include taxes from a return due within three years of the petition date, taxes assessed within 240 days, or taxes related to an unfiled return or false return. Chapter 13, on the other hand, allows these obligations to be discharged. Section 707 of the Act amends Bankruptcy Code section 1328(a)(2) to prohibit the discharge of tax claims described in section 523(a)(1)(B) and (C) as well as claims for a tax required to be collected or withheld and for which the debtor is liable in whatever capacity pursuant to section 507(a)(8)(C).

Sec. 708. No Discharge of Fraudulent Taxes in Chapter 11. Under current law, the confirmation of a chapter 11 plan discharges a corporate debtor from most debts. Section 708 amends section 1141(d) of the Bankruptcy Code to except from discharge in a corporate chapter 11 case a debt specified in subsections 523(a)(2)(A) or (B) of the Bankruptcy Code owed to a domestic governmental unit. In addition, it excepts from discharge a debt owed to a person as the result of an action filed under subchapter III of chapter 37 of title 31 of the United States Code or any similar state statute. Section 708 excepts from discharge a debt for a tax or customs duty with respect to which the debtor made a fraudulent tax return or willfully attempted in any manner to evade or defeat such tax.

Sec. 709. Stay of Tax Proceedings Limited to Prepetition Taxes. Under current law, the filing of a petition for relief under the Bankruptcy Code activates an automatic stay that enjoins the commencement or continuation of a case in the United States Tax Court. This rule was arguably extended in Halpern v. Commissioner, 100

[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).]

Sec. 710. Periodic Payment of Taxes in Chapter 11 Cases. Section 710 of the Act amends section 1129(a)(9) of the Bankruptcy Code to provide that the allowed amount of priority tax claims (as of the plan's effective date) must be paid in regular cash installments within five years from the entry of the order for relief. The manner of payment may not be less favorable than that accorded the most favored nonpriority unsecured claim provided for by the plan (other than cash payments made to a class of creditors under section 1122(b)). In addition, it requires the same payment treatment to be accorded to a secured claim that would otherwise meet the description of an unsecured claim under section 507(a)(8).

Sec. 711. Avoidance of Statutory Liens Prohibited. The Internal Revenue Code gives special protections to certain purchasers of securities and motor vehicles notwithstanding the existence of a filed tax lien. Section 711 of the Act amends section 545(2) of the Bankruptcy Code to prevent that provision's special protections from being used to avoid an otherwise valid lien. Specifically, it prevents the avoidance of unperfected liens against a bona fide purchaser, if the purchaser qualifies as such under section 6323 of the Internal Revenue Code or a similar provision under state or local law.

Sec. 712. Payment of Taxes in the Conduct of Business. Although current law generally requires trustees and receivers to pay taxes in the ordinary course of the debtor's business, the payment of administrative expenses must first be authorized by the court. Section 712(a) of the Act amends section 960 of title 28 of the United States Code to clarify that postpetition taxes in the ordinary course of business must be paid on or before when such tax is due under applicable nonbankruptcy law, with certain exceptions. This requirement does not apply if the obligation is a property tax secured by a lien against property that is abandoned under section 554 within a reasonable time after the lien attaches. In addition, the requirement does not pertain where the payment is excused under the Bankruptcy Code. With respect to chapter 7 cases, section 712(a) provides that the payment of a tax claim may be deferred until final distribution pursuant to section 726 if the tax was not incurred by a chapter 7 trustee or if the court, prior to the due date of the tax, finds that the estate has insufficient funds to pay all administrative expenses in full. Section 712(b) amends section 503(b)(1)(B)(i) of the Bankruptcy Code to clarify that this provision applies to secured as well as unsecured tax claims, including property taxes based on liability that is in rem, in personam or both. Section 712(c) amends section 503(b)(1) to exempt a governmental unit from the requirement to file a request for payment of an administrative expense. Section 712(d)(1) amends section 506(b) to provide that to the extent that an allowed claim is oversecured, the holder is entitled to interest and any reasonable fees, costs, or charges provided for under state law. Section 712(d)(2), in turn, amends section 506(c) to permit a trustee to recover from a secured creditor the payment of all ad valorem property taxes.

Sec. 713. Tardily Filed Priority Tax Claims. Section 713 of the Act amends section 726(a)(1) of the Bankruptcy Code to require a claim under section 507 that is not timely filed pursuant to section 501 to be entitled to a distribution if such claim is filed the earlier of the date that is ten days following the mailing to creditors of the summary of the trustee's final report or before the trustee commences final distribution.

Sec. 714. Income Tax Returns Prepared by Tax Authorities. Section 714 of the Act amends section 523(a) of the Bankruptcy Code to provide that a return prepared pursuant to section 6020(a) of the Internal Revenue Code, or similar State or local law, constitutes filing a return (and the debt can be discharged), but that a return filed on behalf of a taxpayer pursuant to section 6020(b) of the Internal Revenue Code, or similar State or local law, does not constitute filing a return (and the debt cannot be discharged).

Sec. 715. Discharge of the Estate's Liability for Unpaid Taxes. Under the Bankruptcy Code, a trustee or debtor in possession may request a prompt audit to determine postpetition tax liabilities incurred by the bankruptcy estate. If the government does not make a determination or request an extension of time to audit, then the trustee or debtor in possession is discharged from any such tax liability. Several court cases have held that while this protects the debtor and the trustee, it does not necessarily protect the estate. Section 715 of the Act amends section 505(b) of the Bankruptcy Code to clarify that the estate is also protected if the government does not make a determination or request an extension of time to audit the debtor's tax returns. Therefore, if the government does not make a determination of postpetition tax liabilities or request extension of time to audit, then the estate's liability for unpaid taxes is discharged.

Sec. 716. Requirement to File Tax Returns to Confirm Chapter 13 Plans. Under current law, a debtor may enjoy the benefits of chapter 13 even if delinquent in the filing of tax returns. Section 716 of the Act responds to this problem. Subsection (a) amends section 1325(a) of the Bankruptcy Code to require a chapter 13 debtor to file all applicable Federal, state, and local tax returns as a condition of confirmation as required by section 1308 (as added by section 716(b)). Section 716(b) adds section 1308 to chapter 13 to require a chapter 13 debtor to be current on the filing of tax returns for the four-year period preceding the filing of the case. If the returns are not filed by the date on which the meeting of creditors is first scheduled, the trustee may hold open that meeting for a reasonable period of time to allow the debtor to file any unfiled returns. The additional period of time may not extend beyond 120 days after the date of the meeting of the creditors or beyond the date on which the return is due under the last automatic extension of time for filing. The debtor, however, may obtain an extension of time from the court if the debtor demonstrates by a preponderance of the evidence that the failure to file was attributable to circumstances beyond the debtor's control.

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

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

Sec. 717. Standards for Tax Disclosure. Before creditors and stockholders may be solicited to vote on a chapter 11 plan, the plan proponent must file a disclosure statement that provides adequate information to holders of claims and interests so they can make a decision as to whether or not to vote in favor of the plan. As the tax consequences of a plan can have a significant impact on the debtor's reorganization prospects, section 717 amends section 1125(a) of the Bankruptcy Code to require that a chapter 11 disclosure statement discuss the plan's potential material Federal tax consequences to the debtor, any successor to the debtor, and to a hypothetical investor that is representative of the claimants and interest holders in the case.

Sec. 718. Setoff of Tax Refunds. Under current law, the filing of a bankruptcy petition automatically stays the setoff of a prepetition tax refund against a prepetition tax obligation unless the bankruptcy court approves the setoff. Interest and penalties that may continue to accrue may also be nondischargeable pursuant to section 523(a)(1) of the Bankruptcy Code and cause individual debtors undue hardship. Section 718 of the Act amends section 362(b) of the Bankruptcy Code to create an exception to the automatic stay whereby such setoff could occur without court order unless it would not be permitted under applicable nonbankruptcy law because of a pending action to determine the amount or legality of the tax liability. In that circumstance, the governmental authority may hold the refund pending resolution of the action, unless the court, on motion of the trustee and after notice and a hearing, grants the taxing authority adequate protection pursuant to section 361.

Sec. 719. Special Provisions Related to the Treatment of State and Local Taxes. Section 719 of the Act conforms state and local income tax administrative issues to the Internal Revenue Code. For example, under Federal law, a bankruptcy petitioner filing on March 5 has two tax years (January 1 to March 4, and March 5 to December 31). Under the Bankruptcy Code, however, state and local tax years are divided differently (January 1 to March 5, and March 6 to December 31). Section 719 requires the states to follow the Federal convention. It conforms state and local tax administration to the Internal Revenue Code in the following areas: division of tax liabilities and responsibilities between the estate and the debtor, tax consequences with respect to partnerships and transfers of property, and the taxable period of a debtor. Section 719 does not conform state and local tax rates to Federal tax rates.

Sec. 720. Dismissal for Failure to Timely File Tax Returns. Under existing law, there is no definitive rule with respect to whether a bankruptcy court may dismiss a bankruptcy case if the debtor fails to file returns for taxes incurred postpetition. Section 720 of the Act amends section 521 of the Bankruptcy Code to allow a taxing authority to request that the court dismiss or convert a bankruptcy case if the debtor fails to file a postpetition tax return or obtain an extension. If the debtor does not file the required return or obtain the extension within 90 days from the time of the request by the taxing authority to file the return, the court must convert or dismiss the case, whichever is in the best interest of creditors and the estate.

TITLE VIII. ANCILLARY AND OTHER CROSS-BORDER CASES

Title VIII of the Act adds a new chapter to the Bankruptcy Code for transnational bankruptcy cases. It incorporates the Model Law on Cross-Border Insolvency to encourage cooperation between the United States and foreign countries with respect to transnational insolvency cases. Title VIII is intended to provide greater legal certainty for trade and investment as well as to provide for the fair and efficient administration of cross-border insolvencies, which protects the interests of creditors and other interested parties, including the debtor. In addition, it serves to protect and maximize the value of the debtor's assets.

Sec. 801. Amendment to Add Chapter 15 to Title 11, United States Code. Section 801 introduces chapter 15 to the Bankruptcy Code, which is the Model Law on Cross-Border Insolvency (`Model Law') promulgated by the United Nations Commission on International Trade Law (`UNCITRAL') at its Thirtieth Session on May 12-30, 1997. 101

[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.]

Sec. 1501. Purpose and scope of application. Section 1501 combines the Preamble to the Model Law (subsection (1)) with its article 1 (subsections (2) and (3)). 103

[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.

Sec. 1502. Definitions. `Debtor' is given a special definition for this chapter. This definition does not come from the Model Law, but is necessary to eliminate the need to refer repeatedly to `the same debtor as in the foreign proceeding.' With certain exceptions, the term `person' used in the Model Law has been replaced with `entity,' which is defined broadly in section 101(15) to include natural persons and various legal entities, thus matching the intended breadth of the term `person' in the Model Law. The exceptions include contexts in which a natural person is intended and those in which the Model Law language already refers to both persons and entities other than persons. The definition of `trustee' for this chapter ensures that debtors in possession and debtors, as well as trustees, are included in the term. 106

[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.]

Sec. 1503. International obligations of the United States. This section is taken exactly from the Model Law with only minor adaptations of terminology. 110

[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.]

Sec. 1504. Commencement of ancillary case. Article 4 of the Model Law is designed for designation of the competent court which will exercise jurisdiction under the Model Law. In United States law, section 1334(a) of title 28 gives exclusive jurisdiction to the district courts in a `case' under this title. 111

[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:]

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

Sec. 1505. Authorization to act in a foreign country. The language in this section varies from the wording of article 5 of the Model Law as necessary to comport with United States law and terminology. The slight alteration to the language in the last sentence is meant to emphasize that the identification of the trustee or other entity entitled to act is under United States law, while the scope of actions that may be taken by the trustee or other entity under foreign law is limited by the foreign law. 113

[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.]

Sec. 1506. Public policy exception. This provision follows the Model Law article 5 exactly, is standard in UNCITRAL texts, and has been narrowly interpreted on a consistent basis in courts around the world. The word `manifestly' in international usage restricts the public policy exception to the most fundamental policies of the United States. 116

[Footnote]

[Footnote 116: See id. at 25.]

Sec. 1507. Additional assistance. Subsection (1) follows the language of Model Law article 7. 117

[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.]

Sec. 1508. Interpretation. This provision follows conceptually Model Law article 8 and is a standard one in recent UNCITRAL treaties and model laws. Changes to the language were made to express the concepts more clearly in United States vernacular. 119

[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.]

Sec. 1509. Right of direct access. This section implements the purpose of article 9 of the Model Law, enabling a foreign representative to commence a case under this chapter by filing a petition directly with the court without preliminary formalities that may delay or prevent relief. It varies the language to fit United States procedural requirements and it imposes recognition of the foreign proceeding as a condition to further rights and duties of the foreign representative. If recognition is granted, the foreign representative will have full capacity under United States law (subsection (b)(1)), may request such relief in a state or Federal court other than the bankruptcy court (subsection (b)(2)), and shall be granted comity or cooperation by such non-bankruptcy court (subsection (b)(3) and (c)). Subsections (b)(2), (b)(3), and (c) make it clear that chapter 15 is intended to be the exclusive door to ancillary assistance to foreign proceedings. The goal is to concentrate control of these questions in one court. That goal is important in a Federal system like that of the United States with many different courts, state and federal, that may have pending actions involving the debtor or the debtor's property. This section, therefore, completes for the United States the work of article 4 of the Model Law (`competent court') as well as article 9. 120

[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.]

Sec. 1510. Limited jurisdiction. Section 1510, article 10 of the Model Law, is modeled on section 306 of the Bankruptcy Code. Although the language referring to conditional relief in section 306 is not included, the court has the power under section 1522 to attach appropriate conditions to any relief it may grant. Nevertheless, the authority in section 1522 is not intended to permit the imposition of jurisdiction over the foreign representative beyond the boundaries of the case under this chapter and any related actions the foreign representative may take, such as commencing a case under another chapter of this title.

Sec. 1511. Commencement of Case Under Section 301 or 303. This section reflects the intent of article 11 of the Model Law, but adds language that conforms to United States law or that is otherwise necessary in the United States given its many bankruptcy court districts and the importance of full information and coordination among them. 123

[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.]

Sec. 1512. Participation of a foreign representative in a case under this title. This section tracks article 12 of the Model Law with a slight alteration to tie into United States procedural terminology. 125

[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.]

Sec. 1513. Access of foreign creditors to a case under this title. This section mandates nondiscriminatory or `national' treatment for foreign creditors, except as provided in subsection (b) and section 1514. It follows the intent of Model Law article 13, but the language required alteration to fit into the Bankruptcy Code. 127

[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.]

Sec. 1514. Notification of foreign creditors concerning a case under title 11. This section ensures that foreign creditors receive proper notice of cases in the United States. 130

[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).]

Sec. 1515. Application for recognition of a foreign proceeding. This section follows article 15 of the Model Law with minor changes. 133

[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.]

Sec. 1516. Presumptions concerning recognition. This section follows article 16 of the Model Law with minor changes. 135

[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.]

Sec. 1517. Order granting recognition. This section closely tracks article 17 of the Model Law, with a few exceptions. 138

[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.]

Sec. 1518. Subsequent information. This section follows the Model Law, except to eliminate the word `same,' which is rendered unnecessary by the definition of `debtor' in section 1502, and to provide for a formal document to be filed with the court. 142

[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.]

Sec. 1519. Relief may be granted upon petition for recognition of a foreign proceeding. This section generally follows article 19 of the Model Law. 143

[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.]

Sec. 1520. Effects of recognition of a foreign main proceeding. In general, this chapter sets forth all the relief that is available as a matter of right based upon recognition hereunder, although additional assistance may be provided under section 1507 and this chapter has no effect on any relief currently available under section 105. The stay created by article 20 of the Model Law is imported to chapter 15 from existing provisions of the Code. Subsection (a)(1) combines subsections 1(a) and (b) of article 20 of the Model Law, because section 362 imposes the restrictions required by those two subsections as well as additional restrictions. 144

[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.]

Sec. 1521. Relief that may be granted upon recognition of a foreign proceeding. This section follows article 21 of the Model Law, with detailed changes to conform to United States law. 149

[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.]

Sec. 1522. Protection of creditors and other interested persons. This section follows article 22 of the Model Law with changes for United States usage and references to relevant Bankruptcy Code sections. 152

[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.]

Sec. 1523. Actions to avoid acts detrimental to creditors. This section follows article 23 of the Model Law, with wording to fit it within procedure under this title. 153

[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.]

Sec. 1524. Intervention by a foreign representative. The wording is the same as the Model Law, except for a few clarifying words. 155

[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.]

Sec. 1525. Cooperation and direct communication between the court and foreign courts or foreign representatives. The wording of this provision is nearly identical to that of the Model Law. 156

[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.]

Sec. 1526 Cooperation and direct communication between the trustee and foreign courts or foreign representatives. This section closely tracks the Model Law. 157

[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.]

Sec. 1527. Forms of cooperation. This section is identical to the Model Law. 158

[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).]

Sec. 1528. Commencement of a case under title 11 after recognition of a foreign main proceeding. This section follows the Model Law, with specifics of United States law replacing the general clause at the end of the section to cover assets normally included within the jurisdiction of the United States courts in bankruptcy cases, except where assets are subject to the jurisdiction of another recognized proceeding. 160

[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.

Sec. 1529. Coordination of a case under title 11 and a foreign proceeding. This section follows the Model Law almost exactly, but subsection (4) adds a reference to section 305 to make it clear the bankruptcy court may continue to use that section, as under present law, to dismiss or suspend a United States case as part of coordination and cooperation with foreign proceedings. 161

[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.]

Sec. 1530. Coordination of more than one foreign proceeding. This section follows article 30 of the Model Law exactly. 162

[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.]

Sec. 1531. Presumption of insolvency based on recognition of a foreign main proceeding. This section follows the Model Law exactly, inserting a reference to the standard for an involuntary case under this title. 163

[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.]

Sec. 1532. Rule of payment in concurrent proceeding. This section follows the Model Law exactly and is very similar to prior section 508(a), which is repealed. The Model Law language is somewhat clearer and broader than the equivalent language of prior section 508(a). 164

[Footnote]

[Footnote 164: Id. at 59.]

Sec. 802. Other Amendments to Titles 11 and 28, United States Code. Section 802(a) amends section 103 of the Bankruptcy Code to clarify the provisions of the Code that apply to chapter 15 and to specify which portions of chapter 15 apply in cases under other chapters of title 11. Section 802(b) amends the Bankruptcy Code's definitions of foreign proceeding and foreign representative in section 101. The new definitions are nearly identical to those contained in the Model Law but add to the phrase `under a law relating to insolvency' the words `or debt adjustment.' This addition emphasizes that the scope of the Model Law and chapter 15 is not limited to proceedings involving only debtors which are technically insolvent, but broadly includes all proceedings involving debtors in severe financial distress, so long as those proceedings also meet the other criteria of section 101(24). 165

[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

Sec. 901. Treatment of Certain Agreements by Conservators of Receivers of Insured Depository Institutions. Subsections (a) through (f) of section 901 of the Act amend the definitions of `qualified financial contract,' `securities contract,' `commodity contract,' `forward contract,' `repurchase agreement' and `swap agreement' contained in the Federal Deposit Insurance Act (FDIA) and the Federal Credit Union Act (FCUA) to make them consistent with the definitions in the Bankruptcy Code and to reflect the enactment of the Commodity Futures Modernization Act of 2000 (CFMA). It is intended that the legislative history and case law surrounding those terms, to the date of this amendment, be incorporated into the legislative history of the FDIA and the FCUA.

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

Sec. 902. Authority of the FDIC and NCUAB with Respect to Failed and Failing Institutions. Section 902 of the Act provides that no provision of law, including FDICIA, shall be construed to limit the power of the FDIC or the NCUAB to transfer or to repudiate any QFC in accordance with its powers under the FDIA or FCUA, respectively. As discussed below, there has been some uncertainty regarding whether or not FDICIA limits the authority of the FDIC or the NCUAB to transfer or to repudiate QFCs of an insolvent financial institution. Section 902, as well as other provisions in the Act, clarify that FDICIA does not limit the transfer powers of the FDIC or the NCUAB with respect to QFCs. Section 902 denies enforcement to `walkaway' clauses in QFCs. A walkaway clause is defined as a provision that, after calculation of a value of a party's position or an amount due to or from one of the parties upon termination, liquidation or acceleration of the QFC, either does not create a payment obligation of a party or extinguishes a payment obligation of a party in whole or in part solely because of such party's status as a non-defaulting party.

Sec. 903. Amendments Relating to Transfers of Qualified Financial Contracts. Section 903 of the Act amends the FDIA and the FCUA to expand the transfer authority of the FDIC and the NCUAB, respectively to permit transfers of QFCs to `financial institutions' as defined in FDICIA or in regulations. This provision will allow the FDIC and NCUAB to transfer QFCs to a non-depository financial institution, provided the institution is not subject to bankruptcy or insolvency proceedings.

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

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

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.

Sec. 904. Amendments Relating to Disaffirmance or Repudiation of Qualified Financial Contracts. Section 904 of the Act limits the disaffirmance and repudiation authority of the FDIC and NCUAB with respect to QFCs so that such authority is consistent with their transfer authority under FDIA section 11(e)(9) or FCUA section 207(c). This ensures that no disaffirmance, repudiation or transfer authority of the FDIC or NCUAB may be exercised to `cherry-pick' or otherwise treat independently all the QFCs between a depository institution in default and a person or any affiliate of such person. The FDIC has announced that its policy is not to repudiate or disaffirm QFCs selectively. This unified treatment is fundamental to the reduction of systemic risk.

Sec. 905. Clarifying Amendment Relating to Master Agreements. Section 905 of the Act specifies that a master agreement for one or more securities contracts, commodity contracts, forward contracts, repurchase agreements or swap agreements will be treated as a single QFC under the FDIA or the FCUA (but only with respect to the underlying agreements are themselves QFCs). This provision ensures that cross-product netting pursuant to a master agreement, or pursuant to an umbrella agreement for separate master agreements between the same parties, each of which is used to document one or more qualified financial contracts, will be enforceable under the FDIA and the FCUA. Cross-product netting permits a wide variety of financial transactions between two parties to be netted, thereby maximizing the present and potential future risk-reducing benefits of the netting arrangement between the parties. Express recognition of the enforceability of such cross-product master agreements furthers the policy of increasing legal certainty and reducing systemic risks in the case of an insolvency of a large financial participant.

Sec. 906. Federal Deposit Insurance Corporation Improvement Act of 1991. Subsection (a)(1) of section 906 of the Act amends the definition of `clearing organization' in section 402 of the FDICIA to include clearinghouses that are subject to exemptions pursuant to orders of the Securities and Exchange Commission or the Commodity Futures Trading Commission and to include multilateral clearing organizations (the definition of which was added to FDICIA by the CFMA).

FDICIA provides that a netting arrangement will be enforced pursuant to its terms, notwithstanding the failure of a party to the agreement. The current netting provisions of FDICIA, however, limit this protection to `financial institutions,' which include depository institutions. Section 906(a)(2) amends the FDICIA definition of covered institutions to include (i) uninsured national and State member banks, irrespective of their eligibility for deposit insurance and (ii) foreign banks (including the foreign bank and its branches 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.

Sec. 907. Bankruptcy Law Amendments. Section 907 of the Act makes a series of amendments to the Bankruptcy Code. Subsection (a)(1) amends the Bankruptcy Code definitions of `repurchase agreement' and `swap agreement' to conform with the amendments to the FDIA contained in sections 901(e) and (f) of the Act.

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

Subsection (a)(1) also amends the definition of `repurchase agreement' to include those on mortgage-related securities, mortgage loans and interests therein, and to include principal and 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.

Sec. 908. Recordkeeping Requirements. Section 908 of the Act amends section 11(e)(8) of the Federal Deposit Insurance Act to explicitly authorize the FDIC, in consultation with appropriate Federal banking agencies, to prescribe regulations on recordkeeping by any insured depository institution with respect to QFCs only if the insured financial institution is in a troubled condition (as such term is defined in the FDIA).

Sec. 909. Exemptions from Contemporaneous Execution Requirement. Section 909 of the Act amends FDIA section 13(e)(2) to provide that an agreement for the collateralization of governmental deposits, bankruptcy estate funds, Federal Reserve Bank or Federal Home Loan Bank extensions of credit or one or more QFCs shall not be deemed invalid solely because such agreement was not entered into contemporaneously with the acquisition of the collateral or because of pledges, delivery or substitution of the collateral made in accordance with such agreement.

The amendment codifies portions of policy statements issued by the FDIC regarding the application of section 13(e), which codifies the `D'Oench Duhme' doctrine. With respect to QFCs, this codification recognizes that QFCs often are subject to collateral and other security arrangements that may require posting and return of collateral on an ongoing basis based on the mark-to-market values of the collateralized transactions. The codification of only portions of the existing FDIC policy statements on these and related issues should not give rise to any negative implication regarding the continued validity of these policy statements.

Sec. 910. Damage Measure. Section 910 of the Act adds a new section 562 to the Bankruptcy Code providing that damages under any swap agreement, securities contract, forward contract, commodity contract, repurchase agreement or master netting agreement will be calculated as of the earlier of: (i) the date of rejection of such agreement by a trustee, or (ii) the date or dates of liquidation, termination or acceleration of such contract or agreement.

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

Sec. 911. SIPC Stay. Section 911 of the Act amends SIPA to provide that an order or decree issued pursuant to SIPA shall not operate as a stay of any right of liquidation, termination, acceleration, offset or netting under one or more securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements or master netting agreements (as defined in the Bankruptcy Code and including rights of foreclosure on collateral), except that such order or decree may stay any right to foreclose on or dispose of securities (but not cash) collateral pledged by the debtor or sold by the debtor under a repurchase agreement or lent by the debtor under a securities lending agreement. A corresponding amendment to FDICIA is made by section 906. A creditor that was stayed in exercising rights against such securities would be entitled to post-insolvency interest to the extent of the value of such securities.

