BAPCPA & LEGISLATIVE REPORT LINKS (CH. 5 — CONTENTS)

BAPCPA § 227(b)    •    House Report 109-31    •   

BAPCPA § 228(b)    •    House Report 109-31    •   

BAPCPA § 229(b)    •    House Report 109-31    •   

BAPCPA § 704(b)    •    House Report 109-31    •   

BAPCPA § 907(k)(2)    •    House Report 109-31    •   

BAPCPA § 907(p)(1)(A)    •    House Report 109-31    •      -  555 - Index  -  556 - Index

BAPCPA § 907(p)(1)(B)    •    House Report 109-31    •      -  559 - Index  -  560 - Index

BAPCPA § 910(a)(2)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 501)


LEGISLATIVE STATEMENTS

The House amendment adopts section 501(b) of the Senate amendment leaving the Rules of Bankruptcy Procedure free to determine where a proof of claim must be filed. 

Section 501(c) expands language contained in section 501(c) of the House bill and Senate amendment to permit the debtor to file a proof of claim if a creditor does not timely file a proof of the creditor's claim in a case under title 11

The House amendment deletes section 501(e) of the Senate amendment as a matter to be left to the rules of bankruptcy procedure. It is anticipated that the rules will enable governmental units, like other creditors, to have a reasonable time to file proofs of claim in bankruptcy cases. 

For purposes of section 501, a proof of "interest" includes the interest of a general or limited partner in a partnership, the interest of a proprietor in a sole proprietorship, or the interest of a common or preferred stockholder in a corporation

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. This section governs the means by which creditors and equity security holders present their claims or interests to the court. Subsection (a) permits a creditor to file a proof of claim or interest. An indenture trustee representing creditors may file a proof of claim on behalf of the creditors he represents. 

This subsection is permissive only, and does not require filing of a proof of claim by any creditor. It permits filing where some purpose would be served, such as where a claim that appears on a list filed under proposed 11 U.S.C. 924 or 1111 was incorrectly stated or listed as disputed, contingent, or unliquidated, where a creditor with a lien is undersecured and asserts a claim for the balance of the debt owed him (his unsecured claim, as determined under proposed 11 U.S.C. 506(a)), or in a liquidation case where there will be a distribution of assets to the holders of allowed claims. In other instances, such as in no-asset liquidation cases, in situations where a secured creditor does not assert any claim against the estate and a determination of his claim is not made under proposed 11 U.S.C. 506, or in situations where the claim asserted would be subordinated and the creditor would not recover from the estate in any event, filing of a proof of claim may simply not be necessary. The Rules of Bankruptcy Procedure and practice under the law will guide creditors as to when filing is necessary and when it may be dispensed with. In general, however, unless a claim is listed in a chapter 9 or chapter 11 case and allowed as a result of the list, a proof of claim will be a prerequisite to allowance for unsecured claims, including priority claims and the unsecured portion of a claim asserted by the holder of a lien

The Rules of Bankruptcy Procedure will set the time limits, the form, and the procedure for filing, which will determine whether claims are timely or tardily filed. The rules governing time limits for filing proofs of claims will continue to apply under section 405(d) of the bill. These provide a 6-month-bar date for the filing of tax claims

Subsection (b) permits a codebtor, surety, or guarantor to file a proof of claim on behalf of the creditor to which he is liable if the creditor does not timely file a proof of claim

In liquidation and individual repayment plan cases, the trustee or the debtor may file a proof of claim under subsection (c) if the creditor does not timely file. The purpose of this subsection is mainly to protect the debtor if the creditor's claim is nondischargeable. If the creditor does not file, there would be no distribution on the claim, and the debtor would have a greater debt to repay after the case is closed than if the claim were paid in part or in full in the case or under the plan. 

Subsection (d) governs the filing of claims of the kind specified in subsections (f), (g), (h), (i), or (j) of proposed 11 U.S.C. 502. The separation of this provision from the other claim-filing provisions in this section is intended to indicate that claims of the kind specified, which do not become fixed or do not arise until after the commencement of the case, must be treated differently for filing purposes such as the bar date for filing claims. The rules will provide for later filing of claims of these kinds. 

Subsection (e) gives governmental units (including tax authorities) at least six months following the date for the first meeting of creditors in a chapter 7 or chapter 13 case within which to file proof of claims

AMENDMENTS

2005 — Will be supplemented. 

1984 — Subsec. (d). Pub. L. 98-353 inserted "502(e)(2),". 

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

CHILD SUPPORT CREDITORS OR THEIR

REPRESENTATIVES; APPEARANCE BEFORE COURT

Pub. L. 103-394, title III, Sec. 304(g), Oct. 22, 1994, 108 Stat. 4134, provided that: "Child support creditors or their representatives shall be permitted to appear and intervene without charge, and without meeting any special local court rule requirement for attorney appearances, in any bankruptcy case or proceeding in any bankruptcy court or district court of the United States if such creditors or representatives file a form in such court that contains information detailing the child support debt, its status, and other characteristics." 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 502, 506, 726, 727, 901, 925, 944, 1111, 1141 of this title. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 501)

BAPCPA § 702    •    House Report 109-31    •   

BAPCPA § 1228(c) contains the following uncodified provision:

(c) Document Retention.—The court shall destroy documents submitted in support of a bankruptcy claim not sooner than 3 years after the date of the conclusion of a case filed by an individual under chapter 7, 11, or 13 of title 11, United States Code. In the event of a pending audit or enforcement action, the court may extend the time for destruction of such requested tax documents.    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 502)


LEGISLATIVE STATEMENTS

The House amendment adopts a compromise position in section 502(a) between H.R. 8200, as passed by the House, and the Senate amendment. Section 502(a) has been modified to make clear that a party in interest includes a creditor of a partner in a partnership that is a debtor under chapter 7. Since the trustee of the partnership is given an absolute claim against the estate of each general partner under section 723(c), creditors of the partner must have standing to object to claims against the partnership at the partnership level because no opportunity will be afforded at the partner's level for such objection. 

The House amendment contains a provision in section 502(b)(1) that requires disallowance of a claim to the extent that such claim is unenforceable against the debtor and unenforceable against property of the debtor. This is intended to result in the disallowance of any claim for deficiency by an undersecured creditor on a non-recourse loan or under a State antideficiency law, special provision for which is made in section 1111, since neither the debtor personally, nor the property of the debtor is liable for such a deficiency. Similarly claims for usurious interest or which could be barred by an agreement between the creditor and the debtor would be disallowed. 

Section 502(b)(7)(A) represents a compromise between the House bill and the Senate amendment. The House amendment takes the provision in H.R. 8200 as passed by the House of Representatives but increases the percentage from 10 to 15 percent. 

As used in section 502(b)(7), the phrase "lease of real property" applies only to a "true" or "bona fide" lease and does not apply to financing leases of real property or interests therein, or to leases of such property which are intended as security. 

Historically, the limitation on allowable claims of lessors of real property was based on two considerations. First, the amount of the lessor's damages on breach of a real estate lease was considered contingent and difficult to prove. Partly for this reason, claims of a lessor of real estate were not provable prior to the 1934 amendments, to the Bankruptcy Act (former title 11). Second, in a true lease of real property, the lessor retains all risks and benefits as to the value of the real estate at the termination of the lease. Historically, it was, therefore, considered equitable to limit the claims of real estate lessor. 

However, these considerations are not present in "lease financing" transactions where, in substance, the "lease" involves a sale of the real estate and the rental payments are in substance the payment of principal and interest on a secured loan or sale. In a financing lease the lessor is essentially a secured or unsecured creditor (depending upon whether his interest is perfected or not) of the debtor, and the lessor's claim should not be subject to the 502(b)(7) limitation. Financing "leases" are in substance installment sales or loans. The "lessors" are essentially sellers or lenders and should be treated as such for purposes of the bankruptcy law. 

Whether a "lease" is true or bona fide lease or, in the alternative a financing "lease" or a lease intended as security, depends upon the circumstances of each case. The distinction between a true lease and a financing transaction is based upon the economic substance of the transaction and not, for example, upon the locus of title, the form of the transaction or the fact that the transaction is denominated as a "lease." The fact that the lessee, upon compliance with the terms of the lease, becomes or has the option to become the owner of the leased property for no additional consideration or for nominal consideration indicates that the transaction is a financing lease or lease intended as security. In such cases, the lessor has no substantial interest in the leased property at the expiration of the lease term. In addition, the fact that the lessee assumes and discharges substantially all the risks and obligations ordinarily attributed to the outright ownership of the property is more indicative of a financing transaction than of a true lease. The rental payments in such cases are in substance payments of principal and interest either on a loan secured by the leased real property or on the purchase of the leased real property. See, e.g., Financial Accounting Standards Board Statement No. 13 and SEC Reg. S-X, 17 C.F.R. sec. 210.3-16(q) (1977); cf. First National Bank of Chicago v. Irving Trust Co., 74 F.2d 263 (2nd Cir. 1934); and Albenda and Lief, "Net Lease Financing Transactions Under the Proposed Bankruptcy Act of 1973," 30 Business Lawyer, 713 (1975). 

Section 502(c) of the House amendment presents a compromise between similar provisions contained in the House bill and the Senate amendment. The compromise language is consistent with an amendment to the definition of "claim" in section 104(4)(B) of the House amendment and requires estimation of any right to an equitable remedy for breach of performance if such breach gives rise to a right to payment. To the extent language in the House and Senate reports indicate otherwise, such language is expressly overruled. 

Section 502(e) of the House amendment contains language modifying a similar section in the House bill and Senate amendment. Section 502(e)(1) states the general rule requiring the court to disallow any claim for reimbursement or contribution of an entity that is liable with the debtor on, or that has secured, the claim of a creditor to any extent that the creditor's claim against the estate is disallowed. This adopts a policy that a surety's claim for reimbursement or contribution is entitled to no better status than the claim of the creditor assured by such surety. Section 502(e)(1)(B) alternatively disallows any claim for reimbursement or contribution by a surety to the extent such claim is contingent as of the time of allowance. Section 502(e)(2) is clear that to the extent a claim for reimbursement or contribution becomes fixed after the commencement of the case that it is to be considered a prepetition claim for purposes of allowance. The combined effect of sections 502(e)(1)(B) and 502(e)(2) is that a surety or codebtor is generally permitted a claim for reimbursement or contribution to the extent the surety or codebtor has paid the assured party at the time of allowance. Section 502(e)(1)(C) alternatively indicates that a claim for reimbursement or contribution of a surety or codebtor is disallowed to the extent the surety or codebtor requests subrogation under section 509with respect to the rights of the assured party. Thus, the surety or codebtor has a choice; to the extent a claim for contribution or reimbursement would be advantageous, such as in the case where such a claim is secured, a surety or codebtor may opt for reimbursement or contribution under section 502(e). On the other hand, to the extent the claim for such surety or codebtor by way of subrogation is more advantageous, such as where such claim is secured, the surety may elect subrogation under section 509

The section changes current law by making the election identical in all other respects. To the extent a creditor's claim is satisfied by a surety or codebtor, other creditors should not benefit by the surety's inability to file a claim against the estate merely because such surety or codebtor has failed to pay such creditor's claim in full. On the other hand, to the extent the creditor's claim against the estate is otherwise disallowed, the surety or codebtor should not be entitled to increased rights by way of reimbursement or contribution, to the detriment of competing claims of other unsecured creditors, than would be realized by way of subrogation. 

While the foregoing scheme is equitable with respect to other unsecured creditors of the debtor, it is desirable to preserve present law to the extent that a surety or codebtor is not permitted to compete with the creditor he has assured until the assured party's claim has paid in full. Accordingly, section 509(c) of the House amendment subordinates both a claim by way of subrogation or a claim for reimbursement or contribution of a surety or codebtor to the claim of the assured party until the assured party's claim is paid in full. 

Section 502(h) of the House amendment expands similar provisions contained in the House bill and the Senate amendment to indicate that any claim arising from the recovery of property under section 522(i), 550, or 553 shall be determined as though it were a prepetition claim

Section502(i) of the House amendment adopts a provision contained in section 502(j) of H.R. 8200 as passed by the House but that was not contained in the Senate amendment. 

Section 502(i) of H.R. 8200 as passed by the House, but was not included in the Senate amendment, is deleted as a matter to be left to the bankruptcy tax bill next year. 

The House amendment deletes section 502(i) of the Senate bill but adopts the policy of that section to a limited extent for confirmation of a plan of reorganization in section 1111(b) of the House amendment. 

Section 502(j) of the House amendment is new. The provision codifies section 57k of the Bankruptcy Act (section 93(k) of former title 11). 

Allowance of Claims or Interest: The House amendment adopts section 502(b)(9) of the House bill which disallows any tax claim resulting from a reduction of the Federal Unemployment Tax Act (FUTA) credit (sec. 3302 of the Internal Revenue Code (26 U.S.C. 3302)) on account of a tardy contribution to a State unemployment fund if the contribution is attributable to ways or other compensation paid by the debtor before bankruptcy. The Senate amendment allowed this reduction, but would have subordinated it to other claims in the distribution of the estate's assets by treating it as a punitive (nonpecuniary loss) penalty. The House amendment would also not bar reduction of the FUTA credit on account of a trustee's late payment of a contribution to a State unemployment fund if the contribution was attributable to a trustee's payment of compensation earned from the estate. 

Section 511 of the Senate amendment is deleted. Its substance is adopted in section 502(b)(9) of the House amendment which reflects an identical provision contained in H.R. 8200 as passed by the House. 

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1994 Acts (Pub. L. 103-394). House Report No. 103-835.

1986 Acts (Pub. L. 99-554). House Report No. 99-764 and House Conference Report No. 99-958. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. A proof of claim or interest is prima facie evidence of the claim or interest. Thus, it is allowed under subsection (a) unless a party in interest objects. The rules and case law will determine who is a party in interest for purposes of objection to allowance. The case law is well developed on this subject today. As a result of the change in the liability of a general partner's estate for the debts of this partnership, see proposed 11 U.S.C. 723, the category of persons that are parties in interest in the partnership case will be expanded to include a creditor of a partner against whose estate the trustee of the partnership estate may proceed under proposed 11 U.S.C. 723(c)

Subsection (b) prescribes the grounds on which a claim may be disallowed. The court will apply these standards if there is an objection to a proof of claim. The burden of proof on the issue of allowance is left to the Rules of Bankruptcy Procedure. Under the current chapter XIII rules, a creditor is required to prove that his claim is free from usury, rule 13-301. It is expected that the rules will make similar provision for both liquidation and individual repayment plan cases. See Bankruptcy Act Sec. 656(b) (section 1056(b) of former title 11); H.R. 31, 94th Cong., 1st sess., sec. 6-104(a) (1975). 

Paragraph (1) requires disallowance if the claim is unenforceable against the debtor for any reason (such as usury, unconscionability, or failure of consideration) other than because it is contingent or unmatured. All such contingent or unmatured claims are to be liquidated by the bankruptcy court in order to afford the debtor complete bankruptcy relief; these claims are generally not provable under present law. 

Paragraph (2) requires disallowance to the extent that the claim is for unmatured interest as of the date of the petition. Whether interest is matured or unmatured on the date of bankruptcy is to be determined without reference to any ipso facto or bankruptcy clause in the agreement creating the claim. Interest disallowed under this paragraph includes postpetition interest that is not yet due and payable, and any portion of prepaid interest that represents an original discounting of the claim, yet that would not have been earned on the date of bankruptcy. For example, a claim on a $1,000 note issued the day before bankruptcy would only be allowed to the extent of the cash actually advanced. If the original discount was 10 percent so that the cash advanced was only $900, then notwithstanding the face amount of note, only $900 would be allowed. If $900 was advanced under the note some time before bankruptcy, the interest component of the note would have to be prorated and disallowed to the extent it was for interest after the commencement of the case. 

Section 502(b) thus contains two principles of present law. First, interest stops accruing at the date of the filing of the petition, because any claim for unmatured interest is disallowed under this paragraph. Second, bankruptcy operates as the acceleration of the principal amount of all claims against the debtor. One unarticulated reason for this is that the discounting factor for claims after the commencement of the case is equivalent to contractual interest rate on the claim. Thus, this paragraph does not cause disallowance of claims that have not been discounted to a present value because of the irrebuttable presumption that the discounting rate and the contractual interest rate (even a zero interest rate) are equivalent. 

Paragraph (3) requires disallowance of a claim to the extent that the creditor may offset the claim against a debt owing to the debtor. This will prevent double recovery, and permit the claim to be filed only for the balance due. This follows section 68 of the Bankruptcy Act (section 108 of former title 11). 

Paragraph (4) requires disallowance of a property tax claim to the extent that the tax due exceeds the value of the property. This too follows current law to the extent the property tax is ad valorem. 

Paragraph (5) prevents overreaching by the debtor's attorneys and concealing of assets by debtors. It permits the court to examine the claim of a debtor's attorney independently of any other provision of this subsection, and to disallow it to the extent that it exceeds the reasonable value of the attorneys' services. 

Postpetition alimony, maintenance or support claims are disallowed under paragraph (6). They are to be paid from the debtor's postpetition property, because the claims are nondischargeable. 

Paragraph (7), derived from current law, limits the damages allowable to a landlord of the debtor. The history of this provision is set out at length in Oldden v. Tonto Realty Co., 143 F.2d 916 (2d Cir. 1944). It is designed to compensate the landlord for his loss while not permitting a claim so large (based on a long-term lease) as to prevent other general unsecured creditors from recovering a dividend from the estate. The damages a landlord may assert from termination of a lease are limited to the rent reserved for the greater of one year or ten percent of the remaining lease term, not to exceed three years, after the earlier of the date of the filing of the petition and the date of surrender or repossession in a chapter 7 case and 3 years lease payments in a chapter 9, 11, or 13 case. The sliding scale formula for chapter 7 cases is new and designed to protect the long-term lessor. This subsection does not apply to limit administrative expense claims for use of the leased premises to which the landlord is otherwise entitled. 

This paragraph will not overrule Oldden, or the proposition for which it has been read to stand: To the extent that a landlord has a security deposit in excess of the amount of his claim allowed under this paragraph, the excess comes into the estate. Moreover, his allowed claim is for his total damages, as limited by this paragraph. By virtue of proposed 11 U.S.C. 506(a) and 506(d), the claim will be divided into a secured portion and an unsecured portion in those cases in which the deposit that the landlord holds is less than his damages. As under Oldden, he will not be permitted to offset his actual damages against his security deposit and then claim for the balance under this paragraph. Rather, his security deposit will be applied in satisfaction of the claim that is allowed under this paragraph. 

As used in section 502(b)(7), the phrase "lease of real property" applies only to a "true" or "bona fide" lease and does not apply to financing leases of real property or interests therein, or to leases of such property which are intended as security. 

Historically, the limitation on allowable claims of lessors of real property was based on two considerations. First, the amount of the lessors damages on breach of a real estate lease was considered contingent and difficult to prove. Partly for this reason, claims of a lessor of real estate were not provable prior to the 1934 amendments to the Bankruptcy Act (former title 11). Second, in a true lease of real property, the lessor retains all risk and benefits as to the value of the real estate at the termination of the lease. Historically, it was, therefore, considered equitable to limit the claims of a real estate lessor. 

However, these considerations are not present in "lease financing" transactions where, in substance, the "lease" involves a sale of the real estate and the rental payments are in substance the payment of principal and interest on a secured loan or sale. In a financing lease the lessor is essentially a secured or unsecured creditor (depending upon whether his interest is perfected or not) of the debtor, and the lessor's claim should not be subject to the 502(b)(7) limitation. Financing "leases" are in substance installment sales or loans. The "lessors" are essentially sellers or lenders and should be treated as such for purposes of the bankruptcy law. 

Whether a "lease" is true or bona fide lease or, in the alternative, a financing "lease" or a lease intended as security, depends upon the circumstances of each case. The distinction between a true lease and a financing transaction is based upon the economic substance of the transaction and not, for example, upon the locus of title, the form of the transaction or the fact that the transaction is denominated as a "lease". The fact that the lessee, upon compliance with the terms of the lease, becomes or has the option to become the owner of the leased property for no additional consideration or for nominal consideration indicates that the transaction is a financing lease or lease intended as security. In such cases, the lessor has no substantial interest in the leased property at the expiration of the lease term. In addition, the fact that the lessee assumes and discharges substantially all the risks and obligations ordinarily attributed to the outright ownership of the property is more indicative of a financing transaction than of a true lease. The rental payments in such cases are in substance payments of principal and interest either on a loan secured by the leased real property or on the purchase of the leased real property. See, e. g., Financial Accounting Standards Board Statement No. 13 and SEC Reg. S-X, 17 C.F.R. sec. 210.3-16(q) (1977); cf. First National Bank of Chicago v. Irving Trust Co., 74 F.2d 263 (2nd Cir. 1934); and Albenda and Lief, "Net Lease Financing Transactions Under the Proposed Bankruptcy Act of 1973," 30 Business Lawyer, 713 (1975). 

Paragraph (8) is new. It tracks the landlord limitation on damages provision in paragraph (7) for damages resulting from the breach by the debtor of an employment contract, but limits the recovery to the compensation reserved under an employment contract for the year following the earlier of the date of the petition and the termination of employment. 

Subsection (c) requires the estimation of any claim liquidation of which would unduly delay the closing of the estate, such as a contingent claim, or any claim for which applicable law provides only an equitable remedy, such as specific performance. This subsection requires that all claims against the debtor be converted into dollar amounts. 

Subsection (d) is derived from present law. It requires disallowance of a claim of a transferee of a voidable transfer in toto if the transferee has not paid the amount or turned over the property received as required under the sections under which the transferee's liability arises. 

Subsection (e) also derived from present law, requires disallowance of the claim for reimbursement or contribution of a codebtor, surety or guarantor of an obligation of the debtor, unless the claim of the creditor on such obligation has been paid in full. The provision prevents competition between a creditor and his guarantor for the limited proceeds in the estate. 

Subsection (f) specifies that "involuntary gap" creditors receive the same treatment as prepetition creditors. Under the allowance provisions of this subsection, knowledge of the commencement of the case will be irrelevant. The claim is to be allowed "the same as if such claim had arisen before the date of the filing of the petition." Under voluntary petition, proposed 11 U.S.C. 303(f), creditors must be permitted to deal with the debtor and be assured that their claims will be paid. For purposes of this subsection, "creditors" include governmental units holding claims for tax liabilities incurred during the period after the petition is filed and before the earlier of the order for relief or appointment of a trustee. 