TITLE X. PROTECTION OF FAMILY FARMERS AND FAMILY FISHERMEN

Sec. 1001. Permanent Reenactment of Chapter 12. Chapter 12 is a specialized form of bankruptcy relief available only to a `family farmer with regular annual income,' 167

[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).]

[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.

Sec. 1002. Debt Limit Increase. Section 1002 of the Act amends section 104(b) of the Bankruptcy Code to provide for periodic adjustments for inflation of the debt eligibility limit for family farmers.

Sec. 1003. Certain Claims Owed to Governmental Units. Subsection (a) of section 1003 of the Act amends section 1222(a) of the Bankruptcy Code to add an exception with respect to payments to a governmental unit for a debt entitled to priority under section 507 if such debt arises from the sale, transfer, exchange, or other disposition of an asset used in the debtor's farming operation, but only if the debtor receives a discharge. Section 1003(b) amends section 1231(b) of the Bankruptcy Code to have it apply to any governmental unit. Subsection (c) provides that section 1003 becomes effective on the date of enactment of this Act and applies to cases commenced after such effective date.

Sec. 1004. Definition of Family Farmer. Section 1004 of the Act amends the definition of `family farmer' in section 101(18) of the Bankruptcy Code to increase the debt eligibility limit from $1,500,000 to $3,237,000. It also reduces the percentage of the farmer's liabilities that must arise out of the debtor's farming operation for eligibility purposes from 80 percent to 50 percent.

Sec. 1005. Elimination of Requirement that Family Farmer and Spouse Receive over 50 Percent of Income from Farming Operation in Year Prior to Bankruptcy. Section 1005 of the Act amends the Bankruptcy Code's definition of `family farmer' with respect to the determination of the farmer's income. Current law provides that a debtor, in order to be eligible to be a family farmer, must derive a specified percentage of his or her income from farming activities for the taxable year preceding the commencement of the bankruptcy case. Section 1005 adjusts the threshold percentage to be met during either: (1) the taxable year preceding the filing of the bankruptcy case; or (2) the taxable year in the second and third taxable years preceding the filing of the bankruptcy case.

Sec. 1006. Prohibition of Retroactive Assessment of Disposable Income. Section 1006 of the Act amends the Bankruptcy Code in two respects concerning chapter 12 plans. Section 1006(a) amends Bankruptcy Code section 1225(b) to permit the court to confirm a plan even if the distribution proposed under the plan equal or exceed the debtor's projected disposable income for that period, providing the plan otherwise satisfies the requirements for confirmation. Section 1006(b) amends Bankruptcy Code section 1229 to restrict the bases for modifying a confirmed chapter 12 plan. Specifically, Section 1006(b) to provide that a confirmed chapter 12 plan may not be modified to increase the amount of payments due prior to the date of the order modifying the confirmation of the plan. Where the modification is based on an increase in the debtor's disposable income, the plan may not be modified to require payments to unsecured creditors in any particular month in an amount greater than the debtor's disposable income for that month, unless the debtor proposes such a modification. Section 1006(b) further provides that a modification of a plan shall not require payments that would leave the debtor with insufficient funds to carry on the farming operation after the plan is completed, unless the debtor proposes such a modification.

Sec. 1007. Family Fishermen. Subsection (a) of section 1007 of the Act amends Bankruptcy Code section 101 to add definitions of `commercial fishing operation,' `commercial fishing vessel,' `family fisherman' and `family fisherman with regular annual income.' The definition of `commercial fishing operation' includes the catching or harvesting of fish, shrimp, lobsters, urchins, seaweed, shellfish, or other aquatic species or products. The term `commercial fishing vessel' is defined as a vessel used by a fisher to `carry out a commercial fishing operation.' The term `family fisherman' is defined as an individual engaged in a commercial fishing operation, with an aggregate debt limit of $1.5 million. The definition specifies that at least 80 percent of those debts must be derived from a commercial fishing operation. The percentage of income that must be derived from such operation is specified to be more than 50 percent of the individual's gross income for the taxable year preceding the taxable year in which the case was filed. Similar provisions are included for corporations and partnerships. The term `family fisherman with regular annual income' is defined as a family fisherman whose annual income is sufficiently stable and regular to enable such person to make payments under a chapter 12 plan. Section 1007(b) amends Bankruptcy Code section 109 to provide that a family fisherman is eligible to be a debtor under chapter 12. Section 1007(c) amends the heading of chapter 12 to include a reference to family fisherman and makes conforming revisions to Sections 1203 and 1206.

TITLE XI. HEALTH CARE AND EMPLOYEE BENEFITS

Sec. 1101. Definitions. Subsection (a) of section 1101 of the Act amends section 101 of the Bankruptcy Code to add a definition of `health care business.' The definition includes any public or private entity (without regard to whether that entity is for or not for profit) that is primarily engaged in offering to the general public facilities and services for the diagnosis or treatment of injury, deformity or disease; and surgical, drug treatment, psychiatric or obstetric care. It also includes the following entities: (1) a general or specialized hospital; (2) an ancillary ambulatory, emergency, or surgical treatment facility; (3) a hospice; (d) a home health agency; (e) other health care institution that is similar to an entity referred to in (a) through (d); and other long-term care facility. These include a skilled nursing facility, intermediate care facility, assisted living facility, home for the aged, domiciliary care facility, or health care institution that is related to an aforementioned facility. Section 1101(b) amends Bankruptcy Code section 101 to add a definition of `patient.' The term means an individual who obtains or receives services from a health care business. Section 1101(c) amends section 101 of the Bankruptcy Code to add a definition of `patient records.' The term means any written document relating to a patient or record recorded in a magnetic, optical, or other form of electronic medium. Section 1101(d) specifies that the amendments effectuated by new section 101(27A) do not affect the interpretation of section 109(b).

Sec. 1102. Disposal of Patient Records. Section 1102 of the Act adds a provision to the Bankruptcy Code specifying requirements for the disposal of patient records in a chapter 7, 9, or 11 case of a health care business where the trustee lacks sufficient funds to pay for the storage of such records in accordance with applicable Federal or state law. The requirements chiefly consist of providing notice to the affected patients and specifying the method of disposal for unclaimed records. They are intended to protect the privacy and confidentiality of a patient's medical records when they are in the custody of a health care business in bankruptcy. The provision specifies the following requirements:

1. ÌThe trustee shall: (a) publish notice in one or more appropriate newspapers stating that if the records are not claimed by the patient or an insurance provider (if permitted under applicable law) within 365 days of the date of such notice, then the trustee will destroy such records; and (b) during the first 180 days of such 365-day period, attempt to directly notify by mail each patient and appropriate insurance carrier of the claiming or disposing of such records.

2. ÌIf after providing such notice patient records are not claimed within the specified period, the trustee shall, upon the expiration of such period, send a request by certified mail to each appropriate Federal agency to request permission from such agency to deposit the records with the agency.

3. ÌIf after providing the notice as set forth above, patient records are not claimed, the trustee shall destroy such records as follows: (a) by shredding or burning, if the records are written; or (b) by destroying the records so that their information cannot be retrieved, if the records are magnetic, optical or electronic.

It is anticipated that if the estate of the debtor lacks the funds to pay for the costs and expenses related to the above, the trustee may recover such costs and expenses under section 506(c) of the Bankruptcy Code.

Sec. 1103. Administrative Expense Claim for Costs of Closing a Health Care Business and Other Administrative Expenses. Section 1103 of the Act amends section 503(b) of the Bankruptcy Code to provide that the actual, necessary costs and expenses of closing a health care business (including the disposal of patient records or transferral of patients) incurred by a trustee, Federal agency, or a department or agency of a state are allowed administrative expenses.

Sec. 1104. Appointment of Ombudsman to Act as Patient Advocate. Section 1104 of the Act adds a provision to the Bankruptcy Code requiring the court to order the appointment of an ombudsman to monitor the quality of patient care within 30 days after commencement of a chapter 7, 9, or 11 health care business bankruptcy case, unless the court finds that such appointment is not necessary for the protection of patients under the specific facts of the case. The ombudsman must be a disinterested person. If the health care business is a long-term care facility, a person who is serving as a State Long-Term Care Ombudsman of the Older Americans Act of 1965 may be appointed as the ombudsman in such case. The ombudsman must: (1) monitor the quality of patient care to the extent necessary under the circumstances, including interviewing patients and physicians; (2) report to the court, not less than 60 days from the date of appointment and then every 60 days thereafter, at a hearing or in writing regarding the quality of patient care at the health care business involved; and (3) notify the court by motion or written report (with notice to appropriate parties in interest) if the ombudsman determines that the quality of patient care is declining significantly or is otherwise being materially compromised. The provision requires the ombudsman to maintain any information obtained that relates to patients (including patient records) as confidential. Section 1104(b) amends section 330(a)(1) of the Bankruptcy Code to authorize the payment of reasonable compensation to an ombudsman.

Sec. 1105. Debtor in Possession; Duty of Trustee to Transfer Patients. Section 1105 of the Act amends section 704(a) of the Bankruptcy Code to require a trustee or debtor in possession to use all reasonable and best efforts to transfer patients from a health care business that is in the process of being closed to an appropriate health care business. The transferee health care business should be in the vicinity of the transferor health care business, provide the patient with services that are substantially similar to those provided by the transferor health care business, and maintain a reasonable quality of care.

Sec. 1106. Exclusion from Program Participation Not Subject to Automatic Stay. Section 1106 amends section 362(b) of the Bankruptcy Code to except from the automatic stay the exclusion by the Secretary of Health and Human Services of a debtor from participation in the medicare program or other specified Federal health care programs.

TITLE XII. TECHNICAL AMENDMENTS

Sec. 1201. Definitions. Section 1201 of the Act amends the definitions contained in section 101 of the Bankruptcy Code. Paragraphs (1), (2), (4), and (7) of section 1201 make technical changes to section 101 to convert each definition into a sentence (thereby facilitating future amendments to the separate paragraphs) and to redesignate the definitions in correct and completely numerical sequence. Paragraph (3) of section 1101 makes necessary and conforming amendments to cross references to the newly redesignated definitions.

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).]

Sec. 1202. Adjustment of Dollar Amounts. Bankruptcy Code section 104 provides for the periodic automatic adjustment of certain dollar amounts specified in the Code to reflect the change in the Consumer Price Index. Section 1202 amends Bankruptcy Code section 104(b) to add a reference to certain other monetary amounts specified in the Bankruptcy Code section. These include: (1) section 522(f)(3) (pertaining to the avoidance of certain liens on implements and other personal property valued at less than $5,000); (2) section 101(19A) (definition of family fisherman); (3) section 522(f)(4) (definition of household goods); (4) section 541(b) (property items, such as certain educational individual retirement accounts and tuition credit or certificate programs, that do not constitute property of the bankruptcy estate); (5) section 547(c)(9) (limits the avoidance of a preferential transfer, under certain circumstances); (6) section 1322(d) (concerning the applicability of the needs-based test to chapter 13 debtors with above median incomes); (7) section 1325(b) (determination of disposable income for chapter 13 debtors with above median incomes); and (8) section 1326(b)(3) (payments to a chapter 7 trustee in a chapter 13 case). In addition, the provision adds a reference to section 1409(b) of title 28 of the United States Code, which pertains to the venue of proceedings to recover a money judgment or property.

Sec. 1203. Extension of Time. Section 1203 of the Act makes a technical amendment to correct a reference error described in amendment notes contained in the United States Code. As specified in the amendment note relating to subsection (c)(2) of section 108 of the Bankruptcy Code, the amendment made by section 257(b)(2)(B) of Public Law 99-554 could not be executed as stated.

Sec. 1204. Technical Amendments. Section 1204 of the Act makes technical amendments to Bankruptcy Code sections 109(b)(2) (to strike an statutory cross reference), 541(b)(2) (to add `or' to the end of this provision), and 522(b)(1) (to replace `product' with `products').

Sec. 1205. Penalty for Persons Who Negligently or Fraudulently Prepare Bankruptcy Petitions. Section 1205 of the Act amends section 110(j)(4) of the Bankruptcy Code to change the reference to attorneys from the singular possessive to the plural possessive.

Sec. 1206. Limitation on Compensation of Professional Persons. Section 328(a) of the Bankruptcy Code provides that a trustee or a creditors' and equity security holders' committee may, with court approval, obtain the services of a professional person on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, or on a contingent fee basis. Section 1206 of the Act amends section 328(a) to include compensation `on a fixed or percentage fee basis' in addition to the other specified forms of reimbursement.

Sec. 1207. Effect of Conversion. Section 1207 of the Act makes a technical correction in section 348(f)(2) of the Bankruptcy Code to clarify that the first reference to property, like the subsequent reference to property, is a reference to property of the estate.

Sec. 1208. Allowance of Administrative Expenses. Section 1208 of the Act amends section 503(b)(4) of the Bankruptcy Code to limit the types of compensable professional services rendered by an attorney or accountant that can qualify as administrative expenses in a bankruptcy case. Expenses for attorneys or accountants incurred by individual members of creditors' or equity security holders' committees are not recoverable, but expenses incurred for such professional services incurred by such committees themselves would be.

Sec. 1209. Exceptions to Discharge. Section 1209 of the Act amends section 523(a) of the Bankruptcy Code to correct a technical error in the placement of paragraph (15), which was added to section 523 by section 304(e)(1) of the Bankruptcy Reform Act of 1994. Section 1209 also amends section 523(a)(9), which makes nondischargeable any debt resulting from death or personal injury arising from the debtor's unlawful operation of a motor vehicle while intoxicated, to add `watercraft, or aircraft' after `motor vehicle.' Neither additional term should be defined or included as a `motor vehicle' in section 523(a)(9) and each is intended to comprise unpowered as well as motor-powered craft. Congress previously made the policy judgment that the equities of persons injured by drunk drivers outweigh the responsible debtor's interest in a fresh start, and here clarifies that the policy applies not only on land but also on the water and in the air. Viewed from a practical standpoint, this provision closes a loophole that gives intoxicated watercraft and aircraft operators preferred treatment over intoxicated motor vehicle drivers and denies victims of alcohol and drug related boat and plane accidents the same rights accorded to automobile accident victims under current law. Finally, this section corrects a grammatical error in section 523(e).

Sec. 1210. Effect of Discharge. Section 1210 of the Act makes technical amendments to correct errors in section 524(a)(3) of the Bankruptcy Code caused by section 257(o)(2) of Public Law 99-554 and section 501(d)(14)(A) of Public Law 103-394. 178

[Footnote]

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

Sec. 1211. Protection Against Discriminatory Treatment. Section 1211 of the Act conforms a reference to its antecedent reference in section 525(c) of the Bankruptcy Code. The omission of `student' before `grant' in the second place it appears in section 525(c) made possible the interpretation that a broader limitation on lender discretion was intended, so that no loan could be denied because of a prior bankruptcy if the lending institution was in the business of making student loans. Section 1211 is intended to make clear that lenders involved in making government guaranteed or insured student loans are not barred by this Bankruptcy Code provision from denying other types of loans based on an applicant's bankruptcy history; only student loans and grants, therefore, cannot be denied under section 525(c) because of a prior bankruptcy.

Sec. 1212. Property of the Estate. Production payments are royalties tied to the production of a certain volume or value of oil or gas, determined without regard to production costs. They typically would be paid by an oil or gas operator to the owner of the underlying property on which the oil or gas is found. Under section 541(b)(4)(B)(ii) of the Bankruptcy Code, added by the Bankruptcy Reform Act of 1994, production payments are generally excluded from the debtor's estate, provided they could be included only by virtue of section 542 of the Bankruptcy Code, which relates generally to the obligation of those holding property which belongs in the estate to turn it over to the trustee. Section 1212 of the Act adds to this proviso a reference to section 365 of the Bankruptcy Code, which authorizes the trustee to assume or reject an executory contract or unexpired lease. It thereby clarifies the original Congressional intent to generally exclude production payments from the debtor's estate.

Sec. 1213. Preferences. Section 547 of the Bankruptcy Code authorizes a trustee to avoid a preferential payment made to a creditor by a debtor within 90 days of filing, whether the creditor is an insider or an outsider. To address the concern that a corporate insider (such as an officer or director who is a creditor of his or her own corporation) has an unfair advantage over outside creditors, section 547 also authorizes a trustee to avoid a preferential payment made to an insider creditor between 90 days and one year before filing. Several recent cases, including DePrizio, 179

[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).]

Sec. 1214. Postpetition Transactions. Section 1214 of the Act amends section 549(c) of the Bankruptcy Code to clarify its application to an interest in real property. This amendment should be construed in conjunction with section 1201 of the Act. 180

[Footnote]

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

Sec. 1215. Disposition of Property of the Estate. Section 1215 of the Act amends section 726(b) of the Bankruptcy Code to strike an erroneous reference. 181

[Footnote]

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

Sec. 1216. General Provisions. Section 1216 of the Act amends section 901(a) of the Bankruptcy Code to correct an omission in a list of sections applicable to cases under chapter 9 of title 11 of the United States Code.

Sec. 1217. Abandonment of Railroad Line. Section 1217 of the Act amends section 1170(e)(1) of the Bankruptcy Code to reflect the fact that section 11347 of title 49 of the United States Code was repealed by section 102(a) of Public Law 104-88 and that provisions comparable to section 11347 appear in section 11326(a) of title 49 of the United States Code.

Sec. 1218. Contents of Plan. Section 1218 of the Act amends section 1172(c)(1) of the Bankruptcy Code to reflect the fact that section 11347 of title 49 of the United States Code was repealed by section 102(a) of Public Law 104-88 and that provisions comparable to section 11347 appear in section 11326(a) of title 49 of the United States Code.

Sec. 1219. Bankruptcy Cases and Proceedings. Section 1219 of the Act amends section 1334(d) of title 28 of the United States Code to make clarifying references. 182

[Footnote]

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

Sec. 1220. Knowing Disregard of Bankruptcy Law or Rule. Section 1220 of the Act amends section 156(a) of title 18 of the United States Code to make stylistic changes and correct a reference to the Bankruptcy Code.

Sec. 1221. Transfers Made by Nonprofit Charitable Corporations. Section 1221 of the Act amends section 363(d) of the Bankruptcy Code to restrict the authority of a trustee to use, sell, or lease property by a nonprofit corporation or trust. First, the use, sell or lease of such property must be in accordance with applicable nonbankruptcy law and to the extent it is not inconsistent with any relief granted under certain specified provisions of section 362 of the Bankruptcy Code concerning the applicability of the automatic stay. Second, section 1221 imposes similar restrictions with regard to plan confirmation requirements for chapter 11 cases. Third, it amends section 541 of the Bankruptcy Code to provide that any property of a bankruptcy estate in which the debtor is a nonprofit corporation (as described in certain provisions of the Internal Revenue Code) may not be transferred to an entity that is not such a corporation, but only under the same conditions that would apply if the debtor was not in bankruptcy. The amendments made by this section apply to cases pending on the date of enactment or to cases filed after such date. Section 1221 provides that a court may not confirm a plan without considering whether this provision would substantially affect the rights of a party in interest who first acquired rights with respect to the debtor postpetition. Nothing in this provision may be construed to require the court to remand or refer any proceeding, issue, or controversy to any other court or to require the approval of any other court for the transfer of property.

Sec. 1222. Protection of Valid Purchase Money Security Interests. Section 1222 of the Act extends the applicable perfection period for a security interest in property of the debtor in section 547(c)(3)(B) of the Bankruptcy Code from 20 to 30 days.

Sec. 1223. Bankruptcy Judgeships. The substantial increase in bankruptcy case filings clearly creates a need for additional bankruptcy judgeships. In the 105th Congress, the House responded to this need by passing H.R. 1596, which would have created additional permanent and temporary bankruptcy judgeships and extended an existing temporary position. Section 1223 extends four existing temporary judgeships and authorizes 28 additional bankruptcy judgeships. In determining the official duty stations of bankruptcy judges and places of holding court pursuant to section 152(b)(1) of title 28 of the United States Code regarding the additional judgeships authorized in this section, the Judicial Conference should consider the convenience of the parties, the district's geography, and factors that would facilitate better administration of cases, such as may be presented in the Eastern District of California with respect to Bakersfield, for example.

Sec. 1224. Compensating Trustees. Section 1224 of the Act amends section 1326 of the Bankruptcy Code to provide that if a chapter 7 trustee has been allowed compensation as a result of the conversion or dismissal of the debtor's prior case pursuant to section 707(b) and some portion of that compensation remains unpaid, the amount of any such unpaid compensation must be repaid in the debtor's subsequent chapter 13 case. This payment must be prorated over the term of the plan and paid on a monthly basis. The amount of the monthly payment may not exceed the greater of $25 or the amount payable to unsecured nonpriority creditors as provided by the plan, multiplied by five percent and the result divided by the number of months of the plan.

Sec. 1225. Amendment to Section 362 of Titile11, United States Code. Section 1225 of the Act amends section 362(b) of the Bankruptcy Code to except from the automatic stay the creation or perfection of a statutory lien for an ad valorem property tax or for a special tax or special assessment on real property (whether or not ad valorem) that is imposed by a governmental unit, if such tax or assessment becomes due after the filing of the petition.

Sec. 1226. Judicial Education. Section 1226 of the Act requires the Director of the Federal Judicial Center, in consultation with the Director of the Executive Office for United States Trustees, to develop materials and conduct training as may be useful to the courts in implementing this Act, including the needs-based reforms under section 707(b) (as amended by this Act) and amendments pertaining to reaffirmation agreements.

Sec. 1227. Reclamation. Section 1227 of the Act amends section 546(c) of the Bankruptcy Code to provide that the rights of a trustee under sections 544(a), 545, 547, and 549 are subject to the rights of a seller of goods to reclaim goods sold in the ordinary course of business to the debtor if: (1) the debtor, while insolvent, received these goods not later than 45 days prior to the commencement of the case, and (2) written demand for reclamation of the goods is made not later than 45 days after receipt of such goods by the debtor or not later than 20 days after the commencement of the case, if the 45-day period expires after the commencement of the case. If the seller fails to provide notice in the manner provided in this provision, the seller may still assert the rights set forth in section 503(b)(7) of the Bankruptcy Code. Section 1227(b) amends Bankruptcy Code section 503(b) to provide that the value of any goods received by a debtor not later than within 20 days prior to the commencement of a bankruptcy case in which the goods have been sold to the debtor in the ordinary course of the debtor's business is an allowed administrative expense.

Sec. 1228. Providing Requested Tax Documents to the Court. Subsection (a) of section 1228 of the Act provides that the court may not grant a discharge to an individual in a case under chapter 7 unless requested tax documents have been provided to the court. Section 1228(b) similarly provides that the court may not confirm a chapter 11 or 13 plan unless requested tax documents have been filed with the court. Section 1228(c) directs the court to destroy documents submitted in support of a bankruptcy claim not sooner than three years after the date of the conclusion of a bankruptcy case filed by an individual debtor under chapter 7, 11, or 13. In the event of a pending audit or enforcement action, the court may extend the time for destruction of such requested tax documents.

Sec. 1229. Encouraging Creditworthiness. Subsection (a) of section 1229 of the Act expresses the sense of the Congress that certain lenders may sometimes offer credit to consumers indiscriminately and that resulting consumer debt may be a major contributing factor leading to consumer insolvency. Section 1229(b) directs the Board of Governors of the Federal Reserve to study certain consumer credit industry solicitation and credit granting practices as well as the effect of such practices on consumer debt and insolvency. The specified practices involve the solicitation and extension of credit on an indiscriminate basis that encourages consumers to accumulate additional debt and where the lender fails to ensure that the consumer borrower is capable of repaying the debt. Section 1229(c) requires the study described in subsection (b) to be prepared within 12 months from the date of the Act's enactment. This provision authorizes the Board to issue regulations requiring additional disclosures to consumers and permits it to undertake any other actions consistent with its statutory authority, which are necessary to ensure responsible industry practices and to prevent resulting consumer debt and insolvency.

Sec. 1230. Property No Longer Subject to Redemption. Section 1230 of the Act amends section 541(b) of the Bankruptcy Code to provide that, under certain circumstances, an interest of the debtor in tangible personal property (other than securities, or written or printed evidences of indebtedness or title) that the debtor pledged or sold as collateral for a loan or advance of money given by a person licensed under law to make such loan or advance is not property of the estate. Subject to subchapter III of chapter 5 of the Bankruptcy Code, the provision applies where: (1) the property is in the possession of the pledgee or transferee; (2) the debtor has no obligation to repay the money, redeem the collateral, or buy back the property at a stipulated price; and (3) neither the debtor nor the trustee have exercised any right to redeem provided under the contract or State law in a timely manner as provided under state law and section 108(b) of the Bankruptcy Code.

Sec. 1231. Trustees. Section 1231 of the Act establishes a series of procedural protections for chapter 7 and chapter 13 trustees concerning final agency decisions relating to trustee appointments and future case assignments. Section 1231(a) amends section 586(d) of title 28 of the United States Code to allow a chapter 7 or chapter 13 trustee to obtain judicial review of such decisions by commencing an action in the United States district court after the trustee exhausts all available administrative remedies. Unless the trustee elects to have an administrative hearing on the record, the trustee is deemed to have exhausted all administrative remedies under this provision if the agency fails to make a final agency decision within 90 days after the trustee requests an administrative remedy. The provision requires the Attorney General to promulgate procedures to implement this provision. It further provides that the agency's decision must be affirmed by the district court unless it is unreasonable and without cause based on the administrative record before the agency.

Section 1231(b) amends section 586(e) of title 28 of the United States Code to permit a chapter 13 trustee to obtain judicial review of certain final agency actions relating to claims for actual, necessary expenses under section 586(e). The trustee may commence an action in the United States district court where the trustee resides. The agency's decision must be affirmed by the district court unless it is unreasonable and without cause based on the administrative record before the agency. It directs the Attorney General to prescribe procedures to implement this provision.

Sec. 1232. Bankruptcy Forms. Section 1232 of the Act amends section 2075 of title 28 of the United States Code to a form to be prescribed for the statement specified under section 707(b)(2)(C) of the Bankruptcy Code and to promulgate general rules on the content of such statement.

Sec. 1233. Direct Appeals of Bankruptcy Matters to Courts of Appeals. Under current law, appeals from decisions rendered by the bankruptcy court are either heard by the district court or a bankruptcy appellate panel. In addition to the time and cost factors attendant to the present appellate system, decisions rendered by a district court as well as a bankruptcy appellate panel are generally not binding and lack stare decisis value.

To address these problems, section 1233 of the Act amends section 158(d) of title 28 to establish a procedure to facilitate appeals of certain decisions, judgments, orders and decrees of the bankruptcy courts to the circuit courts of appeals by means of a 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.

Sec. 1234. Involuntary Cases. Section 1234 of the Act amends the Bankruptcy Code's criteria for commencing an involuntary bankruptcy case. Current law renders a creditor ineligible if its claim is contingent as to liability or the subject of a bona fide dispute. This provision amends section 303(b)(1) to specify that a creditor would be ineligible to file an involuntary petition if the creditor's claim was the subject of a bona fide dispute as to liability or amount. It further provides that the claims needed to meet the monetary threshold must be undisputed. The provision makes a conforming revision to section 303(h)(1). Section 1234 becomes effective on the date of enactment of this Act and applies to cases commenced before, on, and after such date.

Sec. 1235. Federal Election Law Fines and Penalties as Nondischargeable Debt. Section 1235 of the Act amends section 523(a) of the Bankruptcy Code to make debts incurred to pay fines or penalties imposed under Federal election law nondischargeable.

TITLE XIII. CONSUMER CREDIT DISCLOSURE

Sec. 1301. Enhanced Disclosures under an Open End Credit Plan. Section 1301 of the Act amends section 127(b) of the Truth in Lending Act to mandate the inclusion of certain specified disclosures in billing statements with respect to various open end credit plans. In general, these statements must contain an example of the time it would take to repay a stated balance at a specified interest rate. In addition, they must warn the borrower that making only the minimum payment will increase the amount of interest that must be paid and the time it takes to repay the balance. Further, a toll-free telephone number must be provided where the borrower can obtain an estimate of the time it would take to repay the balance if only minimum payments are made. With respect to a creditor whose compliance with title 15 of the United States Code is enforced by the Federal Trade Commission (FTC), the billing statement must advise the borrower to contact the FTC at a toll-free telephone number to obtain an estimate of the time it would take to repay the borrower's balance. Section 1301(a) permits the creditor to substitute an example based on a higher interest rate. As necessary, the provision requires the Board of Governors of the Federal Reserve System (`Board'), to periodically recalculate by rule the interest rate and repayment periods specified in Section 1301(a). With respect to the toll-free telephone number, section 1301(a) permits a third party to establish and maintain it. Under certain circumstances, the toll-free number may connect callers to an automated device.

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

Sec. 1302. Enhanced Disclosure for Credit Extensions Secured by a Dwelling. Subsection (a)(1) of section 1302 of the Act amends section 127A(a)(13) of the Truth in Lending Act to require a statement in any case in which the extension of credit exceeds the fair market value of a dwelling specifying that the interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes. Section 1302(a)(2) amends section 147(b) of the Truth in Lending Act to require an advertisement relating to an extension of credit that may exceed the fair market value of a dwelling and such advertisement is disseminated in paper form to the public or through the Internet (as opposed to dissemination by radio or television) to include a specified statement. The statement must disclose that the interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes and that the consumer should consult a tax advisor for further information regarding the deductibility of interest and charges.

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

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

Sec. 1303. Disclosures Related to `Introductory Rates.' Subsection (a) of section 1303 of the Act amends section 127(c) of the Truth in Lending Act by adding a provision to specify further requirements for applications, solicitations and related materials that are subject to section 127(c)(1). With respect to an application or solicitation to open a credit card account and all promotional materials accompanying such application or solicitation involving an `introductory rate' offer, such materials must do the following if they offer a temporary annual percentage rate of interest:

1. Ìthe term `introductory' in immediate proximity to each listing of the temporary annual percentage interest rate applicable to such account;

2. Ìif the annual percentage interest rate that will apply after the end of the temporary rate period will be a fixed rate, the time period in which the introductory period will end and the annual percentage rate that will apply after the end of the introductory period must be clearly and conspicuously stated in a prominent location closely proximate to the first listing of the temporary annual percentage rate;

3. Ìif the annual percentage rate that will apply after the end of the temporary rate period will vary in accordance with an index, the time period in which the introductory period will end and the rate that will apply after that, based on an annual percentage rate that was in effect 60 days before the date of mailing of the application or solicitation must be clearly and conspicuously stated in a prominent location closely proximate to the first listing of the temporary annual percentage rate.

The second and third provisions described above do not apply to any listing of a temporary annual percentage rate on an envelope or other enclosure in which an application or solicitation to open a credit card account is mailed. With respect to an application or solicitation to open a credit card account for which disclosure is required pursuant to section 127(c)(1) of the Truth in Lending Act, section 1303(a) specifies that certain statements be made if the rate of interest is revocable under any circumstance or upon any event. The statements must clearly and conspicuously appear in a prominent manner on or with the application or solicitation. The disclosures include a general description of the circumstances that may result in the revocation of the temporary annual percentage rate and an explanation of the type of interest rate that will apply upon revocation of the temporary rate.

To implement this provision, section 1303(b) amends section 127(c) of the Truth in Lending Act to define various relevant terms and requires the Board to promulgate regulations. The provision does not become effective until the earlier of 12 months after the Act's enactment date or 12 months after the date of publication of such final regulations.

Sec. 1304. Internet-Based Credit Card Solicitations. Subsection (a) of section 1304 of the Act amends section 127(c) of the Truth in Lending Act to require any solicitation to open a credit card account for an open end consumer credit plan through the Internet or other interactive computer service to clearly and conspicuously include the disclosures required under section 127(c)(1)(A) and (B). It also specifies that the disclosure required pursuant to section 127(c)(1)(A) be readily accessible to consumers in close proximity to the solicitation and be updated regularly to reflect current policies, terms, and fee amounts applicable to the credit card account. Section 1304(a) defines terms relevant to the Internet.

Section 1304(b) requires the Federal Reserve Board to promulgate regulations implementing this provision. It also provides that the amendments effectuated by section 1304 do not take effect until the later of 12 months after the Act's enactment date or 12 months after the date of publication of such regulations.

Sec. 1305. Disclosures Related to Late Payment Deadlines and Penalties. Subsection (a) of section 1305 of the Act amends section 127(b) of the Truth in Lending Act to provide that if a late payment fee is to be imposed due to the obligor's failure to make payment on or before a required payment due date, the billing statement must specify the date on which that payment is due (or if different the earliest date on which a late payment fee may be charged) and the amount of the late payment fee to be imposed if payment is made after such date.

Section 1305(b) requires the Federal Reserve Board to promulgate regulations implementing this provision. The amendments effectuated by this provision and the regulations promulgated thereunder shall not take effect until the later of 12 months after the Act's enactment date or 12 months after the date of publication of the regulations.

Sec. 1306. Prohibition on Certain Actions for Failure to Incur Finance Charges. Subsection (a) of section 1306 of the Act amends section 127 of the Truth in Lending Act to add a provision prohibiting a creditor of an open end consumer credit plan from terminating an account prior to its expiration date solely because the consumer has not incurred finance charges on the account. The provision does not prevent the creditor from terminating such account for inactivity for three or more consecutive months.

Section 1306(b) requires the Federal Reserve Board to promulgate regulations implementing the amendments effectuated by section 1306(a) and provides that they do not become effective until the later of 12 months after the Act's enactment date or 12 months after the date of publication of such final regulations.

Sec. 1307. Dual Use Debit Card. Subsection (a) of section 1307 of the act provides that the Federal Reserve Board may conduct a study and submit a report to Congress containing its analysis of consumer protections under existing law to limit the liability of consumers for unauthorized use of a debit card or similar access device. The report must include recommendations for legislative initiatives, if any, based on its findings.

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

Sec. 1308. Study of Bankruptcy Impact of Credit Extended to Dependent Students. Section 1308 of the Act directs the Board of Governors of the Federal Reserve to study the impact that the extension of credit to dependents (defined under the Internal Revenue Code of 1986) who are enrolled in postsecondary educational institutions has on the rate of bankruptcy cases filed. The report must be submitted to the Senate and House of Representatives no later than one year from the Act's enactment date.

Sec. 1309. Clarification of Clear and Conspicuous. Subsection (a) of section 1309 of the Act requires the Board (in consultation with other Federal banking agencies, the National Credit Union Administration Board, and the Federal Trade Commission) to promulgate regulations not later than six months after the Act's enactment date to provide guidance on the meaning of the term `clear and conspicuous' as it is used in section 127(b)(11)(A), (B) and (C) and section 127(c)(6)(A)(ii) and (iii) of the Truth in Lending Act.

Section 1309(b) provides that regulations promulgated under section 1309(a) shall include examples of clear and conspicuous model disclosures for the purpose of disclosures required under the Truth in Lending Act provisions set forth therein.

Section 1309(c) requires the Federal Reserve Board, in promulgating regulations under this provision, to ensure that the clear and conspicuous standard required for disclosures made under the Truth in Lending Act provisions set forth in section 1309(a) can be implemented in a manner that results in disclosures which are reasonably understandable and designed to call attention to the nature and significance of the information in the notice.

TITLE XIV. PREVENTING CORPORATE BANKRUPTCY ABUSE

Sec. 1401. Employee Wage and Benefit Priorities. Section 1401 of the Act amends Bankruptcy Code section 507(a) to provide heightened protections for employees by increasing the monetary cap on wage and employee benefit claims entitled to priority under the Bankruptcy Code from $4,650 to $10,000 and lengthens the reachback period for wage claims from 90 days to 180 days. As few employees will continue working without pay for an extended period, the principal effect of extending the time period to 180 days is that a greater portion of unpaid vacation, severance, and sick leave pay will be entitled to priority payment.

Sec. 1402. Fraudulent Transfers and Obligations. Section 1402 of the Act amends section 548 of the Bankruptcy Code to enhance the recovery of avoidable transfers and excessive prepetition compensation, such as bonuses, paid to insiders of a debtor. It effectuates two changes to current law that would make it easier for a trustee to avoid pre-petition transfers. First, section 1402(1) extends the one-year reachback period for fraudulent transfers to two years. Second, section 1402(2) amends Bankruptcy Code section 548(a) to clarify that it permits the recovery of any transfer to or an obligation incurred for the benefit of an insider under an employment contract, under certain conditions. In addition, section 1402 adds a new provision to section 548 authorizing a bankruptcy trustee to avoid any transfer of an interest of the debtor in property that was made on or within the ten-year period preceding the filing of the debtor's bankruptcy case if: (a) the transfer was made to a self-settled trust or similar device; (b) the transfer was made by the debtor; (c) the debtor is a beneficiary of such trust or similar device; and (d) the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date of such transfer, indebted. For purposes of this provision, a transfer includes a transfer made in anticipation of any money judgment, criminal fine, or similar obligation or which the debtor believed would be incurred as a result of: (1) a violation of Federal or state securities laws, regulations, or orders; or (2) fraud, deceit, or manipulation in fiduciary capacity or in connection with the purchase or sale of a security under specified provisions of the Federal securities laws.

Sec. 1403. Payment of Insurance Benefits to Retired Employees. Current bankruptcy law prevents a chapter 11 debtor from unilaterally modifying certain retiree benefits, such as health insurance, during the pendency of the bankruptcy case unless an authorized retiree representative is appointed and agrees to the modification, or the court authorizes the modification. Section 1403 amends Bankruptcy Code section 1114 to prevent debtors from evading these requirements by terminating retiree benefit plans on the eve of bankruptcy. The amendment would require retroactive reinstatement of retiree benefits that were modified within 180 days before the debtor filed for bankruptcy protection, unless the court finds that the balance of the equities clearly favors the modification.

Sec. 1404. Debts Nondischargeable If Incurred in Violation of Securities Fraud Laws. Bankruptcy Code section 523(a)(19) makes certain debts nondischargeable that result from the violation of Federal securities law, state securities law, or any regulation or order issued under such Federal or state securities law nondischargeable. Section 1404 amends Bankruptcy Code section 523(a)(19)(B) to provide that it applies to such debts that result before, on, or after the date on which the petition was filed from any judgment, order, consent order, decree, settlement agreement, or from any court or administrative order for damages or for other specified payments owed by the debtor. Section 1404 is effective as of July 30, 2002.

Sec. 1405. Appointment of Trustee in Cases of Suspected Fraud. Section 1405 amends Bankruptcy Code section 1104 to require the United States trustee to move for the appointment of a trustee if there are reasonable grounds to suspect that current members of a chapter 11 debtor's governing body, chief executive officer, chief financial officer, or members of the debtor's governing body who selected the debtor's chief executive officer or chief financial officer participated in actual fraud, dishonesty, or criminal conduct in the management of the debtor or the debtor's public financial reporting.

Sec. 1406. Effective Date; Application of Amendments. Section 1406 provides that title XIV, with the exception of one provision, takes effect on the date of enactment of this Act and the amendments apply only to cases commenced after such date. The exception applies to section 1402(1) of the Act, which applies only to cases commenced under the Bankruptcy Code more than one year after the date of enactment of this Act.

TITLE XV. GENERAL EFFECTIVE DATE; APPLICATION OF AMENDMENTS

Sec. 1501. Effective Date; Application of Amendments. Subsection (a) of section 1501 of the Act provides that the Act shall take effect 180 days after the date of enactment, unless otherwise specified in this Act. Section 1501(b) provides that the amendments made by this Act shall not apply to cases commenced under the Bankruptcy Code before the Act's effective date, unless otherwise specified in this Act. The provision specifies that the amendments made by sections 308, 322 and 330 shall apply to cases commenced on or after the date of enactment of this Act.

Sec. 1502. Technical Corrections. In light of the renumbering of a paragraph in Bankruptcy Code section 507 as effectuated by section 212 of this Act, section 1502 corrects various cross-references in the Bankruptcy Code to reflect such renumbering.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italics, existing law in which no change is proposed is shown in roman):

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

[Struck out->][ In this title-- ][<-Struck out] In this title the following definitions shall apply:

(1) The term `accountant' means accountant authorized under applicable law to practice public accounting, and includes professional accounting association, corporation, or partnership, if so authorized [Struck out->][ ; ][<-Struck out] .

(2) The term `affiliate' means--

(A) * * *

* * * * * * *

(D) entity that operates the business or substantially all of the property of the debtor under a lease or operating agreement [Struck out->][ ; ][<-Struck out] .

(3) The term `assisted person' means any person whose debts consist primarily of consumer debts and the value of whose nonexempt property is less than $150,000.

(4) The term `attorney' means attorney, professional law association, corporation, or partnership, authorized under applicable law to practice law [Struck out->][ ; ][<-Struck out] .

(4A) The term `bankruptcy assistance' means any goods or services sold or otherwise provided to an assisted person with the express or implied purpose of providing information, advice, counsel, document preparation, or filing, or attendance at a creditors' meeting or appearing in a case or proceeding on behalf of another or providing legal representation with respect to a case or proceeding under this title.

(5) The term `claim' means--

(A) * * *

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured [Struck out->][ ; ][<-Struck out] .

(6) The term `commodity broker' means futures commission merchant, foreign futures commission merchant, clearing organization, leverage transaction merchant, or commodity options dealer, as defined in section 761 of this title, with respect to which there is a customer, as defined in section 761 of this title [Struck out->][ ; ][<-Struck out] .

(7) The term `community claim' means claim that arose before the commencement of the case concerning the debtor for which property of the kind specified in section 541(a)(2) of this title is liable, whether or not there is any such property at the time of the commencement of the case [Struck out->][ ; ][<-Struck out] .

(7A) The term `commercial fishing operation' means--

(A) the catching or harvesting of fish, shrimp, lobsters, urchins, seaweed, shellfish, or other aquatic species or products of such species; or

(B) for purposes of section 109 and chapter 12, aquaculture activities consisting of raising for market any species or product described in subparagraph (A).

(7B) The term `commercial fishing vessel' means a vessel used by a family fisherman to carry out a commercial fishing operation.

(8) The term `consumer debt' means debt incurred by an individual primarily for a personal, family, or household purpose [Struck out->][ ; ][<-Struck out] .

(9) The term `corporation'--

(A) * * *

(B) does not include limited partnership [Struck out->][ ; ][<-Struck out] .

(10) The term `creditor' means--

(A) * * *

* * * * * * *

(C) entity that has a community claim [Struck out->][ ; ][<-Struck out] .

(10A) The term `current monthly income'--

(A) means the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor's spouse receive) without regard to whether such income is taxable income, derived during the 6-month period ending on--

(i) the last day of the calendar month immediately preceding the date of the commencement of the case if the debtor files the schedule of current income required by section 521(a)(1)(B)(ii); or

(ii) the date on which current income is determined by the court for purposes of this title if the debtor does not file the schedule of current income required by section 521(a)(1)(B)(ii); and

(B) includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor's spouse), on a regular basis for the household expenses of the debtor or the debtor's dependents (and in a joint case the debtor's spouse if not otherwise a dependent), but excludes benefits received under the Social Security Act, payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes, and payments to victims of international terrorism (as defined in section 2331 of title 18) or domestic terrorism (as defined in section 2331 of title 18) on account of their status as victims of such terrorism.

(11) The term `custodian' means--

(A) * * *

* * * * * * *

(C) trustee, receiver, or agent under applicable law, or under a contract, that is appointed or authorized to take charge of property of the debtor for the purpose of enforcing a lien against such property, or for the purpose of general administration of such property for the benefit of the debtor's creditors [Struck out->][ ; ][<-Struck out] .

(12) The term `debt' means liability on a claim [Struck out->][ ; ][<-Struck out] .

[Struck out->][ (12A) `debt for child support' means a debt of a kind specified in section 523(a)(5) of this title for maintenance or support of a child of the debtor; ][<-Struck out]

(12A) The term `debt relief agency' means any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer under section 110, but does not include--

(A) any person who is an officer, director, employee, or agent of a person who provides such assistance or of the bankruptcy petition preparer;

(B) a nonprofit organization that is exempt from taxation under section 501(c)(3) of the Internal Revenue Code of 1986;

(C) a creditor of such assisted person, to the extent that the creditor is assisting such assisted person to restructure any debt owed by such assisted person to the creditor;

(D) a depository institution (as defined in section 3 of the Federal Deposit Insurance Act) or any Federal credit union or State credit union (as those terms are defined in section 101 of the Federal Credit Union Act), or any affiliate or subsidiary of such depository institution or credit union; or

(E) an author, publisher, distributor, or seller of works subject to copyright protection under title 17, when acting in such capacity.

(13) The term `debtor' means person or municipality concerning which a case under this title has been commenced [Struck out->][ ; ][<-Struck out] .

(13A) The term `debtor's principal residence'--

(A) means a residential structure, including incidental property, without regard to whether that structure is attached to real property; and

(B) includes an individual condominium or cooperative unit, a mobile or manufactured home, or trailer.

[Struck out->][ (14) `disinterested person' means person that-- ][<-Struck out]

[Struck out->][ (A) is not a creditor, an equity security holder, or an insider; ][<-Struck out]

[Struck out->][ (B) is not and was not an investment banker for any outstanding security of the debtor; ][<-Struck out]

[Struck out->][ (C) has not been, within three years before the date of the filing of the petition, an investment banker for a security of the debtor, or an attorney for such an investment banker in connection with the offer, sale, or issuance of a security of the debtor; ][<-Struck out]

[Struck out->][ (D) is not and was not, within two years before the date of the filing of the petition, a director, officer, or employee of the debtor or of an investment banker specified in subparagraph (B) or (C) of this paragraph; and ][<-Struck out]

[Struck out->][ (E) does not have an interest materially adverse to the interest of the estate or of any class of creditors or equity security holders, by reason of any direct or indirect relationship to, connection with, or interest in, the debtor or an investment banker specified in subparagraph (B) or (C) of this paragraph, or for any other reason; ][<-Struck out]

(14) The term `disinterested person' means a person that--

(A) is not a creditor, an equity security holder, or an insider;

(B) is not and was not, within 2 years before the date of the filing of the petition, a director, officer, or employee of the debtor; and

(C) does not have an interest materially adverse to the interest of the estate or of any class of creditors or equity security holders, by reason of any direct or indirect relationship to, connection with, or interest in, the debtor, or for any other reason.

(14A) The term `domestic support obligation' means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is--

(A) owed to or recoverable by--

(i) a spouse, former spouse, or child of the debtor or such child's parent, legal guardian, or responsible relative; or

(ii) a governmental unit;

(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child's parent, without regard to whether such debt is expressly so designated;

(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of--

(i) a separation agreement, divorce decree, or property settlement agreement;

(ii) an order of a court of record; or

(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and

(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative for the purpose of collecting the debt.

(15) The term `entity' includes person, estate, trust, governmental unit, and United States trustee [Struck out->][ ; ][<-Struck out] .

(16) The term `equity security' means--

(A) * * *

* * * * * * *

(C) warrant or right, other than a right to convert, to purchase, sell, or subscribe to a share, security, or interest of a kind specified in subparagraph (A) or (B) of this paragraph [Struck out->][ ; ][<-Struck out] .

(17) The term `equity security holder' means holder of an equity security of the debtor [Struck out->][ ; ][<-Struck out] .

(18) The term `family farmer' means--

(A) individual or individual and spouse engaged in a farming operation whose aggregate debts do not exceed [Struck out->][ $1,500,000 ][<-Struck out] $3,237,000 and not less than [Struck out->][ 80 ][<-Struck out] 50 percent of whose aggregate noncontingent, liquidated debts (excluding a debt for the principal residence of such individual or such individual and spouse unless such debt arises out of a farming operation), on the date the case is filed, arise out of a farming operation owned or operated by such individual or such individual and spouse, and such individual or such individual and spouse receive from such farming operation more than 50 percent of such individual's or such individual and spouse's gross income [Struck out->][ for the taxable year preceding the taxable year ][<-Struck out] for--

(i) the taxable year preceding; or

(ii) each of the 2d and 3d taxable years preceding;

the taxable year in which the case concerning such individual or such individual and spouse was filed; or

(B) corporation or partnership in which more than 50 percent of the outstanding stock or equity is held by one family, or by one family and the relatives of the members of such family, and such family or such relatives conduct the farming operation, and

(i) * * *

(ii) its aggregate debts do not exceed [Struck out->][ $1,500,000 ][<-Struck out] $3,237,000 and not less than [Struck out->][ 80 ][<-Struck out] 50 percent of its aggregate noncontingent, liquidated debts (excluding a debt for one dwelling which is owned by such corporation or partnership and which a shareholder or partner maintains as a principal residence, unless such debt arises out of a farming operation), on the date the case is filed, arise out of the farming operation owned or operated by such corporation or such partnership; and

(iii) if such corporation issues stock, such stock is not publicly traded [Struck out->][ ; ][<-Struck out] .

(19) The term `family farmer with regular annual income' means family farmer whose annual income is sufficiently stable and regular to enable such family farmer to make payments under a plan under chapter 12 of this title [Struck out->][ ; ][<-Struck out] .

(19A) The term `family fisherman' means--

(A) an individual or individual and spouse engaged in a commercial fishing operation--

(i) whose aggregate debts do not exceed $1,500,000 and not less than 80 percent of whose aggregate noncontingent, liquidated debts (excluding a debt for the principal residence of such individual or such individual and spouse, unless such debt arises out of a commercial fishing operation), on the date the case is filed, arise out of a commercial fishing operation owned or operated by such individual or such individual and spouse; and

(ii) who receive from such commercial fishing operation more than 50 percent of such individual's or such individual's and spouse's gross income for the taxable year preceding the taxable year in which the case concerning such individual or such individual and spouse was filed; or

(B) a corporation or partnership--

(i) in which more than 50 percent of the outstanding stock or equity is held by--

(I) 1 family that conducts the commercial fishing operation; or

(II) 1 family and the relatives of the members of such family, and such family or such relatives conduct the commercial fishing operation; and

(ii)(I) more than 80 percent of the value of its assets consists of assets related to the commercial fishing operation;

(II) its aggregate debts do not exceed $1,500,000 and not less than 80 percent of its aggregate noncontingent, liquidated debts (excluding a debt for 1 dwelling which is owned by such corporation or partnership and which a shareholder or partner maintains as a principal residence, unless such debt arises out of a commercial fishing operation), on the date the case is filed, arise out of a commercial fishing operation owned or operated by such corporation or such partnership; and

(III) if such corporation issues stock, such stock is not publicly traded.

(19B) The term `family fisherman with regular annual income' means a family fisherman whose annual income is sufficiently stable and regular to enable such family fisherman to make payments under a plan under chapter 12 of this title.

(20) The term `farmer' means (except when such term appears in the term `family farmer') person that received more than 80 percent of such person's gross income during the taxable year of such person immediately preceding the taxable year of such person during which the case under this title concerning such person was commenced from a farming operation owned or operated by such person [Struck out->][ ; ][<-Struck out] .

(21) The term `farming operation' includes farming, tillage of the soil, dairy farming, ranching, production or raising of crops, poultry, or livestock, and production of poultry or livestock products in an unmanufactured state [Struck out->][ ; ][<-Struck out] .