Subsection (g) gives entities injured by the rejection of an executory contract or unexpired lease, either under section 365 or under a plan or reorganization, a prepetition claim for any resulting damages, and requires that the injured entity be treated as a prepetition creditor with respect to that claim

Subsection (h) gives a transferee of a setoff that is recovered by one trustee a prepetition claim for the amount recovered. 

Subsection (i) answers the nonrecourse loan problem and gives the creditor an unsecured claim for the difference between the value of the collateral and the debt in response to the decision in Great National Life Ins. Co. v. Pine Gate Associates, Ltd., Bankruptcy Case No. B75-4345A (N.D.Ga. Sept. 16, 1977). 

The bill, as reported, deletes a provision in the bill as originally introduced (former sec. 502(i) requiring a tax authority to file a proof of claim for recapture of an investment credit where, during title 11 proceedings, the trustee sells or otherwise disposes of property before the title 11 case began. The tax authority should not be required to submit a formal claim for a taxable event (a sale or other disposition of the asset) of whose occurrence the trustee necessarily knows better than the taxing authority. For procedural purposes, the recapture of investment credit is to be treated as an administrative expense, as to which only a request for payment is required. 

House Report No. 95-595. Paragraph (9) (of subsec. (b)) requires disallowance of certain employment tax claims. These relate to a Federal tax credit for State unemployment insurance taxes which is disallowed if the State tax is paid late. This paragraph disallows the Federal claim for the tax the same as if the credit had been allowed in full on the Federal return. 

AMENDMENTS

2005 — Will be supplemented. 

1994

Subsec. (b)(9). Pub. L. 103-394, Sec. 213(a), added par. (9)

Subsec. (i). Pub. L. 103-394, Sec. 304(h)(1), substituted "507(a)(8)" for "507(a)(7)". 

1986

Subsec. (b)(6)(A)(ii). Pub. L. 99-554, Sec. 283(f)(1), substituted "repossessed" for "reposessed". 

Subsec. (g). Pub. L. 99-554, Sec. 257(j), inserted reference to chapter 12. 

Subsec. (i). Pub. L. 99-554, Sec. 283(f)(2), substituted "507(a)(7)" for "507(a)(6)". 

1984

Subsec. (a). Pub. L. 98-353, Sec. 445(a), inserted "general" before "partner". 

Subsec. (b). Pub. L. 98-353, Sec. 445(b)(1), (2), in provisions preceding par. (1), inserted "(e)(2)," after "subsections" and "in lawful currency of the United States" after "claim". 

Subsec. (b)(1). Pub. L. 98-353, Sec. 445(b)(3), substituted "and" for ", and unenforceable against". 

Subsec. (b)(3). Pub. L. 98-353, Sec. 445(b)(5), inserted "the" after "exceeds". 

Pub. L. 98-353, Sec. 445(b)(4), struck out par. (3) "such claim may be offset under section 553 of this title against a debt owing to the debtor;", and redesignated par. (4) as (3). 

Subsec. (b)(4). Pub. L. 98-353, Sec. 445(b)(4), redesignated par. (5) as (4). Former par. (4) redesignated (3). 

Subsec. (b)(5). Pub. L. 98-353, Sec. 445(b)(6), substituted "such claim" for "the claim" and struck out the comma after "petition". 

Pub. L. 98-353, Sec. 445(b)(4), redesignated par. (6) as (5).

Former par. (5) redesignated (4).

Subsec. (b)(6). Pub. L. 98-353, Sec. 445(b)(4), redesignated par. (7) as (6). Former par. (6) redesignated (5). 

Subsec. (b)(7). Pub. L. 98-353, Sec. 445(b)(7)(A), inserted "the claim of an employee" before "for damages". 

Pub. L. 98-353, Sec. 445(b)(4), redesignated par. (8) as (7).

Former par. (7) redesignated (6).

Subsec. (b)(7)(A)(i). Pub. L. 98-353, Sec. 445(b)(7)(B), substituted "or" for "and". 

Subsec. (b)(7)(B). Pub. L. 98-353, Sec. 445(b)(7)(C), (D), substituted "any" for "the" and inserted a comma after "such contract". 

Subsec. (b)(8), (9). Pub. L. 98-353, Sec. 445(b)(4), redesignated par. (9) as (8). Former par. (8) redesignated (7). 

Subsec. (c)(1). Pub. L. 98-353, Sec. 445(c)(1), inserted "the" before "fixing" and substituted "administration" for "closing". 

Subsec. (c)(2). Pub. L. 98-353, Sec. 445(c)(2), inserted "right to payment arising from a" after "any" and struck out "if such breach gives rise to a right to payment" after "breach of performance". 

Subsec. (e)(1). Pub. L. 98-353, Sec. 445(d)(1), (2), in provisions preceding subpar. (A) substituted ", (b), and (c)" for "and (b)" and substituted "or has secured" for ", or has secured,". 

Subsec. (e)(1)(B). Pub. L. 98-353, Sec. 445(d)(3), inserted "or disallowance" after "allowance". 

Subsec. (e)(1)(C). Pub. L. 98-353, Sec. 445(d)(4), substituted "asserts a right of subrogation to the rights of such creditor" for "requests subrogation" and struck out "to the rights of such creditor" after "of this title". 

Subsec. (h). Pub. L. 98-353, Sec. 445(e), substituted "522" for "522(i)". 

Subsec. (j). Pub. L. 98-353, Sec. 445(f), amended subsec. (j) generally, inserting provisions relating to reconsideration of a disallowed claim, and provisions relating to reconsideration of a claim under this subsection. 

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1986 Amendments. Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. 

Amendment by section 283 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

REFERENCES IN TEXT

The Federal Rules of Bankruptcy Procedure, referred to in subsec. (b)(9), are set out in the Appendix to this title. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 101, 106, 346, 501, 503, 506, 507, 509, 510, 522, 544, 723, 727, 901, 929, 944, 1111, 1114, 1126, 1141, 1228, 1305, 1328 of this title. 

 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 502)

BAPCPA § 201(a)    •    House Report 109-31    •   

BAPCPA § 716(d)    •    House Report 109-31    •   

BAPCPA § 910(b)(1)    •    House Report 109-31    •   

BAPCPA § 910(b)(2)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 503)


LEGISLATIVE STATEMENTS

Section 503(a) of the House amendment represents a compromise between similar provisions in the House bill and the Senate amendment by leaving to the Rules of Bankruptcy Procedure the determination of the location at which a request for payment of an administrative expense may be filed. The preamble to section 503(b) of the House bill makes a similar change with respect to the allowance of administrative expenses. 

Section 503(b)(1) adopts the approach taken in the House bill as modified by some provisions contained in the Senate amendment. The preamble to section 503(b) makes clear that none of the paragraphs of section 503(b) apply to claims or expenses of the kind specified in section 502(f) that arise in the ordinary course of the debtor's business or financial affairs and that arise during the gap between the commencement of an involuntary case and the appointment of a trustee or the order for relief, whichever first occurs. The remainder of section 503(b) represents a compromise between H.R. 8200 as passed by the House and the Senate amendments. Section 503(b)(3)(E) codifies present law in cases such as Randolph v. Scruggs, 190 U.S. 533, which accords administrative expense status to services rendered by a prepetition custodian or other party to the extent such services actually benefit the estate. Section 503(b)(4) of the House amendment conforms to the provision contained in H.R. 8200 as passed by the House and deletes language contained in the Senate amendment providing a different standard of compensation under section 330 of that amendment. 

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1994 Acts (Pub. L. 103-394). House Report No. 103-835.

1986 Acts (Pub. L. 99-554). House Report No. 99-764 and House Conference Report No. 99-958. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. Subsection (a) of this section permits administrative expense claimants to file with the court a request for payment of an administrative expense. The Rules of Bankruptcy Procedure will specify the time, the form, and the method of such a filing. 

Subsection (b) specifies the kinds of administrative expenses that are allowable in a case under the bankruptcy code. The subsection is derived mainly from section 64a(1) of the Bankruptcy Act (section 104(a)(1) of former title 11), with some changes. The actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the order for relief, and any taxes on, measured by, or withheld from such wages, salaries, or commissions, are allowable as administrative expenses. 

In general, administrative expenses include taxes which the trustee incurs in administering the debtor's estate, including taxes on capital gains from sales of property by the trustee and taxes on income earned by the estate during the case. Interest on tax liabilities and certain tax penalties incurred by the trustee are also included in this first priority. 

Taxes which the Internal Revenue Service may find due after giving the trustee a so-called "quickie" tax refund and later doing an audit of the refund are also payable as administrative expenses. The tax code (title 26) permits the trustee of an estate which suffers a net operating loss to carry back the loss against an earlier profit year of the estate or of the debtor and to obtain a tentative refund for the earlier year, subject, however, to a later full audit of the loss which led to the refund. The bill, in effect, requires the Internal Revenue Service to issue a tentative refund to the trustee (whether the refund was applied for by the debtor or by the trustee), but if the refund later proves to have been erroneous in amount, the Service can request that the tax attributable to the erroneous refund be payable by the estate as an administrative expense. 

Postpetition payments to an individual debtor for services rendered to the estate are administrative expenses, and are not property of the estate when received by the debtor. This situation would most likely arise when the individual was a sole proprietor and was employed by the estate to run the business after the commencement of the case. An individual debtor in possession would be so employed, for example. See Local Loan v. Hunt, 292 U.S. 234, 243 (1943). 

Compensation and reimbursement awarded officers of the estate under section 330 are allowable as administrative expenses. Actual, necessary expenses, other than compensation of a professional person, incurred by a creditor that files an involuntary petition, by a creditor that recovers property for the benefit of the estate, by a creditor that acts in connection with the prosecution of a criminal offense relating to the case, by a creditor, indenture trustee, equity security holder, or committee of creditors or equity security holders (other than official committees) that makes a substantial contribution to a reorganization or municipal debt adjustment case, or by a superseded custodian, are all allowable administrative expenses. The phrase "substantial contribution in the case" is derived from Bankruptcy Act Sec. 242 and 243 (sections 642 and 643 of former title 11). It does not require a contribution that leads to confirmation of a plan, for in many cases, it will be a substantial contribution if the person involved uncovers facts that would lead to a denial of confirmation, such as fraud in connection with the case. 

Paragraph (4) permits reasonable compensation for professional services rendered by an attorney or an accountant of an equity whose expense is compensable under the previous paragraph. 

Paragraph (5) permits reasonable compensation for an indenture trustee in making a substantial contribution in a reorganization or municipal debt adjustment case. Finally, paragraph (6) permits witness fees and mileage as prescribed under chapter 119 (Sec. 2041 et seq.) of title 28. 

AMENDMENTS

2005 — Will be supplemented. 

1994

Subsec. (a). Pub. L. 103-394, Sec. 213(c), inserted "timely" after "may" and ", or may tardily file such request if permitted by the court for cause" before period at end. 

Subsec. (b)(1)(B)(i). Pub. L. 103-394, Sec. 304(h)(2), substituted "507(a)(8)" for "507(a)(7)". 

Subsec. (b)(3)(F). Pub. L. 103-394, Sec. 110, added subpar. (F). 

1986

Subsec. (b)(1)(B)(i). Pub. L. 99-554, Sec. 283(g)(1), substituted "507(a)(7)" for "507(a)(6)". 

Subsec. (b)(5). Pub. L. 99-554, Sec. 283(g)(2), inserted "and" after "title;". 

Subsec. (b)(6). Pub. L. 99-554, Sec. 283(g)(3), substituted a period for "; and". 

1984

Subsec. (b). Pub. L. 98-353, Sec. 446(1), struck out the comma after "be allowed" in provisions preceding par. (1). 

Subsec. (b)(1)(C). Pub. L. 98-353, Sec. 446(2), struck out the comma after "credit". 

Subsec. (b)(2). Pub. L. 98-353, Sec. 446(3), inserted "(a)" after "330". 

Subsec. (b)(3). Pub. L. 98-353, Sec. 446(4), inserted a comma after "paragraph (4) of this subsection". 

Subsec. (b)(3)(C). Pub. L. 98-353, Sec. 446(5), struck out the comma after "case". 

Subsec. (b)(5). Pub. L. 98-353, Sec. 446(6), struck out "and" after "title;". 

Subsec. (b)(6). Pub. L. 98-353, Sec. 446(7), substituted "; and" for period at end. 

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1986 Amendments. Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 346, 348, 361, 364, 365, 504, 507, 557, 726, 901, 922, 1114, 1205, 1226, 1228, 1326 of this title; title 26 section 1398. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 503)

BAPCPA § 329    •    House Report 109-31    •   

BAPCPA § 331    •    House Report 109-31    •   

BAPCPA § 445(1)    •    House Report 109-31    •   

BAPCPA § 445(2) (struck the period and added the semi colon at the end)    •    House Report 109-31    •   

BAPCPA § 445(3)    •    House Report 109-31    •   

BAPCPA § 712(b)    •    House Report 109-31    •   

BAPCPA § 712(c)(1)    •    House Report 109-31    •   

BAPCPA § 712(c)(2)    •    House Report 109-31    •   

BAPCPA § 712(c)(3)    •    House Report 109-31    •   

BAPCPA § 1103    •    House Report 109-31    •   

BAPCPA § 1208    •    House Report 109-31    •   

BAPCPA § 1227(b)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 504)


LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. Section 504 prohibits the sharing of compensation, or fee splitting, among attorneys, other professionals, or trustees. The section provides only two exceptions: partners or associates in the same professional association, partnership, or corporation may share compensation inter se; and attorneys for petitioning creditors that join in a petition commencing an involuntary case may share compensation. 

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 901 of this title; title 15 section 78fff. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 504)

BAPCPA § 326    •    House Report 109-31 


HISTORICAL AND REVISION NOTES (11 U.S.C. § 505)


LEGISLATIVE STATEMENTS

Section 505 of the House amendment adopts a compromise position with respect to the determination of tax liability from the position taken in H.R. 8200 as passed by the House and in the Senate amendment. 

Determinations of tax liability: Authority of bankruptcy court to rule on merits of tax claims.—The House amendment authorizes the bankruptcy court to rule on the merits of any tax claim involving an unpaid tax, fine, or penalty relating to a tax, or any addition to a tax, of the debtor or the estate. This authority applies, in general, whether or not the tax, penalty, fine, or addition to tax had been previously assessed or paid. However, the bankruptcy court will not have jurisdiction to rule on the merits of any tax claim which has been previously adjudicated, in a contested proceeding, before a court of competent jurisdiction. For this purpose, a proceeding in the U.S. Tax Court is to be considered "contested" if the debtor filed a petition in the Tax Court by the commencement of the case and the Internal Revenue Service had filed an answer to the petition. Therefore, if a petition and answer were filed in the Tax Court before the title II petition was filed, and if the debtor later defaults in the Tax Court, then, under res judicata principles, the bankruptcy court could not then rule on the debtor's or the estate's liability for the same taxes. 

The House amendment adopts the rule of the Senate bill that the bankruptcy court can, under certain conditions, determine the amount of tax refund claim by the trustee. Under the House amendment, if the refund results from an offset or counterclaim to a claim or request for payment by the Internal Revenue Service, or other tax authority, the trustee would not first have to file an administrative claim for refund with the tax authority. 

However, if the trustee requests a refund in other situations, he would first have to submit an administrative claim for the refund. Under the House amendment, if the Internal Revenue Service, or other tax authority does not rule on the refund claim within 120 days, then the bankruptcy court may rule on the merits of the refund claim

Under the Internal Revenue Code (title 26), a suit for refund of Federal taxes cannot be filed until 6 months after a claim for refund is filed with the Internal Revenue Service (sec. 6532(a) (title 26)). Because of the bankruptcy aim to close the estate as expeditiously as possible, the House amendment shortens to 120 days the period for the Internal Revenue Service to decide the refund claim

The House amendment also adopts the substance of the Senate bill rule permitting the bankruptcy court to determine the amount of any penalty, whether punitive or pecuniary in nature, relating to taxes over which it has jurisdiction. 

Jurisdiction of the tax court in bankruptcy cases: The Senate amendment provided a detailed series of rules concerning the jurisdiction of the U.S. Tax Court, or similar State or local administrative tribunal to determine personal tax liabilities of an individual debtor. The House amendment deletes these specific rules and relies on procedures to be derived from broad general powers of the bankruptcy court. 

Under the House amendment, as under present law, a corporation seeking reorganization under chapter 11 is considered to be personally before the bankruptcy court for purposes of giving that court jurisdiction over the debtor's personal liability for a nondischargeable tax. 

The rules are more complex where the debtor is an individual under chapter 7, 11, or 13. An individual debtor or the tax authority can, as under section 17c of the present Bankruptcy Act (section 35(c) of former title 11), file a request that the bankruptcy court determine the debtor's personal liability for the balance of any nondischargeable tax not satisfied from assets of the estate. The House amendment intends to retain these procedures and also adds a rule staying commencement or continuation of any proceeding in the Tax Court after the bankruptcy petition is filed, unless and until that stay is lifted by the bankruptcy judge under section 362(a)(8). The House amendment also stays assessment as well as collection of a prepetition claim against the debtor (sec. 362(a)(6)). A tax authority would not, however, be stayed from issuing a deficiency notice during the bankruptcy case (sec. (b)(7)) (sec. 362(a)(8)). The Senate amendment repealed the existing authority of the Internal Revenue Service to make an immediate assessment of taxes upon bankruptcy (sec. 6871(a) of the code (title 26). See section 321 of the Senate bill. As indicated, the substance of that provision, also affecting State and local taxes, is contained in section 362(a)(6) of the House amendment. The statute of limitations is tolled under the House amendment while the bankruptcy case is pending. 

Where no proceeding in the Tax Court is pending at the commencement of the bankruptcy case, the tax authority can, under the House amendment, file a claim against the estate for a prepetition tax liability and may also file a request that the bankruptcy court hear arguments and decide the merits of an individual debtor's personal liability for the balance of any nondischargeable tax liability not satisfied from assets of the estate. Bankruptcy terminology refers to the latter type of request as a creditor's complaint to determine the dischargeability of a debt. Where such a complaint is filed, the bankruptcy court will have personal jurisdiction over an individual debtor, and the debtor himself would have no access to the Tax Court, or to any other court, to determine his personal liability for nondischargeable taxes. 

If a tax authority decides not to file a claim for taxes which would typically occur where there are few, if any, assets in the estate, normally the tax authority would also not request the bankruptcy court to rule on the debtor's personal liability for a nondischargeable tax. Under the House amendment, the tax authority would then have to follow normal procedures in order to collect a nondischargeable tax. For example, in the case of nondischargeable Federal income taxes, the Internal Revenue Service would be required to issue a deficiency notice to an individual debtor, and the debtor could then file a petition in the Tax Court — or a refund suit in a district court — as the forum in which to litigate his personal liability for a nondischargeable tax. 

Under the House amendment, as under present law, an individual debtor can also file a complaint to determine dischargeability. Consequently, where the tax authority does not file a claim or a request that the bankruptcy court determine dischargeability of a specific tax liability, the debtor could file such a request on his own behalf, so that the bankruptcy court would then determine both the validity of the claim against assets in the estate and also the personal liability of the debtor for any nondischargeable tax. 

Where a proceeding is pending in the Tax Court at the commencement of the bankruptcy case, the commencement of the bankruptcy case automatically stays further action in the Tax Court case unless and until the stay is lifted by the bankruptcy court. The Senate amendment repealed a provision of the Internal Revenue case barring a debtor from filing a petition in the Tax Court after commencement of a bankruptcy case (sec. 6871(b) of the code (26 U.S.C. 6871(b))). See section 321 of the Senate bill. As indicated earlier, the equivalent of the code amendment is embodied in section 362(a)(8) of the House amendment, which automatically stays commencement or continuation of any proceeding in the Tax Court until the stay is lifted or the case is terminated. The stay will permit sufficient time for the bankruptcy trustee to determine if he desires to join the Tax Court proceeding on behalf of the estate. Where the trustee chooses to join the Tax Court proceeding, it is expected that he will seek permission to intervene in the Tax Court case and then request that the stay on the Tax Court proceeding be lifted. In such a case, the merits of the tax liability will be determined by the Tax Court, and its decision will bind both the individual debtor as to any taxes which are nondischargeable and the trustee as to the tax claim against the estate. 

Where the trustee does not want to intervene in the Tax Court, but an individual debtor wants to have the Tax Court determine the amount of his personal liability for nondischargeable taxes, the debtor can request the bankruptcy court to lift the automatic stay on existing Tax Court proceedings. If the stay is lifted and the Tax Court reaches its decision before the bankruptcy court's decision on the tax claim against the estate, the decision of the Tax Court would bind the bankruptcy court under principles of res judicata because the decision of the Tax Court affected the personal liability of the debtor. If the trustee does not wish to subject the estate to the decision of the Tax Court if the latter court decides the issues before the bankruptcy court rules, the trustee could resist the lifting of the stay on the existing Tax Court proceeding. If the Internal Revenue Service had issued a deficiency notice to the debtor before the bankruptcy case began, but as of the filing of the bankruptcy petition the 90-day period for filing in the Tax Court was still running, the debtor would be automatically stayed from filing a petition in the Tax Court. If either the debtor or the Internal Revenue Service then files a complaint to determine dischargeability in the bankruptcy court, the decision of the bankruptcy court would bind both the debtor and the Internal Revenue Service. 

The bankruptcy judge could, however, lift the stay on the debtor to allow him to petition the Tax Court, while reserving the right to rule on the tax authority's claim against assets of the estate. The bankruptcy court could also, upon request by the trustee, authorize the trustee to intervene in the Tax Court for purposes of having the estate also governed by the decision of the Tax Court. 

In essence, under the House amendment, the bankruptcy judge will have authority to determine which court will determine the merits of the tax claim both as to claims against the estate and claims against the debtor concerning his personal liability for nondischargeable taxes. Thus, if the Internal Revenue Service, or a State or local tax authority, files a petition to determine dischargeability, the bankruptcy judge can either rule on the merits of the claim and continue the stay on any pending Tax Court proceeding or lift the stay on the Tax Court and hold the dischargeability complaint in abeyance. If he rules on the merits of the complaint before the decision of the Tax Court is reached, the bankruptcy court's decision would bind the debtor as to nondischargeable taxes and the Tax Court would be governed by that decision under principles of res judicata. If the bankruptcy judge does not rule on the merits of the complaint before the decision of the Tax Court is reached, the bankruptcy court will be bound by the decision of the Tax Court as it affects the amount of any claim against the debtorestate. 