(21A) The term `farmout agreement' means a written agreement in which--

(A) * * *

(B) such other entity (either directly or through its agents or its assigns), as consideration, agrees to perform drilling, reworking, recompleting, testing, or similar or related operations, to develop or produce liquid or gaseous hydrocarbons on the property [Struck out->][ ; ][<-Struck out] .

(21B) The term `Federal depository institutions regulatory agency' means--

(A) * * *

* * * * * * *

(D) with respect to any insured depository institution for which the Federal Deposit Insurance Corporation has been appointed conservator or receiver, the Federal Deposit Insurance Corporation [Struck out->][ ; ][<-Struck out] .

[Struck out->][ (22) the term `financial institution'-- ][<-Struck out]

[Struck out->][ (A) means-- ][<-Struck out]

[Struck out->][ (i) a Federal reserve bank or an entity (domestic or foreign) that is a commercial or savings bank, industrial savings bank, savings and loan association, trust company, or receiver or conservator for such entity and, when any such Federal reserve bank, receiver, conservator, or entity is acting as agent or custodian for a customer in connection with a securities contract, as defined in section 741 of this title, the customer; or ][<-Struck out]

[Struck out->][ (ii) in connection with a securities contract, as defined in section 741 of this title, an investment company registered under the Investment Company Act of 1940; and ][<-Struck out]

[Struck out->][ (B) includes any person described in subparagraph (A) which operates, or operates as, a multilateral clearing organization pursuant to section 409 of the Federal Deposit Insurance Corporation Improvement Act of 1991; ][<-Struck out]

[Struck out->][ (23) `foreign proceeding' means proceeding, whether judicial or administrative and whether or not under bankruptcy law, in a foreign country in which the debtor's domicile, residence, principal place of business, or principal assets were located at the commencement of such proceeding, for the purpose of liquidating an estate, adjusting debts by composition, extension, or discharge, or effecting a reorganization; ][<-Struck out]

[Struck out->][ (24) `foreign representative' means duly selected trustee, administrator, or other representative of an estate in a foreign proceeding; ][<-Struck out]

(22) The term `financial institution' means--

(A) a Federal reserve bank, or an entity (domestic or foreign) that is a commercial or savings bank, industrial savings bank, savings and loan association, trust company, federally-insured credit union, or receiver, liquidating agent, or conservator for such entity and, when any such Federal reserve bank, receiver, liquidating agent, conservator or entity is acting as agent or custodian for a customer in connection with a securities contract (as defined in section 741) such customer; or

(B) in connection with a securities contract (as defined in section 741) an investment company registered under the Investment Company Act of 1940.

(22A) The term `financial participant' means--

(A) an entity that, at the time it enters into a securities contract, commodity contract, swap agreement, repurchase agreement, or forward contract, or at the time of the date of the filing of the petition, has one or more agreements or transactions described in paragraph (1), (2), (3), (4), (5), or (6) of section 561(a) with the debtor or any other entity (other than an affiliate) of a total gross dollar value of not less than $1,000,000,000 in notional or actual principal amount outstanding on any day during the previous 15-month period, or has gross mark-to-market positions of not less than $100,000,000 (aggregated across counterparties) in one or more such agreements or transactions with the debtor or any other entity (other than an affiliate) on any day during the previous 15-month period; or

(B) a clearing organization (as defined in section 402 of the Federal Deposit Insurance Corporation Improvement Act of 1991).

(23) The term `foreign proceeding' means a collective judicial or administrative proceeding in a foreign country, including an interim proceeding, under a law relating to insolvency or adjustment of debt in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation.

(24) The term `foreign representative' means a person or body, including a person or body appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor's assets or affairs or to act as a representative of such foreign proceeding.

(25) The term `forward contract' [Struck out->][ means a contract ][<-Struck out] means--

(A) a contract (other than a commodity contract) for the purchase, sale, or transfer of a commodity, as defined in section 761(8) of this title, or any similar good, article, service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract trade, or product or byproduct thereof, with a maturity date more than two days after the date the contract is entered into, including, but not limited to, a repurchase transaction, reverse repurchase transaction, consignment, lease, swap, hedge transaction, deposit, loan, option, allocated transaction, unallocated transaction [Struck out->][ , or any combination thereof or option thereon; ][<-Struck out] , or any other similar agreement;

(B) any combination of agreements or transactions referred to in subparagraphs (A) and (C);

(C) any option to enter into an agreement or transaction referred to in subparagraph (A) or (B);

(D) a master agreement that provides for an agreement or transaction referred to in subparagraph (A), (B), or (C), together with all supplements to any such master agreement, without regard to whether such master agreement provides for an agreement or transaction that is not a forward contract under this paragraph, except that such master agreement shall be considered to be a forward contract under this paragraph only with respect to each agreement or transaction under such master agreement that is referred to in subparagraph (A), (B), or (C); or

(E) any security agreement or arrangement, or other credit enhancement related to any agreement or transaction referred to in subparagraph (A), (B), (C), or (D), including any guarantee or reimbursement obligation by or to a forward contract merchant or financial participant in connection with any agreement or transaction referred to in any such subparagraph, but not to exceed the damages in connection with any such agreement or transaction, measured in accordance with section 562.

[Struck out->][ (26) `forward contract merchant' means a person whose business consists in whole or in part of entering into forward contracts as or with merchants in a commodity, as defined in section 761(8) of this title, or any similar good, article, service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract trade; ][<-Struck out]

(26) The term `forward contract merchant' means a Federal reserve bank, or an entity the business of which consists in whole or in part of entering into forward contracts as or with merchants in a commodity (as defined in section 761) or any similar good, article, service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract trade.

(27) The term `governmental unit' means United States; State; Commonwealth; District; Territory; municipality; foreign state; department, agency, or instrumentality of the United States (but not a United States trustee while serving as a trustee in a case under this title), a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government [Struck out->][ ; ][<-Struck out] .

(27A) The term `health care business'--

(A) means any public or private entity (without regard to whether that entity is organized for profit or not for profit) that is primarily engaged in offering to the general public facilities and services for--

(i) the diagnosis or treatment of injury, deformity, or disease; and

(ii) surgical, drug treatment, psychiatric, or obstetric care; and

(B) includes--

(i) any--

(I) general or specialized hospital;

(II) ancillary ambulatory, emergency, or surgical treatment facility;

(III) hospice;

(IV) home health agency; and

(V) other health care institution that is similar to an entity referred to in subclause (I), (II), (III), or (IV); and

(ii) any long-term care facility, including any--

(I) skilled nursing facility;

(II) intermediate care facility;

(III) assisted living facility;

(IV) home for the aged;

(V) domiciliary care facility; and

(VI) health care institution that is related to a facility referred to in subclause (I), (II), (III), (IV), or (V), if that institution is primarily engaged in offering room, board, laundry, or personal assistance with activities of daily living and incidentals to activities of daily living.

(27B) The term `incidental property' means, with respect to a debtor's principal residence--

(A) property commonly conveyed with a principal residence in the area where the real property is located;

(B) all easements, rights, appurtenances, fixtures, rents, royalties, mineral rights, oil or gas rights or profits, water rights, escrow funds, or insurance proceeds; and

(C) all replacements or additions.

(28) The term `indenture' means mortgage, deed of trust, or indenture, under which there is outstanding a security, other than a voting-trust certificate, constituting a claim against the debtor, a claim secured by a lien on any of the debtor's property, or an equity security of the debtor [Struck out->][ ; ][<-Struck out] .

(29) The term `indenture trustee' means trustee under an indenture [Struck out->][ ; ][<-Struck out] .

(30) The term `individual with regular income' means individual whose income is sufficiently stable and regular to enable such individual to make payments under a plan under chapter 13 of this title, other than a stockbroker or a commodity broker [Struck out->][ ; ][<-Struck out] .

(31) The term `insider' includes--

(A) * * *

* * * * * * *

(F) managing agent of the debtor [Struck out->][ ; ][<-Struck out] .

(32) The term `insolvent' means--

(A) * * *

* * * * * * *

(C) with reference to a municipality, financial condition such that the municipality is--

(i) * * *

(ii) unable to pay its debts as they become due [Struck out->][ ; ][<-Struck out] .

(33) The term `institution-affiliated party'--

(A) * * *

(B) with respect to an insured credit union, has the meaning given it in section 206(r) of the Federal Credit Union Act [Struck out->][ ; ][<-Struck out] .

(34) The term `insured credit union' has the meaning given it in section 101(7) of the Federal Credit Union Act [Struck out->][ ; ][<-Struck out] .

(35) The term `insured depository institution'--

(A) * * *

(B) includes an insured credit union (except in the case of [Struck out->][ paragraphs (21B) and (33)(A) ][<-Struck out] paragraphs (23) and (35) of this subsection) [Struck out->][ ; ][<-Struck out] .

(35A) The term `intellectual property' means--

(A) * * *

* * * * * * *

to the extent protected by applicable nonbankruptcy law [Struck out->][ ; and ][<-Struck out] .

(36) The term `judicial lien' means lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding [Struck out->][ ; ][<-Struck out] .

(37) The term `lien' means charge against or interest in property to secure payment of a debt or performance of an obligation [Struck out->][ ; ][<-Struck out] .

(38) The term `margin payment' means, for purposes of the forward contract provisions of this title, payment or deposit of cash, a security or other property, that is commonly known in the forward contract trade as original margin, initial margin, maintenance margin, or variation margin, including mark-to-market payments, or variation payments [Struck out->][ ; and ][<-Struck out] .

(38A) The term `master netting agreement'--

(A) means an agreement providing for the exercise of rights, including rights of netting, setoff, liquidation, termination, acceleration, or close out, under or in connection with one or more contracts that are described in any one or more of paragraphs (1) through (5) of section 561(a), or any security agreement or arrangement or other credit enhancement related to one or more of the foregoing, including any guarantee or reimbursement obligation related to 1 or more of the foregoing; and

(B) if the agreement contains provisions relating to agreements or transactions that are not contracts described in paragraphs (1) through (5) of section 561(a), shall be deemed to be a master netting agreement only with respect to those agreements or transactions that are described in any one or more of paragraphs (1) through (5) of section 561(a).

(38B) The term `master netting agreement participant' means an entity that, at any time before the date of the filing of the petition, is a party to an outstanding master netting agreement with the debtor.

(39) The term `mask work' has the meaning given it in section 901(a)(2) of title 17.

(39A) The term `median family income' means for any year--

(A) the median family income both calculated and reported by the Bureau of the Census in the then most recent year; and

(B) if not so calculated and reported in the then current year, adjusted annually after such most recent year until the next year in which median family income is both calculated and reported by the Bureau of the Census, to reflect the percentage change in the Consumer Price Index for All Urban Consumers during the period of years occurring after such most recent year and before such current year.

(40) The term `municipality' means political subdivision or public agency or instrumentality of a State [Struck out->][ ; ][<-Struck out] .

(40A) The term `patient' means any individual who obtains or receives services from a health care business.

(40B) The term `patient records' means any written document relating to a patient or a record recorded in a magnetic, optical, or other form of electronic medium.

(41) The term `person' includes individual, partnership, and corporation, but does not include governmental unit, except that a governmental unit that--

(A) * * *

* * * * * * *

shall be considered, for purposes of section 1102 of this title, to be a person with respect to such asset or such benefit [Struck out->][ ; ][<-Struck out] .

(41A) The term `personally identifiable information' means--

(A) if provided by an individual to the debtor in connection with obtaining a product or a service from the debtor primarily for personal, family, or household purposes--

(i) the first name (or initial) and last name of such individual, whether given at birth or time of adoption, or resulting from a lawful change of name;

(ii) the geographical address of a physical place of residence of such individual;

(iii) an electronic address (including an e-mail address) of such individual;

(iv) a telephone number dedicated to contacting such individual at such physical place of residence;

(v) a social security account number issued to such individual; or

(vi) the account number of a credit card issued to such individual; or

(B) if identified in connection with 1 or more of the items of information specified in subparagraph (A)--

(i) a birth date, the number of a certificate of birth or adoption, or a place of birth; or

(ii) any other information concerning an identified individual that, if disclosed, will result in contacting or identifying such individual physically or electronically.

(42) The term `petition' means petition filed under section 301, 302, 303, or 304 of this title, as the case may be, commencing a case under this title [Struck out->][ ; ][<-Struck out] .

(42A) The term `production payment' means a term overriding royalty satisfiable in cash or in kind--

(A) * * *

(B) from a specified volume, or a specified value, from the liquid or gaseous hydrocarbon produced from such property, and determined without regard to production costs [Struck out->][ ; ][<-Struck out] .

(43) The term `purchaser' means transferee of a voluntary transfer, and includes immediate or mediate transferee of such a transferee [Struck out->][ ; ][<-Struck out] .

(44) The term `railroad' means common carrier by railroad engaged in the transportation of individuals or property or owner of trackage facilities leased by such a common carrier [Struck out->][ ; ][<-Struck out] .

(45) The term `relative' means individual related by affinity or consanguinity within the third degree as determined by the common law, or individual in a step or adoptive relationship within such third degree [Struck out->][ ; ][<-Struck out] .

(46) The term `repo participant' means an entity that, [Struck out->][ on any day during the period beginning 90 days before the date of ][<-Struck out] at any time before the filing of the petition, has an outstanding repurchase agreement with the debtor [Struck out->][ ; ][<-Struck out] .

[Struck out->][ (47) `repurchase agreement' (which definition also applies to a reverse repurchase agreement) means an agreement, including related terms, which provides for the transfer of certificates of deposit, eligible bankers' acceptances, or securities that are direct obligations of, or that are fully guaranteed as to principal and interest by, the United States or any agency of the United States against the transfer of funds by the transferee of such certificates of deposit, eligible bankers' acceptances, or securities with a simultaneous agreement by such transferee to transfer to the transferor thereof certificates of deposit, eligible bankers' acceptances, or securities as described above, at a date certain not later than one year after such transfers or on demand, against the transfer of funds; ][<-Struck out]

(47) The term `repurchase agreement' (which definition also applies to a reverse repurchase agreement)--

(A) means--

(i) an agreement, including related terms, which provides for the transfer of one or more certificates of deposit, mortgage related securities (as defined in section 3 of the Securities Exchange Act of 1934), mortgage loans, interests in mortgage related securities or mortgage loans, eligible bankers' acceptances, qualified foreign government securities (defined as a security that is a direct obligation of, or that is fully guaranteed by, the central government of a member of the Organization for Economic Cooperation and Development), or securities that are direct obligations of, or that are fully guaranteed by, the United States or any agency of the United States against the transfer of funds by the transferee of such certificates of deposit, eligible bankers' acceptances, securities, mortgage loans, or interests, with a simultaneous agreement by such transferee to transfer to the transferor thereof certificates of deposit, eligible bankers' acceptance, securities, mortgage loans, or interests of the kind described in this clause, at a date certain not later than 1 year after such transfer or on demand, against the transfer of funds;

(ii) any combination of agreements or transactions referred to in clauses (i) and (iii);

(iii) an option to enter into an agreement or transaction referred to in clause (i) or (ii);

(iv) a master agreement that provides for an agreement or transaction referred to in clause (i), (ii), or (iii), together with all supplements to any such master agreement, without regard to whether such master agreement provides for an agreement or transaction that is not a repurchase agreement under this paragraph, except that such master agreement shall be considered to be a repurchase agreement under this paragraph only with respect to each agreement or transaction under the master agreement that is referred to in clause (i), (ii), or (iii); or

(v) any security agreement or arrangement or other credit enhancement related to any agreement or transaction referred to in clause (i), (ii), (iii), or (iv), including any guarantee or reimbursement obligation by or to a repo participant or financial participant in connection with any agreement or transaction referred to in any such clause, but not to exceed the damages in connection with any such agreement or transaction, measured in accordance with section 562 of this title; and

(B) does not include a repurchase obligation under a participation in a commercial mortgage loan.

(48) The term `securities clearing agency' means person that is registered as a clearing agency under section 17A of the Securities Exchange Act of 1934, or exempt from such registration under such section pursuant to an order of the Securities and Exchange Commission, or whose business is confined to the performance of functions of a clearing agency with respect to exempted securities, as defined in section 3(a)(12) of such Act for the purposes of such section 17A [Struck out->][ ; ][<-Struck out] .

(48A) The term `securities self regulatory organization' means either a securities association registered with the Securities and Exchange Commission under section 15A of the Securities Exchange Act of 1934 or a national securities exchange registered with the Securities and Exchange Commission under section 6 of the Securities Exchange Act of 1934.

(49) The term `security'--

(A) * * *

* * * * * * *

(B) does not include--

(i) * * *

* * * * * * *

(vii) debt or evidence of indebtedness for goods sold and delivered or services rendered [Struck out->][ ; ][<-Struck out] .

(50) The term `security agreement' means agreement that creates or provides for a security interest [Struck out->][ ; ][<-Struck out] .

(51) The term `security interest' means lien created by an agreement [Struck out->][ ; ][<-Struck out] .

(51A) The term `settlement payment' means, for purposes of the forward contract provisions of this title, a preliminary settlement payment, a partial settlement payment, an interim settlement payment, a settlement payment on account, a final settlement payment, a net settlement payment, or any other similar payment commonly used in the forward contract trade [Struck out->][ ; ][<-Struck out] .

(51B) The term `single asset real estate' means real property constituting a single property or project, other than residential real property with fewer than 4 residential units, which generates substantially all of the gross income of a debtor who is not a family farmer and on which no substantial business is being conducted by a debtor other than the business of operating the real property and activities incidental [Struck out->][ thereto having aggregate noncontingent, liquidated secured debts in an amount no more than $4,000,000; ][<-Struck out] .

[Struck out->][ (51C) `small business' means a person engaged in commercial or business activities (but does not include a person whose primary activity is the business of owning or operating real property and activities incidental thereto) whose aggregate noncontingent liquidated secured and unsecured debts as of the date of the petition do not exceed $2,000,000; ][<-Struck out]

(51C) The term `small business case' means a case filed under chapter 11 of this title in which the debtor is a small business debtor.

(51D) The term `small business debtor'--

(A) subject to subparagraph (B), means a person engaged in commercial or business activities (including any affiliate of such person that is also a debtor under this title and excluding a person whose primary activity is the business of owning or operating real property or activities incidental thereto) that has aggregate noncontingent liquidated secured and unsecured debts as of the date of the petition or the date of the order for relief in an amount not more than $2,000,000 (excluding debts owed to 1 or more affiliates or insiders) for a case in which the United States trustee has not appointed under section 1102(a)(1) a committee of unsecured creditors or where the court has determined that the committee of unsecured creditors is not sufficiently active and representative to provide effective oversight of the debtor; and

(B) does not include any member of a group of affiliated debtors that has aggregate noncontingent liquidated secured and unsecured debts in an amount greater than $2,000,000 (excluding debt owed to 1 or more affiliates or insiders).

(52) The term `State' includes the District of Columbia and Puerto Rico, except for the purpose of defining who may be a debtor under chapter 9 of this title [Struck out->][ ; ][<-Struck out] .

(53) The term `statutory lien' means lien arising solely by force of a statute on specified circumstances or conditions, or lien of distress for rent, whether or not statutory, but does not include security interest or judicial lien, whether or not such interest or lien is provided by or is dependent on a statute and whether or not such interest or lien is made fully effective by statute [Struck out->][ ; ][<-Struck out] .

(53A) The term `stockbroker' means person--

(A) * * *

(B) that is engaged in the business of effecting transactions in securities--

(i) * * *

(ii) with members of the general public, from or for such person's own account [Struck out->][ ; ][<-Struck out] .

[Struck out->][ (53B) `swap agreement' means-- ][<-Struck out]

[Struck out->][ (A) an agreement (including terms and conditions incorporated by reference therein) which is a rate swap agreement, basis swap, forward rate agreement, commodity swap, interest rate option, forward foreign exchange agreement, spot foreign exchange agreement, rate cap agreement, rate floor agreement, rate collar agreement, currency swap agreement, cross-currency rate swap agreement, currency option, any other similar agreement (including any option to enter into any of the foregoing); ][<-Struck out]

[Struck out->][ (B) any combination of the foregoing; or ][<-Struck out]

[Struck out->][ (C) a master agreement for any of the foregoing together with all supplements; ][<-Struck out]

(53B) The term `swap agreement'--

(A) means--

(i) any agreement, including the terms and conditions incorporated by reference in such agreement, which is--

(I) an interest rate swap, option, future, or forward agreement, including a rate floor, rate cap, rate collar, cross-currency rate swap, and basis swap;

(II) a spot, same day-tomorrow, tomorrow-next, forward, or other foreign exchange or precious metals agreement;

(III) a currency swap, option, future, or forward agreement;

(IV) an equity index or equity swap, option, future, or forward agreement;

(V) a debt index or debt swap, option, future, or forward agreement;

(VI) a total return, credit spread or credit swap, option, future, or forward agreement;

(VII) a commodity index or a commodity swap, option, future, or forward agreement; or

(VIII) a weather swap, weather derivative, or weather option;

(ii) any agreement or transaction that is similar to any other agreement or transaction referred to in this paragraph and that--

(I) is of a type that has been, is presently, or in the future becomes, the subject of recurrent dealings in the swap markets (including terms and conditions incorporated by reference therein); and

(II) is a forward, swap, future, or option on one or more rates, currencies, commodities, equity securities, or other equity instruments, debt securities or other debt instruments, quantitative measures associated with an occurrence, extent of an occurrence, or contingency associated with a financial, commercial, or economic consequence, or economic or financial indices or measures of economic or financial risk or value;

(iii) any combination of agreements or transactions referred to in this subparagraph;

(iv) any option to enter into an agreement or transaction referred to in this subparagraph;

(v) a master agreement that provides for an agreement or transaction referred to in clause (i), (ii), (iii), or (iv), together with all supplements to any such master agreement, and without regard to whether the master agreement contains an agreement or transaction that is not a swap agreement under this paragraph, except that the master agreement shall be considered to be a swap agreement under this paragraph only with respect to each agreement or transaction under the master agreement that is referred to in clause (i), (ii), (iii), or (iv); or

(vi) any security agreement or arrangement or other credit enhancement related to any agreements or transactions referred to in clause (i) through (v), including any guarantee or reimbursement obligation by or to a swap participant or financial participant in connection with any agreement or transaction referred to in any such clause, but not to exceed the damages in connection with any such agreement or transaction, measured in accordance with section 562; and

(B) is applicable for purposes of this title only, and shall not be construed or applied so as to challenge or affect the characterization, definition, or treatment of any swap agreement under any other statute, regulation, or rule, including the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Securities Investor Protection Act of 1970, the Commodity Exchange Act, the Gramm-Leach-Bliley Act, and the Legal Certainty for Bank Products Act of 2000.

(53C) The term `swap participant' means an entity that, at any time before the filing of the petition, has an outstanding swap agreement with the debtor [Struck out->][ ; ][<-Struck out] .

(56A) The term `term overriding royalty' means an interest in liquid or gaseous hydrocarbons in place or to be produced from particular real property that entitles the owner thereof to a share of production, or the value thereof, for a term limited by time, quantity, or value realized [Struck out->][ ; ][<-Struck out] .

(53D) The term `timeshare plan' means and shall include that interest purchased in any arrangement, plan, scheme, or similar device, but not including exchange programs, whether by membership, agreement, tenancy in common, sale, lease, deed, rental agreement, license, right to use agreement, or by any other means, whereby a purchaser, in exchange for consideration, receives a right to use accommodations, facilities, or recreational sites, whether improved or unimproved, for a specific period of time less than a full year during any given year, but not necessarily for consecutive years, and which extends for a period of more than three years. A `timeshare interest' is that interest purchased in a timeshare plan which grants the purchaser the right to use and occupy accommodations, facilities, or recreational sites, whether improved or unimproved, pursuant to a timeshare plan [Struck out->][ ; ][<-Struck out] .

[Struck out->][ (54) `transfer' means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor's equity of redemption; ][<-Struck out]

(54) The term `transfer' means--

(A) the creation of a lien;

(B) the retention of title as a security interest;

(C) the foreclosure of a debtor's equity of redemption; or

(D) each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with--

(i) property; or

(ii) an interest in property.

(54A) [Struck out->][ the term ][<-Struck out] The term `uninsured State member bank' means a State member bank (as defined in section 3 of the Federal Deposit Insurance Act) the deposits of which are not insured by the Federal Deposit Insurance Corporation [Struck out->][ ; and ][<-Struck out] .

(55) The term `United States', when used in a geographical sense, includes all locations where the judicial jurisdiction of the United States extends, including territories and possessions of the United States [Struck out->][ ; ][<-Struck out] .

* * * * * * *

Sec. 103. Applicability of chapters

(a) Except as provided in section 1161 of this title, chapters 1, 3, and 5 of this title apply in a case under chapter 7, 11, 12, or 13 of this title, and this chapter, sections 307, 362(n), 555 through 557, and 559 through 562 apply in a case under chapter 15.

* * * * * * *

(k) Chapter 15 applies only in a case under such chapter, except that--

(1) sections 1505, 1513, and 1514 apply in all cases under this title; and

(2) section 1509 applies whether or not a case under this title is pending.

Sec. 104. Adjustment of dollar amounts

(a) * * *

(b)(1) On April 1, 1998, and at each 3-year interval ending on April 1 thereafter, each dollar amount in effect under sections 101(3), 101(18), 101(19A), 101(51D), 109(e), 303(b), 507(a), 522(d), [Struck out->][ and 523(a)(2)(C) ][<-Struck out] 522(f)(3) and 522(f)(4), 522(n), 522(p), 522(q), 522(f)(3) and 522(f)(4), 523(a)(2)(C), 541(b), 547(c)(9), 707(b), 1322(d), 1325(b), and 1326(b)(3) of this title and section 1409(b) of title 28 immediately before such April 1 shall be adjusted--

(A) * * *

* * * * * * *

(2) Not later than March 1, 1998, and at each 3-year interval ending on March 1 thereafter, the Judicial Conference of the United States shall publish in the Federal Register the dollar amounts that will become effective on such April 1 under sections 101(3), 101(18), 101(19A), 101(51D), 109(e), 303(b), 507(a), 522(d), [Struck out->][ and 523(a)(2)(C) of this title ][<-Struck out] 522(f)(3) and 522(f)(4), 522(n), 522(p), 522(q), 522(f)(3) and 522(f)(4), 523(a)(2)(C), 541(b), 547(c)(9), 707(b), 1322(d), 1325(b), and 1326(b)(3) of this title and section 1409(b) of title 28.

* * * * * * *

Sec. 105. Power of court

(a) * * *

* * * * * * *

(d) The court, on its own motion or on the request of a party in interest [Struck out->][ , may ][<-Struck out] --

[Struck out->][ (1) hold a status conference regarding any case or proceeding under this title after notice to the parties in interest; and ][<-Struck out]

(1) shall hold such status conferences as are necessary to further the expeditious and economical resolution of the case; and

* * * * * * *

Sec. 107. Public access to papers

(a) Except as provided in subsection (b) of this section and subject to section 112, a paper filed in a case under this title and the dockets of a bankruptcy court are public records and open to examination by an entity at reasonable times without charge.

* * * * * * *

(c)(1) The bankruptcy court, for cause, may protect an individual, with respect to the following types of information to the extent the court finds that disclosure of such information would create undue risk of identity theft or other unlawful injury to the individual or the individual's property:

(A) Any means of identification (as defined in section 1028(d) of title 18) contained in a paper filed, or to be filed, in a case under this title.

(B) Other information contained in a paper described in subparagraph (A).

(2) Upon ex parte application demonstrating cause, the court shall provide access to information protected pursuant to paragraph (1) to an entity acting pursuant to the police or regulatory power of a domestic governmental unit.

(3) The United States trustee, bankruptcy administrator, trustee, and any auditor serving under section 586(f) of title 28--

(A) shall have full access to all information contained in any paper filed or submitted in a case under this title; and

(B) shall not disclose information specifically protected by the court under this title.

Sec. 108. Extension of time

(a) * * *

* * * * * * *

(c) Except as provided in section 524 of this title, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, or against an individual with respect to which such individual is protected under section 1201 or 1301 of this title, and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of--

(1) * * *

(2) 30 days after notice of the termination or expiration of the stay under section 362, [Struck out->][ 922, 1201, or ][<-Struck out] 922, 1201, or 1301 of this title, as the case may be, with respect to such claim.

Sec. 109. Who may be a debtor

(a) * * *

(b) A person may be a debtor under chapter 7 of this title only if such person is not--

(1) a railroad;

(2) a domestic insurance company, bank, savings bank, cooperative bank, savings and loan association, building and loan association, homestead association, a New Markets Venture Capital company as defined in section 351 of the Small Business Investment Act of 1958, a small business investment company licensed by the Small Business Administration under [Struck out->][ subsection (c) or (d) of ][<-Struck out] section 301 of the Small Business Investment Act of 1958, credit union, or industrial bank or similar institution which is an insured bank as defined in section 3(h) of the Federal Deposit Insurance Act, except that an uninsured State member bank, or a corporation organized under section 25A of the Federal Reserve Act, which operates, or operates as, a multilateral clearing organization pursuant to section 409 of the Federal Deposit Insurance Corporation Improvement Act of 1991 may be a debtor if a petition is filed at the direction of the Board of Governors of the Federal Reserve System; or

[Struck out->][ (3) a foreign insurance company, bank, savings bank, cooperative bank, savings and loan association, building and loan association, homestead association, or credit union, engaged in such business in the United States. ][<-Struck out]

(3)(A) a foreign insurance company, engaged in such business in the United States; or

(B) a foreign bank, savings bank, cooperative bank, savings and loan association, building and loan association, or credit union, that has a branch or agency (as defined in section 1(b) of the International Banking Act of 1978 in the United States.

* * * * * * *

(f) Only a family farmer or family fisherman with regular annual income may be a debtor under chapter 12 of this title.

* * * * * * *

(h)(1) Subject to paragraphs (2) and (3), and notwithstanding any other provision of this section, an individual may not be a debtor under this title unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received from an approved nonprofit budget and credit counseling agency described in section 111(a) an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis.

(2)(A) Paragraph (1) shall not apply with respect to a debtor who resides in a district for which the United States trustee (or the bankruptcy administrator, if any) determines that the approved nonprofit budget and credit counseling agencies for such district are not reasonably able to provide adequate services to the additional individuals who would otherwise seek credit counseling from such agencies by reason of the requirements of paragraph (1).

(B) The United States trustee (or the bankruptcy administrator, if any) who makes a determination described in subparagraph (A) shall review such determination not later than 1 year after the date of such determination, and not less frequently than annually thereafter. Notwithstanding the preceding sentence, a nonprofit budget and credit counseling agency may be disapproved by the United States trustee (or the bankruptcy administrator, if any) at any time.

(3)(A) Subject to subparagraph (B), the requirements of paragraph (1) shall not apply with respect to a debtor who submits to the court a certification that--

(i) describes exigent circumstances that merit a waiver of the requirements of paragraph (1);

(ii) states that the debtor requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services referred to in paragraph (1) during the 5-day period beginning on the date on which the debtor made that request; and

(iii) is satisfactory to the court.

(B) With respect to a debtor, an exemption under subparagraph (A) shall cease to apply to that debtor on the date on which the debtor meets the requirements of paragraph (1), but in no case may the exemption apply to that debtor after the date that is 30 days after the debtor files a petition, except that the court, for cause, may order an additional 15 days.

(4) The requirements of paragraph (1) shall not apply with respect to a debtor whom the court determines, after notice and hearing, is unable to complete those requirements because of incapacity, disability, or active military duty in a military combat zone. For the purposes of this paragraph, incapacity means that the debtor is impaired by reason of mental illness or mental deficiency so that he is incapable of realizing and making rational decisions with respect to his financial responsibilities; and `disability' means that the debtor is so physically impaired as to be unable, after reasonable effort, to participate in an in person, telephone, or Internet briefing required under paragraph (1).

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

(a) In this section--

(1) `bankruptcy petition preparer' means a person, other than an attorney [Struck out->][ or an employee of an attorney ][<-Struck out] for the debtor or an employee of such attorney under the direct supervision of such attorney, who prepares for compensation a document for filing; and

* * * * * * *

(b)(1) A bankruptcy petition preparer who prepares a document for filing shall sign the document and print on the document the preparer's name and address. If a bankruptcy petition preparer is not an individual, then an officer, principal, responsible person, or partner of the bankruptcy petition preparer shall be required to--

(A) sign the document for filing; and

(B) print on the document the name and address of that officer, principal, responsible person, or partner.

[Struck out->][ (2) A bankruptcy petition preparer who fails to comply with paragraph (1) may be fined not more than $500 for each such failure unless the failure is due to reasonable cause. ][<-Struck out]

(2)(A) Before preparing any document for filing or accepting any fees from a debtor, the bankruptcy petition preparer shall provide to the debtor a written notice which shall be on an official form prescribed by the Judicial Conference of the United States in accordance with rule 9009 of the Federal Rules of Bankruptcy Procedure.

(B) The notice under subparagraph (A)--

(i) shall inform the debtor in simple language that a bankruptcy petition preparer is not an attorney and may not practice law or give legal advice;

(ii) may contain a description of examples of legal advice that a bankruptcy petition preparer is not authorized to give, in addition to any advice that the preparer may not give by reason of subsection (e)(2); and

(iii) shall--

(I) be signed by the debtor and, under penalty of perjury, by the bankruptcy petition preparer; and

(II) be filed with any document for filing.

(c)(1) * * *

[Struck out->][ (2) For purposes ][<-Struck out] (2)(A) Subject to subparagraph (B), for purposes of this section, the identifying number of a bankruptcy petition preparer shall be the Social Security account number of each individual who prepared the document or assisted in its preparation.

(B) If a bankruptcy petition preparer is not an individual, the identifying number of the bankruptcy petition preparer shall be the Social Security account number of the officer, principal, responsible person, or partner of the bankruptcy petition preparer.

[Struck out->][ (3) A bankruptcy petition preparer who fails to comply with paragraph (1) may be fined not more than $500 for each such failure unless the failure is due to reasonable cause. ][<-Struck out]

[Struck out->][ (d)(1) ][<-Struck out] (d) A bankruptcy petition preparer shall, not later than the time at which a document for filing is presented for the debtor's signature, furnish to the debtor a copy of the document.

[Struck out->][ (2) A bankruptcy petition preparer who fails to comply with paragraph (1) may be fined not more than $500 for each such failure unless the failure is due to reasonable cause. ][<-Struck out]

(e)(1) * * *

[Struck out->][ (2) A bankruptcy petition preparer may be fined not more than $500 for each document executed in violation of paragraph (1). ][<-Struck out]

(2)(A) A bankruptcy petition preparer may not offer a potential bankruptcy debtor any legal advice, including any legal advice described in subparagraph (B).

(B) The legal advice referred to in subparagraph (A) includes advising the debtor--

(i) whether--

(I) to file a petition under this title; or

(II) commencing a case under chapter 7, 11, 12, or 13 is appropriate;

(ii) whether the debtor's debts will be discharged in a case under this title;

(iii) whether the debtor will be able to retain the debtor's home, car, or other property after commencing a case under this title;

(iv) concerning--

(I) the tax consequences of a case brought under this title; or

(II) the dischargeability of tax claims;

(v) whether the debtor may or should promise to repay debts to a creditor or enter into a reaffirmation agreement with a creditor to reaffirm a debt;

(vi) concerning how to characterize the nature of the debtor's interests in property or the debtor's debts; or

(vii) concerning bankruptcy procedures and rights.

[Struck out->][ (f)(1) ][<-Struck out] (f) A bankruptcy petition preparer shall not use the word `legal' or any similar term in any advertisements, or advertise under any category that includes the word `legal' or any similar term.

[Struck out->][ (2) A bankruptcy petition preparer shall be fined not more than $500 for each violation of paragraph (1). ][<-Struck out]

[Struck out->][ (g)(1) ][<-Struck out] (g) A bankruptcy petition preparer shall not collect or receive any payment from the debtor or on behalf of the debtor for the court fees in connection with filing the petition.

[Struck out->][ (2) A bankruptcy petition preparer shall be fined not more than $500 for each violation of paragraph (1). ][<-Struck out]

(h)(1) The Supreme Court may promulgate rules under section 2075 of title 28, or the Judicial Conference of the United States may prescribe guidelines, for setting a maximum allowable fee chargeable by a bankruptcy petition preparer. A bankruptcy petition preparer shall notify the debtor of any such maximum amount before preparing any document for filing for a debtor or accepting any fee from the debtor.

[Struck out->][ (1) Within 10 days after the date of the filing of a petition, a bankruptcy petition preparer shall file a ][<-Struck out] (2) A declaration under penalty of perjury by the bankruptcy petition preparer shall be filed together with the petition, disclosing any fee received from or on behalf of the debtor within 12 months immediately prior to the filing of the case, and any unpaid fee charged to the debtor. If rules or guidelines setting a maximum fee for services have been promulgated or prescribed under paragraph (1), the declaration under this paragraph shall include a certification that the bankruptcy petition preparer complied with the notification requirement under paragraph (1).

[Struck out->][ (2) The court shall disallow and order the immediate turnover to the bankruptcy trustee of any fee referred to in paragraph (1) found to be in excess of the value of services rendered for the documents prepared. An individual debtor may exempt any funds so recovered under section 522(b). ][<-Struck out]

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

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

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

(B) All fees charged by a bankruptcy petition preparer may be forfeited in any case in which the bankruptcy petition preparer fails to comply with this subsection or subsection (b), (c), (d), (e), (f), or (g).

(C) An individual may exempt any funds recovered under this paragraph under section 522(b).

[Struck out->][ (3) ][<-Struck out] (4) The debtor, the trustee, a creditor, [Struck out->][ or the United States trustee ][<-Struck out] the United States trustee (or the bankruptcy administrator, if any) or the court, on the initiative of the court, may file a motion for an order under paragraph (2).

[Struck out->][ (4) ][<-Struck out] (5) A bankruptcy petition preparer shall be fined not more than $500 for each failure to comply with a court order to turn over funds within 30 days of service of such order.

[Struck out->][ (i)(1) If a bankruptcy case or related proceeding is dismissed because of the failure to file bankruptcy papers, including papers specified in section 521(1) of this title, the negligence or intentional disregard of this title or the Federal Rules of Bankruptcy Procedure by a bankruptcy petition preparer, or if a bankruptcy petition preparer violates this section or commits any fraudulent, unfair, or deceptive act, the bankruptcy court shall certify that fact to the district court, and the district court, on motion of the debtor, the trustee, or a creditor and after a hearing, shall order the bankruptcy petition preparer to pay to the debtor-- ][<-Struck out]

(i)(1) If a bankruptcy petition preparer violates this section or commits any act that the court finds to be fraudulent, unfair, or deceptive, on the motion of the debtor, trustee, United States trustee (or the bankruptcy administrator, if any), and after notice and a hearing, the court shall order the bankruptcy petition preparer to pay to the debtor--

(A) * * *

* * * * * * *

(j)(1) * * *

(2)(A) In an action under paragraph (1), if the court finds that--

(i) a bankruptcy petition preparer has--

(I) engaged in conduct in violation of this section or of any provision of this title [Struck out->][ a violation of which subjects a person to criminal penalty ][<-Struck out] ;

* * * * * * *

(B) If the court finds that a bankruptcy petition preparer has continually engaged in conduct described in subclause (I), (II), or (III) of clause (i) and that an injunction prohibiting such conduct would not be sufficient to prevent such person's interference with the proper administration of this title, [Struck out->][ or has not paid a penalty ][<-Struck out] has not paid a penalty imposed under this section, or failed to disgorge all fees ordered by the court the court may enjoin the person from acting as a bankruptcy petition preparer.

(3) The court, as part of its contempt power, may enjoin a bankruptcy petition preparer that has failed to comply with a previous order issued under this section. The injunction under this paragraph may be issued on the motion of the court, the trustee, or the United States trustee (or the bankruptcy administrator, if any).

[Struck out->][ (3) ][<-Struck out] (4) The court shall award to a debtor, trustee, or creditor that brings a successful action under this subsection reasonable [Struck out->][ attorney's ][<-Struck out] attorneys' fees and costs of the action, to be paid by the bankruptcy petition preparer.

* * * * * * *

(l)(1) A bankruptcy petition preparer who fails to comply with any provision of subsection (b), (c), (d), (e), (f), (g), or (h) may be fined not more than $500 for each such failure.

(2) The court shall triple the amount of a fine assessed under paragraph (1) in any case in which the court finds that a bankruptcy petition preparer--

(A) advised the debtor to exclude assets or income that should have been included on applicable schedules;

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

(C) failed to inform the debtor that the debtor was filing for relief under this title; or

(D) prepared a document for filing in a manner that failed to disclose the identity of the bankruptcy petition preparer.

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

(4)(A) Fines imposed under this subsection in judicial districts served by United States trustees shall be paid to the United States trustee, who shall deposit an amount equal to such fines in a special account of the United States Trustee System Fund referred to in section 586(e)(2) of title 28. Amounts deposited under this subparagraph shall be available to fund the enforcement of this section on a national basis.

(B) Fines imposed under this subsection in judicial districts served by bankruptcy administrators shall be deposited as offsetting receipts to the fund established under section 1931 of title 28, and shall remain available until expended to reimburse any appropriation for the amount paid out of such appropriation for expenses of the operation and maintenance of the courts of the United States.

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

(a) The clerk shall maintain a publicly available list of--

(1) nonprofit budget and credit counseling agencies that provide 1 or more services described in section 109(h) currently approved by the United States trustee (or the bankruptcy administrator, if any); and

(2) instructional courses concerning personal financial management currently approved by the United States trustee (or the bankruptcy administrator, if any), as applicable.

(b) The United States trustee (or bankruptcy administrator, if any) shall only approve a nonprofit budget and credit counseling agency or an instructional course concerning personal financial management as follows:

(1) The United States trustee (or bankruptcy administrator, if any) shall have thoroughly reviewed the qualifications of the nonprofit budget and credit counseling agency or of the provider of the instructional course under the standards set forth in this section, and the services or instructional courses that will be offered by such agency or such provider, and may require such agency or such provider that has sought approval to provide information with respect to such review.

(2) The United States trustee (or bankruptcy administrator, if any) shall have determined that such agency or such instructional course fully satisfies the applicable standards set forth in this section.

(3) If a nonprofit budget and credit counseling agency or instructional course did not appear on the approved list for the district under subsection (a) immediately before approval under this section, approval under this subsection of such agency or such instructional course shall be for a probationary period not to exceed 6 months.

(4) At the conclusion of the applicable probationary period under paragraph (3), the United States trustee (or bankruptcy administrator, if any) may only approve for an additional 1-year period, and for successive 1-year periods thereafter, an agency or instructional course that has demonstrated during the probationary or applicable subsequent period of approval that such agency or instructional course--

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

(B) can satisfy such standards in the future.

(5) Not later than 30 days after any final decision under paragraph (4), an interested person may seek judicial review of such decision in the appropriate district court of the United States.

(c)(1) The United States trustee (or the bankruptcy administrator, if any) shall only approve a nonprofit budget and credit counseling agency that demonstrates that it will provide qualified counselors, maintain adequate provision for safekeeping and payment of client funds, provide adequate counseling with respect to client credit problems, and deal responsibly and effectively with other matters relating to the quality, effectiveness, and financial security of the services it provides.

(2) To be approved by the United States trustee (or the bankruptcy administrator, if any), a nonprofit budget and credit counseling agency shall, at a minimum--

(A) have a board of directors the majority of which--

(i) are not employed by such agency; and

(ii) will not directly or indirectly benefit financially from the outcome of the counseling services provided by such agency;

(B) if a fee is charged for counseling services, charge a reasonable fee, and provide services without regard to ability to pay the fee;

(C) provide for safekeeping and payment of client funds, including an annual audit of the trust accounts and appropriate employee bonding;

(D) provide full disclosures to a client, including funding sources, counselor qualifications, possible impact on credit reports, and any costs of such program that will be paid by such client and how such costs will be paid;

(E) provide adequate counseling with respect to a client's credit problems that includes an analysis of such client's current financial condition, factors that caused such financial condition, and how such client can develop a plan to respond to the problems without incurring negative amortization of debt;

(F) provide trained counselors who receive no commissions or bonuses based on the outcome of the counseling services provided by such agency, and who have adequate experience, and have been adequately trained to provide counseling services to individuals in financial difficulty, including the matters described in subparagraph (E);

(G) demonstrate adequate experience and background in providing credit counseling; and

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

(d) The United States trustee (or the bankruptcy administrator, if any) shall only approve an instructional course concerning personal financial management--

(1) for an initial probationary period under subsection (b)(3) if the course will provide at a minimum--

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

(B) learning materials and teaching methodologies designed to assist debtors in understanding personal financial management and that are consistent with stated objectives directly related to the goals of such instructional course;

(C) adequate facilities situated in reasonably convenient locations at which such instructional course is offered, except that such facilities may include the provision of such instructional course by telephone or through the Internet, if such instructional course is effective;

(D) the preparation and retention of reasonable records (which shall include the debtor's bankruptcy case number) to permit evaluation of the effectiveness of such instructional course, including any evaluation of satisfaction of instructional course requirements for each debtor attending such instructional course, which shall be available for inspection and evaluation by the Executive Office for United States Trustees, the United States trustee (or the bankruptcy administrator, if any), or the chief bankruptcy judge for the district in which such instructional course is offered; and

(E) if a fee is charged for the instructional course, charge a reasonable fee, and provide services without regard to ability to pay the fee.

(2) for any 1-year period if the provider thereof has demonstrated that the course meets the standards of paragraph (1) and, in addition--

(A) has been effective in assisting a substantial number of debtors to understand personal financial management; and

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

(e) The district court may, at any time, investigate the qualifications of a nonprofit budget and credit counseling agency referred to in subsection (a), and request production of documents to ensure the integrity and effectiveness of such agency. The district court may, at any time, remove from the approved list under subsection (a) a nonprofit budget and credit counseling agency upon finding such agency does not meet the qualifications of subsection (b).

(f) The United States trustee (or the bankruptcy administrator, if any) shall notify the clerk that a nonprofit budget and credit counseling agency or an instructional course is no longer approved, in which case the clerk shall remove it from the list maintained under subsection (a).

(g)(1) No nonprofit budget and credit counseling agency may provide to a credit reporting agency information concerning whether a debtor has received or sought instruction concerning personal financial management from such agency.

(2) A nonprofit budget and credit counseling agency that willfully or negligently fails to comply with any requirement under this title with respect to a debtor shall be liable for damages in an amount equal to the sum of--

(A) any actual damages sustained by the debtor as a result of the violation; and

(B) any court costs or reasonable attorneys' fees (as determined by the court) incurred in an action to recover those damages.

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

The debtor may be required to provide information regarding a minor child involved in matters under this title but may not be required to disclose in the public records in the case the name of such minor child. The debtor may be required to disclose the name of such minor child in a nonpublic record that is maintained by the court and made available by the court for examination by the United States trustee, the trustee, and the auditor (if any) serving under section 586(f) of title 28, in the case. The court, the United States trustee, the trustee, and such auditor shall not disclose the name of such minor child maintained in such nonpublic record.

CHAPTER 3--CASE ADMINISTRATION

SUBCHAPTER I--COMMENCEMENT OF A CASE

Sec.

301. Voluntary cases.

* * * * * * *

[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

(a) A voluntary case under a chapter of this title is commenced by the filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter. [Struck out->][ The commencement of a voluntary case under a chapter of this title constitutes an order for relief under such chapter. ][<-Struck out]

(b) The commencement of a voluntary case under a chapter of this title constitutes an order for relief under such chapter.

* * * * * * *

Sec. 303. Involuntary cases

(a) * * *

(b) An involuntary case against a person is commenced by the filing with the bankruptcy court of a petition under chapter 7 or 11 of this title--

(1) by three or more entities, each of which is either a holder of a claim against such person that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount, or an indenture trustee representing such a holder, [Struck out->][ if such claims ][<-Struck out] if such noncontingent, undisputed claims aggregate at least $10,000 more than the value of any lien on property of the debtor securing such claims held by the holders of such claims;

* * * * * * *

(h) If the petition is not timely controverted, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed. Otherwise, after trial, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed, only if--

(1) the debtor is generally not paying such debtor's debts as such debts become due unless such debts are the subject of a bona fide dispute as to liability or amount; or

* * * * * * *

[Struck out->][ (k) Notwithstanding subsection (a) of this section, an involuntary case may be commenced against a foreign bank that is not engaged in such business in the United States only under chapter 7 of this title and only if a foreign proceeding concerning such bank is pending. ][<-Struck out]

(l)(1) If--

(A) the petition under this section is false or contains any materially false, fictitious, or fraudulent statement;

(B) the debtor is an individual; and

(C) the court dismisses such petition,

the court, upon the motion of the debtor, shall seal all the records of the court relating to such petition, and all references to such petition.

(2) If the debtor is an individual and the court dismisses a petition under this section, the court may enter an order prohibiting all consumer reporting agencies (as defined in section 603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f))) from making any consumer report (as defined in section 603(d) of that Act) that contains any information relating to such petition or to the case commenced by the filing of such petition.

(3) Upon the expiration of the statute of limitations described in section 3282 of title 18, for a violation of section 152 or 157 of such title, the court, upon the motion of the debtor and for good cause, may expunge any records relating to a petition filed under this section.

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

[Struck out->][ (a) A case ancillary to a foreign proceeding is commenced by the filing with the bankruptcy court of a petition under this section by a foreign representative. ][<-Struck out]

[Struck out->][ (b) Subject to the provisions of subsection (c) of this section, if a party in interest does not timely controvert the petition, or after trial, the court may-- ][<-Struck out]

[Struck out->][ (1) enjoin the commencement or continuation of-- ][<-Struck out]

[Struck out->][ (A) any action against-- ][<-Struck out]

[Struck out->][ (i) a debtor with respect to property involved in such foreign proceeding; or ][<-Struck out]

[Struck out->][ (ii) such property; or ][<-Struck out]

[Struck out->][ (B) the enforcement of any judgment against the debtor with respect to such property, or any act or the commencement or continuation of any judicial proceeding to create or enforce a lien against the property of such estate; ][<-Struck out]

[Struck out->][ (2) order turnover of the property of such estate, or the proceeds of such property, to such foreign representative; or ][<-Struck out]

[Struck out->][ (3) order other appropriate relief. ][<-Struck out]

[Struck out->][ (c) In determining whether to grant relief under subsection (b) of this section, the court shall be guided by what will best assure an economical and expeditious administration of such estate, consistent with-- ][<-Struck out]

[Struck out->][ (1) just treatment of all holders of claims against or interests in such estate; ][<-Struck out]

[Struck out->][ (2) protection of claim holders in the United States against prejudice and inconvenience in the processing of claims in such foreign proceeding; ][<-Struck out]

[Struck out->][ (3) prevention of preferential or fraudulent dispositions of property of such estate; ][<-Struck out]

[Struck out->][ (4) distribution of proceeds of such estate substantially in accordance with the order prescribed by this title; ][<-Struck out]

[Struck out->][ (5) comity; and ][<-Struck out]

[Struck out->][ (6) if appropriate, the provision of an opportunity for a fresh start for the individual that such foreign proceeding concerns. ][<-Struck out]

Sec. 305. Abstention

(a) The court, after notice and a hearing, may dismiss a case under this title, or may suspend all proceedings in a case under this title, at any time if--

(1) * * *

[Struck out->][ (2)(A) there is pending a foreign proceeding; and ][<-Struck out]

[Struck out->][ (B) the factors specified in section 304(c) of this title warrant such dismissal or suspension. ][<-Struck out]

(2)(A) a petition under section 1515 for recognition of a foreign proceeding has been granted; and

(B) the purposes of chapter 15 of this title would be best served by such dismissal or suspension.