If the Internal Revenue Service does not file a complaint to determine dischargeability and the automatic stay on a pending Tax Court proceeding is not lifted, the bankruptcy court could determine the merits of any tax claim against the estate. That decision will not bind the debtor personally because he would not have been personally before the bankruptcy court unless the debtor himself asks the bankruptcy court to rule on his personal liability. In any such situation where no party filed a dischargeability petition, the debtor would have access to the Tax Court to determine his personal liability for a nondischargeable tax debt. While the Tax Court in such a situation could take into account the ruling of the bankruptcy court on claims against the estate in deciding the debtor's personal liability, the bankruptcy court's ruling would not bind the Tax Court under principles of res judicata, because the debtor, in that situation, would not have been personally before the bankruptcy court. 

If neither the debtor nor the Internal Revenue Service files a claim against the estate or a request to rule on the debtor's personal liability, any pending tax court proceeding would be stayed until the closing of the bankruptcy case, at which time the stay on the tax court would cease and the tax court case could continue for purposes of deciding the merits of the debtor's personal liability for nondischargeable taxes. 

Audit of trustee's returns: Under both bills, the bankruptcy court could determine the amount of any administrative period taxes. The Senate amendment, however, provided for an expedited audit procedure, which was mandatory in some cases. The House amendment (sec. 505(b)), adopts the provision of the House bill allowing the trustee discretion in all cases whether to asgovernmental unitvenue Service, or State or local tax authority for a prompt audit of his returns on behalf of the estate. The House amendment, however, adopts the provision of the Senate bill permitting a prompt audit only on the basis of tax returns filed by the trustee for completed taxable periods. Procedures for a prompt audit set forth in the Senate bill are also adopted in modified form. 

Under the procedure, before the case can be closed, the trustee may request a tax audit by the local, State or Federal tax authority of all tax returns filed by the trustee. The taxing authority would have to notify the trustee and the bankruptcy court within 60 days whether it accepts returns or desires to audit the returns more fully. If an audit is conducted, the taxing authority would have to notify the trustee of tax deficiency within 180 days after the original request, subject to extensions of time if the bankruptcy court approves. If the trustee does not agree with the results of the audit, the trustee could ask the bankruptcy court to resolve the dispute. Once the trustee's tax liability for administration period taxes has thus been determined, the legal effect in a case under chapter 7 or 11 would be to discharge the trustee and any predecessor of the trustee, and also the debtor, from any further liability for these taxes. 

The prompt audit procedure would not be available with respect to any tax liability as to which any return required to be filed on behalf of the estate is not filed with the proper tax authority. The House amendment also specifies that a discharge of the trustee or the debtor which would otherwise occur will not be granted, or will be void if the return filed on behalf of the estate reflects fraud or material misrepresentation of facts. 

For purposes of the above prompt audit procedures, it is intended that the tax authority with which the request for audit is to be filed is, as the Federal taxes, the office of the District Director in the district where the bankruptcy case is pending. 

Under the House amendment, if the trustee does not request a prompt audit, the debtor would not be discharged from possible transferee liability if any assets are returned to the debtor

Assessment after decision: As indicated above, the commencement of a bankruptcy case automatically stays assessment of any tax (sec. 362(a)(6)). However, the House amendment provides (sec. 505(c)) that if the bankruptcy court renders a final judgment with regard to any tax (under the rules discussed above), the tax authority may then make an assessment (if permitted to do so under otherwise applicable tax law) without waiting for termination of the case or confirmation of a reorganization plan. 

Trustee's authority to appeal tax cases: The equivalent provision in the House bill (sec. 505(b)) and in the Senate bill (sec. 362(h)) authorizing the trustee to prosecute an appeal or review of a tax case are deleted as unnecessary. Section 541(a) of the House amendment provides that property of the estate is to include all legal or equitable interests of the debtor. These interests include the debtor's causes of action, so that the specific provisions of the House and Senate bills are not needed. 

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. Subsections (a) and (b) are derived, with only stylistic changes, from section 2a(2A) of the Bankruptcy Act (section 11(a)(2A) of former title 11). They permit determination by the bankruptcy court of any unpaid tax liability of the debtor that has not been contested before or adjudicated by a judicial or administrative tribunal of competent jurisdiction before the bankruptcy case, and the prosecution by the trustee of an appeal from an order of such a body if the time for review or appeal has not expired before the commencement of the bankruptcy case. As under current Bankruptcy Act Sec. 2a (2A), Arkansas Corporation Commissioner v. Thompson, 313 U.S. 132 (1941), remains good law to permit abstention where uniformity of assessment is of significant importance. 

Section (c) deals with procedures for obtaining a prompt audit of tax returns filed by the trustee in a liquidation or reorganization case. Under the bill as originally introduced, a trustee who is "in doubt" concerning tax liabilities of the estate incurred during a title 11 proceeding could obtain a discharge from personal liability for himself and the debtor (but not for the debtor or the debtor's successor in a reorganization), provided that certain administrative procedures were followed. The trustee could request a prompt tax audit by the local, State, or Federal governmental unit. The taxing authority would have to notify the trustee and the court within sixty days whether it accepted the return or desired to audit the returns more fully. If an audit were conducted, the tax office would have to notify the trustee of any tax deficiency within 4 months (subject to an extension of time if the court approved). These procedures would apply only to tax years completed on or before the case was closed and for which the trustee had filed a tax return. 

The committee bill eliminates the "in doubt" rule and makes mandatory (rather than optional) the trustee's request for a prompt audit of the estate's tax returns. In many cases, the trustee could not be certain that his returns raised no doubt about possible tax issues. In addition, it is desirable not to create a situation where the taxing authority asserts a tax liability against the debtor (as transferee of surplus assets, if any, return to him) after the case is over; in any such situation, the debtor would be called on to defend a tax return which he did not prepare. Under the amendment, all disputes concerning these returns are to be resolved by the bankruptcy court, and both the trustee and the debtor himself do not then face potential post-bankruptcy tax liabilities based on these returns. This result would occur as to the debtor, however, only in a liquidation case. 

In a reorganization in which the debtor or a successor to the debtor continues in existence, the trustee could obtain a discharge from personal liability through the prompt audit procedure, but the Treasury could still claim a deficiency against the debtor (or his successor) for additional taxes due on returns filed during the title 11 proceedings. 

House Report No. 95-595. Subsection (c) is new. It codifies in part the referee's decision in In re Statmaster Corp., 465 F.2d 987 (5th Cir. 1972). Its purpose is to protect the trustee from personal liability for a tax falling on the estate that is not assessed until after the case is closed. If necessary to permit expeditious closing of the case, the court, on request of the trustee, must order the governmental unit charged with the responsibility for collection or determination of the tax to audit the trustee's return or be barred from attempting later collection. The court will be required to permit sufficient time to perform an audit, if the taxing authority requests it. The final order of the court and the payment of the tax determined in that order discharges the trustee, the debtor, and any successor to the debtor from any further liability for the tax. See Plumb, The Tax Recommendations of the Commission on the Bankruptcy Laws: Tax Procedures, 88 Harv. L. Rev. 1360, 1423-42 (1975). 

AMENDMENTS

1984 — Subsec. (a)(2)(B)(i). Pub. L. 98-353 substituted "or" for "and". 

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 106 of this title; title 26 sections 6212, 6512, 6532, 7437; title 28 section 2201. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 505)

BAPCPA § 701(b)(1)    •    House Report 109-31    •   

BAPCPA § 701(b)(2)    •    House Report 109-31    •   

BAPCPA § 701(b)(3)    •    House Report 109-31    •   

BAPCPA § 703(1)    •    House Report 109-31    •   

BAPCPA § 703(2)    •    House Report 109-31    •   

BAPCPA § 703(3)    •    House Report 109-31    •   

BAPCPA § 703(4)    •    House Report 109-31    •   

BAPCPA § 703(5)    •    House Report 109-31    •   

BAPCPA § 703(6)    •    House Report 109-31    •   

BAPCPA § 703(7)    •    House Report 109-31    •   

BAPCPA § 703(8)    •    House Report 109-31    •   

BAPCPA § 715    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 506)


LEGISLATIVE STATEMENTS

Section 506(a) of the House amendment adopts the provision contained in the Senate amendment and rejects a contrary provision as contained in H.R. 8200 as passed by the House. The provision contained in the Senate amendment and adopted by the House amendment recognizes that an amount subject to set-off is sufficient to recognize a secured status in the holder of such right. Additionally a determination of what portion of an allowed claim is secured and what portion is unsecured is binding only for the purpose for which the determination is made. Thus determinations for purposes of adequate protection is not binding for purposes of "cram down" on confirmation in a case under chapter 11

Section 506(b) of the House amendment adopts language contained in the Senate amendment and rejects language contained in H.R. 8200 as passed by the House. If the securities clearing agency between the parties provides for attorneys' fees, it will be enforceable under title 11, notwithstanding contrary law, and is recoverable from the collateral after any recovery under section 506(c)

Section 506(c) of the House amendment was contained in H.R. 8200 as passed by the House and adopted, verbatim, in the Senate amendment. Any time the trustee or debtor in possession expends money to provide for the reasonable and necessary cost and expenses of preserving or disposing of a secured creditor's collateral, the trustee or debtor in possession is entitled to recover such expenses from the secured party or from the property securing an allowed secured claim held by such party. 

Section 506(d) of the House amendment is derived from H.R. 8200 as passed by the House and is adopted in lieu of the alternative test provided in section 506(d) of the Senate amendment. For purposes of section 506(d) of the House amendment, the debtor is a party in interest. 

Determination of Secured Status: The House amendment deletes section 506(d)(3) of the Senate amendment, which insures that a tax lien securing a nondischargeable tax claim is not voided because a tax authority with notice or knowledge of the bankruptcy case fails to file a claim for the liability (as it may elect not to do, if it is clear there are insufficient assets to pay the liability). 

Since the House amendment retains section 506(d) of the House bill that a lien is not voided unless a party in interest has requested that the court determine and allow or disallow the claim, provision of the Senate amendment is not necessary. 

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. Subsection (a) of this section separates an undersecured creditor's claim into two parts: He has a secured claim to the extent of the value of his collateral; and he has an unsecured claim for the balance of his claim. The subsection also provides for the valuation of claims which involve setoffs under section 553. While courts will have to determine value on a case-by-case basis, the subsection makes it clear that valuation is to be determined in light of the purpose of the valuation and the proposed disposition or use of the subject property. This determination shall be made in conjunction with any hearing on such disposition or use of property or on a plan affecting the creditor's interest. To illustrate, a valuation early in the case in a proceeding under sections 361-363 would not be binding upon the debtor or creditor at the time of confirmation of the plan. 

Throughout the bill, references to secured claims are only to the claim determined to be secured under this subsection, and not to the full amount of the creditor's claim. This provision abolishes the use of the terms "secured creditor" and "unsecured creditor" and substitutes in their places the terms "secured claim" and "unsecured claim." 

Subsection (b) codifies current law by entitling a creditor with an oversecured claim to any reasonable fees (including attorney's fees), costs, or charges provided under the agreement under which the claim arose. These fees, costs, and charges are secured claims to the extent that the value of the collateral exceeds the amount of the underlying claim

Subsection (c) also codifies current law by permitting the trustee to recover from property the value of which is greater than the sum of the claims secured by a lien on that property the reasonable, necessary costs and expenses of preserving, or disposing of, the property. The recovery is limited to the extent of any benefit to the holder of such claim

Subsection (d) provides that to the extent a secured claim is not allowed, its lien is void unless the holder had neither actual notice nor knowledge of the case, the lien was not listed by the debtor in a chapter 9 or 11 case or such claim was disallowed only under section 502(e)

House Report No. 95-595. Subsection (d) permits liens to pass through the bankruptcy case unaffected. However, if a party in interest requests the court to determine and allow or disallow the claim secured by the lien under section 502 and the claim is not allowed, then the lien is void to the extent that the claim is not allowed. The voiding provision does not apply to claims disallowed only under section 502(e), which requires disallowance of certain claims against the debtor by a codebtor, surety, or guarantor for contribution or reimbursement. 

AMENDMENTS

2005 — Will be supplemented. 

1984

Subsec. (b). Pub. L. 98-353, Sec. 448(a), inserted "for" after "provided". 

Subsec. (d)(1). Pub. L. 98-353, Sec. 448(b), substituted "such claim was disallowed only under section 502b)(5)( or 502(e) of this title" for "a party in interest has not requested that the court determine and allow or disallow such claim under section 502 of this title". 

Subsec. (d)(2). Pub. L. 98-353, Sec. 448(b), substituted "such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title" for "such claim was disallowed only under section 502(e) of this title". 

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 349, 522, 551, 552, 901, 1111, 1123, 1222, 1322 of this title. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 506)

BAPCPA § 327(1)    •    House Report 109-31 

BAPCPA § 327(2)    •    House Report 109-31 

BAPCPA § 712(d)(1)    •    House Report 109-31    •   

BAPCPA § 712(d)(2)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 507)


LEGISLATIVE STATEMENTS

Section 507(a)(3) of the House amendment represents a compromise dollar amount and date for the priority between similar provisions contained in H.R. 8200 as passed by the House and the Senate amendments. A similar compromise is contained in section 507(a)(4). 

Section 507(a)(5) represents a compromise on amount between the priority as contained in H.R. 8200 as passed by the House and the Senate amendment. The Senate provision for limiting the priority to consumers having less than a fixed gross income is deleted. 

Section 507(a)(6) of the House amendment represents a compromise between similar provisions contained in H.R. 8200 as passed by the House and the Senate amendment. 

Section 507(b) of the House amendment is new and is derived from the compromise contained in the House amendment with respect to adequate protection under section 361. Subsection (b) provides that to the extent adequate protection of the interest of a holder of a claim proves to be inadequate, then the creditor's claim is given priority over every other allowable claim entitled to distribution under section 507(a). Section 507(b) of the Senate amendment is deleted. 

Section 507(c) of the House amendment is new. Section 507(d) of the House amendment prevents subrogation with respect to priority for certain priority claims. Subrogation with respect to priority is intended to be permitted for administrative claims and claims arising during the gap period. 

Priorities: Under the House amendment, taxes receive priority as follows:

First. Administration expenses: The amendment generally follows the Senate amendment in providing expressly that taxes incurred during the administration of the estate share the first priority given to administrative expenses generally. Among the taxes which receives first priority, as defined in section 503, are the employees' and the employer's shares of employment taxes on wages earned and paid after the petition is filed. Section 503(b)(1) also includes in administration expenses a tax liability arising from an excessive allowance by a tax authority of a "quickie refund" to the estate. (In the case of Federal taxes, such refunds are allowed under special rules based on net operating loss carrybacks (sec. 6411 of the Internal Revenue Code (title 26)). 

An exception is made to first priority treatment for taxes incurred by the estate with regard to the employer's share of employment taxes on wages earned from the debtor before the petition but paid from the estate after the petition has been filed. In this situation, the employer's tax receives either sixth priority or general claim treatment. 

The House amendment also adopts the provisions of the Senate amendment which include in the definition of administrative expenses under section 503 any fine, penalty (including "additions to tax" under applicable tax laws) or reduction in credit imposed on the estate. 

Second. "Involuntary gap" claims: "Involuntary gap" creditors are granted second priority by paragraph (2) of section 507(a). This priority includes tax claims arising in the ordinary course of the debtor's business or financial affairs after he has been placed involuntarily in bankruptcy but before a trustee is appointed or before the order for relief

Third. Certain taxes on prepetition wages: Wage claims entitled to third priority are for compensation which does not exceed $2,000 and was earned during the 90 days before the filing of the bankruptcy petition or the cessation of the debtor's business. Certain employment taxes receive third priority in payment from the estate along with the payment of wages to which the taxes relate. In the case of wages earned before the filing of the petition, but paid by the trustee (rather than by the debtor) after the filing of the petition, claims or the employees' share of the employment taxes (withheld income taxes and the employees' share of the social security or railroad retirement tax) receive third priority to the extent the wage claims themselves are entitled to this priority. 

In the case of wages earned from and paid by the debtor before the filing of the petition, the employer's share of the employment taxes on these wages paid by the debtor receives sixth priority or, if not entitled to that priority, are treated only as general claims. Under the House amendment, the employer's share of employment taxes on wages earned by employees of the debtor, but paid by the trustee after the filing of the bankruptcy petition, will also receive sixth priority to the extent that claims for the wages receive third priority. To the extent the claims for wages do not receive third priority, but instead are treated only as general claims, claims for the employer's share of the employment taxes attributable to those wages will also be treated as general claims. In calculating the amounts payable as general wage claims, the trustee must pay the employer's share of employment taxes on such wages. 

Sixth priority. The House amendment modifies the provisions of both the House bill and Senate amendment in the case of sixth priority taxes. Under the amendment, the following Federal, State and local taxes are included in the sixth priority: 

First. Income and gross receipts taxes incurred before the date of the petition for which the last due date of the return, including all extensions of time granted to file the return, occurred within 3 years before the date on which the petition was filed, or after the petition date. Under this rule, the due date of the return, rather than the date on which the taxes were assessed, determines the priority. 

Second. Income and gross receipts taxes assessed at any time within 240 days before the petition date. Under this rule, the date on which the governmental unit assesses the tax, rather than the due date of the return, determines the priority. 

If, following assessment of a tax, the debtor submits an offer in compromise to the governmental unit, the House amendment provides that the 240-day period is to be suspended for the duration of the offer and will resume running after the offer is withdrawn or rejected by the governmental unit, but the tax liability will receive priority if the title 11 petition is filed during the balance of the 240-day period or during a minimum of 30 days after the offer is withdrawn or rejected. This rule modifies a provision of the Senate amendment dealing specifically with offers in compromise. Under the modified rule, if, after the assessment, an offer in compromise is submitted by the debtor and is still pending (without having been accepted or rejected) at the date on which a title 11 petition is filed, the underlying liability will receive sixth priority. However, if an assessment of a tax liability is made but the tax is not collected within 240 days, the tax will not receive priority under section 507(a)(6)(A)(i) and the debtor cannot revive a priority for that tax by submitting an offer in compromise. 

Third. Income and gross receipts taxes not assessed before the petition date but still permitted, under otherwise applicable tax laws, to be assessed. Thus, for example, a prepetition tax liability is to receive sixth priority under this rule if, under the applicable statute of limitations, the tax liability can still be assessed by the tax authority. This rule also covers situations referred to in section 507(a)(6)(B)(ii) of the Senate amendment where the assessment or collection of a tax was prohibited before the petition pending exhaustion of judicial or administrative remedies, except that the House amendment eliminates the 300-day limitation of the Senate bill. So, for example, if before the petition a debtor was engaged in litigation in the Tax Court, during which the Internal Revenue Code (title 26) bars the Internal Revenue Service from assessing or collecting the tax, and if the tax court decision is made in favor of the Service before the petition under title 11 is filed, thereby lifting the restrictions on assessment and collection, the tax liability will receive sixth priority even if the tax authority does not make an assessment within 300 days before the petition (provided, of course, that the statute of limitations on assessment has not expired by the petition date). 

In light of the above categories of the sixth priority, and tax liability of the debtor (under the Internal Revenue Code (title 26) or State or local law) as a transferee of property from another person will receive sixth priority without the limitations contained in the Senate amendment so long as the transferee liability had not been assessed by the tax authority by the petition date but could still have been assessed by that date under the applicable tax statute of limitations or, if the transferee liability had been assessed before the petition, the assessment was made no more than 240 days before the petition date. 

Also in light of the above categories, the treatment of prepetition tax liabilities arising from an excessive allowance to the debtor of a tentative carryback adjustment, such as a "quickie refund" under section 6411 of the Internal Revenue Code (title 26) is revised as follows: If the tax authority has assessed the additional tax before the petition, the tax liability will receive priority if the date of assessment was within 240 days before the petition date. If the tax authority had not assessed the additional tax by the petition, the tax liability will still receive priority so long as, on the petition date, assessment of the liability is not barred by the statute of limitations. 

Fourth. Any property tax assessed before the commencement of the case and last payable without penalty within 1 year before the petition, or thereafter. 

Fifth. Taxes which the debtor was required by law to withhold or collect from others and for which he is liable in any capacity, regardless of the age of the tax claims. This category covers the so-called "trust fund" taxes, that is, income taxes which an employer is required to withhold from the pay of his employees, and the employees' share of social security taxes. 

In addition, this category includes the liability of a responsible officer under the Internal Revenue Code (sec. 6672) (title 26) for income taxes or for the employees' share of social security taxes which that officer was responsible for withholding from the wages of employees and paying to the Treasury, although he was not himself the employer. This priority will operate when a person found to be a responsible officer has himself filed in title 11, and the priority will cover the debtor's responsible officer liability regardless of the age of the tax year to which the tax relates. The U.S. Supreme Court has interpreted present law to require the same result as will be reached under this rule. U.S. v. Sotelo, 436 U.S. 268 (1978) (98 S.Ct. 1795, 56 L.Ed.2d 275, rehearing denied 98 S.Ct. 3126, 438 U.S. 907, 57 L.Ed.2d 1150). 

This category also includes the liability under section 3505 of the Internal Revenue Code (26 U.S.C. 3505) of a taxpayer who loans money for the payment of wages or other compensation. 

Sixth. The employer's share of employment taxes on wages paid before the petition and on third-priority wages paid postpetition by the estate. The priority rules under the House amendment governing employment taxes can thus be summarized as follows: Claims for the employees' shares of employment taxes attributable to wages both earned and paid before the filing of the petition are to receive sixth priority. In the case of employee wages earned, but not paid, before the filing of the bankruptcy petition, claims for the employees' share of employment taxes receive third priority to the extent the wages themselves receive third priority. Claims which relate to wages earned before the petition, but not paid before the petition (and which are not entitled to the third priority under the rule set out above), will be paid as general claims. Since the related wages will receive no priority, the related employment taxes would also be paid as nonpriority general claims

The employer's share of the employment taxes on wages earned and paid before the bankruptcy petition will receive sixth priority to the extent the return for these taxes was last due (including extensions of time) within 3 years before the filing of the petition, or was due after the petition was filed. Older tax claims of this nature will be payable as general claims. In the case of wages earned by employees before the petition, but actually paid by the trustee (as claims against the estate) after the title 11 case commenced, the employer's share of the employment taxes on third priority wages will be payable as sixth priority claims and the employer's taxes on prepetition wages which are treated only as general claims will be payable only as general claims. In calculating the amounts payable as general wage claims, the trustee must pay the employer's share of employment taxes on such wages. 