* * * * * * *

Sec. 306. Limited appearance

An appearance in a bankruptcy court by a foreign representative in connection with a petition or request under section 303 [Struck out->][ , 304, ][<-Struck out] or 305 of this title does not submit such foreign representative to the jurisdiction of any court in the United States for any other purpose, but the bankruptcy court may condition any order under section 303 [Struck out->][ , 304, ][<-Struck out] or 305 of this title on compliance by such foreign representative with the orders of such bankruptcy court.

* * * * * * *

Sec. 308. Debtor reporting requirements

(a) For purposes of this section, the term `profitability' means, with respect to a debtor, the amount of money that the debtor has earned or lost during current and recent fiscal periods.

(b) A small business debtor shall file periodic financial and other reports containing information including--

(1) the debtor's profitability;

(2) reasonable approximations of the debtor's projected cash receipts and cash disbursements over a reasonable period;

(3) comparisons of actual cash receipts and disbursements with projections in prior reports;

(4)(A) whether the debtor is--

(i) in compliance in all material respects with postpetition requirements imposed by this title and the Federal Rules of Bankruptcy Procedure; and

(ii) timely filing tax returns and other required government filings and paying taxes and other administrative expenses when due;

(B) if the debtor is not in compliance with the requirements referred to in subparagraph (A)(i) or filing tax returns and other required government filings and making the payments referred to in subparagraph (A)(ii), what the failures are and how, at what cost, and when the debtor intends to remedy such failures; and

(C) such other matters as are in the best interests of the debtor and creditors, and in the public interest in fair and efficient procedures under chapter 11 of this title.

SUBCHAPTER II--OFFICERS

* * * * * * *

Sec. 328. Limitation on compensation of professional persons

(a) The trustee, or a committee appointed under section 1102 of this title, with the court's approval, may employ or authorize the employment of a professional person under section 327 or 1103 of this title, as the case may be, on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, on a fixed or percentage fee basis, or on a contingent fee basis. Notwithstanding such terms and conditions, the court may allow compensation different from the compensation provided under such terms and conditions after the conclusion of such employment, if such terms and conditions prove to have been improvident in light of developments not capable of being anticipated at the time of the fixing of such terms and conditions.

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Sec. 330. Compensation of officers

(a)(1) After notice to the parties in interest and the United States Trustee and a hearing, and subject to sections 326, 328, and 329, the court may award to a trustee, a consumer privacy ombudsman appointed under section 332, an examiner, an ombudsman appointed under section 333, or a professional person employed under section 327 or 1103--

(A) reasonable compensation for actual, necessary services rendered by the trustee, examiner, ombudsman, professional person, or attorney and by any paraprofessional person employed by any such person; and

(B) reimbursement for actual, necessary expenses.

(3) [Struck out->][ (A) In ][<-Struck out] In determining the amount of reasonable compensation to be awarded to an examiner, trustee under chapter 11, or professional person, the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including--

(A) * * *

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(D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed; [Struck out->][ and ][<-Struck out]

(E) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and

[Struck out->][ (E) ][<-Struck out] (F) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.

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(7) In determining the amount of reasonable compensation to be awarded to a trustee, the court shall treat such compensation as a commission, based on section 326.

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Sec. 332. Consumer privacy ombudsman

(a) If a hearing is required under section 363(b)(1)(B), the court shall order the United States trustee to appoint, not later than 5 days before the commencement of the hearing, 1 disinterested person (other than the United States trustee) to serve as the consumer privacy ombudsman in the case and shall require that notice of such hearing be timely given to such ombudsman.

(b) The consumer privacy ombudsman may appear and be heard at such hearing and shall provide to the court information to assist the court in its consideration of the facts, circumstances, and conditions of the proposed sale or lease of personally identifiable information under section 363(b)(1)(B). Such information may include presentation of--

(1) the debtor's privacy policy;

(2) the potential losses or gains of privacy to consumers if such sale or such lease is approved by the court;

(3) the potential costs or benefits to consumers if such sale or such lease is approved by the court; and

(4) the potential alternatives that would mitigate potential privacy losses or potential costs to consumers.

(c) A consumer privacy ombudsman shall not disclose any personally identifiable information obtained by the ombudsman under this title.

Sec. 333. Appointment of patient care ombudsman

(a)(1) If the debtor in a case under chapter 7, 9, or 11 is a health care business, the court shall order, not later than 30 days after the commencement of the case, the appointment of an ombudsman to monitor the quality of patient care and to represent the interests of the patients of the health care business unless the court finds that the appointment of such ombudsman is not necessary for the protection of patients under the specific facts of the case.

(2)(A) If the court orders the appointment of an ombudsman under paragraph (1), the United States trustee shall appoint 1 disinterested person (other than the United States trustee) to serve as such ombudsman.

(B) If the debtor is a health care business that provides long-term care, then the United States trustee may appoint the State Long-Term Care Ombudsman appointed under the Older Americans Act of 1965 for the State in which the case is pending to serve as the ombudsman required by paragraph (1).

(C) If the United States trustee does not appoint a State Long-Term Care Ombudsman under subparagraph (B), the court shall notify the State Long-Term Care Ombudsman appointed under the Older Americans Act of 1965 for the State in which the case is pending, of the name and address of the person who is appointed under subparagraph (A).

(b) An ombudsman appointed under subsection (a) shall--

(1) monitor the quality of patient care provided to patients of the debtor, to the extent necessary under the circumstances, including interviewing patients and physicians;

(2) not later than 60 days after the date of appointment, and not less frequently than at 60-day intervals thereafter, report to the court after notice to the parties in interest, at a hearing or in writing, regarding the quality of patient care provided to patients of the debtor; and

(3) if such ombudsman determines that the quality of patient care provided to patients of the debtor is declining significantly or is otherwise being materially compromised, file with the court a motion or a written report, with notice to the parties in interest immediately upon making such determination.

(c)(1) An ombudsman appointed under subsection (a) shall maintain any information obtained by such ombudsman under this section that relates to patients (including information relating to patient records) as confidential information. Such ombudsman may not review confidential patient records unless the court approves such review in advance and imposes restrictions on such ombudsman to protect the confidentiality of such records.

(2) An ombudsman appointed under subsection (a)(2)(B) shall have access to patient records consistent with authority of such ombudsman under the Older Americans Act of 1965 and under non-Federal laws governing the State Long-Term Care Ombudsman program.

SUBCHAPTER III--ADMINISTRATION

Sec. 341. Meetings of creditors and equity security holders

(a) * * *

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(c) The court may not preside at, and may not attend, any meeting under this section including any final meeting of creditors. Notwithstanding any local court rule, provision of a State constitution, any otherwise applicable nonbankruptcy law, or any other requirement that representation at the meeting of creditors under subsection (a) be by an attorney, a creditor holding a consumer debt or any representative of the creditor (which may include an entity or an employee of an entity and may be a representative for more than 1 creditor) shall be permitted to appear at and participate in the meeting of creditors in a case under chapter 7 or 13, either alone or in conjunction with an attorney for the creditor. Nothing in this subsection shall be construed to require any creditor to be represented by an attorney at any meeting of creditors.

* * * * * * *

(e) Notwithstanding subsections (a) and (b), the court, on the request of a party in interest and after notice and a hearing, for cause may order that the United States trustee not convene a meeting of creditors or equity security holders if the debtor has filed a plan as to which the debtor solicited acceptances prior to the commencement of the case.

Sec. 342. Notice

(a) * * *

[Struck out->][ (b) Prior to the commencement of a case under this title by an individual whose debts are primarily consumer debts, the clerk shall give written notice to such individual that indicates each chapter of this title under which such individual may proceed. ][<-Struck out]

(b) Before the commencement of a case under this title by an individual whose debts are primarily consumer debts, the clerk shall give to such individual written notice containing--

(1) a brief description of--

(A) chapters 7, 11, 12, and 13 and the general purpose, benefits, and costs of proceeding under each of those chapters; and

(B) the types of services available from credit counseling agencies; and

(2) statements specifying that--

(A) a person who knowingly and fraudulently conceals assets or makes a false oath or statement under penalty of perjury in connection with a case under this title shall be subject to fine, imprisonment, or both; and

(B) all information supplied by a debtor in connection with a case under this title is subject to examination by the Attorney General.

(c)(1) If notice is required to be given by the debtor to a creditor under this title, any rule, any applicable law, or any order of the court, such notice shall contain the name, address, and last 4 digits of the taxpayer identification number of the debtor [Struck out->][ , but the failure of such notice to contain such information shall not invalidate the legal effect of such notice ][<-Struck out] . If the notice concerns an amendment that adds a creditor to the schedules of assets and liabilities, the debtor shall include the full taxpayer identification number in the notice sent to that creditor, but the debtor shall include only the last 4 digits of the taxpayer identification number in the copy of the notice filed with the court.

(2)(A) If, within the 90 days before the commencement of a voluntary case, a creditor supplies the debtor in at least 2 communications sent to the debtor with the current account number of the debtor and the address at which such creditor requests to receive correspondence, then any notice required by this title to be sent by the debtor to such creditor shall be sent to such address and shall include such account number.

(B) If a creditor would be in violation of applicable nonbankruptcy law by sending any such communication within such 90-day period and if such creditor supplies the debtor in the last 2 communications with the current account number of the debtor and the address at which such creditor requests to receive correspondence, then any notice required by this title to be sent by the debtor to such creditor shall be sent to such address and shall include such account number.

(d) In a case under chapter 7 of this title in which the debtor is an individual and in which the presumption of abuse arises under section 707(b), the clerk shall give written notice to all creditors not later than 10 days after the date of the filing of the petition that the presumption of abuse has arisen.

(e)(1) In a case under chapter 7 or 13 of this title of a debtor who is an individual, a creditor at any time may both file with the court and serve on the debtor a notice of address to be used to provide notice in such case to such creditor.

(2) Any notice in such case required to be provided to such creditor by the debtor or the court later than 5 days after the court and the debtor receive such creditor's notice of address, shall be provided to such address.

(f)(1) An entity may file with any bankruptcy court a notice of address to be used by all the bankruptcy courts or by particular bankruptcy courts, as so specified by such entity at the time such notice is filed, to provide notice to such entity in all cases under chapters 7 and 13 pending in the courts with respect to which such notice is filed, in which such entity is a creditor.

(2) In any case filed under chapter 7 or 13, any notice required to be provided by a court with respect to which a notice is filed under paragraph (1), to such entity later than 30 days after the filing of such notice under paragraph (1) shall be provided to such address unless with respect to a particular case a different address is specified in a notice filed and served in accordance with subsection (e).

(3) A notice filed under paragraph (1) may be withdrawn by such entity.

(g)(1) Notice provided to a creditor by the debtor or the court other than in accordance with this section (excluding this subsection) shall not be effective notice until such notice is brought to the attention of such creditor. If such creditor designates a person or an organizational subdivision of such creditor to be responsible for receiving notices under this title and establishes reasonable procedures so that such notices receivable by such creditor are to be delivered to such person or such subdivision, then a notice provided to such creditor other than in accordance with this section (excluding this subsection) shall not be considered to have been brought to the attention of such creditor until such notice is received by such person or such subdivision.

(2) A monetary penalty may not be imposed on a creditor for a violation of a stay in effect under section 362(a) (including a monetary penalty imposed under section 362(k)) or for failure to comply with section 542 or 543 unless the conduct that is the basis of such violation or of such failure occurs after such creditor receives notice effective under this section of the order for relief.

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

[Struck out->][ (a) Except to the extent otherwise provided in this section, subsections (b), (c), (d), (e), (g), (h), (i), and (j) of this section apply notwithstanding any State or local law imposing a tax, but subject to the Internal Revenue Code of 1986. ][<-Struck out]

[Struck out->][ (b)(1) In a case under chapter 7, 12, or 11 of this title concerning an individual, any income of the estate may be taxed under a State or local law imposing a tax on or measured by income only to the estate, and may not be taxed to such individual. Except as provided in section 728 of this title, if such individual is a partner in a partnership, any gain or loss resulting from a distribution of property from such partnership, or any distributive share of income, gain, loss, deduction, or credit of such individual that is distributed, or considered distributed, from such partnership, after the commencement of the case is gain, loss, income, deduction, or credit, as the case may be, of the estate. ][<-Struck out]

[Struck out->][ (2) Except as otherwise provided in this section and in section 728 of this title, any income of the estate in such a case, and any State or local tax on or measured by such income, shall be computed in the same manner as the income and the tax of an estate. ][<-Struck out]

[Struck out->][ (3) The estate in such a case shall use the same accounting method as the debtor used immediately before the commencement of the case. ][<-Struck out]

[Struck out->][ (c)(1) The commencement of a case under this title concerning a corporation or a partnership does not effect a change in the status of such corporation or partnership for the purposes of any State or local law imposing a tax on or measured by income. Except as otherwise provided in this section and in section 728 of this title, any income of the estate in such case may be taxed only as though such case had not been commenced. ][<-Struck out]

[Struck out->][ (2) In such a case, except as provided in section 728 of this title, the trustee shall make any tax return otherwise required by State or local law to be filed by or on behalf of such corporation or partnership in the same manner and form as such corporation or partnership, as the case may be, is required to make such return. ][<-Struck out]

[Struck out->][ (d) In a case under chapter 13 of this title, any income of the estate or the debtor may be taxed under a State or local law imposing a tax on or measured by income only to the debtor, and may not be taxed to the estate. ][<-Struck out]

[Struck out->][ (e) A claim allowed under section 502(f) or 503 of this title, other than a claim for a tax that is not otherwise deductible or a capital expenditure that is not otherwise deductible, is deductible by the entity to which income of the estate is taxed unless such claim was deducted by another entity, and a deduction for such a claim is deemed to be a deduction attributable to a business. ][<-Struck out]

[Struck out->][ (f) The trustee shall withhold from any payment of claims for wages, salaries, commissions, dividends, interest, or other payments, or collect, any amount required to be withheld or collected under applicable State or local tax law, and shall pay such withheld or collected amount to the appropriate governmental unit at the time and in the manner required by such tax law, and with the same priority as the claim from which such amount was withheld was paid. ][<-Struck out]

[Struck out->][ (g)(1) Neither gain nor loss shall be recognized on a transfer-- ][<-Struck out]

[Struck out->][ (A) by operation of law, of property to the estate; ][<-Struck out]

[Struck out->][ (B) other than a sale, of property from the estate to the debtor; or ][<-Struck out]

[Struck out->][ (C) in a case under chapter 11 or 12 of this title concerning a corporation, of property from the estate to a corporation that is an affiliate participating in a joint plan with the debtor, or that is a successor to the debtor under the plan, except that gain or loss may be recognized to the same extent that such transfer results in the recognition of gain or loss under section 371 of the Internal Revenue Code of 1986. ][<-Struck out]

[Struck out->][ (2) The transferee of a transfer of a kind specified in this subsection shall take the property transferred with the same character, and with the transferor's basis, as adjusted under subsection (j)(5) of this section, and holding period. ][<-Struck out]

[Struck out->][ (h) Notwithstanding sections 728(a) and 1146(a) of this title, for the purpose of determining the number of taxable periods during which the debtor or the estate may use a loss carryover or a loss carryback, the taxable period of the debtor during which the case is commenced is deemed not to have been terminated by such commencement. ][<-Struck out]

[Struck out->][ (i)(1) In a case under chapter 7, 12, or 11 of this title concerning an individual, the estate shall succeed to the debtor's tax attributes, including-- ][<-Struck out]

[Struck out->][ (A) any investment credit carryover; ][<-Struck out]

[Struck out->][ (B) any recovery exclusion; ][<-Struck out]

[Struck out->][ (C) any loss carryover; ][<-Struck out]

[Struck out->][ (D) any foreign tax credit carryover; ][<-Struck out]

[Struck out->][ (E) any capital loss carryover; and ][<-Struck out]

[Struck out->][ (F) any claim of right. ][<-Struck out]

[Struck out->][ (2) After such a case is closed or dismissed, the debtor shall succeed to any tax attribute to which the estate succeeded under paragraph (1) of this subsection but that was not utilized by the estate. The debtor may utilize such tax attributes as though any applicable time limitations on such utilization by the debtor were suspended during the time during which the case was pending. ][<-Struck out]

[Struck out->][ (3) In such a case, the estate may carry back any loss of the estate to a taxable period of the debtor that ended before the order for relief under such chapter the same as the debtor could have carried back such loss had the debtor incurred such loss and the case under this title had not been commenced, but the debtor may not carry back any loss of the debtor from a taxable period that ends after such order to any taxable period of the debtor that ended before such order until after the case is closed. ][<-Struck out]

[Struck out->][ (j)(1) Except as otherwise provided in this subsection, income is not realized by the estate, the debtor, or a successor to the debtor by reason of forgiveness or discharge of indebtedness in a case under this title. ][<-Struck out]

[Struck out->][ (2) For the purposes of any State or local law imposing a tax on or measured by income, a deduction with respect to a liability may not be allowed for any taxable period during or after which such liability is forgiven or discharged under this title. In this paragraph, `a deduction with respect to a liability' includes a capital loss incurred on the disposition of a capital asset with respect to a liability that was incurred in connection with the acquisition of such asset. ][<-Struck out]

[Struck out->][ (3) Except as provided in paragraph (4) of this subsection, for the purpose of any State or local law imposing a tax on or measured by income, any net operating loss of an individual or corporate debtor, including a net operating loss carryover to such debtor, shall be reduced by the amount of indebtedness forgiven or discharged in a case under this title, except to the extent that such forgiveness or discharge resulted in a disallowance under paragraph (2) of this subsection. ][<-Struck out]

[Struck out->][ (4) A reduction of a net operating loss or a net operating loss carryover under paragraph (3) of this subsection or of basis under paragraph (5) of this subsection is not required to the extent that the indebtedness of an individual or corporate debtor forgiven or discharged-- ][<-Struck out]

[Struck out->][ (A) consisted of items of a deductible nature that were not deducted by such debtor; or ][<-Struck out]

[Struck out->][ (B) resulted in an expired net operating loss carryover or other deduction that-- ][<-Struck out]

[Struck out->][ (i) did not offset income for any taxable period; and ][<-Struck out]

[Struck out->][ (ii) did not contribute to a net operating loss in or a net operating loss carryover to the taxable period during or after which such indebtedness was discharged. ][<-Struck out]

[Struck out->][ (5) For the purposes of a State or local law imposing a tax on or measured by income, the basis of the debtor's property or of property transferred to an entity required to use the debtor's basis in whole or in part shall be reduced by the lesser of-- ][<-Struck out]

[Struck out->][ (A)(i) the amount by which the indebtedness of the debtor has been forgiven or discharged in a case under this title; minus ][<-Struck out]

[Struck out->][ (ii) the total amount of adjustments made under paragraphs (2) and (3) of this subsection; and ][<-Struck out]

[Struck out->][ (B) the amount by which the total basis of the debtor's assets that were property of the estate before such forgiveness or discharge exceeds the debtor's total liabilities that were liabilities both before and after such forgiveness or discharge. ][<-Struck out]

[Struck out->][ (6) Notwithstanding paragraph (5) of this subsection, basis is not required to be reduced to the extent that the debtor elects to treat as taxable income, of the taxable period in which indebtedness is forgiven or discharged, the amount of indebtedness forgiven or discharged that otherwise would be applied in reduction of basis under paragraph (5) of this subsection. ][<-Struck out]

[Struck out->][ (7) For the purposes of this subsection, indebtedness with respect to which an equity security, other than an interest of a limited partner in a limited partnership, is issued to the creditor to whom such indebtedness was owed, or that is forgiven as a contribution to capital by an equity security holder other than a limited partner in the debtor, is not forgiven or discharged in a case under this title-- ][<-Struck out]

[Struck out->][ (A) to any extent that such indebtedness did not consist of items of a deductible nature; or ][<-Struck out]

[Struck out->][ (B) if the issuance of such equity security has the same consequences under a law imposing a tax on or measured by income to such creditor as a payment in cash to such creditor in an amount equal to the fair market value of such equity security, then to the lesser of-- ][<-Struck out]

[Struck out->][ (i) the extent that such issuance has the same such consequences; and ][<-Struck out]

[Struck out->][ (ii) the extent of such fair market value. ][<-Struck out]

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

(a) Whenever the Internal Revenue Code of 1986 provides that a separate taxable estate or entity is created in a case concerning a debtor under this title, and the income, gain, loss, deductions, and credits of such estate shall be taxed to or claimed by the estate, a separate taxable estate is also created for purposes of any State and local law imposing a tax on or measured by income and such income, gain, loss, deductions, and credits shall be taxed to or claimed by the estate and may not be taxed to or claimed by the debtor. The preceding sentence shall not apply if the case is dismissed. The trustee shall make tax returns of income required under any such State or local law.

(b) Whenever the Internal Revenue Code of 1986 provides that no separate taxable estate shall be created in a case concerning a debtor under this title, and the income, gain, loss, deductions, and credits of an estate shall be taxed to or claimed by the debtor, such income, gain, loss, deductions, and credits shall be taxed to or claimed by the debtor under a State or local law imposing a tax on or measured by income and may not be taxed to or claimed by the estate. The trustee shall make such tax returns of income of corporations and of partnerships as are required under any State or local law, but with respect to partnerships, shall make such returns only to the extent such returns are also required to be made under such Code. The estate shall be liable for any tax imposed on such corporation or partnership, but not for any tax imposed on partners or members.

(c) With respect to a partnership or any entity treated as a partnership under a State or local law imposing a tax on or measured by income that is a debtor in a case under this title, any gain or loss resulting from a distribution of property from such partnership, or any distributive share of any income, gain, loss, deduction, or credit of a partner or member that is distributed, or considered distributed, from such partnership, after the commencement of the case, is gain, loss, income, deduction, or credit, as the case may be, of the partner or member, and if such partner or member is a debtor in a case under this title, shall be subject to tax in accordance with subsection (a) or (b).

(d) For purposes of any State or local law imposing a tax on or measured by income, the taxable period of a debtor in a case under this title shall terminate only if and to the extent that the taxable period of such debtor terminates under the Internal Revenue Code of 1986.

(e) The estate in any case described in subsection (a) shall use the same accounting method as the debtor used immediately before the commencement of the case, if such method of accounting complies with applicable nonbankruptcy tax law.

(f) For purposes of any State or local law imposing a tax on or measured by income, a transfer of property from the debtor to the estate or from the estate to the debtor shall not be treated as a disposition for purposes of any provision assigning tax consequences to a disposition, except to the extent that such transfer is treated as a disposition under the Internal Revenue Code of 1986.

(g) Whenever a tax is imposed pursuant to a State or local law imposing a tax on or measured by income pursuant to subsection (a) or (b), such tax shall be imposed at rates generally applicable to the same types of entities under such State or local law.

(h) The trustee shall withhold from any payment of claims for wages, salaries, commissions, dividends, interest, or other payments, or collect, any amount required to be withheld or collected under applicable State or local tax law, and shall pay such withheld or collected amount to the appropriate governmental unit at the time and in the manner required by such tax law, and with the same priority as the claim from which such amount was withheld or collected was paid.

(i)(1) To the extent that any State or local law imposing a tax on or measured by income provides for the carryover of any tax attribute from one taxable period to a subsequent taxable period, the estate shall succeed to such tax attribute in any case in which such estate is subject to tax under subsection (a).

(2) After such a case is closed or dismissed, the debtor shall succeed to any tax attribute to which the estate succeeded under paragraph (1) to the extent consistent with the Internal Revenue Code of 1986.

(3) The estate may carry back any loss or tax attribute to a taxable period of the debtor that ended before the date of the order for relief under this title to the extent that--

(A) applicable State or local tax law provides for a carryback in the case of the debtor; and

(B) the same or a similar tax attribute may be carried back by the estate to such a taxable period of the debtor under the Internal Revenue Code of 1986.

(j)(1) For purposes of any State or local law imposing a tax on or measured by income, income is not realized by the estate, the debtor, or a successor to the debtor by reason of discharge of indebtedness in a case under this title, except to the extent, if any, that such income is subject to tax under the Internal Revenue Code of 1986.

(2) Whenever the Internal Revenue Code of 1986 provides that the amount excluded from gross income in respect of the discharge of indebtedness in a case under this title shall be applied to reduce the tax attributes of the debtor or the estate, a similar reduction shall be made under any State or local law imposing a tax on or measured by income to the extent such State or local law recognizes such attributes. Such State or local law may also provide for the reduction of other attributes to the extent that the full amount of income from the discharge of indebtedness has not been applied.

(k)(1) Except as provided in this section and section 505, the time and manner of filing tax returns and the items of income, gain, loss, deduction, and credit of any taxpayer shall be determined under applicable nonbankruptcy law.

(2) For Federal tax purposes, the provisions of this section are subject to the Internal Revenue Code of 1986 and other applicable Federal nonbankruptcy law.

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Sec. 348. Effect of conversion

(a) * * *

* * * * * * *

(f)(1) Except as provided in paragraph (2), when a case under chapter 13 of this title is converted to a case under another chapter under this title--

(A) property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion; [Struck out->][ and ][<-Struck out]

(B) valuations of property and of allowed secured claims in the chapter 13 case shall apply [Struck out->][ in the converted case, with allowed secured claims ][<-Struck out] only in a case converted to a case under chapter 11 or 12, but not in a case converted to a case under chapter 7, with allowed secured claims in cases under chapters 11 and 12 reduced to the extent that they have been paid in accordance with the chapter 13 plan [Struck out->][ . ][<-Struck out] ; and

(C) with respect to cases converted from chapter 13--

(i) the claim of any creditor holding security as of the date of the petition shall continue to be secured by that security unless the full amount of such claim determined under applicable nonbankruptcy law has been paid in full as of the date of conversion, notwithstanding any valuation or determination of the amount of an allowed secured claim made for the purposes of the case under chapter 13; and

(ii) unless a prebankruptcy default has been fully cured under the plan at the time of conversion, in any proceeding under this title or otherwise, the default shall have the effect given under applicable nonbankruptcy law.

(2) If the debtor converts a case under chapter 13 of this title to a case under another chapter under this title in bad faith, the property of the estate in the converted case shall consist of the property of the estate as of the date of conversion.

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Sec. 351. Disposal of patient records

If a health care business commences a case under chapter 7, 9, or 11, and the trustee does not have a sufficient amount of funds to pay for the storage of patient records in the manner required under applicable Federal or State law, the following requirements shall apply:

(1) The trustee shall--

(A) promptly publish notice, in 1 or more appropriate newspapers, that if patient records are not claimed by the patient or an insurance provider (if applicable law permits the insurance provider to make that claim) by the date that is 365 days after the date of that notification, the trustee will destroy the patient records; and

(B) during the first 180 days of the 365-day period described in subparagraph (A), promptly attempt to notify directly each patient that is the subject of the patient records and appropriate insurance carrier concerning the patient records by mailing to the most recent known address of that patient, or a family member or contact person for that patient, and to the appropriate insurance carrier an appropriate notice regarding the claiming or disposing of patient records.

(2) If, after providing the notification under paragraph (1), patient records are not claimed during the 365-day period described under that paragraph, the trustee shall mail, by certified mail, at the end of such 365-day period a written request to each appropriate Federal agency to request permission from that agency to deposit the patient records with that agency, except that no Federal agency is required to accept patient records under this paragraph.

(3) If, following the 365-day period described in paragraph (2) and after providing the notification under paragraph (1), patient records are not claimed by a patient or insurance provider, or request is not granted by a Federal agency to deposit such records with that agency, the trustee shall destroy those records by--

(A) if the records are written, shredding or burning the records; or

(B) if the records are magnetic, optical, or other electronic records, by otherwise destroying those records so that those records cannot be retrieved.

SUBCHAPTER IV--ADMINISTRATIVE POWERS

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Sec. 362. Automatic stay

(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970, operates as a stay, applicable to all entities, of--

(1) * * *

* * * * * * *

(8) the commencement or continuation of a proceeding before the United States Tax Court concerning [Struck out->][ the debtor ][<-Struck out] a corporate debtor's tax liability for a taxable period the bankruptcy court may determine or concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief under this title.

(b) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay--

(1) * * *

[Struck out->][ (2) under subsection (a) of this section-- ][<-Struck out]

[Struck out->][ (A) of the commencement or continuation of an action or proceeding for-- ][<-Struck out]

[Struck out->][ (i) the establishment of paternity; or ][<-Struck out]

[Struck out->][ (ii) the establishment or modification of an order for alimony, maintenance, or support; or ][<-Struck out]

[Struck out->][ (B) of the collection of alimony, maintenance, or support from property that is not property of the estate; ][<-Struck out]

(2) under subsection (a)--

(A) of the commencement or continuation of a civil action or proceeding--

(i) for the establishment of paternity;

(ii) for the establishment or modification of an order for domestic support obligations;

(iii) concerning child custody or visitation;

(iv) for the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate; or

(v) regarding domestic violence;

(B) of the collection of a domestic support obligation from property that is not property of the estate;

(C) with respect to the withholding of income that is property of the estate or property of the debtor for payment of a domestic support obligation under a judicial or administrative order or a statute;

(D) of the withholding, suspension, or restriction of a driver's license, a professional or occupational license, or a recreational license, under State law, as specified in section 466(a)(16) of the Social Security Act;

(E) of the reporting of overdue support owed by a parent to any consumer reporting agency as specified in section 466(a)(7) of the Social Security Act;

(F) of the interception of a tax refund, as specified in sections 464 and 466(a)(3) of the Social Security Act or under an analogous State law; or

(G) of the enforcement of a medical obligation, as specified under title IV of the Social Security Act;

* * * * * * *

(6) under subsection (a) of this section, of the setoff by a commodity broker, forward contract merchant, stockbroker, [Struck out->][ financial institutions, ][<-Struck out] financial institution, financial participant, or securities clearing agency of any mutual debt and claim under or in connection with commodity contracts, as defined in section 761 of this title, forward contracts, or securities contracts, as defined in section 741 of this title, that constitutes the setoff of a claim against the debtor for a margin payment, as defined in section 101, 741, or 761 of this title, or settlement payment, as defined in section 101 or 741 of this title, arising out of commodity contracts, forward contracts, or securities contracts against cash, securities, or other property held by, pledged to, under the control of, or due from such commodity broker, forward contract merchant, stockbroker, [Struck out->][ financial institutions, ][<-Struck out] financial institution, financial participant, or securities clearing agency to margin, guarantee, secure, or settle commodity contracts, forward contracts, or securities contracts;

(7) under subsection (a) of this section, of the setoff by a repo participant or financial participant, of any mutual debt and claim under or in connection with repurchase agreements that constitutes the setoff of a claim against the debtor for a margin payment, as defined in section 741 or 761 of this title, or settlement payment, as defined in section 741 of this title, arising out of repurchase agreements against cash, securities, or other property held by, pledged to, under the control of, or due from such repo participant or financial participant to margin, guarantee, secure or settle repurchase agreements;

* * * * * * *

[Struck out->][ (17) under subsection (a) of this section, of the setoff by a swap participant, of any mutual debt and claim under or in connection with any swap agreement that constitutes the setoff of a claim against the debtor for any payment due from the debtor under or in connection with any swap agreement against any payment due to the debtor from the swap participant under or in connection with any swap agreement or against cash, securities, or other property of the debtor held by or due from such swap participant to guarantee, secure or settle any swap agreement; or ][<-Struck out]

[Struck out->][ (18) under subsection (a) of the creation or perfection of a statutory lien for an ad valorem property tax imposed by the District of Columbia, or a political subdivision of a State, if such tax comes due after the filing of the petition. ][<-Struck out]

(17) under subsection (a), of the setoff by a swap participant or financial participant of a mutual debt and claim under or in connection with one or more swap agreements that constitutes the setoff of a claim against the debtor for any payment or other transfer of property due from the debtor under or in connection with any swap agreement against any payment due to the debtor from the swap participant or financial participant under or in connection with any swap agreement or against cash, securities, or other property held by, pledged to, under the control of, or due from such swap participant or financial participant to margin, guarantee, secure, or settle any swap agreement;

(18) under subsection (a) of the creation or perfection of a statutory lien for an ad valorem property tax, or a special tax or special assessment on real property whether or not ad valorem, imposed by a governmental unit, if such tax or assessment comes due after the date of the filing of the petition;

(19) under subsection (a), of withholding of income from a debtor's wages and collection of amounts withheld, under the debtor's agreement authorizing that withholding and collection for the benefit of a pension, profit-sharing, stock bonus, or other plan established under section 401, 403, 408, 408A, 414, 457, or 501(c) of the Internal Revenue Code of 1986, that is sponsored by the employer of the debtor, or an affiliate, successor, or predecessor of such employer--

(A) to the extent that the amounts withheld and collected are used solely for payments relating to a loan from a plan under section 408(b)(1) of the Employee Retirement Income Security Act of 1974 or is subject to section 72(p) of the Internal Revenue Code of 1986; or

(B) a loan from a thrift savings plan permitted under subchapter III of chapter 84 of title 5, that satisfies the requirements of section 8433(g) of such title;

but nothing in this paragraph may be construed to provide that any loan made under a governmental plan under section 414(d), or a contract or account under section 403(b), of the Internal Revenue Code of 1986 constitutes a claim or a debt under this title;

(20) under subsection (a), of any act to enforce any lien against or security interest in real property following entry of the order under subsection (d)(4) as to such real property in any prior case under this title, for a period of 2 years after the date of the entry of such an order, except that the debtor, in a subsequent case under this title, may move for relief from such order based upon changed circumstances or for other good cause shown, after notice and a hearing;

(21) under subsection (a), of any act to enforce any lien against or security interest in real property--

(A) if the debtor is ineligible under section 109(g) to be a debtor in a case under this title; or

(B) if the case under this title was filed in violation of a bankruptcy court order in a prior case under this title prohibiting the debtor from being a debtor in another case under this title;

(22) subject to subsection (l), under subsection (a)(3), of the continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor;

(23) subject to subsection (m), under subsection (a)(3), of an eviction action that seeks possession of the residential property in which the debtor resides as a tenant under a lease or rental agreement based on endangerment of such property or the illegal use of controlled substances on such property, but only if the lessor files with the court, and serves upon the debtor, a certification under penalty of perjury that such an eviction action has been filed, or that the debtor, during the 30-day period preceding the date of the filing of the certification, has endangered property or illegally used or allowed to be used a controlled substance on the property;

(24) under subsection (a), of any transfer that is not avoidable under section 544 and that is not avoidable under section 549;

(25) under subsection (a), of--

(A) the commencement or continuation of an investigation or action by a securities self regulatory organization to enforce such organization's regulatory power;

(B) the enforcement of an order or decision, other than for monetary sanctions, obtained in an action by such securities self regulatory organization to enforce such organization's regulatory power; or

(C) any act taken by such securities self regulatory organization to delist, delete, or refuse to permit quotation of any stock that does not meet applicable regulatory requirements;

(26) under subsection (a), of the setoff under applicable nonbankruptcy law of an income tax refund, by a governmental unit, with respect to a taxable period that ended before the date of the order for relief against an income tax liability for a taxable period that also ended before the date of the order for relief, except that in any case in which the setoff of an income tax refund is not permitted under applicable nonbankruptcy law because of a pending action to determine the amount or legality of a tax liability, the governmental unit may hold the refund pending the resolution of the action, unless the court, on the motion of the trustee and after notice and a hearing, grants the taxing authority adequate protection (within the meaning of section 361) for the secured claim of such authority in the setoff under section 506(a);

(27) under subsection (a), of the setoff by a master netting agreement participant of a mutual debt and claim under or in connection with one or more master netting agreements or any contract or agreement subject to such agreements that constitutes the setoff of a claim against the debtor for any payment or other transfer of property due from the debtor under or in connection with such agreements or any contract or agreement subject to such agreements against any payment due to the debtor from such master netting agreement participant under or in connection with such agreements or any contract or agreement subject to such agreements or against cash, securities, or other property held by, pledged to, under the control of, or due from such master netting agreement participant to margin, guarantee, secure, or settle such agreements or any contract or agreement subject to such agreements, to the extent that such participant is eligible to exercise such offset rights under paragraph (6), (7), or (17) for each individual contract covered by the master netting agreement in issue; and

(28) under subsection (a), of the exclusion by the Secretary of Health and Human Services of the debtor from participation in the medicare program or any other Federal health care program (as defined in section 1128B(f) of the Social Security Act pursuant to title XI or XVIII of such Act).

The provisions of paragraphs (12) and (13) of this subsection shall apply with respect to any such petition filed on or before December 31, 1989.

(c) Except as provided in subsections (d), [Struck out->][ (e), and (f) ][<-Struck out] (e), (f), and (h) of this section--

(1) the stay of an act against property of the estate under subsection (a) of this section continues until such property is no longer property of the estate; [Struck out->][ and ][<-Struck out]

(2) the stay of any other act under subsection (a) of this section continues until the earliest of--

(A) * * *

* * * * * * *

(C) if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied [Struck out->][ . ][<-Struck out] ;

(3) if a single or joint case is filed by or against debtor who is an individual in a case under chapter 7, 11, or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed, other than a case refiled under a chapter other than chapter 7 after dismissal under section 707(b)--

(A) the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case;

(B) on the motion of a party in interest for continuation of the automatic stay and upon notice and a hearing, the court may extend the stay in particular cases as to any or all creditors (subject to such conditions or limitations as the court may then impose) after notice and a hearing completed before the expiration of the 30-day period only if the party in interest demonstrates that the filing of the later case is in good faith as to the creditors to be stayed; and

(C) for purposes of subparagraph (B), a case is presumptively filed not in good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary)--

(i) as to all creditors, if--

(I) more than 1 previous case under any of chapters 7, 11, and 13 in which the individual was a debtor was pending within the preceding 1-year period;

(II) a previous case under any of chapters 7, 11, and 13 in which the individual was a debtor was dismissed within such 1-year period, after the debtor failed to--

(aa) file or amend the petition or other documents as required by this title or the court without substantial excuse (but mere inadvertence or negligence shall not be a substantial excuse unless the dismissal was caused by the negligence of the debtor's attorney);

(bb) provide adequate protection as ordered by the court; or

(cc) perform the terms of a plan confirmed by the court; or

(III) there has not been a substantial change in the financial or personal affairs of the debtor since the dismissal of the next most previous case under chapter 7, 11, or 13 or any other reason to conclude that the later case will be concluded--

(aa) if a case under chapter 7, with a discharge; or

(bb) if a case under chapter 11 or 13, with a confirmed plan that will be fully performed; and

(ii) as to any creditor that commenced an action under subsection (d) in a previous case in which the individual was a debtor if, as of the date of dismissal of such case, that action was still pending or had been resolved by terminating, conditioning, or limiting the stay as to actions of such creditor; and

(4)(A)(i) if a single or joint case is filed by or against a debtor who is an individual under this title, and if 2 or more single or joint cases of the debtor were pending within the previous year but were dismissed, other than a case refiled under section 707(b), the stay under subsection (a) shall not go into effect upon the filing of the later case; and

(ii) on request of a party in interest, the court shall promptly enter an order confirming that no stay is in effect;

(B) if, within 30 days after the filing of the later case, a party in interest requests the court may order the stay to take effect in the case as to any or all creditors (subject to such conditions or limitations as the court may impose), after notice and a hearing, only if the party in interest demonstrates that the filing of the later case is in good faith as to the creditors to be stayed;

(C) a stay imposed under subparagraph (B) shall be effective on the date of the entry of the order allowing the stay to go into effect; and

(D) for purposes of subparagraph (B), a case is presumptively filed not in good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary)--

(i) as to all creditors if--

(I) 2 or more previous cases under this title in which the individual was a debtor were pending within the 1-year period;

(II) a previous case under this title in which the individual was a debtor was dismissed within the time period stated in this paragraph after the debtor failed to file or amend the petition or other documents as required by this title or the court without substantial excuse (but mere inadvertence or negligence shall not be substantial excuse unless the dismissal was caused by the negligence of the debtor's attorney), failed to provide adequate protection as ordered by the court, or failed to perform the terms of a plan confirmed by the court; or

(III) there has not been a substantial change in the financial or personal affairs of the debtor since the dismissal of the next most previous case under this title, or any other reason to conclude that the later case will not be concluded, if a case under chapter 7, with a discharge, and if a case under chapter 11 or 13, with a confirmed plan that will be fully performed; or

(ii) as to any creditor that commenced an action under subsection (d) in a previous case in which the individual was a debtor if, as of the date of dismissal of such case, such action was still pending or had been resolved by terminating, conditioning, or limiting the stay as to such action of such creditor.

(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay--

(1) * * *

(2) with respect to a stay of an act against property under subsection (a) of this section, if--

(A) * * *

(B) such property is not necessary to an effective reorganization; [Struck out->][ or ][<-Struck out]

(3) with respect to a stay of an act against single asset real estate under subsection (a), by a creditor whose claim is secured by an interest in such real estate, unless, not later than the date that is 90 days after the entry of the order for relief (or such later date as the court may determine for cause by order entered within that 90-day period) or 30 days after the court determines that the debtor is subject to this paragraph, whichever is later--

(A) * * *

[Struck out->][ (B) the debtor has commenced monthly payments to each creditor whose claim is secured by such real estate (other than a claim secured by a judgment lien or by an unmatured statutory lien), which payments are in an amount equal to interest at a current fair market rate on the value of the creditor's interest in the real estate. ][<-Struck out]

(B) the debtor has commenced monthly payments that--

(i) may, in the debtor's sole discretion, notwithstanding section 363(c)(2), be made from rents or other income generated before, on, or after the date of the commencement of the case by or from the property to each creditor whose claim is secured by such real estate (other than a claim secured by a judgment lien or by an unmatured statutory lien); and

(ii) are in an amount equal to interest at the then applicable nondefault contract rate of interest on the value of the creditor's interest in the real estate; or

(4) with respect to a stay of an act against real property under subsection (a), by a creditor whose claim is secured by an interest in such real property, if the court finds that the filing of the petition was part of a scheme to delay, hinder, and defraud creditors that involved either--

(A) transfer of all or part ownership of, or other interest in, such real property without the consent of the secured creditor or court approval; or

(B) multiple bankruptcy filings affecting such real property.

If recorded in compliance with applicable State laws governing notices of interests or liens in real property, an order entered under paragraph (4) shall be binding in any other case under this title purporting to affect such real property filed not later than 2 years after the date of the entry of such order by the court, except that a debtor in a subsequent case under this title may move for relief from such order based upon changed circumstances or for good cause shown, after notice and a hearing. Any Federal, State, or local governmental unit that accepts notices of interests or liens in real property shall accept any certified copy of an order described in this subsection for indexing and recording.

(e)(1) Thirty days after a request under subsection (d) of this section for relief from the stay of any act against property of the estate under subsection (a) of this section, such stay is terminated with respect to the party in interest making such request, unless the court, after notice and a hearing, orders such stay continued in effect pending the conclusion of, or as a result of, a final hearing and determination under subsection (d) of this section. A hearing under this subsection may be a preliminary hearing, or may be consolidated with the final hearing under subsection (d) of this section. The court shall order such stay continued in effect pending the conclusion of the final hearing under subsection (d) of this section if there is a reasonable likelihood that the party opposing relief from such stay will prevail at the conclusion of such final hearing. If the hearing under this subsection is a preliminary hearing, then such final hearing shall be concluded not later than thirty days after the conclusion of such preliminary hearing, unless the 30-day period is extended with the consent of the parties in interest or for a specific time which the court finds is required by compelling circumstances.

(2) Notwithstanding paragraph (1), in a case under chapter 7, 11, or 13 in which the debtor is an individual, the stay under subsection (a) shall terminate on the date that is 60 days after a request is made by a party in interest under subsection (d), unless--

(A) a final decision is rendered by the court during the 60-day period beginning on the date of the request; or

(B) such 60-day period is extended--

(i) by agreement of all parties in interest; or

(ii) by the court for such specific period of time as the court finds is required for good cause, as described in findings made by the court.

* * * * * * *

(h)(1) In a case in which the debtor is an individual, the stay provided by subsection (a) is terminated with respect to personal property of the estate or of the debtor securing in whole or in part a claim, or subject to an unexpired lease, and such personal property shall no longer be property of the estate if the debtor fails within the applicable time set by section 521(a)(2)--

(A) to file timely any statement of intention required under section 521(a)(2) with respect to such personal property or to indicate in such statement that the debtor will either surrender such personal property or retain it and, if retaining such personal property, either redeem such personal property pursuant to section 722, enter into an agreement of the kind specified in section 524(c) applicable to the debt secured by such personal property, or assume such unexpired lease pursuant to section 365(p) if the trustee does not do so, as applicable; and

(B) to take timely the action specified in such statement, as it may be amended before expiration of the period for taking action, unless such statement specifies the debtor's intention to reaffirm such debt on the original contract terms and the creditor refuses to agree to the reaffirmation on such terms.

(2) Paragraph (1) does not apply if the court determines, on the motion of the trustee filed before the expiration of the applicable time set by section 521(a)(2), after notice and a hearing, that such personal property is of consequential value or benefit to the estate, and orders appropriate adequate protection of the creditor's interest, and orders the debtor to deliver any collateral in the debtor's possession to the trustee. If the court does not so determine, the stay provided by subsection (a) shall terminate upon the conclusion of the hearing on the motion.

(i) If a case commenced under chapter 7, 11, or 13 is dismissed due to the creation of a debt repayment plan, for purposes of subsection (c)(3), any subsequent case commenced by the debtor under any such chapter shall not be presumed to be filed not in good faith.

(j) On request of a party in interest, the court shall issue an order under subsection (c) confirming that the automatic stay has been terminated.

[Struck out->][ (h) An ][<-Struck out] (k)(1) Except as provided in paragraph (2), an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages.

(2) If such violation is based on an action taken by an entity in the good faith belief that subsection (h) applies to the debtor, the recovery under paragraph (1) of this subsection against such entity shall be limited to actual damages.

(l)(1) Except as otherwise provided in this subsection, subsection (b)(22) shall apply on the date that is 30 days after the date on which the bankruptcy petition is filed, if the debtor files with the petition and serves upon the lessor a certification under penalty of perjury that--

(A) under nonbankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession, after that judgment for possession was entered; and

(B) the debtor (or an adult dependent of the debtor) has deposited with the clerk of the court, any rent that would become due during the 30-day period after the filing of the bankruptcy petition.

(2) If, within the 30-day period after the filing of the bankruptcy petition, the debtor (or an adult dependent of the debtor) complies with paragraph (1) and files with the court and serves upon the lessor a further certification under penalty of perjury that the debtor (or an adult dependent of the debtor) has cured, under nonbankrupcty law applicable in the jurisdiction, the entire monetary default that gave rise to the judgment under which possession is sought by the lessor, subsection (b)(22) shall not apply, unless ordered to apply by the court under paragraph (3).

(3)(A) If the lessor files an objection to any certification filed by the debtor under paragraph (1) or (2), and serves such objection upon the debtor, the court shall hold a hearing within 10 days after the filing and service of such objection to determine if the certification filed by the debtor under paragraph (1) or (2) is true.

(B) If the court upholds the objection of the lessor filed under subparagraph (A)--

(i) subsection (b)(22) shall apply immediately and relief from the stay provided under subsection (a)(3) shall not be required to enable the lessor to complete the process to recover full possession of the property; and

(ii) the clerk of the court shall immediately serve upon the lessor and the debtor a certified copy of the court's order upholding the lessor's objection.

(4) If a debtor, in accordance with paragraph (5), indicates on the petition that there was a judgment for possession of the residential rental property in which the debtor resides and does not file a certification under paragraph (1) or (2)--

(A) subsection (b)(22) shall apply immediately upon failure to file such certification, and relief from the stay provided under subsection (a)(3) shall not be required to enable the lessor to complete the process to recover full possession of the property; and

(B) the clerk of the court shall immediately serve upon the lessor and the debtor a certified copy of the docket indicating the absence of a filed certification and the applicability of the exception to the stay under subsection (b)(22).

(5)(A) Where a judgment for possession of residential property in which the debtor resides as a tenant under a lease or rental agreement has been obtained by the lessor, the debtor shall so indicate on the bankruptcy petition and shall provide the name and address of the lessor that obtained that pre-petition judgment on the petition and on any certification filed under this subsection.

(B) The form of certification filed with the petition, as specified in this subsection, shall provide for the debtor to certify, and the debtor shall certify--

(i) whether a judgment for possession of residential rental housing in which the debtor resides has been obtained against the debtor before the date of the filing of the petition; and

(ii) whether the debtor is claiming under paragraph (1) that under nonbankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession, after that judgment of possession was entered, and has made the appropriate deposit with the court.

(C) The standard forms (electronic and otherwise) used in a bankruptcy proceeding shall be amended to reflect the requirements of this subsection.

(D) The clerk of the court shall arrange for the prompt transmittal of the rent deposited in accordance with paragraph (1)(B) to the lessor.

(m)(1) Except as otherwise provided in this subsection, subsection (b)(23) shall apply on the date that is 15 days after the date on which the lessor files and serves a certification described in subsection (b)(23).

(2)(A) If the debtor files with the court an objection to the truth or legal sufficiency of the certification described in subsection (b)(23) and serves such objection upon the lessor, subsection (b)(23) shall not apply, unless ordered to apply by the court under this subsection.

(B) If the debtor files and serves the objection under subparagraph (A), the court shall hold a hearing within 10 days after the filing and service of such objection to determine if the situation giving rise to the lessor's certification under paragraph (1) existed or has been remedied.

(C) If the debtor can demonstrate to the satisfaction of the court that the situation giving rise to the lessor's certification under paragraph (1) did not exist or has been remedied, the stay provided under subsection (a)(3) shall remain in effect until the termination of the stay under this section.

(D) If the debtor cannot demonstrate to the satisfaction of the court that the situation giving rise to the lessor's certification under paragraph (1) did not exist or has been remedied--

(i) relief from the stay provided under subsection (a)(3) shall not be required to enable the lessor to proceed with the eviction; and

(ii) the clerk of the court shall immediately serve upon the lessor and the debtor a certified copy of the court's order upholding the lessor's certification.

(3) If the debtor fails to file, within 15 days, an objection under paragraph (2)(A)--

(A) subsection (b)(23) shall apply immediately upon such failure and relief from the stay provided under subsection (a)(3) shall not be required to enable the lessor to complete the process to recover full possession of the property; and

(B) the clerk of the court shall immediately serve upon the lessor and the debtor a certified copy of the docket indicating such failure.

(n)(1) Except as provided in paragraph (2), subsection (a) does not apply in a case in which the debtor--

(A) is a debtor in a small business case pending at the time the petition is filed;

(B) was a debtor in a small business case that was dismissed for any reason by an order that became final in the 2-year period ending on the date of the order for relief entered with respect to the petition;

(C) was a debtor in a small business case in which a plan was confirmed in the 2-year period ending on the date of the order for relief entered with respect to the petition; or

(D) is an entity that has acquired substantially all of the assets or business of a small business debtor described in subparagraph (A), (B), or (C), unless such entity establishes by a preponderance of the evidence that such entity acquired substantially all of the assets or business of such small business debtor in good faith and not for the purpose of evading this paragraph.