The House amendment thus deletes the provision of the Senate amendment that certain employer taxes receive third priority and are to be paid immediately after payment of third priority wages and the employees' shares of employment taxes on those wages. 

In the case of employment taxes relating to wages earned and paid after the petition, both the employees' shares and the employer's share will receive first priority as administration expenses of the estate. 

Seventh. Excise taxes on transactions for which a return, if required, is last due, under otherwise applicable law or under any extension of time to file the return, within 3 years before the petition was filed, or thereafter. If a return is not required with regard to a particular excise tax, priority is given if the transaction or event itself occurred within 3 years before the date on which the title 11 petition was filed. All Federal, State or local taxes generally considered or expressly treated as excises are covered by this category, including sales taxes, estate and gift taxes, gasoline and special fuel taxes, and wagering and truck taxes. 

Eighth. Certain unpaid customs duties. The House amendment covers in this category duties on imports entered for consumption within 1 year before the filing of the petition, but which are still unliquidated on the petition date; duties covered by an entry liquidated or reliquidated within 1 year before the petition date; and any duty on merchandise entered for consumption within 4 years before the petition but not liquidated on the petition date, if the Secretary of the Treasury or his delegate certifies that duties were not liquidated because of possible assessment of antidumping or countervailing duties or fraud penalties. 

For purposes of the above priority rules, the House amendment adopts the provision of the Senate bill that any tax liability which, under otherwise applicable tax law, is collectible in the form of a "penalty," is to be treated in the same manner as a tax liability. In bankruptcy terminology, such tax liabilities are referred to as pecuniary loss penalties. Thus, any tax liability which under the Internal Revenue Code (title 26) or State or local tax law is payable as a "penalty," in addition to the liability of a responsible person under section 6672 of the Internal Revenue Code (26 U.S.C. 6672) will be entitled to the priority which the liability would receive if it were expressly labeled as a "tax" under the applicable tax law. However, a tax penalty which is punitive in nature is given subordi- nated treatment under section 726(a)(4)

The House amendment also adopts the provision of the Senate amendment that a claim arising from an erroneous refund or credit of tax, other than a "quickie refund," is to receive the same priority as the tax to which the refund or credit relates. 

The House amendment deletes the express provision of the Senate amendment that a tax liability is to receive sixth priority if it satisfies any one of the subparagraphs of section 507(a)(6) even if the liability fails to satisfy the terms of one or more other subparagraphs. No change of substance is intended by the deletion, however, in light of section 102(5) of the House amendment, providing a rule of construction that the word "or" is not intended to be exclusive. 

The House amendment deletes from the express priority categories of the Senate amendment the priority for a debtor's liability as a third party for failing to surrender property or to pay an obligation in response to a levy for taxes of another, and the priority for amounts provided for under deferred payment agreements between a debtor and the tax authority. 

The House amendment also adopts the substance of the definition in section 346(a) the Senate amendment of when taxes are to be considered "incurred" except that the House amendment applies these definitions solely for purposes of determining which category of section 507 tests the priority of a particular tax liability. Thus, for example, the House amendment contains a special rule for the treatment of taxes under the 45-day exception to the preference rules under section 547 and the definitions of when a tax is incurred for priority purposes are not to apply to such preference rules. Under the House amendment, for purposes of the priority rules, a tax on income for a particular period is to be considered "incurred" on the last day of the period. A tax on or measured by some event, such as the payment of wages or a transfer by reason of death or gift, or an excise tax on a sale or other transaction, is to be considered "incurred" on the date of the transaction or event. 

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1994 Acts (Pub. L. 103-394). House Report No. 103-835.

1990 Acts (Pub. L. 101-647). House Report No. 101-681(I).

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. Section 507 specifies the kinds of claims that are entitled to priority in distribution, and the order of their priority. Paragraph (1) grants first priority to allowed administrative expenses and to fees and charges assessed against the estate under chapter 123 (Sec. 1911 et seq.) of title 28. Taxes included as administrative expenses under section 503(b)(1) of the bill generally receive the first priority, but the bill makes certain qualifications: Examples of these specially treated claims are the estate's liability for recapture of an investment tax credit claimed by the debtor before the title 11 case (this liability receives sixth priority) and the estate's employment tax liabilities on wages earned before, but paid after, the petition was filed (this liability generally receives the same priority as the wages). 

"Involuntary gap" creditors, granted first priority under current law, are granted second priority by paragraph (2). This priority, covering claims arising in the ordinary course of the debtor's business or financial affairs after a title 11 case has begun but before a trustee is appointed or before the order for relief, includes taxes incurred during the conduct of such activities. 

Paragraph (3) expands and increases the wage priority found in current section 64a(2) (section 104(a)(2) of former title 11). The amount entitled to priority is raised from $600 to $1,800. The former figure was last adjusted in 1926. Inflation has made it nearly meaningless, and the bill brings it more than up to date. 

The three month limit of current law is retained, but is modified to run from the earlier of the date of the filing of the petition or the date of the cessation of the debtor's business. The priority is expanded to cover vacation, severance, and sick leave pay. The bill adds to the third priority so-called "trust fund" taxes, that is, withheld income taxes and the employees' share of the social security or railroad retirement taxes, but only to the extent that the wages on which taxes are imposed are themselves entitled to third priority. 

The employer's share, the employment tax and the employer's share of the social security or railroad retirement tax on third priority compensation, is also included in the third priority category, but only if, and to the extent that the wages and related trust fund taxes have first been paid in full. Because of the claimants urgent need for their wages in the typical cases, the employer's taxes should not be paid before the wage claims entitled to priority, as well as the related trust fund taxes, are fully paid. 

Paragraph (4) overrules United States v. Embassy Restaurant, 359 U.S. 29 (1958), which held that fringe benefits were not entitled to wage priority status. The bill recognizes the realities of labor contract negotiations, where fringe benefits may be substituted for wage demands. The priority granted is limited to claims for contributions to employee benefit plans such as pension plans, health or life insurance plans, and others, arising from services rendered within 120 days before the commencement of the case or the date of cessation of the debtor's business, whichever occurs first. The dollar limit placed on the total of all contributions payable under this paragraph is equal to the difference between the maximum allowable priority under paragraph (3), $1,800, times the number of employees covered by the plan less the actual distributions under paragraph (3) with respect to these employees. 

Paragraph (5) is a new priority for consumer creditors — those who have deposited money in connection with the purchase, lease, or rental of property, or the purchase of services, for their personal, family, or household use, that were not delivered or provided. The priority amount is not to exceed $600. In order to reach only those persons most deserving of this special priority, it is limited to individuals whose adjustable gross income from all sources derived does not exceed $20,000. See Senate Hearings, testimony of Prof. Vern Countryman, at pp. 848-849. The income of the husband and wife should be aggregated for the purposes of the $20,000 limit if either or both spouses assert such a priority claim

The sixth priority is for certain taxes. Priority is given to income taxes for a taxable year that ended on or before the date of the filing of the petition, if the last due date of the return for such year occurred not more than 3 years immediately before the date on which the petition was filed (Sec. 507(a)(6)(A)(i)). For the purposes of this rule, the last due date of the return is the last date under any extension of time to file the return which the taxing authority may have granted the debtor

Employment taxes and transfer taxes (including gift, estate, sales, use and other excise taxes) are also given sixth priority if the transaction or event which gave rise to the tax occurred before the petition date, provided that the required return or report of such tax liabilities was last due within 3 years before the petition was filed or was last due after the petition date (Sec. 507(a)(6)(A)(ii)). The employment taxes covered under this rule are the employer's share of the social security and railroad retirement taxes and required employer payments toward unemployment insurance. 

Priority is given to income taxes and other taxes of a kind described in section 507(a)(6)(A)(i) and (ii) which the Federal, State, or local tax authority had assessed within 3 years after the last due date of the return, that is, including any extension of time to file the return, if the debtor filed in title 11 within 240 days after the assessment was made (Sec. 507(a)(6)(B)(i)). This rule may bring into the sixth priority the debtor's tax liability for some taxable years which would not qualify for priority under the general three-year rule of section 507(a)(6)(A)

The sixth priority category also includes taxes which the tax authority was barred by law from assessing or collecting at any time during the 300 days before the petition under title 11 was filed (Sec. 507(a)(6)((B)(ii)). In the case of certain Federal taxes, this preserves a priority for tax liabilities for years more than three years before the filing of the petition where the debtor and the Internal Revenue Service were negotiating over an audit of the debtor's returns or were engaged in litigation in the Tax Court. In such situations, the tax law prohibits the service's right to assess a tax deficiency until ninety days after the service sends the taxpayer a deficiency letter or, if the taxpayer files a petition in the Tax Court during that 90-day period, until the outcome of the litigation. A similar priority exists in present law, except that the taxing authority is allowed no time to assess and collect the taxes after the restrictions on assessment (discussed above) are lifted. Some taxpayers have exploited this loophole by filing in bankruptcy immediately after the end of the 90-day period or immediately after the close of Tax Court proceedings. The bill remedies this defect by preserving a priority for taxes the assessment of which was barred by law by giving the tax authority 300 days within which to make the assessment after the lifting of the bar and then to collect or file public notice of its tax lien. Thus, if a taxpayer files a title 11 petition at any time during that 300-day period, the tax deficiency will be entitled to priority. If the petition is filed more than 300 days after the restriction on assessment was lifted, the taxing authority will not have priority for the tax deficiency. 

Taxes for which an offer in compromise was withdrawn by the debtor, or rejected by a governmental unit, within 240 days before the petition date (Sec. 507(a)(6)(B)(iii)) will also receive sixth priority. This rule closes a loophole under present law under which, following an assessment of tax, some taxpayers have submitted a formal offer in compromise, dragged out negotiations with the taxing authority until the tax liability would lose priority under the three-year priority period of present law, and then filed in bankruptcy before the governmental unit could take collection steps. 

Also included are certain taxes for which no return or report is required by law (Sec. 507(a)(6)(C)), if the taxable transaction occurred within three years before the petition was filed. 

Taxes (not covered by the third priority) which the debtor was required by law to withhold or collect from others and for which he is liable in any capacity, regardless of the age of the tax claims (Sec. 507(a)(6)(D)) are included. This category covers the so-called "trust fund" taxes, that is, income taxes which an employer is required to withhold from the pay of his employees, the employees' shares of social security and railroad retirement taxes, and also Federal unemployment insurance. This category also includes excise taxes which a seller of goods or services is required to collect from a buyer and pay over to a taxing authority. 

This category also covers the liability of a responsible corporate officer under the Internal Revenue Code (title 26) for income taxes or for the employees' share of employment taxes which, under the tax law, the employer was required to withhold from the wages of employees. This priority will operate where a person found to be a responsible officer has himself filed a petition under title 11, and the priority covers the debtor's liability as an officer under the Internal Revenue Code, regardless of the age of the tax year to which the tax relates. 

The priority rules under the bill governing employment taxes can be summarized as follows: In the case of wages earned and actually paid before the petition under title 11 was filed, the liability for the employees' share of the employment taxes, regardless of the prepetition year in which the wages were earned and paid. The employer's share of the employment taxes on all wages earned and paid before the petition receive sixth priority; generally, these taxes will be those for which a return was due within three years before the petition. With respect to wages earned by employees before the petition but actually paid by the trustee after the title 11 case commenced, taxes required to be withheld receives the same priority as the wages themselves. Thus, the employees' share of taxes on third priority wages also receives third priority. 

Taxes on the balance of such wages receive no priority and are collectible only as general claims because the wages themselves are payable only as general claims and liability for the taxes arises only to the extent the wages are actually paid. The employer's share of employment taxes on third priority wages earned before the petition but paid after the petition was filed receives third priority, but only if the wages in this category have first been paid in full. Assuming there are sufficient funds to pay third priority wages and the related employer taxes in full, the employer's share of taxes on the balance of wage payments becomes a general claim (because the wages themselves are payable as general claims). Both the employees' and the employer's share of employment taxes on wages earned and paid after the petition was filed receive first priority as administrative expenses. 

Also covered by this sixth priority are property taxes required to be assessed within 3 years before the filing of the petition (Sec. 507(a)(6)(E)). 

Taxes attributable to a tentative carryback adjustment received by the debtor before the petition was filed, such as a "quickie refund" received under section 6411 of the Internal Revenue Code (title 26) (Sec. 507(a)(6)(F)) are included. However, the tax claim against the debtor will rein a prepetition loss year for which the tax return was last due, including extensions, within 3 years before the petition was filed. 

Taxes resulting from a recapture, occasioned by a transfer during bankruptcy, of a tax credit or deduction taken during an earlier tax year (Sec. 507(a)(6)(G)) are included. A typical example occurs when there is a sale by the trustee of depreciable property during the case and depreciation deductions taken in prepetition years are subject to recapture under section 1250 of the Code (title 26). 

Taxes owed by the debtor as a transferee of assets from another person who is liable for a tax, if the tax claim against the transferor would have received priority in a chapter 11 case commenced by the transferor within 1 year before the date of the petition filed by the transferee (Sec. 507(a)(6)(H)), are included. 

Also included are certain tax payments required to have been made during the 1 year immediately before the petition was filed, where the debtor had previously entered into a deferred payment agreement (including an offer in compromise) to pay an agreed liability in periodic installments but had become delinquent in one or more installments before the petition was filed (Sec. 507(a)(6)(I)). 

This priority covers all types of deferred or part payment agreements. The priority covers only installments which first became due during the 1 year before the petition but which remained unpaid at the date of the petition. The priority does not come into play, however, if before the case began or during the case, the debtor and the taxing authority agree to a further extension of time to pay the delinquent amounts. 

Certain tax-related liabilities which are not true taxes or which are not collected by regular assessment procedures (Sec. 507(a)(6)(J)) are included. One type of liability covered in this category is the liability under section 3505 of the Internal Revenue Code (title 26) of a lender who pays wages directly to employees of another employer or who supplies funds to an employer for the payment of wages. Another is the liability under section 6332 of the Internal Revenue Code (title 26), of a person who fails to turn over money or property of the taxpayer in response to a levy. Since the taxing authority must collect such a liability from the third party by suit rather than normal assessment procedures, an extra year is added to the normal 3-year priority periods. If a suit was commenced by the taxing authority within the four-year period and before the petition was filed, the priority is also preserved, provided that the suit had not terminated more than 1 year before the date of the filing of the petition. 

Also included are certain unpaid customs duties which have not grown unreasonably "stale" (Sec. 507(a)(6)(K)). These include duties on imports entered for consumption with 3 years before the filing of the petition if the duties are still unliquidated on the petition date. If an import entry has been liquidated (in general, liquidation is in an administrative determination of the value and tariff rate of the item) or reliquidated, within two years of the filing of the petition the customs liability is given priority. If the Secretary of the Treasury certifies that customs duties were not liquidated because of an investigation into possible assessment of antidumping or countervailing duties, or because of fraud penalties, duties not liquidated for this reason during the five years before the importer filed under title 11 also will receive priority. 

Subsection (a) of this section also provides specifically that interest on sixth priority tax claims accrued before the filing of the petition is also entitled to sixth priority. 

Subsection (b) of this section provides that any fine or penalty which represents compensation for actual pecuniary loss of a governmental unit, and which involves a tax liability entitled to sixth priority, is to receive the same priority. 

Subsection (b) also provides that a claim arising from an erroneous refund or credit of tax is to be given the same priority as the tax to which the refund or credit relates. 

AMENDMENTS

2005 — Will be supplemented. 

1994

Subsec. (a)(3). Pub. L. 103-394, Sec. 207, amended par. (3) generally. Prior to amendment, par. (3) read as follows: "Third, allowed unsecured claims for wages, salaries, or commissions, including vacation, severance, and sick leave pay — "(A) earned by an individual within 90 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first; but only "(B) to the extent of $2,000 for each such individual." Subsec. (a)(4)(B)(i). Pub. L. 103-394, Sec. 108(c)(1), substituted "$4,000" for "$2,000". 

Subsec. (a)(5). Pub. L. 103-394, Sec. 108(c)(2), 501(b)(3), substituted "section 557(b)" for "section 557(b)(1)" after "grain, as defined in" and "section 557(b)" for "section 557(b)(2)" after "facility, as defined in" in subpar. (A) and "$4,000" for "$2,000" in concluding provisions. 

Subsec. (a)(6). Pub. L. 103-394, Sec. 108(c)(3), substituted "$1,800" for "$900". 

Subsec. (a)(7). Pub. L. 103-394, Sec. 304(c)(3), added par. (7). 

Former par. (7) redesignated (8). 

Subsec. (a)(8). Pub. L. 103-394, Sec. 304(c)(2), redesignated par. (7) as (8) and substituted "Eighth" for "Seventh". Former par. (8) redesignated (9). 

Subsec. (a)(9). Pub. L. 103-394, Sec. 304(c)(1), 501(d)(11)(A), redesignated par. (8) as (9) and substituted "Ninth" for "Eighth" and "a Federal depository institutions regulatory agency (or predecessor to such agency)" for "the Federal Deposit Insurance Corporation, the Resolution Trust Corporation, the Director of the Office of Thrift Supervision, the Comptroller of the Currency, or the Board of Governors of the Federal Reserve System, or their predecessors or successors,". 

Subsec. (d). Pub. L. 103-394, Sec. 501(d)(11)(B), substituted "(a)(6), (a)(7), (a)(8), or (a)(9)" for "or (a)(6)". 

1990 — Subsec. (a)(8). Pub. L. 101-647 added par. (8). 

1984

Subsec. (a)(3). Pub. L. 98-353, Sec. 449(a)(1), inserted a comma after "severance". 

Subsec. (a)(4). Pub. L. 98-353, Sec. 449(a)(2), substituted "an employee benefit plan" for "employee benefit plans" in provisions preceding subpar. (A). Subsec. (a)(4)(B)(i). Pub. L. 98-353, Sec. 449(a)(3), inserted "each" after "covered by". 

Subsec. (a)(5). Pub. L. 98-353, Sec. 350(3), added par. (5). 

Former par. (5) redesignated (6). 

Subsec. (a)(6). Pub. L. 98-353, Sec. 350(1), redesignated former par. (5) as (6) and substituted "Sixth" for "Fifth". 

Former par. (6) redesignated (7).

Subsec. (a)(7). Pub. L. 98-353, Sec. 350(2), 449(a)(4), redesignated former par. (6) as (7), substituted "Seventh" for "Sixth", and inserted "only" after "units,". 

Subsec. (c). Pub. L. 98-353, Sec. 449(b), substituted "has the same priority" for "shall be treated the same". 

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

Pub. L. 109-8, Title XIV, § 1401(1) and (2) made changes to section 507(a)(4) (priority treatment of claims for wages, salaries and commissions) and 507(a)(5) (priority treatment of claims for contributions to employee benefit plans).  Pub. L. 109-8, Title XIV, § 1406(b)(1) provided that "—cept as provided in paragraph (2), the amendments made by this title shall apply only with respect to cases commenced under title 11 of the United States Code on or after the date of the enactment of this Act."


 So in the original.  Should probably read "Except."    •   


1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

ADJUSTMENT OF DOLLAR AMOUNTS

For adjustment of dollar amounts specified in subsec. (a)(3), (4)(B)(i), (5), (6) of this section by the Judicial Conference of the United States, effective Apr. 1, 2001, see note set out under section 104 of this title. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 104, 364, 365, 502, 503, 523, 724, 726, 752, 766, 901, 943, 1123, 1129, 1222, 1226, 1322, 1326 of this title; title 15 section 78fff. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 507)

BAPCPA § 212(1)    •    House Report 109-31    •   

BAPCPA § 212(2)    •    House Report 109-31    •      -  507(a)(2)  -  507(a)(3)  -  507(a)(4)  -  507(a)(5)  -  507(a)(6)  -  507(a)(7)

BAPCPA § 212(3)    •    House Report 109-31    •   

BAPCPA § 212(4)    •    House Report 109-31    •   

BAPCPA § 212(5)(A)    •    House Report 109-31    •   

BAPCPA § 212(5)(B) (deleted the semicolon and inserted the period)    •    House Report 109-31    •   

BAPCPA § 212(6)    •    House Report 109-31    •   

BAPCPA § 212(7)    •    House Report 109-31    •   

BAPCPA § 212(8)    •    House Report 109-31    •   

BAPCPA § 212(9)    •    House Report 109-31    •   

BAPCPA § 223    •    House Report 109-31    •   

BAPCPA § 705(1)(A) & (B)    •    House Report 109-31    •   

BAPCPA § 705(1)(C)    •    House Report 109-31    •   

BAPCPA § 705(2)    •    House Report 109-31    •   

BAPCPA § 706    •    House Report 109-31    •   

BAPCPA § 1401(1) (deleted "90" and added "180")    •    House Report 109-31    •    See the note at BAPCPA § 1401(2) for the effective date of amendments made by BAPCPA Title IV, § 1401 - 1405).    •   

BAPCPA § 1401(2) (deleted "$4,000" and added "$10,000")    •    House Report 109-31    •    BAPCPA § 1406 contains the following uncodified provision    •      -  507(a)(4)  -  507(a)(5)(B)(i)

(a) Effective Date.—Except as provided in subsection (b), this title and the amendments made by this title shall take effect on the date of the enactment of this Act.

(b) Application of Amendments.    •      -  507(a)(4)  -  507(a)(5)(B)(i)

(1) In General.—cept as provided in paragraph (2), the amendments made by this title shall apply only with respect to cases commenced under title 11 of the United States Code on or after the date of the enactment of this Act.

(2) Avoidance Period.—The amendment made by section 1402(1) shall apply only with respect to cases commenced under title 11 of the United States Code more than 1 year after the date of the enactment of this Act.    •      -  507(a)(4)  -  507(a)(5)(B)(i)


 So in the original.  Should probably read "Except."    •   


BAPCPA § 1502(a)(1)(A)(i)    •    House Report 109-31    •   

BAPCPA § 1502(a)(1)(A)(ii)    •    House Report 109-31    •   

BAPCPA § 1502(a)(1)(B)    •    House Report 109-31    •   

BAPCPA § 1502(a)(1)(C)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 508)


LEGISLATIVE STATEMENTS

Section 508(b) of the House amendment is new and provides an identical rule with respect to a creditor of a partnership who receives payment from a partner, to that of a creditor of a debtor who receives a payment in a foreign proceeding involving the debtor

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. This section prohibits a creditor from receiving any distribution in the bankruptcy case if he has received payment of a portion of his claim in a foreign proceeding, until the other creditors in the bankruptcy case in this country that are entitled to share equally with that creditor have received as much as he has in the foreign proceeding

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 508)

BAPCPA § 802(d)(7)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 509)


LEGISLATIVE STATEMENTS

Section 509 of the House amendment represents a substantial revision of provisions contained in H.R. 8200 as passed by the House and in the Senate amendment. Section 509(a) states a general rule that a surety or co-debtor is subrogated to the rights of a creditor assured by the surety or co-debtor to the extent the surety or co-debtor pays such creditor. Section 509(b) states a general exception indicating that subrogation is not granted to the extent that a claim of a surety or co-debtor for reimbursement or contribution is allowed under section 502 or disallowed other than under section 502(e). Additionally, section 509(b)(1)(C) provides that such claims for subrogation are subordinated to the extent that a claim of the surety or co-debtor for reimbursement or contribution is subordinated under section 510(a)(1) or 510(b). Section 509(b)(2) reiterates the well-known rule that prevents a debtor that is ultimately liable on the debt from recovering from a surety or a co-debtor. Although the language in section 509(b)(2) focuses in terms of receipt of consideration, legislative history appearing elsewhere indicates that an agreement to share liabilities should prevail over an agreement to share profits throughout title 11. This is particularly important in the context of co-debtors who are partners. Section 509(c) subordinates the claim of a surety or co-debtor to the claim of an assured creditor until the creditor's claim is paid in full. 

LEGISLATIVE REPORTS

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. Section 509 deals with codebtors generally, and is in addition to the disallowance provision in section 502(e). This section is based on the notion that the only rights available to a surety, guarantor, or comaker are contribution, reimbursement, and subrogation. The right that applies in a particular situation will depend on the agreement between the debtor and the codebtor, and on whether and how payment was made by the codebtor to the creditor. The claim of a surety or codebtor for contribution or reimbursement is discharged even if the claim is never filed, as is any claim for subrogation even if the surety or codebtor chooses to file a claim for contribution or reimbursement instead. 

Subsection (a) subrogates the codebtor (whether as a codebtor, surety, or guarantor) to the rights of the creditor, to the extent of any payment made by the codebtor to the creditor. Whether the creditor's claim was filed under section 501(a) or 501(b) is irrelevant. The right of subrogation will exist even if the primary creditor's claim is allowed by virtue of being listed under proposed 11 U.S.C. 924 or 1111, and not by reason of a proof of claim

Subsection (b) permits a subrogated codebtor to receive payments in the bankruptcy case only if the creditor has been paid in full, either through payments under the bankruptcy code or otherwise. 

AMENDMENTS

1984

Subsec. (a). Pub. L. 98-353, Sec. 450(a), substituted "subsection (b) or" for "subsections (b) and", and inserted "against the debtor" after "a creditor". 

Subsec. (b)(1). Pub. L. 98-353, Sec. 450(b), substituted "of such" for "of a" after "account". 

Subsec. (c). Pub. L. 98-353, Sec. 450(c), substituted "this section" for "section 509 of this title". 

EFFECTIVE DATES

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 502, 901 of this title. 


HISTORICAL AND REVISION NOTES (11 U.S.C. § 510)


LEGISLATIVE STATEMENTS

Section 510(c)(1) of the House amendment represents a compromise between similar provisions in the House bill and Senate amendment. After notice and a hearing, the court may, under principles of equitable subordination, subordinate for purposes of distribution all or part of an allowed claim to all or part of another allowed claim or all or part of an allowed interest to all or part of another allowed interest. As a matter of equity, it is reasonable that a court subordinate claims to claims and interests to interests. It is intended that the term "principles of equitable subordination" follow existing case law and leave to the courts development of this principle. To date, under existing law, a claim is generally subordinated only if holder of such claim is guilty of inequitable conduct, or the claim itself is of a status susceptible to subordination, such as a penalty or a claim for damages arising from the purchase or sale of a security of the debtor. The fact that such a claim may be secured is of no consequence to the issue of subordination. However, it is inconceivable that the status of a claim as a secured claim could ever be grounds for justifying equitable subordination. 

Subordination: Since the House amendment authorizes subordination of claims only under principles of equitable subordination, and thus incorporates principles of existing case law, a tax claim would rarely be subordinated under this provision of the bill. 

Section 511 of the Senate amendment is deleted. Its substance is adopted in section 502(b)(9) of the House amendment which reflects an identical provision contained in H.R. 8200 as passed by the House. 

LEGISLATIVE REPORTS

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. Subsection (a) requires the court to enforce subordination agreements. A subordination agreement will not be enforced, however, in a reorganization case in which the class that is the beneficiary of the agreement has accepted, as specified in proposed 11 U.S.C. 1126, a plan that waives their rights under the agreement. Otherwise, the agreement would prevent just what chapter 11 contemplates: that seniors may give up rights to juniors in the interest of confirmation of a plan and rehabilitation of the debtor. The subsection also requires the court to subordinate in payment any claim for rescission of a purchase or sale of a security of the debtor or of an affiliate, or for damages arising from the purchase or sale of such a security, to all claims and interests that are senior to the claim or interest represented by the security. Thus, the later subordination varies with the claim or interest involved. If the security is a debt instrument, the damages or rescission claim will be granted the status of a general unsecured claim. If the security is an equity security, the damages or rescission claim is subordinated to all creditors and treated the same as the equity security itself. 

Subsection (b) authorizes the bankruptcy court, in ordering distribution of assets, to subordinate all or any part of any claim to all or any part of another claim, regardless of the priority ranking of either claim. In addition, any lien securing such a subordinated claim may be transferred to the estate. The bill provides, however, that any subordination ordered under this provision must be based on principles of equitable subordination. These principles are defined by case law, and have generally indicated that a claim may normally be subordinated only if its holder is guilty of misconduct. As originally introduced, the bill provided specifically that a tax claim may not be subordinated on equitable grounds. The bill deletes this express exception, but the effect under the amendment should be much the same in most situations since, under the judicial doctrine of equitable subordination, a tax claim would rarely be subordinated. 

AMENDMENTS

1984 — Subsec. (b). Pub. L. 98-353 amended subsec. (b) generally. Prior to amendment, subsec. (b) read as follows: "Any claim for recission of a purchase or sale of a security of the debtor or of an affiliate or for damages arising from the purchase or sale of such a security shall be subordinated for purposes of distribution to all claims and interests that are senior or equal to the claim or interest represented by such security." 

EFFECTIVE DATES

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 349, 509, 522, 541, 726, 747, 752, 766, 901, 1129 of this title. 


HISTORICAL AND REVISION NOTES (11 U.S.C. § 511)


LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 511)

BAPCPA § 704(a)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 521)


LEGISLATIVE STATEMENTS

Section 521 of the House amendment modifies a comparable provision contained in the House bill and Senate amendment. The Rules of Bankruptcy Procedure should provide where the list of creditors is to be filed. In addition, the debtor is required to attend the hearing on discharge under section 524(d)

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31.

1986 Acts (Pub. L. 99-554). House Report No. 99-764 and House Conference Report No. 99-958. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. This section lists three duties of the debtor in a bankruptcy case. The Rules of Bankruptcy Procedure will specify the means of carrying out these duties. The first duty is to file with the court a list of creditors and, unless the court orders otherwise, a schedule of assets and liabilities and a statement of his financial affairs. Second, the debtor is required to cooperate with the trustee as necessary to enable the trustee to perform the trustee's duties. Finally, the debtor must surrender to the trustee all property of the estate, and any recorded information, including books, documents, records, and papers, relating to property of the estate. This phrase "recorded information, including books, documents, records, and papers," has been used here and throughout the bill as a more general term, and includes such other forms of recorded information as data in computer storage or in other machine readable forms. 

The list in this section is not exhaustive of the debtor's duties. Others are listed elsewhere in proposed title 11, such as in section 343, which requires the debtor to submit to examination, or in the Rules of Bankruptcy Procedure, as continued by Sec. 404(a) of S. 2266, such as the duty to attend any hearing on discharge, Rule 402(2). 

AMENDMENTS

2005. Will be supplemented. 

1986 — Par. (4). Pub. L. 99-554 inserted ", whether or not immunity is granted under section 344of this title" after second reference to "estate".

1984

Par. (1). Pub. L. 98-353, Sec. 305(2), inserted "a schedule of current income and current expenditures," after "liabilities,". 

Pars. (2) to (5). Pub. L. 98-353, Sec. 305(1), (3), added par. (2), redesignated former pars. (2) to (4) as (3) to (5), respectively. 

Pub. L. 98-353, Sec. 452, which directed the insertion of ", whether or not immunity is granted under section 344 of this title" after second reference to "estate" in par. (3) as redesignated above, could not be executed because such reference appeared in par. (4) rather than in par. (3). 

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1986 Amendments. Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 110, 523, 554, 704, 707, 1106, 1111, 1112, 1307 of this title. 


FOOTNOTES (11 U.S.C. § 521)

BAPCPA § 315(C) (House Report 109-31) contains the following uncodifed provisions:

(c)(1) Not later than 180 days after the date of the enactment of this Act, the Director of the Administrative Office of the United States Courts shall establish procedures for safeguarding the confidentiality of any tax information required to be provided under this section

(2) The procedures under paragraph (1) shall include restrictions on creditor access to tax information that is required to be provided under this section.    •   

(3) Not later than 540 days after the date of enactment of this Act, the Director of the Administrative Office of the United States Courts shall prepare and submit to the President pro tempore of the Senate and the Speaker of the House of Representatives a report that—

(A) assesses the effectiveness of the procedures established under paragraph (1); and    •   

(B) if appropriate, includes proposed legislation to--

(i) further protect the confidentiality of tax information; and

(ii) provide penalties for the improper use by any person of the tax information required to be provided under this section.    •   


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 521)

BAPCPA § 106(d)(1)    •    House Report 109-31    •   

BAPCPA § 106(d)(2)    •    House Report 109-31    •   

BAPCPA § 225(b)    •    House Report 109-31    •   

BAPCPA § 304(1)(A)    •    House Report 109-31    •   

BAPCPA § 304(1)(B) and § 446(a)(1);  BAPCPA § 304(1)(B) struck the "." and added the "; and" at the end of BC § 521(a)(5).  The "and" was deleted by BAPCPA § 446(a)(1).    •    House Report 109-31 (§ 304)   •   House Report 109-31 (§ 446)    •   

BAPCPA § 304(1)(C)    •    House Report 109-31    •   

BAPCPA § 304(1)(C) and § 446(a)(2);  BAPCPA § 304(1)(C), which added the language in BC § 521(a)(6), contained the "." at the end of BC § 521(a)(6)(B).  BAPCPA § 446(a)(1) deleted the "." and inserted "; and" at the end of BC § 521(a)(6)(B)    •    House Report 109-31 (§ 304)   •   House Report 109-31 (§ 446)    •   

BAPCPA § 305(2)(A)    •    House Report 109-31    •   

BAPCPA § 305(2)(B)(i)    •    House Report 109-31    •   

BAPCPA § 305(2)(B)(ii)    •    House Report 109-31    •   

BAPCPA § 305(2)(C)    •    House Report 109-31    •   

BAPCPA § 305(2)(D)    •    House Report 109-31    •   

BAPCPA § 315(b)(1)    •    House Report 109-31    •   

BAPCPA § 315(b)(2)    •    House Report 109-31    •      -  521(e)  -  521(f)  -  521(g)  -  521(h)

BAPCPA § 316    •    House Report 109-31    •   

BAPCPA § 446(a)(3)    •    House Report 109-31    •   

BAPCPA § 603(c)    •    House Report 109-31    •      -  521(a)(3)  -  521(a)(4)

BAPCPA § 720    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 522)


LEGISLATIVE STATEMENTS

Section 522 of the House amendment represents a compromise on the issue of exemptions between the position taken in the House bill, and that taken in the Senate amendment. Dollar amounts specified in section 522(d) of the House bill have been reduced from amounts as contained in H.R. 8200 as passed by the House. The States may, by passing a law, determine whether the Federal exemptions will apply as an alternative to State exemptions in bankruptcy cases. 

Section 522(c)(1) tracks the House bill and provides that dischargeable tax claims may not be collected out of exempt property. 

Section 522(f)(2) is derived from the Senate amendment restricting the debtor to avoidance of nonpossessory, nonpurchase money security interests. 

Exemptions: Section 522(c)(1) of the House amendment adopts a provision contained in the House bill that dischargeable taxes cannot be collected from exempt assets. This changes present law, which allows collection of dischargeable taxes from exempt property, a rule followed in the Senate amendment. 

Nondischargeable taxes, however, will continue to the (be) collectable out of exempt property. It is anticipated that in the next session Congress will review the exemptions from levy currently contained in the Internal Revenue Code (title 26) with a view to increasing the exemptions to more realistic levels. 

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1994 Acts (Pub. L. 103-394). House Report No. 103-835.

1990 Acts (Pub. L. 101-647). House Report No. 101-681(I).  

1986 Acts (Pub. L. 99-554).  House Report No. 99-764,  House Conference Report No. 99-958 and House Conference Report No. 99-841. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. Subsection (a) of this section defines two terms: "dependent" includes the debtor's spouse, whether or not actually dependent; and "value" means fair market value as of the date of the filing of the petition. 

Subsection (b) tracks current law. It permits a debtor the exemptions to which he is entitled under other Federal law and the law of the State of his domicile. Some of the items that may be exempted under Federal laws other than title 11 include:

• Foreign Service Retirement and Disability payments, 22 U.S.C. 1104; 1 

• Social security payments, 42 U.S.C. 407; Injury or death compensation payments from war risk hazards, 42 U.S.C. 1717;

• Wages of fishermen, seamen, and apprentices, 46 U.S.C. 601; 2 

• Civil service retirement benefits, 5 U.S.C. 729, 2265; 3

• Longshoremen's and Harbor Workers' Compensation Act death and disability benefits, 33 U.S.C. 916;

• Railroad Retirement Act annuities and pensions, 45 U.S.C. 228(L); 4 

• Veterans benefits, 45 U.S.C. 352(E); 5

• Special pensions paid to winners of the Congressional Medal of Honor, 38 U.S.C. 3101; 6 

• Federal homestead lands on debts contracted before issuance of the patent, 43 U.S.C. 175.

He may also exempt an interest in property in which the debtor had an interest as a tenant by the entirety or joint tenant to the extent that interest would have been exempt from process under applicable nonbankruptcy law. 

Under proposed section 541, all property of the debtor becomes property of the estate, but the debtor is permitted to exempt certain property from property of the estate under this section.

Property may be exempted even if it is subject to a lien, but only the unencumbered portion of the property is to be counted in computing the "value" of the property for the purposes of exemption. 

As under current law, the debtor will be permitted to convert nonexempt property into exempt property before filing a bankruptcy petition. The practice is not fraudulent as to creditors, and permits the debtor to make full use of the exemptions to which he is entitled under the law. 

Subsection (c) insulates exempt property from prepetition claims other than tax claims (whether or not dischargeable), and other than alimony, maintenance, or support claims that are excepted from discharge. The bankruptcy discharge does not prevent enforcement of valid liens. The rule of Long v. Bullard, 117 U.S. 617 (1886), is accepted with respect to the enforcement of valid liens on nonexempt property as well as on exempt property. Cf. Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 583 (1935). 

Subsection (c)(3) permits the collection of dischargeable taxes from exempt assets. Only assets exempted from levy under Section 6334 of the Internal Revenue Code (title 26) or under applicable state or local tax law cannot be applied to satisfy these tax claims. This rule applies to prepetition tax claims against the debtor regardless of whether the claims do or do not receive priority and whether they are dischargeable or nondischargeable. Thus, even if a tax is dischargeable vis-a-vis the debtor's after-acquired assets, it may nevertheless be collectible from exempt property held by the estate. (Taxes incurred by the debtor's estate which are collectible as first priority administrative expenses are not collectible from the debtor's estate which are collectible as first priority administrative expenses are not collectible from the debtor's exempt assets.) 

Subsection (d) protects the debtor's exemptions, either Federal or State, by making unenforceable in a bankruptcy case a waiver of exemptions or a waiver of the debtor's avoiding powers under the following subsections. 

Subsection (e) protects the debtor's exemptions, his discharge, and thus his fresh start by permitting him to avoid certain liens on exempt property. The debtor may avoid a judicial lien on any property to the extent that the property could have been exempted in the absence of the lien, and may similarly avoid a nonpurchase-money security interest in certain household and personal goods. The avoiding power is independent of any waiver of exemptions. 

Subsection (f) gives the debtor the ability to exempt property that the trustee recovers under one of the trustee's avoiding powers if the property was involuntarily transferred away from the debtor (such as by the fixing of a judicial lien) and if the debtor did not conceal the property. The debtor is also permitted to exempt property that the trustee recovers as the result of the avoiding of the fixing of certain security interests to the extent that the debtor could otherwise have exempted the property. 

Subsection (g) provides that if the trustee does not exercise an avoiding power to recover a transfer of property that would be exempt, the debtor may exercise it and exempt the property, if the transfer was involuntary and the debtor did not conceal the property. If the debtor wishes to preserve his right to pursue any action under this provision, then he must intervene in any action brought by the trustee based on the same cause of action. It is not intended that the debtor be given an additional opportunity to avoid a transfer or that the transferee should have to defend the same action twice. Rather, the section is primarily designed to give the debtor the rights the trustee could have, but has not, pursued. The debtor is given no greater rights under this provision than the trustee, and thus, the debtor's avoiding powers under proposed sections 544, 545, 547, and 548, are subject to proposed 546, as are the trustee's powers. 

These subsections are cumulative. The debtor is not required to choose which he will use to gain an exemption. Instead, he may use more than one in any particular instance, just as the trustee's avoiding powers are cumulative.

Subsection (h) permits recovery by the debtor of property transferred by an avoided transfer from either the initial or subsequent transferees. It also permits preserving a transfer for the benefit of the debtor. In either event, the debtor may exempt the property recovered or preserved. 

Subsection (i) makes clear that the debtor may exempt property under the avoiding subsections (f) and (h) only to the extent he has exempted less property than allowed under subsection (b). 

Subsection (j) makes clear that the liability of the debtor's exempt property is limited to the debtor's aliquot share of the costs and expenses recovery of property that the trustee recovers and the debtor later exempts, and any costs and expenses of avoiding a transfer by the debtor that the debtor has not already paid. 

Subsection (k) requires the debtor to file a list of property that he claims as exempt from property of the estate. Absent an objection to the list, the property is exempted. A dependent of the debtor may file it and thus be protected if the debtor fails to file the list. 

Subsection (l) provides the rule for a joint case.

House Report No. 95-595. Subsection (a) of this section defines two terms: "dependent" includes the debtor's spouse, whether or not actually dependent; and "value" means fair market value as of the date of the filing of the petition. 

Subsection (b), the operative subsection of this section, is a significant departure from present law. It permits an individual debtor in a bankruptcy case a choice between exemption systems. 

The debtor may choose the Federal exemptions prescribed in subsection (d), or he may choose the exemptions to which he is entitled under other Federal law and the law of the State of his domicile. If the debtor chooses the latter, some of the items that may be exempted under other Federal laws include:

• Foreign Service Retirement and Disability payments, 22 U.S.C. 1104; 7 

• Social security payments, 42 U.S.C. 407;

• Injury or death compensation payments from war risk hazards, 42 U.S.C. 1717;

• Wages of fishermen, seamen, and apprentices, 46 U.S.C. 601; 

• Civil service retirement benefits, 5 U.S.C. 729, 2265; 8

• Longshoremen's and Harbor Workers' Compensation Act death and disability benefits, 33 U.S.C. 916;

• Railroad Retirement Act annuities and pensions, 45 U.S.C. 228(l); 9

• Veterans benefits, 45 U.S.C. 352(E); 10 

• Special pensions paid to winners of the Congressional Medal of Honor, 38 U.S.C. 3101; 11

• Federal homestead lands on debts contracted before issuance of the patent, 43 U.S.C. 175. 

He may also exempt an interest in property in which the debtor had an interest as a tenant by the entirety or joint tenant to the extent that interest would have been exempt from process under applicable nonbankruptcy law. The Rules will provide for the situation where the debtor's choice of exemption, Federal or State, was improvident and should be changed, for example, where the court has ruled against the debtor with respect to a major exemption. 

Under proposed 11 U.S.C. 541, all property of the debtor becomes property of the estate, but the debtor is permitted to exempt certain property from property of the estate under this section. Property may be exempted even if it is subject to a lien, but only the unencumbered portion of the property is to be counted in computing the "value" of the property for the purposes of exemption. Thus, for example, a residence worth $30,000 with a mortgage of $25,000 will be exemptable to the extent of $5,000. This follows current law. The remaining value of the property will be dealt with in the bankruptcy case as is any interest in property that is subject to a lien

As under current law, the debtor will be permitted to convert nonexempt property into exempt property before filing a bankruptcy petition. See Hearings, pt. 3, at 1355-58. The practice is not fraudulent as to creditors and permits the debtor to make full use of the exemptions to which he is entitled under the law. 

Subsection (c) insulates exempt property from prepetition claims, except tax and alimony, maintenance, or support claims that are excepted from discharge. The bankruptcy discharge will not prevent enforcement of valid liens. The rule of Long v. Bullard, 117 U.S.617 (1886) (6 S.Ct. 917, 29 L.Ed. 1004), is accepted with respect to the enforcement of valid liens on nonexempt property as well as on exempt property. Cf. Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 583 (1935) (55 S.Ct. 854). 

Subsection (d) specifies the Federal exemptions to which the debtor is entitled. They are derived in large part from the Uniform Exemptions Act, promulgated by the Commissioners of Uniform State Laws in August, 1976. Eleven categories of property are exempted. First is a homestead to the extent of $10,000, which may be claimed in real or personal property that the debtor or a dependent of the debtor uses as a residence. Second, the debtor may exempt a motor vehicle to the extent of $1500. Third, the debtor may exempt household goods, furnishings, clothing, and similar household items, held primarily for the personal, family, or household use of the debtor or a dependent of the debtor

"Animals" includes all animals, such as pets, livestock, poultry, and fish, if they are held primarily for personal, family or household use. The limitation for third category items is $300 on any particular item. The debtor may also exempt up to $750 of personal jewelry. 

Paragraph (5) permits the exemption of $500, plus any unused amount of the homestead exemption, in any property, in order not to discriminate against the nonhomeowner. 

Paragraph (6) grants the debtor up to $1000 in implements, professional books, or tools, of the trade of the debtor or a dependent. 