(2) Paragraph (1) does not apply--

(A) to an involuntary case involving no collusion by the debtor with creditors; or

(B) to the filing of a petition if--

(i) the debtor proves by a preponderance of the evidence that the filing of the petition resulted from circumstances beyond the control of the debtor not foreseeable at the time the case then pending was filed; and

(ii) it is more likely than not that the court will confirm a feasible plan, but not a liquidating plan, within a reasonable period of time.

(o) The exercise of rights not subject to the stay arising under subsection (a) pursuant to paragraph (6), (7), (17), or (27) of subsection (b) shall not be stayed by any order of a court or administrative agency in any proceeding under this title.

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

(a) * * *

(b)(1) The trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate [Struck out->][ . ][<-Struck out] , except that if the debtor in connection with offering a product or a service discloses to an individual a policy prohibiting the transfer of personally identifiable information about individuals to persons that are not affiliated with the debtor and if such policy is in effect on the date of the commencement of the case, then the trustee may not sell or lease personally identifiable information to any person unless--

(A) such sale or such lease is consistent with such policy; or

(B) after appointment of a consumer privacy ombudsman in accordance with section 332, and after notice and a hearing, the court approves such sale or such lease--

(i) giving due consideration to the facts, circumstances, and conditions of such sale or such lease; and

(ii) finding that no showing was made that such sale or such lease would violate applicable nonbankruptcy law.

* * * * * * *

(d) The trustee may use, sell, or lease property under subsection (b) or (c) of this section [Struck out->][ only to the extent not inconsistent with any relief granted under section 362(c), 362(d), 362(e), or 362(f) of this title. ][<-Struck out] only--

(1) in accordance with applicable nonbankruptcy law that governs the transfer of property by a corporation or trust that is not a moneyed, business, or commercial corporation or trust; and

(2) to the extent not inconsistent with any relief granted under subsection (c), (d), (e), or (f) of section 362.

* * * * * * *

(o) Notwithstanding subsection (f), if a person purchases any interest in a consumer credit transaction that is subject to the Truth in Lending Act or any interest in a consumer credit contract (as defined in section 433.1 of title 16 of the Code of Federal Regulations (January 1, 2004), as amended from time to time), and if such interest is purchased through a sale under this section, then such person shall remain subject to all claims and defenses that are related to such consumer credit transaction or such consumer credit contract, to the same extent as such person would be subject to such claims and defenses of the consumer had such interest been purchased at a sale not under this section.

[Struck out->][ (o) ][<-Struck out] (p) In any hearing under this section--

(1) * * *

* * * * * * *

Sec. 365. Executory contracts and unexpired leases

(a) * * *

(b)(1) If there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume such contract or lease unless, at the time of assumption of such contract or lease, the trustee--

(A) cures, or provides adequate assurance that the trustee will promptly cure, such default [Struck out->][ ; ][<-Struck out] other than a default that is a breach of a provision relating to the satisfaction of any provision (other than a penalty rate or penalty provision) relating to a default arising from any failure to perform nonmonetary obligations under an unexpired lease of real property, if it is impossible for the trustee to cure such default by performing nonmonetary acts at and after the time of assumption, except that if such default arises from a failure to operate in accordance with a nonresidential real property lease, then such default shall be cured by performance at and after the time of assumption in accordance with such lease, and pecuniary losses resulting from such default shall be compensated in accordance with the provisions of this paragraph;

* * * * * * *

(2) Paragraph (1) of this subsection does not apply to a default that is a breach of a provision relating to--

(A) * * *

* * * * * * *

(D) the satisfaction of any [Struck out->][ penalty rate or provision ][<-Struck out] penalty rate or penalty provision relating to a default arising from any failure by the debtor to perform nonmonetary obligations under the executory contract or unexpired lease.

* * * * * * *

(c) The trustee may not assume or assign any executory contract or unexpired lease of the debtor, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties, if--

(1) * * *

(2) such contract is a contract to make a loan, or extend other debt financing or financial accommodations, to or for the benefit of the debtor, or to issue a security of the debtor; or

(3) such lease is of nonresidential real property and has been terminated under applicable nonbankruptcy law prior to the order for relief [Struck out->][ ; or ][<-Struck out] .

[Struck out->][ (4) such lease is of nonresidential real property under which the debtor is the lessee of an aircraft terminal or aircraft gate at an airport at which the debtor is the lessee under one or more additional nonresidential leases of an aircraft terminal or aircraft gate and the trustee, in connection with such assumption or assignment, does not assume all such leases or does not assume and assign all of such leases to the same person, except that the trustee may assume or assign less than all of such leases with the airport operator's written consent. ][<-Struck out]

(d)(1) * * *

* * * * * * *

[Struck out->][ (4) Notwithstanding paragraphs (1) and (2), in a case under any chapter of this title, if the trustee does not assume or reject an unexpired lease of nonresidential real property under which the debtor is the lessee within 60 days after the date of the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such lease is deemed rejected, and the trustee shall immediately surrender such nonresidential real property to the lessor. ][<-Struck out]

[Struck out->][ (5) Notwithstanding paragraphs (1) and (4) of this subsection, in a case under any chapter of this title, if the trustee does not assume or reject an unexpired lease of nonresidential real property under which the debtor is an affected air carrier that is the lessee of an aircraft terminal or aircraft gate before the occurrence of a termination event, then (unless the court orders the trustee to assume such unexpired leases within 5 days after the termination event), at the option of the airport operator, such lease is deemed rejected 5 days after the occurrence of a termination event and the trustee shall immediately surrender possession of the premises to the airport operator; except that the lease shall not be deemed to be rejected unless the airport operator first waives the right to damages related to the rejection. In the event that the lease is deemed to be rejected under this paragraph, the airport operator shall provide the affected air carrier adequate opportunity after the surrender of the premises to remove the fixtures and equipment installed by the affected air carrier. ][<-Struck out]

[Struck out->][ (6) For the purpose of paragraph (5) of this subsection and paragraph (f)(1) of this section, the occurrence of a termination event means, with respect to a debtor which is an affected air carrier that is the lessee of an aircraft terminal or aircraft gate-- ][<-Struck out]

[Struck out->][ (A) the entry under section 301 or 302 of this title of an order for relief under chapter 7 of this title; ][<-Struck out]

[Struck out->][ (B) the conversion of a case under any chapter of this title to a case under chapter 7 of this title; or ][<-Struck out]

[Struck out->][ (C) the granting of relief from the stay provided under section 362(a) of this title with respect to aircraft, aircraft engines, propellers, appliances, or spare parts, as defined in section 40102(a) of title 49, except for property of the debtor found by the court not to be necessary to an effective reorganization. ][<-Struck out]

[Struck out->][ (7) Any order entered by the court pursuant to paragraph (4) extending the period within which the trustee of an affected air carrier must assume or reject an unexpired lease of nonresidential real property shall be without prejudice to-- ][<-Struck out]

[Struck out->][ (A) the right of the trustee to seek further extensions within such additional time period granted by the court pursuant to paragraph (4); and ][<-Struck out]

[Struck out->][ (B) the right of any lessor or any other party in interest to request, at any time, a shortening or termination of the period within which the trustee must assume or reject an unexpired lease of nonresidential real property. ][<-Struck out]

[Struck out->][ (8) The burden of proof for establishing cause for an extension by an affected air carrier under paragraph (4) or the maintenance of a previously granted extension under paragraph (7)(A) and (B) shall at all times remain with the trustee. ][<-Struck out]

[Struck out->][ (9) For purposes of determining cause under paragraph (7) with respect to an unexpired lease of nonresidential real property between the debtor that is an affected air carrier and an airport operator under which such debtor is the lessee of an airport terminal or an airport gate, the court shall consider, among other relevant factors, whether substantial harm will result to the airport operator or airline passengers as a result of the extension or the maintenance of a previously granted extension. In making the determination of substantial harm, the court shall consider, among other relevant factors, the level of actual use of the terminals or gates which are the subject of the lease, the public interest in actual use of such terminals or gates, the existence of competing demands for the use of such terminals or gates, the effect of the court's extension or termination of the period of time to assume or reject the lease on such debtor's ability to successfully reorganize under chapter 11 of this title, and whether the trustee of the affected air carrier is capable of continuing to comply with its obligations under section 365(d)(3) of this title. ][<-Struck out]

(4)(A) Subject to subparagraph (B), an unexpired lease of nonresidential real property under which the debtor is the lessee shall be deemed rejected, and the trustee shall immediately surrender that nonresidential real property to the lessor, if the trustee does not assume or reject the unexpired lease by the earlier of--

(i) the date that is 120 days after the date of the order for relief; or

(ii) the date of the entry of an order confirming a plan.

(B)(i) The court may extend the period determined under subparagraph (A), prior to the expiration of the 120-day period, for 90 days on the motion of the trustee or lessor for cause.

(ii) If the court grants an extension under clause (i), the court may grant a subsequent extension only upon prior written consent of the lessor in each instance.

[Struck out->][ (10) ][<-Struck out] (5) The trustee shall timely perform all of the obligations of the debtor, except those specified in section 365(b)(2), first arising from or after 60 days after the order for relief in a case under chapter 11 of this title under an unexpired lease of personal property (other than personal property leased to an individual primarily for personal, family, or household purposes), until such lease is assumed or rejected notwithstanding section 503(b)(1) of this title, unless the court, after notice and a hearing and based on the equities of the case, orders otherwise with respect to the obligations or timely performance thereof. This subsection shall not be deemed to affect the trustee's obligations under the provisions of subsection (b) or (f). Acceptance of any such performance does not constitute waiver or relinquishment of the lessor's rights under such lease or under this title.

* * * * * * *

(f)(1) Except as provided in [Struck out->][ subsection ][<-Struck out] subsections (b) and (c) of this section, notwithstanding a provision in an executory contract or unexpired lease of the debtor, or in applicable law, that prohibits, restricts, or conditions the assignment of such contract or lease, the trustee may assign such contract or lease under paragraph (2) of this subsection [Struck out->][ ; except that the trustee may not assign an unexpired lease of nonresidential real property under which the debtor is an affected air carrier that is the lessee of an aircraft terminal or aircraft gate if there has occurred a termination event ][<-Struck out] .

* * * * * * *

(p)(1) If a lease of personal property is rejected or not timely assumed by the trustee under subsection (d), the leased property is no longer property of the estate and the stay under section 362(a) is automatically terminated.

(2)(A) If the debtor in a case under chapter 7 is an individual, the debtor may notify the creditor in writing that the debtor desires to assume the lease. Upon being so notified, the creditor may, at its option, notify the debtor that it is willing to have the lease assumed by the debtor and may condition such assumption on cure of any outstanding default on terms set by the contract.

(B) If, not later than 30 days after notice is provided under subparagraph (A), the debtor notifies the lessor in writing that the lease is assumed, the liability under the lease will be assumed by the debtor and not by the estate.

(C) The stay under section 362 and the injunction under section 524(a)(2) shall not be violated by notification of the debtor and negotiation of cure under this subsection.

(3) In a case under chapter 11 in which the debtor is an individual and in a case under chapter 13, if the debtor is the lessee with respect to personal property and the lease is not assumed in the plan confirmed by the court, the lease is deemed rejected as of the conclusion of the hearing on confirmation. If the lease is rejected, the stay under section 362 and any stay under section 1301 is automatically terminated with respect to the property subject to the lease.

Sec. 366. Utility service

(a) Except as provided in [Struck out->][ subsection (b) ][<-Struck out] subsections (b) and (c) of this section, a utility may not alter, refuse, or discontinue service to, or discriminate against, the trustee or the debtor solely on the basis of the commencement of a case under this title or that a debt owed by the debtor to such utility for service rendered before the order for relief was not paid when due.

* * * * * * *

(c)(1)(A) For purposes of this subsection, the term `assurance of payment' means--

(i) a cash deposit;

(ii) a letter of credit;

(iii) a certificate of deposit;

(iv) a surety bond;

(v) a prepayment of utility consumption; or

(vi) another form of security that is mutually agreed on between the utility and the debtor or the trustee.

(B) For purposes of this subsection an administrative expense priority shall not constitute an assurance of payment.

(2) Subject to paragraphs (3) and (4), with respect to a case filed under chapter 11, a utility referred to in subsection (a) may alter, refuse, or discontinue utility service, if during the 30-day period beginning on the date of the filing of the petition, the utility does not receive from the debtor or the trustee adequate assurance of payment for utility service that is satisfactory to the utility.

(3)(A) On request of a party in interest and after notice and a hearing, the court may order modification of the amount of an assurance of payment under paragraph (2).

(B) In making a determination under this paragraph whether an assurance of payment is adequate, the court may not consider--

(i) the absence of security before the date of the filing of the petition;

(ii) the payment by the debtor of charges for utility service in a timely manner before the date of the filing of the petition; or

(iii) the availability of an administrative expense priority.

(4) Notwithstanding any other provision of law, with respect to a case subject to this subsection, a utility may recover or set off against a security deposit provided to the utility by the debtor before the date of the filing of the petition without notice or order of the court.

* * * * * * *

CHAPTER 5--CREDITORS, THE DEBTOR, AND THE ESTATE

SUBCHAPTER I--CREDITORS AND CLAIMS

Sec.

501. Filing of proofs of claims or interests.

* * * * * * *

511. Rate of interest on tax claims.

* * * * * * *

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

(a) * * *

* * * * * * *

(e) A claim arising from the liability of a debtor for fuel use tax assessed consistent with the requirements of section 31705 of title 49 may be filed by the base jurisdiction designated pursuant to the International Fuel Tax Agreement (as defined in section 31701 of title 49) and, if so filed, shall be allowed as a single claim.

Sec. 502. Allowance of claims or interests

(a) * * *

(b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) of this section, if such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that--

(1) * * *

* * * * * * *

(9) proof of such claim is not timely filed, except to the extent tardily filed as permitted under paragraph (1), (2), or (3) of section 726(a) of this title or under the Federal Rules of Bankruptcy Procedure, except that a claim of a governmental unit shall be timely filed if it is filed before 180 days after the date of the order for relief or such later time as the Federal Rules of Bankruptcy Procedure may provide, and except that in a case under chapter 13, a claim of a governmental unit for a tax with respect to a return filed under section 1308 shall be timely if the claim is filed on or before the date that is 60 days after the date on which such return was filed as required.

* * * * * * *

(g)(1) A claim arising from the rejection, under section 365 of this title or under a plan under chapter 9, 11, 12, or 13 of this title, of an executory contract or unexpired lease of the debtor that has not been assumed shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section or disallowed under subsection (d) or (e) of this section, the same as if such claim had arisen before the date of the filing of the petition.

(2) A claim for damages calculated in accordance with section 562 shall be allowed under subsection (a), (b), or (c), or disallowed under subsection (d) or (e), as if such claim had arisen before the date of the filing of the petition.

* * * * * * *

(k)(1) The court, on the motion of the debtor and after a hearing, may reduce a claim filed under this section based in whole on an unsecured consumer debt by not more than 20 percent of the claim, if--

(A) the claim was filed by a creditor who unreasonably refused to negotiate a reasonable alternative repayment schedule proposed on behalf of the debtor by an approved nonprofit budget and credit counseling agency described in section 111;

(B) the offer of the debtor under subparagraph (A)--

(i) was made at least 60 days before the date of the filing of the petition; and

(ii) provided for payment of at least 60 percent of the amount of the debt over a period not to exceed the repayment period of the loan, or a reasonable extension thereof; and

(C) no part of the debt under the alternative repayment schedule is nondischargeable.

(2) The debtor shall have the burden of proving, by clear and convincing evidence, that--

(A) the creditor unreasonably refused to consider the debtor's proposal; and

(B) the proposed alternative repayment schedule was made prior to expiration of the 60-day period specified in paragraph (1)(B)(i).

Sec. 503. Allowance of administrative expenses

(a) * * *

(b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, including--

(1) [Struck out->][ (A) the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case; ][<-Struck out] (A) the actual, necessary costs and expenses of preserving the estate including--

(i) wages, salaries, and commissions for services rendered after the commencement of the case; and

(ii) wages and benefits awarded pursuant to a judicial proceeding or a proceeding of the National Labor Relations Board as back pay attributable to any period of time occurring after commencement of the case under this title, as a result of a violation of Federal or State law by the debtor, without regard to the time of the occurrence of unlawful conduct on which such award is based or to whether any services were rendered, if the court determines that payment of wages and benefits by reason of the operation of this clause will not substantially increase the probability of layoff or termination of current employees, or of nonpayment of domestic support obligations, during the case under this title;

(B) any tax--

(i) incurred by the estate, whether secured or unsecured, including property taxes for which liability is in rem, in personam, or both, except a tax of a kind specified in section 507(a)(8) of this title; or

(ii) attributable to an excessive allowance of a tentative carryback adjustment that the estate received, whether the taxable year to which such adjustment relates ended before or after the commencement of the case; [Struck out->][ and ][<-Struck out]

(C) any fine, penalty, or reduction in credit relating to a tax of a kind specified in subparagraph (B) of this paragraph; and

(D) notwithstanding the requirements of subsection (a), a governmental unit shall not be required to file a request for the payment of an expense described in subparagraph (B) or (C), as a condition of its being an allowed administrative expense;

* * * * * * *

(4) reasonable compensation for professional services rendered by an attorney or an accountant of an entity whose expense is allowable under subparagraph (A), (B), (C), (D), or (E) of paragraph (3) of this subsection, based on the time, the nature, the extent, and the value of such services, and the cost of comparable services other than in a case under this title, and reimbursement for actual, necessary expenses incurred by such attorney or accountant;

(5) reasonable compensation for services rendered by an indenture trustee in making a substantial contribution in a case under chapter 9 or 11 of this title, based on the time, the nature, the extent, and the value of such services, and the cost of comparable services other than in a case under this title; [Struck out->][ and ][<-Struck out]

(6) the fees and mileage payable under chapter 119 of title 28 [Struck out->][ . ][<-Struck out] ;

(7) with respect to a nonresidential real property lease previously assumed under section 365, and subsequently rejected, a sum equal to all monetary obligations due, excluding those arising from or relating to a failure to operate or a penalty provision, for the period of 2 years following the later of the rejection date or the date of actual turnover of the premises, without reduction or setoff for any reason whatsoever except for sums actually received or to be received from an entity other than the debtor, and the claim for remaining sums due for the balance of the term of the lease shall be a claim under section 502(b)(6);

(8) the actual, necessary costs and expenses of closing a health care business incurred by a trustee or by a Federal agency (as defined in section 551(1) of title 5) or a department or agency of a State or political subdivision thereof, including any cost or expense incurred--

(A) in disposing of patient records in accordance with section 351; or

(B) in connection with transferring patients from the health care business that is in the process of being closed to another health care business; and

(9) the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor's business.

(c) Notwithstanding subsection (b), there shall neither be allowed, nor paid--

(1) a transfer made to, or an obligation incurred for the benefit of, an insider of the debtor for the purpose of inducing such person to remain with the debtor's business, absent a finding by the court based on evidence in the record that--

(A) the transfer or obligation is essential to retention of the person because the individual has a bona fide job offer from another business at the same or greater rate of compensation;

(B) the services provided by the person are essential to the survival of the business; and

(C) either--

(i) the amount of the transfer made to, or obligation incurred for the benefit of, the person is not greater than an amount equal to 10 times the amount of the mean transfer or obligation of a similar kind given to nonmanagement employees for any purpose during the calendar year in which the transfer is made or the obligation is incurred; or

(ii) if no such similar transfers were made to, or obligations were incurred for the benefit of, such nonmanagement employees during such calendar year, the amount of the transfer or obligation is not greater than an amount equal to 25 percent of the amount of any similar transfer or obligation made to or incurred for the benefit of such insider for any purpose during the calendar year before the year in which such transfer is made or obligation is incurred;

(2) a severance payment to an insider of the debtor, unless--

(A) the payment is part of a program that is generally applicable to all full-time employees; and

(B) the amount of the payment is not greater than 10 times the amount of the mean severance pay given to nonmanagement employees during the calendar year in which the payment is made; or

(3) other transfers or obligations that are outside the ordinary course of business and not justified by the facts and circumstances of the case, including transfers made to, or obligations incurred for the benefit of, officers, managers, or consultants hired after the date of the filing of the petition.

Sec. 504. Sharing of compensation

(a) * * *

* * * * * * *

(c) This section shall not apply with respect to sharing, or agreeing to share, compensation with a bona fide public service attorney referral program that operates in accordance with non-Federal law regulating attorney referral services and with rules of professional responsibility applicable to attorney acceptance of referrals.

Sec. 505. Determination of tax liability

(a)(1) * * *

(2) The court may not so determine--

(A) the amount or legality of a tax, fine, penalty, or addition to tax if such amount or legality was contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction before the commencement of the case under this title; [Struck out->][ or ][<-Struck out]

(B) any right of the estate to a tax refund, before the earlier of--

(i) * * *

(ii) a determination by such governmental unit of such request [Struck out->][ . ][<-Struck out] ; or

(C) the amount or legality of any amount arising in connection with an ad valorem tax on real or personal property of the estate, if the applicable period for contesting or redetermining that amount under any law (other than a bankruptcy law) has expired.

(b)(1)(A) The clerk shall maintain a list under which a Federal, State, or local governmental unit responsible for the collection of taxes within the district may--

(i) designate an address for service of requests under this subsection; and

(ii) describe where further information concerning additional requirements for filing such requests may be found.

(B) If such governmental unit does not designate an address and provide such address to the clerk under subparagraph (A), any request made under this subsection may be served at the address for the filing of a tax return or protest with the appropriate taxing authority of such governmental unit.

[Struck out->][ (b) ][<-Struck out] (2) A trustee may request a determination of any unpaid liability of the estate for any tax incurred during the administration of the case by submitting a tax return for such tax and a request for such a determination to the governmental unit charged with responsibility for collection or determination of such tax at the address and in the manner designated in paragraph (1). Unless such return is fraudulent, or contains a material misrepresentation, the estate, the trustee, the debtor, and any successor to the debtor are discharged from any liability for such tax--

[Struck out->][ (1) ][<-Struck out] (A) upon payment of the tax shown on such return, if--

[Struck out->][ (A) ][<-Struck out] (i) such governmental unit does not notify the trustee, within 60 days after such request, that such return has been selected for examination; or

[Struck out->][ (B) ][<-Struck out] (ii) such governmental unit does not complete such an examination and notify the trustee of any tax due, within 180 days after such request or within such additional time as the court, for cause, permits;

[Struck out->][ (2) ][<-Struck out] (B) upon payment of the tax determined by the court, after notice and a hearing, after completion by such governmental unit of such examination; or

[Struck out->][ (3) ][<-Struck out] (C) upon payment of the tax determined by such governmental unit to be due.

Sec. 506. Determination of secured status

(a)(1) An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor's interest or the amount so subject to setoff is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor's interest.

(2) If the debtor is an individual in a case under chapter 7 or 13, such value with respect to personal property securing an allowed claim shall be determined based on the replacement value of such property as of the date of the filing of the petition without deduction for costs of sale or marketing. With respect to property acquired for personal, family, or household purposes, replacement value shall mean the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined.

(b) To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose.

(c) The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim, including the payment of all ad valorem property taxes with respect to the property.

* * * * * * *

Sec. 507. Priorities

(a) The following expenses and claims have priority in the following order:

(1) First:

(A) Allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition in a case under this title, are owed to or recoverable by a spouse, former spouse, or child of the debtor, or such child's parent, legal guardian, or responsible relative, without regard to whether the claim is filed by such person or is filed by a governmental unit on behalf of such person, on the condition that funds received under this paragraph by a governmental unit under this title after the date of the filing of the petition shall be applied and distributed in accordance with applicable nonbankruptcy law.

(B) Subject to claims under subparagraph (A), allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition, are assigned by a spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative to a governmental unit (unless such obligation is assigned voluntarily by the spouse, former spouse, child, parent, legal guardian, or responsible relative of the child for the purpose of collecting the debt) or are owed directly to or recoverable by a governmental unit under applicable nonbankruptcy law, on the condition that funds received under this paragraph by a governmental unit under this title after the date of the filing of the petition be applied and distributed in accordance with applicable nonbankruptcy law.

(C) If a trustee is appointed or elected under section 701, 702, 703, 1104, 1202, or 1302, the administrative expenses of the trustee allowed under paragraphs (1)(A), (2), and (6) of section 503(b) shall be paid before payment of claims under subparagraphs (A) and (B), to the extent that the trustee administers assets that are otherwise available for the payment of such claims.

[Struck out->][ (1) First ][<-Struck out] (2) Second, administrative expenses allowed under section 503(b) of this title, and any fees and charges assessed against the estate under chapter 123 of title 28.

[Struck out->][ (2) Second ][<-Struck out] (3) Third, unsecured claims allowed under section 502(f) of this title.

[Struck out->][ (3) Third ][<-Struck out] (4) Fourth, allowed unsecured claims, but only to the extent of [Struck out->][ $4,000 ][<-Struck out] $10,000 for each individual or corporation, as the case may be, earned within [Struck out->][ 90 ][<-Struck out] 180 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first, for--

(A) * * *

(B) sales commissions earned by an individual or by a corporation with only 1 employee, acting as an independent contractor in the sale of goods or services for the debtor in the ordinary course of the debtor's business if, and only if, during the 12 months preceding that date, at least 75 percent of the amount that the individual or corporation earned by acting as an independent contractor in the sale of goods or services was earned from the debtor [Struck out->][ ; ][<-Struck out] .

[Struck out->][ (4) Fourth ][<-Struck out] (5) Fifth, allowed unsecured claims for contributions to an employee benefit plan--

(A) * * *