Paragraph (7) exempts a life insurance contract, other than a credit life insurance contract, owned by the debtor. This paragraph refers to the life insurance contract itself. It does not encompass any other rights under the contract, such as the right to borrow out the loan value. Because of this provision, the trustee may not surrender a life insurance contract, which remains property of the debtor if he chooses the Federal exemptions. 

Paragraph (8) permits the debtor to exempt up to $5000 in loan value in a life insurance policy owned by the debtor under which the debtor or an individual of whom the debtor is a dependent is the insured. The exemption provided by this paragraph and paragraph (7) will also include the debtor's rights in a group insurance certificate under which the insured is an individual of whom the debtor is a dependent (assuming the debtor has rights in the policy that could be exempted) or the debtor. A trustee is authorized to collect the entire loan value on every life insurance policy owned by the debtor as property of the estate. First, however, the debtor will choose which policy or policies under which the loan value will be exempted. The $5000 figure is reduced by the amount of any automatic premium loan authorized after the date of the filing of the petition under section 542(d)

Paragraph (9) exempts professionally prescribed health aids. 

Paragraph (10) exempts certain benefits that are akin to future earnings of the debtor. These include social security, unemployment compensation, or public assistance benefits, veteran's benefits, disability, illness, or unemployment benefits, alimony, support, or separate maintenance (but only to the extent reasonably necessary for the support of the debtor and any dependents of the debtor), and benefits under a certain stock bonus, pension, profitsharing, annuity or similar plan based on illness, disability, death, age or length of service. 

Paragraph (11) allows the debtor to exempt certain compensation for losses. These include crime victim's reparation benefits, wrongful death benefits (with a reasonably necessary for support limitation), life insurance proceeds (same limitation), compensation for bodily injury, not including pain and suffering ($10,000 limitation), and loss of future earnings payments (support limitation). This provision in subparagraph (D)(11) is designed to cover payments in compensation of actual bodily injury, such as the loss of a limb, and is not intended to include the attendant costs that accompany such a loss, such as medical payments, pain and suffering, or loss of earnings. Those items are handled separately by the bill. 

Subsection (e) protects the debtor's exemptions, either Federal or State, by making unenforceable in a bankruptcy case a waiver of exemptions or a waiver of the debtor's avoiding powers under the following subsections. 

Subsection (f) protects the debtor's exemptions, his discharge, and thus his fresh start by permitting him to avoid certain liens on exempt property. The debtor may avoid a judicial lien on any property to the extent that the property could have been exempted in the absence of the lien, and may similarly avoid a nonpurchase-money security interest in certain household and personal goods. The avoiding power is independent of any waiver of exemptions. 

Subsection (g) gives the debtor the ability to exempt property that the trustee recovers under one of the trustee's avoiding powers if the property was involuntarily transferred away from the debtor (such as by the fixing of a judicial lien) and if the debtor did not conceal the property. The debtor is also permitted to exempt property that the trustee recovers as the result of the avoiding of the fixing of certain security interests to the extent that the debtor could otherwise have exempted the property. 

If the trustee does not pursue an avoiding power to recover a transfer of property that would be exempt, the debtor may pursue it and exempt the property, if the transfer was involuntary and the debtor did not conceal the property. If the debtor wishes to preserve his right to pursue an action under this provision, then he must intervene in any action brought by the trustee based on the same cause of action. It is not intended that the debtor be given an additional opportunity to avoid a transfer or that the transferee have to defend the same action twice. Rather, the section is primarily designed to give the debtor the rights the trustee could have pursued if the trustee chooses not to pursue them. The debtor is given no greater rights under this provision than the trustee, and thus the debtor's avoiding powers under proposed 11 U.S.C. 544, 545, 547, and 548, are subject to proposed 11 U.S.C. 546, as are the trustee's powers. 

These subsections are cumulative. The debtor is not required to choose which he will use to gain an exemption. Instead, he may use more than one in any particular instance, just as the trustee's avoiding powers are cumulative. 

Subsection (i) permits recovery by the debtor of property transferred in an avoided transfer from either the initial or subsequent transferees. It also permits preserving a transfer for the benefit of the debtor. Under either case the debtor may exempt the property recovered or preserved. 

Subsection (k) makes clear that the debtor's aliquot share of the costs and expenses (for) recovery of property that the trustee recovers and the debtor later exempts, and any costs and expenses of avoiding a transfer by the debtor that the debtor has not already paid. 

Subsection (l) requires the debtor to file a list of property that he claims as exempt from property of the estate. Absent an objection to the list, the property is exempted. A dependent of the debtor may file it and thus be protected if the debtor fails to file the list. 

Subsection (m) requires the clerk of the bankruptcy court to give notice of any exemptions claimed under subsection (l), in order that parties in interest may have an opportunity to object to the claim.

Subsection (n) provides the rule for a joint case: each debtor is entitled to the Federal exemptions provided under this section or to the State exemptions, whichever the debtor chooses. 


1. Replaced by 22 U.S.C. 4060(c).    •   

2. Replaced by 46 U.S.C. 11108, 11109.    •   

3. Replaced by 5 U.S.C. 8346.    •   

4. Replaced by 45 U.S.C. 231m.    •   

5. Railroad unemployment benefits are covered by 45 U.S.C. 352(e).    •   

6. Veterans benefits generally are covered by 38 U.S.C. 3101 (now 5301).    •   

7. Replaced by 22 U.S.C. 4060(c).    •   

8. Replaced by 5 U.S.C. 8346.    •   

9. Replaced by 45 U.S.C. 231m.    •   

10. Railroad unemployment benefits are covered by 45 U.S.C. 352(e).    •   

11. Veterans benefits generally are covered by 38 U.S.C. 3101 (now 5301).    •   


AMENDMENTS

2005 — Will be supplemented.

2000 — Subsec. (c)(4). Pub. L. 106-420 added par. (4). 

1994

Subsec. (b). Pub. L. 103-394, Sec. 501(d)(12)(A), substituted "Federal Rules of Bankruptcy Procedure" for "Bankruptcy Rules". 

Subsec. (d)(1) to (6). Pub. L. 103-394, Sec. 108(d)(1)-(6), substituted "$15,000" for "$7,500" in par. (1), "$2,400" for "$1,200" in par. (2), "$400" and "$8,000" for "$200" and "$4,000", respectively, in par. (3), "$1,000" for "$500" in par. (4), "$800" and "$7,500" for "$400" and "$3,750", respectively, in par. (5), and "$1,500" for "$750" in par. (6). 

Subsec. (d)(8). Pub. L. 103-394, Sec. 108(d)(7), substituted "$8,000" for "$4,000". 

Subsec. (d)(10)(E)(iii). Pub. L. 103-394, Sec. 501(d)(12)(B), substituted "or 408" for "408, or 409" and "Internal Revenue Code of 1986" for "Internal Revenue Code of 1954 (26 U.S.C. 401(a), 403(a), 403(b), 408, or 409)". 

Subsec. (d)(11)(D). Pub. L. 103-394, Sec. 108(d)(8), substituted "$15,000" for "$7,500".

Subsec. (f)(1). Pub. L. 103-394, Sec. 303(3), 310(1), designated existing provisions as par. (1) and inserted "but subject to paragraph (3)" after "waiver of exemptions" in introductory provisions. Former par. (1) redesignated subpar. (A) of par. (1). 

Subsec. (f)(1)(A). Pub. L. 103-394, Sec. 303(2), 304(d), redesignated par. (1) as subpar. (A) of par. (1) and inserted ", other than a judicial lien that secures a debt -

"(i) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement; and 

"(ii) to the extent that such debt

"(I) is not assigned to another entity, voluntarily, by operation of law, or otherwise; and

"(II) includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support." 

Subsec. (f)(1)(B). Pub. L. 103-394, Sec. 303(1), redesignated par. (2) as subpar. (B) of par. (1) and subpars. (A) to (C) of par. (2) as cls. (i) to (iii), respectively, of subpar. (B) of par. (1).

Subsec. (f)(2). Pub. L. 103-394, Sec. 303(4), added par. (2). 

Former par. (2) redesignated subpar. (B) of par. (1).

Subsec. (f)(3). Pub. L. 103-394, Sec. 310(2), added par. (3). 

1990 — Subsec. (c)(3). Pub. L. 101-647 added par. (3).

1986

Subsec. (h)(1). Pub. L. 99-554, Sec. 283(i)(1), substituted "553 of this title" for "553 of this tittle". 

Subsec. (i)(2). Pub. L. 99-554, Sec. 283(i)(2), substituted "this" for "his" after "subsection (g) of".

1984

Subsec. (a)(2). Pub. L. 98-353, Sec. 453(a), inserted "or, with respect to property that becomes property of an estate after such date, as of the date such property becomes property of the estate". 

Subsec. (b). Pub. L. 98-353, Sec. 306(a), inserted provision that in joint cases filed under section 302 of this title and individual cases filed under section 301 or 303 of this title by or against debtors who are husband and wife, and whose estates are ordered to be jointly administered under Rule 1015(b) of the Bankruptcy Rules, one debtor may not elect to exempt property listed in paragraph (1) and the other debtor elect to exempt property listed in paragraph (2) of this subsection, but that if the parties cannot agree on the alternative to be elected, they shall be deemed to elect paragraph (1), where such election is permitted under the law of the jurisdiction where the case is filed. 

Subsec. (c). Pub. L. 98-353, Sec. 453(b), amended subsec. (c) generally. Prior to amendment, subsec. (c) read as follows:

"Unless the case is dismissed, property exempted under this section is not liable during or after the case for any debt of the debtor that arose, or that is determined under section 502 of this title as if such claim had arisen before the commencement of the case, except - 

"(1) a debt of a kind specified in section 523(a)(1) or section 523(a)(5) of this title; or

"(2) a lien that is -

"(A) not avoided under section 544, 545, 547, 548, 549, or 724(a) of this title; 

"(B) not voided under section 506(d) of this title; or

"(C)(i) a tax lien, notice of which is properly filed; and 

"(ii) avoided under section 545(2) of this title." Subsec. (d)(3). Pub. L. 98-353, Sec. 306(b), inserted "or $4,000 in aggregate value".

Subsec. (d)(5). Pub. L. 98-353, Sec. 306(c), amended par. (5) generally. Prior to amendment, par. (5) read as follows: "The debtor's aggregate interest, not to exceed in value $400 plus any unused amount of the exemption provided under paragraph (1) of this subsection, in any property." Subsec. (e). Pub. L. 98-353, Sec. 453(c), substituted "an exemption" for "exemptions". 

Subsec. (m). Pub. L. 98-353, Sec. 306(d), substituted "Subject to the limitation in subsection (b), this section shall apply separately with respect to each debtor in a joint case" for "This section shall apply separately with respect to each debtor in a joint case". 

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

The following amendments amendments  are effective for all cases filed after enactment (April 20,2005): 

• section 522(b)(3)(a) — reference to 522(o) and (p) (homestead exemption limitations); Pub. L. 109-8, Title III § 308(1)

• section 522(o) — reduction of homestead exemption because of fraudulent transfers made within 10 years before a case is filed; Pub. L. 109-8, Title III § 308(2)

• section 522(p) — limitation on homestead exemption for property obtained within 3 years & 4 months before a case is filed; Pub. L. 109-8, Title III § 322(a) 

• section 522(q) — limitation on homestead exemption if debtor commits a: (a) felony; (b) securities violation or securities fraud; or (c) misconduct causing serious physical injury or death; Pub. L. 109-8, Title III § 322(a) 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1986 Amendments. Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title.

ADJUSTMENT OF DOLLAR AMOUNTS

For adjustment of dollar amounts specified in subsec. (d)(1) to (6), (8), (11)(D) of this section by the Judicial Conference of the United States, effective Apr. 1, 2001, see note set out under section 104 of this title. 

REFERENCES IN TEXT

The Federal Rules of Bankruptcy Procedure, referred to in subsec. (b), are set out in the Appendix to this title.

The Internal Revenue Code of 1986, referred to in subsec. (d)(10)(E)(iii), is classified to Title 26, Internal Revenue Code. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 101, 104, 106, 110, 349, 502, 542, 551, 552, 722, 1123 of this title; title 26sections 1017, 1398; title 28 section 3014; title 29 section 1405. 


FOOTNOTES (11 U.S.C. § 522)

18 U.S.C. § 3156 provides in part as follows:

(a) As used in sections 3141–3150 of this chapter—

(3) the term “felony” means an offense punishable by a maximum term of imprisonment of more than one year; (emphasis added)    •   

15 U.S.C. § 78c    •   

15 U.S.C. § 78l    •   

15 U.S.C. § 78o-6    •   

15 U.S.C. § 77e    •   

18 U.S.C. § 1964 refers to penalties for violations of Chapter 96—Racketeer Influenced and Corrupt Organizations ("RICO").    •   

20 U.S.C. § 1001 provides in part as follows:

§ 1001. General definition of institution of higher education

(a) Institution of higher education. For purposes of this chapter, other than subchapter IV, the term “institution of higher education” means an educational institution in any State that—    •   

(1) admits as regular students only persons having a certificate of graduation from a school providing secondary education, or the recognized equivalent of such a certificate;

(2) is legally authorized within such State to provide a program of education beyond secondary education;    •   

(3) provides an educational program for which the institution awards a bachelor’s degree or provides not less than a 2-year program that is acceptable for full credit toward such a degree;

(4) is a public or other nonprofit institution; and    •   

(5) is accredited by a nationally recognized accrediting agency or association, or if not so accredited, is an institution that has been granted preaccreditation status by such an agency or association that has been recognized by the Secretary for the granting of preaccreditation status, and the Secretary has determined that there is satisfactory assurance that the institution will meet the accreditation standards of such an agency or association within a reasonable time.    •   

(b) Additional institutions included. For purposes of this chapter, other than subchapter IV, the term “institution of higher education” also includes—

(1) any school that provides not less than a 1-year program of training to prepare students for gainful employment in a recognized occupation and that meets the provision of paragraphs (1), (2), (4), and (5) of subsection (a) of this section; and    •   

(2) a public or nonprofit private educational institution in any State that, in lieu of the requirement in subsection (a)(1) of this section, admits as regular students persons who are beyond the age of compulsory school attendance in the State in which the institution is located.

(c) List of accrediting agencies. For purposes of this section and section 1002 of this title, the Secretary shall publish a list of nationally recognized accrediting agencies or associations that the Secretary determines, pursuant to subpart 2 of part G of subchapter IV of this chapter, to be reliable authority as to the quality of the education or training offered.    •   


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 522)

BAPCPA § 216(1)    •    House Report 109-31    •   

BAPCPA § 216(2)    •    House Report 109-31    •   

BAPCPA § 216(3)    •    House Report 109-31    •   

BAPCPA § 224(a)(1)(A)(i)    •    House Report 109-31    •   

BAPCPA § 224(a)(1)(A)(ii)    •    House Report 109-31    •   

BAPCPA § 224(a)(1)(A)(iii)    •    House Report 109-31    •   

BAPCPA § 224(a)(1)(A)(iv)    •    House Report 109-31    •   

BAPCPA § 224(a)(1)(B)    •    House Report 109-31    •   

BAPCPA § 224(a)(1)(C)    •    House Report 109-31    •   

BAPCPA § 224(a)(1)(D)    •    House Report 109-31    •   

BAPCPA § 224(a)(1)(E)    •    House Report 109-31    •   

BAPCPA § 224(a)(1)(F)    •    House Report 109-31    •   

BAPCPA § 224(a)(1)(G)    •    House Report 109-31    •   

BAPCPA § 224(a)(2)(A)    •    House Report 109-31    •   

BAPCPA § 224(a)(2)(B)    •    House Report 109-31    •   

BAPCPA § 224(e)(1)    •    House Report 109-31    •   

BAPCPA § 307(1)(a)    •    House Report 109-31    •   

BAPCPA § 307(1)(b)    •    House Report 109-31    •   

BAPCPA § 307(2)    •    House Report 109-31    •   

BAPCPA § 308(1)    •    House Report 109-31    •   

BAPCPA § 308(2)    •    House Report 109-31    •    BAPCPA § 1501 provides as follows:

(a) Effective Date.—Except as otherwise provided in this Act, this Act and the amendments made by this Act shall take effect 180 days after the date of enactment of this Act.

(b) Application of Amendments.—    •   

(1) In General.—Except as otherwise provided in this Act and paragraph (2), the amendments made by this Act shall not apply with respect to cases commenced under title 11, United States Code, before the effective date of this Act.    •   

(2) Certain Limitations Applicable to Debtors.—The amendments made by sections 308, 322, and 330 shall apply with respect to cases commenced under title 11, United States Code, on or after the date of the enactment of this Act.    •   

BAPCPA § 313(a)    •    House Report 109-31    •   

BAPCPA § 322(a)    •    House Report 109-31    •    BAPCPA § 1501 provides as follows:

(a) Effective Date.—Except as otherwise provided in this Act, this Act and the amendments made by this Act shall take effect 180 days after the date of enactment of this Act.

(b) Application of Amendments.—

(1) In General.—Except as otherwise provided in this Act and paragraph (2), the amendments made by this Act shall not apply with respect to cases commenced under title 11, United States Code, before the effective date of this Act.

(2) Certain Limitations Applicable to Debtors.—The amendments made by sections 308, 322, and 330 shall apply with respect to cases commenced under title 11, United States Code, on or after the date of the enactment of this Act.    •      -  522(p)  -  522(q)


HISTORICAL AND REVISION NOTES (11 U.S.C. § 523)


LEGISLATIVE STATEMENTS

Section 523(a)(1) represents a compromise between the position taken in the House bill and the Senate amendment. Section 523(a)(2) likewise represents a compromise between the position taken in the House bill and the Senate amendment with respect to the false financial statement exception to discharge. In order to clarify that a "renewal of credit" includes a "refinancing of credit", explicit reference to a refinancing of credit is made in the preamble to section 523(a)(2). A renewal of credit or refinancing of credit that was obtained by a false financial statement within the terms of section 523(a)(2) is nondischargeable. However, each of the provisions of section 523(a)(2) must be proved. Thus, under section 523(a)(2)(A) a creditor must prove that the debt was obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition. 

Subparagraph (A) is intended to codify current case law e.g., Neal v. Clark, 95 U.S. 704 (1887) (24 L. Ed. 586), which interprets "fraud" to mean actual or positive fraud rather than fraud implied in law. Subparagraph (A) is mutually exclusive from subparagraph (B). Subparagraph (B) pertains to the so-called false financial statement. In order for the debt to be nondischargeable, the creditor must prove that the debt was obtained by the use of a statement in writing (i) that is materially false; (ii) respecting the debtor's or an insider's financial condition; (iii) on which the creditor to whom the debtor is liable for obtaining money, property, services, or credit reasonably relied; (iv) that the debtor caused to be made or published with intent to deceive. 

Section 523(a)(2)(B)(iv) is not intended to change from present law since the statement that the debtor causes to be made or published with the intent to deceive automatically includes a statement that the debtor actually makes or publishes with an intent to deceive. 

Section 523(a)(2)(B) is explained in the House report. Under section 523(a)(2)(B)(i) a discharge is barred only as to that portion of a loan with respect to which a false financial statement is materially false. 

In many cases, a creditor is required by state law to refinance existing credit on which there has been no default. If the creditor does not forfeit remedies or otherwise rely to his detriment on a false financial statement with respect to existing credit, then an extension, renewal, or refinancing of such credit is nondischargeable only to the extent of the new money advanced; on the other hand, if an existing loan is in default or the creditor otherwise reasonably relies to his detriment on a false financial statement with regard to an existing loan, then the entire debt is nondischargeable under section 523(a)(2)(B). This codifies the reasoning expressed by the second circuit in In re Danns, 558 F.2d 114 (2d Cir. 1977). 

Section 523(a)(3) of the House amendment is derived from the Senate amendment. The provision is intended to overrule Birkett v. Columbia Bank, 195 U.S. 345 (1904) (25 S.Ct. 38, 49 L.Ed. 231, 12 Am.Bankr.Rep. 691). 

Section 523(a)(4) of the House amendment represents a compromise between the House bill and the Senate amendment. 

Section 523(a)(5) is a compromise between the House bill and the Senate amendment. The provision excepts from discharge a debt owed to a spouse, former spouse or child of the debtor, in connection with a separation agreement, divorce decree, or property settlement agreement, for alimony to, maintenance for, or support of such spouse or child but not to the extent that the debt is assigned to another entity. If the debtor has assumed an obligation of the debtor's spouse to a third party in connection with a separation agreement, property settlement agreement, or divorce proceeding, such debt is dischargeable to the extent that payment of the debt by the debtor is not actually in the nature of alimony, maintenance, or support of debtor's spouse, former spouse, or child. 

Section 523(a)(6) adopts the position taken in the House bill and rejects the alternative suggested in the Senate amendment. The phrase "willful and malicious injury" covers a willful and malicious conversion. 

Section 523(a)(7) of the House amendment adopts the position taken in the Senate amendment and rejects the position taken in the House bill. A penalty relating to a tax cannot be nondischargeable unless the tax itself is nondischargeable. 

Section 523(a)(8) represents a compromise between the House bill and the Senate amendment regarding educational loans. This provision is broader than current law which is limited to federally insured loans. Only educational loans owing to a governmental unit or a nonprofit institution of higher education are made nondischargeable under this paragraph. 

Section 523(b) is new. The section represents a modification of similar provisions contained in the House bill and the Senate amendment. 

Section 523(c) of the House amendment adopts the position taken in the Senate amendment. 

Section 523(d) represents a compromise between the position taken in the House bill and the Senate amendment on the issue of attorneys' fees in false financial statement complaints to determine dischargeability. The provision contained in the House bill permitting the court to award damages is eliminated. The court must grant the debtor judgment or a reasonable attorneys' fee unless the granting of judgment would be clearly inequitable. 

Nondischargeable debts: The House amendment retains the basic categories of nondischargeable tax liabilities contained in both bills, but restricts the time limits on certain nondischargeable taxes. Under the amendment, nondischargeable taxes cover taxes entitled to priority under section 507(a)(6) of title 11 and, in the case of individual debtors under chapters 7, 11, or 13, tax liabilities with respect to which no required return had been filed or as to which a late return had been filed if the return became last due, including extensions, within 2 years before the date of the petition or became due after the petition or as to which the debtor made a fraudulent return, entry or invoice or fraudulently attempted to evade or defeat the tax. 

In the case of individuals in liquidation under chapter 7 or in reorganization under chapter 11 of title 11, section 1141(d)(2) incorporates by reference the exceptions to discharge continued in section 523. Different rules concerning the discharge of taxes where a partnership or corporation reorganizes under chapter 11, apply under section 1141

The House amendment also deletes the reduction rule contained in section 523(e) of the Senate amendment. Under that rule, the amount of an otherwise nondischargeable tax liability would be reduced by the amount which a governmental tax authority could have collected from the debtor's estate if it had filed a timely claim against the estate but which it did not collect because no such claim was filed. This provision is deleted in order not to effectively compel a tax authority to file claim against the estate in "no asset" cases, along with a dischargeability petition. In no-asset cases, therefore, if the tax authority is not potentially penalized by failing to file a claim, the debtor in such cases will have a better opportunity to choose the prepayment forum, bankruptcy court or the Tax Court, in which to litigate his personal liability for a nondischargeable tax. 

The House amendment also adopts the Senate amendment provision limiting the nondischargeability of punitive tax penalties, that is, penalties other than those which represent collection of a principal amount of tax liability through the form of a "penalty." Under the House amendment, tax penalties which are basically punitive in nature are to be nondischargeable only if the penalty is computed by reference to a related tax liability which is nondischargeable or, if the amount of the penalty is not computed by reference to a tax liability, the transaction or event giving rise to the penalty occurred during the 3-year period ending on the date of the petition. 

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

2002 Acts (Pub. L. 107-204). House Conference Report No. 107-610.

1998 Acts (Pub. L. 105-244). House Conference Report No. 105-750. 

1996 Acts.

Aug. 22, 1996(104-193). House Report No. 104-651 and House Conference Report No. 104- 725. 

Apr. 26, 1996 (104-134).  House Report No. 04-537.

1994 Acts.

Sept. 13, 1994 (Pub. L. 103-322). House Report Nos. 103-324 and 103-489, and House Conference Report No. 103-711. 

October 22, 1994 (Pub. L. 103-394). House Report No. 103-835.

1990 Acts.

Nov. 29, 1990 (Pub. L. 101-647). House Report No. 101-681(Part I).

Nov. 15, 1990 (Pub. L. 101-581). Senate Report No. 101-434. 

1986 Acts (Pub. L. 99-554). House Report No. 99-764 and House Conference Report No. 99-958.

1981 Acts. Senate Report No. 97-139 and House Conference Report No. 97- 208.

1979 Acts. Senate Report No. 96-230. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. This section specifies which of the debtor's debts are not discharged in a bankruptcy case, and certain procedures for effectuating the section. The provision in Bankruptcy Act Sec. 17c (section 35(c) of former title 11) granting the bankruptcy courts jurisdiction to determine dischargeability is deleted as unnecessary, in view of the comprehensive grant of jurisdiction prescribed in proposed 28 U.S.C. 1334(b), which is adequate to cover the full jurisdiction that the bankruptcy courts have today over dischargeability and related issues under Bankruptcy Act Sec. 17c. The Rules of Bankruptcy Procedure will specify, as they do today, who may request determinations of dischargeability, subject, of course, to proposed 11 U.S.C. 523(c), and when such a request may be made. Proposed 11 U.S.C. 350, providing for reopening of cases, provides one possible procedure for a determination of dischargeability and related issues after a case is closed. 

Subsection (a) lists nine kinds of debts excepted from discharge. Taxes that are excepted from discharge are set forth in paragraph (1). These include claims against the debtor which receive priority in the second, third and sixth categories (Sec. 507(a)(3)(B) and (c) and (6)). These categories include taxes for which the tax authority failed to file a claim against the estate or filed its claim late. Whether or not the taxing authority's claim is secured will also not affect the claim's nondischargeability if the tax liability in question is otherwise entitled to priority. 

Also included in the nondischargeable debts are taxes for which the debtor had not filed a required return as of the petition date, or for which a return had been filed beyond its last permitted due date (Sec. 523(a)(1)(B)). For this purpose, the date of the tax year to which the return relates is immaterial. The late return rule applies, however, only to the late returns filed within three years before the petition was filed, and to late returns filed after the petition in title 11 was filed. For this purpose, the taxable year in question need not be one or more of the three years immediately preceding the filing of the petition. 

Tax claims with respect to which the debtor filed a fraudulent return, entry or invoice, or fraudulently attempted to evade or defeat any tax (Sec. 523(a)(1)(C)) are included. The date of the taxable year with regard to which the fraud occurred is immaterial. 

Also included are tax payments due under an agreement for deferred payment of taxes, which a debtor had entered into with the Internal Revenue Service (or State or local tax authority) before the filing of the petition and which relate to a prepetition tax liability (Sec. 523(a)(1)(D)) are also nondischargeable. This classification applies only to tax claims which would have received priority under section 507(a) if the taxpayer had filed a title 11 petition on the date on which the deferred payment agreement was entered into. This rule also applies only to installment payments which become due during and after the commencement of the title 11 case. Payments which had become due within one year before the filing of the petition receive sixth priority, and will be nondischargeable under the general rule of section 523(a)(1)(A).

The above categories of nondischargeability apply to customs duties as well as to taxes. 

Paragraph (2) provides that as under Bankruptcy Act Sec. 17a(2) (section 35(a)(2) of former title 11), a debt for obtaining money, property, services, or a refinancing extension or renewal of credit by false pretenses, a false representation, or actual fraud, or by use of a statement in writing respecting the debtor's financial condition that is materially false, on which the creditor reasonably relied, and which the debtor made or published with intent to deceive, is excepted from discharge. This provision is modified only slightly from current section 17a(2). First, "actual fraud" is added as a ground for exception from discharge. Second, the creditor must not only have relied on a false statement in writing, but the reliance must have been reasonable. This codifies case law construing present section 17a(2). Third, the phrase "in any manner whatsoever" that appears in current law after "made or published" is deleted as unnecessary, the word "published" is used in the same sense that it is used in defamation cases. 

Unscheduled debts are excepted from discharge under paragraph (3). The provision, derived from section 17a(3) (section 35(a)(3) of former title 11), follows current law, but clarifies some uncertainties generated by the case law construing 17a(3). The debt is excepted from discharge if it was not scheduled in time to permit timely action by the creditor to protect his rights, unless the creditor had notice or actual knowledge of the case. 

Paragraph (4) excepts debts for fraud incurred by the debtor while acting in a fiduciary capacity or for defalcation, embezzlement, or misappropriation. 

Paragraph (5) provides that debts for willful and malicious conversion or injury by the debtor to another entity or the property of another entity are nondischargeable. Under this paragraph "willful" means deliberate or intentional. To the extent that Tinker v. Colwell, 139 U.S. 473 (1902), held that a less strict standard is intended, and to the extent that other cases have relied on Tinker to apply a "reckless disregard" standard, they are overruled. 

Paragraph (6) excepts from discharge debts to a spouse, former spouse, or child of the debtor for alimony to, maintenance for, or support of the spouse or child. This language, in combination with the repeal of section 456(b) of the Social Security Act (42 U.S.C. 656(b)) by section 326 of the bill, will apply to make nondischargeable only alimony, maintenance, or support owed directly to a spouse or dependent. What constitutes alimony, maintenance, or support, will be determined under the bankruptcy law, not State law. Thus, cases such as In re Waller, 494 F.2d 447 (6th Cir. 1974), are overruled, and the result in cases such as Fife v. Fife, 1 Utah 2d 281, 265 P.2d 642 (1952) is followed. The proviso, however, makes nondischargeable any debts resulting from an agreement by the debtor to hold the debtor's spouse harmless on joint debts, to the extent that the agreement is in payment of alimony, maintenance, or support of the spouse, as determined under bankruptcy law considerations as to whether a particular agreement to pay money to a spouse is actually alimony or a property settlement. 

Paragraph (7) makes nondischargeable certain liabilities for penalties including tax penalties if the underlying tax with respect to which the penalty was imposed is also nondischargeable (sec. 523(a)(7)). These latter liabilities cover those which, but are penal in nature, as distinct from so-called "pecuniary loss" penalties which, in the case of taxes, involve basically the collection of a tax under the label of a "penalty." This provision differs from the bill as introduced, which did not link the nondischarge of a tax penalty with the treatment of the underlying tax. The amended provision reflects the existing position of the Internal Revenue Service as to tax penalties imposed by the Internal Revenue Code (Rev.Rul. 68-574, 1968-2 C.B. 595). 

Paragraph (8) follows generally current law and excerpts from discharge student loans until such loans have been due and owing for five years. Such loans include direct student loans as well as insured and guaranteed loans. This provision is intended to be self-executing and the lender or institution is not required to file a complaint to determine the nondischargeability of any student loan. 

Paragraph (9) excepts from discharge debts that the debtor owed before a previous bankruptcy case concerning the debtor in which the debtor was denied a discharge other than on the basis of the six-year bar. 

Subsection (b) of this section permits discharge in a bankruptcy case of an unscheduled debt from a prior case. This provision is carried over from Bankruptcy Act Sec. 17b (section 35(b) of former title 11). The result dictated by the subsection would probably not be different if the subsection were not included. It is included nevertheless for clarity. 

Subsection (c) requires a creditor who is owed a debt that may be excepted from discharge under paragraph (2), (4), or (5), (false statements, defalcation or larceny misappropriation, or willful and malicious injury) to initiate proceedings in the bankruptcy court for an exception to discharge. If the creditor does not act, the debt is discharged. This provision does not change current law. 

Subsection (d) is new. It provides protection to a consumer debtor that dealt honestly with a creditor who sought to have a debt excepted from discharge on the ground of falsity in the incurring of the debt. The debtor may be awarded costs and a reasonable attorney's fee for the proceeding to determine the dischargeability of a debt under subsection (a)(2), if the court finds that the proceeding was frivolous or not brought by its creditor in good faith. 

The purpose of the provision is to discourage creditors from initiating proceedings to obtaining a false financial statement exception to discharge in the hope of obtaining a settlement from an honest debtor anxious to save attorney's fees. Such practices impair the debtor's fresh start and are contrary to the spirit of the bankruptcy laws. 

House Report No. 95-595. Subsection (a) lists eight kinds of debts excepted from discharge. Taxes that are entitled to priority are excepted from discharge under paragraph (1). In addition, taxes with respect to which the debtor made a fraudulent return or willfully attempted to evade or defeat, or with respect to which a return (if required) was not filed or was not filed after the due date and after one year before the bankruptcy case are excepted from discharge. If the taxing authority's claim has been disallowed, then it would be barred by the more modern rules of collateral estoppel from reasserting that claim against the debtor after the case was closed. See Plumb, The Tax Recommendations of the Commission on the Bankruptcy Laws: Tax Procedures, 88 Harv.L.Rev. 1360, 1388 (1975). 

As under Bankruptcy Act Sec. 17a(2) (section 35(a)(2) of former title 11), debt for obtaining money, property, services, or an extension or renewal of credit by false pretenses, a false representation, or actual fraud, or by use of a statement in writing respecting the debtor's financial condition that is materially false, on which the creditor reasonably relied, and that the debtor made or published with intent to deceive, is excepted from discharge. This provision is modified only slightly from current section 17a(2). First, "actual fraud" is added as a grounds for exception from discharge. Second, the creditor must not only have relied on a false statement in writing, the reliance must have been reasonable. This codifies case law construing this provision. Third, the phrase "in any manner whatsoever" that appears in current law after "made or published" is deleted as unnecessary. The word "published" is used in the same sense that it is used in slander actions. 

Unscheduled debts are excepted from discharge under paragraph (3). The provision, derived from section 17a(3) (section 35(a)(3) of former title 11), follows current law, but clarifies some uncertainties generated by the case law construing 17a(3). The debt is excepted from discharge if it was not scheduled in time to permit timely action by the creditor to protect his rights, unless the creditor had notice or actual knowledge of the case. 

Paragraph (4) excepts debts for embezzlement or larceny. The deletion of willful and malicious conversion from Sec. 17a(2) of the Bankruptcy Act (section 35(a)(2) of former title 11) is not intended to effect a substantive change. The intent is to include in the category of non-dischargeable debts a conversion under which the debtor willfully and maliciously intends to borrow property for a short period of time with no intent to inflict injury but on which injury is in fact inflicted. 

Paragraph (5) excepts from discharge debts to a spouse, former spouse, or child of the debtor for alimony to, maintenance for, or support of, the spouse or child. This language, in combination with the repeal of section 456(b) of the Social Security Act (42 U.S.C. 656(b)) by section 327 of the bill, will apply to make nondischargeable only alimony, maintenance, or support owed directly to a spouse or dependent. See Hearings, pt. 2, at 942. 

What constitutes alimony, maintenance, or support, will be determined under the bankruptcy laws, not State law. Thus, cases such as In re Waller, 494 F.2d 447 (6th Cir. 1974); Hearings, pt. 3, at 1308-10, are overruled, and the result in cases such as Fife v. Fife, 1 Utah 2d 281, 265 P.2d 642 (1952) is followed. This provision will, however, make nondischargeable any debts resulting from an agreement by the debtor to hold the debtor's spouse harmless on joint debts, to the extent that the agreement is in payment of alimony, maintenance, or support of the spouse, as determined under bankruptcy law considerations that are similar to considerations of whether a particular agreement to pay money to a spouse is actually alimony or a property settlement. See Hearings, pt. 3, at 1287-1290. 

Paragraph (6) excepts debts for willful and malicious injury by the debtor to another person or to the property of another person. Under this paragraph, "willful" means deliberate or intentional. To the extent that Tinker v. Colwell, 193 U.S. 473 (1902) (24 S.Ct. 505, 48 L.Ed. 754, 11 Am.Bankr.Rep. 568), held that a looser standard is intended, and to the extent that other cases have relied on Tinker to apply a "reckless disregard" standard, they are overruled. 

Paragraph (7) excepts from discharge a debt for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, that is not compensation for actual pecuniary loss. 

Paragraph (8) (enacted as (9)) excepts from discharge debts that the debtor owed before a previous bankruptcy case concerning the debtor in which the debtor was denied a discharge other than on the basis of the six-year bar. 

Subsection (d) is new. It provides protection to a consumer debtor that dealt honestly with a creditor who sought to have a debt excepted from discharge on grounds of falsity in the incurring of the debt. The debtor is entitled to costs of and a reasonable attorney's fee for the proceeding to determine the dischargeability of a debt under subsection (a)(2), if the creditor initiated the proceeding and the debt was determined to be dischargeable. The court is permitted to award any actual pecuniary loss that the debtor may have suffered as a result of the proceeding (such as loss of a day's pay). The purpose of the provision is to discourage creditors from initiating false financial statement exception to discharge actions in the hopes of obtaining a settlement from an honest debtor anxious to save attorney's fees.  Such practices impair the debtor's fresh start. 

AMENDMENTS

2005 — Will be supplemented. 

2002 — Subsec. (a)(19). Pub. L. 107-204 added par. (19). 

1998 — Subsec. (a)(8). Pub. L. 105-244 substituted "stipend, unless" for "stipend, unless — " and struck out "(B)" before "excepting such debt" and subpar. (A) which read as follows: "such loan, benefit, scholarship, or stipend overpayment first became due more than 7 years (exclusive of any applicable suspension of the repayment period) before the date of the filing of the petition; or". 

1996

Subsec. (a)(5)(A). Pub. L. 104-193, Sec. 374(a)(4), substituted "section 408(a)(3)" for "section 402(a)(26)".

Subsec. (a)(17). Pub. L. 104-134 added par. (17). 

Subsec. (a)(18). Pub. L. 104-193, Sec. 374(a)(1)-(3), added par. (18).

1994

Subsec. (a). Pub. L. 103-394, Sec. 501(d)(13)(A)(i), substituted "1141," for "1141,," in introductory provisions.

Subsec. (a)(1)(A). Pub. L. 103-394, Sec. 304(h)(3), substituted "507(a)(8)" for "507(a)(7)". 

Subsec. (a)(2)(C). Pub. L. 103-394, Sec. 306, 501(d)(13)(A)(ii), substituted "$1,000 for" for "$500 for", "60" for "forty" after "incurred by an individual debtor on or within", and "60" for "twenty" after "obtained by an individual debtor on or within", and struck out "(15 U.S.C. 1601 et seq.)" after "Protection Act".

Subsec. (a)(11). Pub. L. 103-322, Sec. 320934(1), struck out "or" after semicolon at end. 

Subsec. (a)(12). Pub. L. 103-322, Sec. 320934(2), which directed the substitution of "; or" for a period at end of par. (12), could not be executed because a period did not appear at end. 

Subsec. (a)(13). Pub. L. 103-394, Sec. 221(1), substituted semicolon for period at end.

Pub. L. 103-322, Sec. 320934(3), added par. (13). 

Subsec. (a)(14). Pub. L. 103-394, Sec. 221(2), added par. (14).

Subsec. (a)(15). Pub. L. 103-394, Sec. 304(e)((1)), which directed the amendment of this section by adding par. (15) "at the end" was executed by adding par. (15) at the end of subsec. (a) to reflect the probable intent of Congress. 

Subsec. (a)(16). Pub. L. 103-394, Sec. 309, added par. (16). 

Subsec. (b). Pub. L. 103-394, Sec. 501(d)(13)(B), struck out "(20 U.S.C. 1087-3)" after "Act of 1965" and "(42 U.S.C. 294f)" after "Service Act".

Subsec. (c)(1). Pub. L. 103-394, Sec. 304(e)(2), substituted "(6), or (15)" for "or (6)" in two places. 

Subsec. (e). Pub. L. 103-394, Sec. 501(d)(13)(C), substituted "insured depository institution" for "depository institution or insured credit union". 

1990

Subsec. (a)(8). Pub. L. 101-647, Sec. 3621, substituted "for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless" for "for an educational loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or a nonprofit institution, unless" in introductory provisions and amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: "such loan first became due before five years (exclusive of any applicable suspension of the repayment period) before the date of the filing of the petition; or". 

Subsec. (a)(9). Pub. L. 101-581 and Pub. L. 101-647, Sec. 3102(a), identically amended par. (9) generally. Prior to amendment, par. (9) read as follows: "to any entity, to the extent that such debt arises from a judgment or consent decree entered in a court of record against the debtor wherein liability was incurred by such debtor as a result of the debtor's operation of a motor vehicle while legally intoxicated under the laws or regulations of any jurisdiction within the United States or its territories wherein such motor vehicle was operated and within which such liability was incurred; or". 

Subsec. (a)(11), (12). Pub. L. 101-647, Sec. 2522(a)(1), added pars. (11) and (12). 

Subsec. (c). Pub. L. 101-647, Sec. 2522(a)(3), designated existing provisions as par. (1) and added par. (2). 

Subsec. (e). Pub. L. 101-647, Sec. 2522(a)(2), added subsec. (e). 

1986

Subsec. (a). Pub. L. 99-554, Sec. 257(n), inserted reference to sections 1228(a) and 1228(b) of this title. 

Subsec. (a)(1)(A). Pub. L. 99-554, Sec. 283(j)(1)(A), substituted "507(a)(7)" for "507(a)(6)".

Subsec. (a)(5). Pub. L. 99-554, Sec. 281, struck out the comma after "decree" and inserted ", determination made in accordance with State or territorial law by a governmental unit," after "record". 

Subsec. (a)(9), (10). Pub. L. 99-554, Sec. 283(j)(1)(B), redesignated par. (9) relating to debts incurred by persons driving while intoxicated, added by Pub. L. 98-353, as (10).

Subsec. (b). Pub. L. 99-554, Sec. 283(j)(2), substituted "Service" for "Services". 

1984

Subsec. (a)(2). Pub. L. 98-353, Sec. 454(a)(1), in provisions preceding subpar. (A), struck out "obtaining" after "for", and substituted "refinancing of credit, to the extent obtained" for "refinance of credit,". 

Subsec. (a)(2)(A). Pub. L. 98-353, Sec. 307(a)(1), struck out "or" at end.

Subsec. (a)(2)(B). Pub. L. 98-353, Sec. 307(a)(2), inserted "or" at end. 

Subsec. (a)(2)(B)(iii). Pub. L. 98-353, Sec. 454(a)(1)(A), struck out "obtaining" before "such".

Subsec. (a)(2)(C). Pub. L. 98-353, Sec. 307(a)(3), added subpar. (C). 

Subsec. (a)(5). Pub. L. 98-353, Sec. 454(b)(1), inserted "or other order of a court of record" after "divorce decree," in provisions preceding subpar. (A).

Subsec. (a)(5)(A). Pub. L. 98-353, Sec. 454(b)(2), inserted ", or any such debt which has been assigned to the Federal Government or to a State or any political subdivision of such State". 

Subsec. (a)(8). Pub. L. 98-353, Sec. 371(1), 454(a)(2), struck out "of higher education" after "a nonprofit institution of" and struck out "or" at end.

Subsec. (a)(9). Pub. L. 98-353, Sec. 371(2), added the par. (9) relating to debts incurred by persons driving while intoxicated. 

Subsec. (c). Pub. L. 98-353, Sec. 454(c), inserted "of a kind" after "debt".

Subsec. (d). Pub. L. 98-353, Sec. 307(b), substituted "the court shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney's fee for, the proceeding if the court finds that the position of the creditor was not substantially justified, except that the court shall not award such costs and fees if special circumstances would make the award unjust" for "the court shall grant judgment against such creditor and in favor of the debtor for the costs of, and a reasonable attorney's fee for, the proceeding to determine dischargeability, unless such granting of judgment would be clearly inequitable". 

1981 — Subsec. (a)(5)(A). Pub. L. 97-35 substituted "law, or otherwise (other than debts assigned pursuant to section 402(a)(26) of the Social Security Act);" for "law, or otherwise;". 

1979 — Subsec. (a)(8). Pub. L. 96-56 substituted "for an educational loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or a nonprofit institution of higher education" for "to a governmental unit, or a nonprofit institution of higher education, for an educational loan" in the provisions preceding subpar. (A) and inserted "(exclusive of any applicable suspension of the repayment period)" after "before five years" in subpar. (A). 

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

Pub. L. 109-8, Title XIV, § 1404, provided that the amendments made to section 523(a)(19((B) (debts relating to violations of any of the Federal securities laws) are effective beginning July 30, 2002.

1998 Amendments. Pub. L. 105-244, title IX, Sec. 971(b), Oct. 7, 1998, 112 Stat. 1837, provided that: "The amendment made by subsection (a) (amending this section) shall apply only with respect to cases commenced under title 11, United States Code, after the date of enactment of this Act (Oct. 7, 1998)." 

1996 Amendments. Section 374(c) of Pub. L. 104-193 provided that: "The amendments made by this section (amending this section and section 656 of Title 42, The Public Health and Welfare) shall apply only with respect to cases commenced under title 11 of the United States Code after the date of the enactment of this Act (Aug. 22, 1996)." For provisions relating to effective date of title III of Pub. L. 104-193, see section 395(a)-(c) of Pub. L. 104-193, set out as a note under section 654 of Title 42, The Public Health and Welfare. 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1990 Amendments. Section 3104 of title XXXI of Pub. L. 101-647 provided that:

"(a) Effective DateThis title and the amendments made by this title (amending this section and section 1328 of this title and enacting provisions set out as a note under section 101 of this title) shall take effect on the date of the enactment of this Act (Nov. 29, 1990). 

"(b) Application of AmendmentsThe amendments made by this title (amending this section and section 1328 of this title) shall not apply with respect to cases commenced under title 11 of the United States Code before the date of the enactment of this Act." Amendment by section 3621 of Pub. L. 101-647 effective 180 days after Nov. 29, 1990, see section 3631 of Pub. L. 101-647, set out as an Effective Date note under section 3001 of Title 28, Judiciary and Judicial Procedure. 

Section 4 of Pub. L. 101-581 provided that:

"(a) Effective DateThis Act and the amendments made by this Act (amending this section and section 1328 of this title and enacting provisions set out as a note under section 101 of this title) shall take effect on the date of the enactment of this Act (Nov. 15, 1990). 

"(b) Application of AmendmentsThe amendments made by this Act (amending this section and section 1328 of this title) shall not apply with respect to cases commenced under title 11 of the United States Code before the date of the enactment of this Act."

1986 Amendments. Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. 

Amendment by sections 281 and 283 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

1981 Amendments. Amendment by Pub. L. 97-35 effective Aug. 13, 1981, see section 2334(c) of Pub. L. 97-35, set out as a note under section 656 of Title 42, The Public Health and Welfare.

ADJUSTMENT OF DOLLAR AMOUNTS

For adjustment of dollar amounts specified in subsec. (a)(2)(C) of this section by the Judicial Conference of the United States, effective Apr. 1, 2001, see note set out under section 104 of this title. 

REFERENCES IN TEXT

The Consumer Credit Protection Act, referred to in subsec. (a)(2)(C), is Pub. L. 90-321, May 29, 1968, 82 Stat. 146, as amended, which is classified principally to chapter 41 (Sec. 1601 et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see Short Title note set out under section 1601 of Title 15 and Tables. 

The Bankruptcy Act, referred to in subsecs. (a)(10) and (b), is act July 1, 1898, ch. 541, 30 Stat. 544, as amended, which was classified generally to former Title 11. Sections 14c and 17a of the Bankruptcy Act were classified to sections 32(c) and 35(a) of former Title 11

The Social Security Act, referred to in subsec. (a)(18)(B), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Part D of title IV of the Act is classified generally to part D (Sec. 651 et seq.) of subchapter IV of chapter 7 of Title 42, The Public Health and Welfare. Section 408(a)(3) of the Act is classified to section 608(a)(3) of Title 42. For complete classification of this Act to the Code, see section 1305 of Title 42 and Tables. 

Section 3(a)(47) of the Securities Exchange Act of 1934, referred to in subsec. (a)(19)(A)(i), is classified to section 78c(a)(47) of Title 15, Commerce and Trade. 

Section 439A of the Higher Education Act of 1965, referred to in subsec. (b), was classified to section 1087-3 of Title 20, Education, and was repealed by Pub. L. 95-598, title III, Sec. 317, Nov. 6, 1978, 92 Stat. 2678. 

Section 733(g) of the Public Health Service Act, referred to in subsec. (b), was repealed by Pub. L. 95-598, title III, Sec. 327, Nov. 6, 1978, 92 Stat. 2679. A subsec. (g), containing similar provisions, was added to section 733 by Pub. L. 97-35, title XXVII, Sec. 2730, Aug. 13, 1981, 95 Stat. 919. Section 733 was subsequently omitted in the general revision of subchapter V of chapter 6A of Title 42, The Public Health and Welfare, by Pub. L. 102-408, title I, Sec. 102, Oct. 13, 1992, 106 Stat. 1994. See section 292f(g) of Title 42. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 101, 104, 106, 502, 507, 522, 524, 727, 1141, 1228, 1328 of this title; title 20 section 1087; title 26 sections 6327, 7437. 


FOOTNOTES (11 U.S.C. § 523)

15 U.S.C. § 1602    •   

29 U.S.C. § 1108(b)(1) provides as follows:

 § 1108. Exemptions from prohibited transactions

(b) Enumeration of transactions exempted from section 1106 prohibitions. The prohibitions provided in section 1106 of this title shall not apply to any of the following transactions:    •   

(1) Any loans made by the plan to parties in interest who are participants or beneficiaries of the plan if such loans (A) are available to all such participants and beneficiaries on a reasonably equivalent basis, (B) are not made available to highly compensated employees (within the meaning of section 414(q) of Title 26) in an amount greater than the amount made available to other employees, (C) are made in accordance with specific provisions regarding such loans set forth in the plan, (D) bear a reasonable rate of interest, and (E) are adequately secured. A loan made by a plan shall not fail to meet the requirements of the preceding sentence by reason of a loan repayment suspension described under section 414(u)(4) of Title 26.    •   

5 U.S.C. §§ 8431 - 8440f    •   

5 U.S.C. § 8433(g)    •   

15 U.S.C. § 78c(a)(47) provides as follows:

(47) The term "securities laws" means the Securities Act of 1933 (15 U.S.C. 77a et seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), the Sarbanes-Oxley Act of 2002, the Public Utility Holding Company Act of 1935 (15 U.S.C. 79a et seq.) [15 U.S.C. § 79 et seq.], the Trust Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the Investment Advisers Act of 1940 (15 U.S.C. 80b et seq.) [15 U.S.C. § 80b-1 et seq.], and the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.).    •   


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 523)

BAPCPA § 215(1)(A)    •    House Report 109-31    •   

BAPCPA § 215(1)(B)    •    House Report 109-31    •   

BAPCPA § 215(2)    •    House Report 109-31    •   

BAPCPA § 215(3)(A)    •    House Report 109-31    •   

BAPCPA § 215(3)(B)    •    House Report 109-31    •   

BAPCPA § 215(3)(C)    •    House Report 109-31    •   

BAPCPA § 220    •    House Report 109-31    •   

BAPCPA § 224(c)    •    House Report 109-31    •   

BAPCPA § 301(1)    •    House Report 109-31    •   

BAPCPA § 301(2)    •    House Report 109-31    •   

BAPCPA § 301(3)    •    House Report 109-31    •   

BAPCPA § 310    •    House Report 109-31    •   

BAPCPA § 314(a)    •    House Report 109-31    •   

BAPCPA § 412(1)    •    House Report 109-31    •   

BAPCPA § 412(2)    •    House Report 109-31    •   

BAPCPA § 412(3)    •    House Report 109-31    •   

BAPCPA § 412(4)    •    House Report 109-31    •   

BAPCPA § 714(1)(A)    •    House Report 109-31    •   

BAPCPA § 714(1)(B)    •    House Report 109-31    •   

BAPCPA § 714(1)(C)(i)    •    House Report 109-31    •   

BAPCPA § 714(1)(C)(ii)    •    House Report 109-31    •   

BAPCPA § 714(2)    •    House Report 109-31    •   

BAPCPA § 1209(1) (inserted par. (a)(15) after par. (a)(14A))    •    House Report 109-31    •   

BAPCPA § 1209(2)    •    House Report 109-31    •   

BAPCPA § 1209(3)    •    House Report 109-31    •   

BAPCPA § 1235    •    House Report 109-31    •   

BAPCPA § 1404(a)    •    House Report 109-31    •    BAPCPA § 1404(a) contains the following uncodified provisions:

(b) Effective Date Upon Enactment of Sarbanes-Oxley Act.—The amendment made by subsection (a) is effective beginning July 30, 2002.    •   

BAPCPA § 1502(a)(2)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 524)


LEGISLATIVE STATEMENTS

Section 524(a) of the House amendment represents a compromise between the House bill and the Senate amendment. Section 524(b) of the House amendment is new, and represents standards clarifying the operation of section 524(a)(3) with respect to community property. 

Sections 524(c) and (d) represent a compromise between the House bill and Senate amendment on the issue of reaffirmation of a debt discharged in bankruptcy. Every reaffirmation to be enforceable must be approved by the court, and any debtor may rescind a reaffirmation for 30 days from the time the reaffirmation becomes enforceable. If the debtor is an individual the court must advise the debtor of various effects of reaffirmation at a hearing. In addition, to any extent the debt is a consumer debt that is not secured by real property of the debtor reaffirmation is permitted only if the court approves the reaffirmation agreement, before granting a discharge under section 727, 1141, or 1328, as not imposing a hardship on the debtor or a dependent of the debtor and in the best interest of the debtor; alternatively, the court may approve an agreement entered into in good faith that is in settlement of litigation of a complaint to determine dischargeability or that is entered into in connection with redemption under section 722. The hearing on discharge under section 524(d) will be held whether or not the debtor desires to reaffirm any debts

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1994 Acts (Pub. L. 103-394). House Report No. 103-835.

1986 Acts (Pub. L. 99-554). House Report No. 99-764 and House Conference Report No. 99-958. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. Subsection (a) specifies that a discharge in a bankruptcy case voids any judgment to the extent that it is a determination of the personal liability of the debtor with respect to a prepetition debt, and operates as an injunction against the commencement or continuation of an action, the employment of process, or any act, including telephone calls, letters, and personal contacts, to collect, recover, or offset any discharged debt as a personal liability of the debtor, or from property of the debtor, whether or not the debtor has waived discharge of the debt involved. The injunction is to give complete effect to the discharge and to eliminate any doubt concerning the effect of the discharge as a total prohibition on debt collection efforts. This paragraph has been expanded over a comparable provision in Bankruptcy Act Sec. 14f (section 32(f) of former title 11) to cover any act to collect, such as dunning by telephone or letter, or indirectly through friends, relatives, or employers, harassment, threats of repossession, and the like. The change is consonant with the new policy forbidding binding reaffirmation agreements under proposed 11 U.S.C. 524(b), and is intended to insure that once a debt is discharged, the debtor will not be pressured in any way to repay it. In effect, the discharge extinguishes the debt, and creditors may not attempt to avoid that. The language "whether or not discharge of such debt is waived" is intended to prevent waiver of discharge of a particular debt from defeating the purposes of this section. It is directed at waiver of discharge of a particular debt, not waiver of discharge in toto as permitted under section 727(a)(9)

Subsection (a) also codifies the split discharge for debtors in community property states. If community property was in the estate and community claims were discharged, the discharge is effective against community creditors of the nondebtor spouse as well as of the debtor spouse. 

Subsection (b) gives further effect to the discharge. It prohibits reaffirmation agreements after the commencement of the case with respect to any dischargeable debt. The prohibition extends to agreements the consideration for which in whole or in part is based on a dischargeable debt, and it applies whether or not discharge of the debt involved in the agreement has been waived. Thus, the prohibition on reaffirmation agreements extends to debts that are based on discharged debts. Thus, "second generation" debts, which included all or a part of a discharged debt could not be included in any new agreement for new money. 

This subsection will not have any effect on reaffirmations of debts discharged under the Bankruptcy Act (former title 11). It will only apply to discharges granted if commenced under the new title 11 bankruptcy code. 

Subsection (c) grants an exception to the anti-reaffirmation provision. It permits reaffirmation in connection with the settlement of a proceeding to determine the dischargeability of the debt being reaffirmed, or in connection with a redemption agreement permitted under section 722. In either case, the reaffirmation agreement must be entered into in good faith and must be approved by the court. 

Subsection (d) provides the discharge of the debtor does not affect co-debtors or guarantors. 

AMENDMENTS

2005 — Will be supplemented. 

1994

Subsec. (a)(3). Pub. L. 103-394, Sec. 501(d)(14)(A), substituted "1328(a)(1)" for "1328(c)(1)". See 1986 Amendment note below.

Subsec. (c)(2). Pub. L. 103-394, Sec. 103(a)(1), designated existing provisions as subpar. (A), inserted "and" at end, and added subpar. (B). 

Subsec. (c)(3). Pub. L. 103-394, Sec. 103(a)(2), struck out "such agreement" after "which states that" in introductory provisions, struck out "and" at end of subpar. (A), inserted "such agreement" in subpars. (A) and (B), and added subpar. (C).

Subsec. (c)(4). Pub. L. 103-394, Sec. 501(d)(14)(B), substituted "rescission" for "recission". 

Subsec. (d). Pub. L. 103-394, Sec. 103(b), inserted "and was not represented by an attorney during the course of negotiating such agreement" after "this section" in introductory provisions.

Subsec. (d)(1)(B)(ii). Pub. L. 103-394, Sec. 501(d)(14)(C), inserted "and" at end. 

Subsecs. (g), (h). Pub. L. 103-394, Sec. 111(a), added subsecs. (g) and (h).

1986

Subsec. (a)(1). Pub. L. 99-554, Sec. 257(o)(1), inserted reference to section 1228 of this title. 

Subsec. (a)(3). Pub. L. 99-554, Sec. 257(o)(2), which directed the substitution of ", 1228(a)(1), or 1328(a)(1)" for "or 1328(a)(1)" was executed by making the substitution for "or 1328(c)(1)" to reflect the probable intent of Congress. See 1994 Amendment note above. 

Subsec. (c)(1). Pub. L. 99-554, Sec. 257(o)(1), inserted reference to section 1228 of this title.

Subsec. (d). Pub. L. 99-554, Sec. 257(o)(1), inserted reference to section 1228 of this title. 

Pub. L. 99-554, Sec. 282, substituted "shall" for "may" before "hold" in first sentence, inserted "any" after "At" in second sentence, and inserted "the court shall hold a hearing at which the debtor shall appear in person and" after "then" in third sentence. 

Subsec. (d)(2). Pub. L. 99-554, Sec. 283(k), substituted "section" for "subsection" after "subsection (c)(6) of this".

1984

Subsec. (a)(2). Pub. L. 98-353, Sec. 308(a), 455, struck out "or from property of the debtor," before "whether or not discharge", and substituted "an act" for "any act". 

Subsec. (a)(3). Pub. L. 98-353, Sec. 455, substituted "an act" for "any act".

Subsec. (c)(2). Pub. L. 98-353, Sec. 308(b)(1), (3), added par. (2). Former par. (2), which related to situations where the debtor had not rescinded the agreement within 30 days after the agreement became enforceable, was struck out. 

Subsec. (c)(3), (4). Pub. L. 98-352, Sec. 308(b)(3), added pars. (3) and (4). Former pars. (3) and (4) redesignated (5) and (6), respectively.

Subsec. (c)(5). Pub. L. 98-353, Sec. 308(b)(2), redesignated former par. (3) as (5). 

Subsec. (c)(6). Pub. L. 98-353, Sec. 308(b)(2), (4), redesignated former par. (4) as (6) and generally amended par. (6), as so redesignated, thereby striking out provisions relating to court approval of such agreements as are entered into in good faith and are in settlement of litigation under section 523 of this title or provide for redemption under section 722 of this title. 

Subsec. (d)(2). Pub. L. 98-353, Sec. 308(c), substituted "subsection (c)(6)" for "subsection (c)(4)".

Subsec. (f). Pub. L. 98-353, Sec. 308(d), added subsec. (f). 

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and, except with respect to amendment by section 111(a) of Pub. L. 103-394, amendment by Pub. L. 103-394 not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1986 Amendments. Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. 

Amendment by sections 282 and 283 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

CONSTRUCTION

 Section 111(b) of Pub. L. 103-394 provided that: "Nothing in subsection (a), or in the amendments made by subsection (a) (amending this section), shall be construed to modify, impair, or supersede any other authority the court has to issue injunctions in connection with an order confirming a plan of reorganization." 

REFERENCES IN TEXT

The Bankruptcy Act, referred to in subsec. (b)(1), is act July 1, 1898, ch. 541, 30 Stat. 544, as amended, which was classified generally to former Title 11

The date of the enactment of this subsection, referred to in subsec. (g)(7), is the date of enactment of Pub. L. 103-394, which enacted subsec. (g) and was approved Oct. 22, 1994.

The date of the enactment of this Act, referred to in subsec. (h), probably means the date of enactment of Pub. L. 103-394, which enacted subsec. (h) and was approved Oct. 22, 1994. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 108, 341, 521, 901 of this title; title 26 section 7433. 


FOOTNOTES  (11 U.S.C. § 524)

15 U.S.C. § 1602    •      -  524(e)(i)  -  524(e)(ii)

15 U.S.C. § 1637(b)(5) & (6)    •   

15 U.S.C. § 1638(a)(4)    •   

15 U.S.C. § 1601 et seq.    •   

12 U.S.C. § 461(b)(1)(A)(iv) refers to certain insured credit unions, and provides as follows:

§ 461. Reserve requirements

(b) Additional definitions; required amounts of reserves maintained against transaction accounts; waiver of ratio limits in extraordinary circumstances; supplemental reserves; reserves related to foreign obligations or assets; exemption for certain deposits; discount and borrowing; transitional adjustments; additional exemptions and waivers

(1) The following definitions and rules apply to this subsection, subsection (c) of this section, and sections 248-1, 248a, 342, 360, and 412 of this title    •      -  524(k)(6)(b)  -  524(m(2)

 (A) The term "depository institution" means—

(iv) any insured credit union as defined in section 1752 of this title or any credit union which is eligible to make application to become an insured credit union pursuant to section 1781 of this title;    •      -  524(k)(6)(b)  -  524(m(2)


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 524)

BAPCPA § 202    •    House Report 109-31    •      -  524(i)  -  524(j)

BAPCPA § 203(a)(1)    •    House Report 109-31    •   

BAPCPA § 203(a)(2)    •    House Report 109-31    •      -  524(k)  -  524(l)  -  524(m)

BAPCPA § 1210    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 525)


LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1994 Acts (Pub. L. 103-394). House Report No. 103-835.

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. This section is additional debtor protection. It codifies the result of Perez v. Campbell, 402 U.S. 637 (1971), which held that a State would frustrate the Congressional policy of a fresh start for a debtor if it were permitted to refuse to renew a drivers license because a tort judgment resulting from an automobile accident had been unpaid as a result of a discharge in bankruptcy. 

Notwithstanding any other laws, section 525 prohibits a governmental unit from denying, revoking, suspending, or refusing to renew a license, permit, charter, franchise, or other similar grant to, from conditioning such a grant to, from discrimination with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor or that is or has been associated with a debtor. The prohibition extends only to discrimination or other action based solely on the basis of the bankruptcy, on the basis of insolvency before or during bankruptcy prior to a determination of discharge, or on the basis of nonpayment of a debt discharged in the bankruptcy case (the Perez situation). It does not prohibit consideration of other factors, such as future financial responsibility or ability, and does not prohibit imposition of requirements such as net capital rules, if applied nondiscriminatorily. 

In addition, the section is not exhaustive. The enumeration of various forms of discrimination against former bankrupts is not intended to permit other forms of discrimination. The courts have been developing the Perez rule. This section permits further development to prohibit actions by governmental or quasi-governmental organizations that perform licensing functions, such as a State bar association or a medical society, or by other organizations that can seriously affect the debtors' livelihood or fresh start, such as exclusion from a union on the basis of discharge of a debt to the union's credit union. 

The effect of the section, and of further interpretations of the Perez rule, is to strengthen the anti-reaffirmation policy found in section 524(b). Discrimination based solely on nonpayment could encourage reaffirmations, contrary to the expressed policy. 

The section is not so broad as a comparable section proposed by the Bankruptcy Commission, S. 236, 94th Cong., 1st Sess. Sec. 4-508 (1975), which would have extended the prohibition to any discrimination, even by private parties. Nevertheless, it is not limiting either, as noted. The courts will continue to mark the contours of the anti-discrimination provision in pursuit of sound bankruptcy policy. 

AMENDMENTS

2005 — Will be supplemented. 

1994

Subsec. (a). Pub. L. 103-394, Sec. 501(d)(15), struck out "(7 U.S.C. 499a-499s)" after "Act, 1930", "(7 U.S.C. 181-229)" after "Act, 1921", and "(57 Stat. 422; 7 U.S.C. 204)" after "July 12, 1943". 

Subsec. (c). Pub. L. 103-394, Sec. 313, added subsec. (c).

1984 — Pub. L. 98-353 designated existing provisions as subsec. (a), inserted "the" before "Perishable", and added subsec. (b)

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

REFERENCES IN TEXT

The Perishable Agricultural Commodities Act, 1930, referred to in subsec. (a), is act June 10, 1930, ch. 436, 46 Stat. 531, as amended, which is classified generally to chapter 20A (Sec. 499a et seq.) of Title 7, Agriculture. For complete classification of this Act to the Code, see section 499a(a) of Title 7 and Tables. 

The Packers and Stockyards Act, 1921, referred to in subsec. (a), is act Aug. 15, 1921, ch. 64, 42 Stat. 159, as amended, which is classified generally to chapter 9 (Sec. 181 et seq.) of Title 7.

For complete classification of this Act to the Code, see section 181 of Title 7 and Tables. 

Section 1 of the Act entitled "An Act making appropriations for the Department of Agriculture for the fiscal year ending June 30, 1944, and for other purposes," approved July 12, 1943, referred to in subsec. (a), is classified to section 204 of Title 7. 

The Bankruptcy Act, referred to in text, is act July 1, 1898, ch. 541, 30 Stat. 544, as amended, which was classified generally to former Title 11

The Higher Education Act of 1965, referred to in subsec. (c)(2), is Pub. L. 89-329, Nov. 8, 1965, 79 Stat. 1219, as amended. Parts B, D, and E of title IV of the Act are classified generally to parts B (Sec. 1071 et seq.), C (Sec. 1087a et seq.), and D (Sec. 1087aa et seq.), respectively, of subchapter IV of chapter 28 of Title 20, Education. For complete classification of this Act to the Code, see Short Title note set out under section 1001 of Title 20 and Tables. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 106 of this title. 


FOOTNOTES  (11 U.S.C. § 525)

7 U.S.C. § 499a, et. seq.    •   

7 U.S.C. § 181, et. seq.    •   

7 U.S.C.  §§ 204, 2235 (Department of Agriculture Appropriation Act, 1944 (July 12, 1943, ch. 215, 57 Stat. 392)    •   


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 525)

BAPCPA § 1211(1)    •    House Report 109-31    •   

BAPCPA § 1211(2)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 526)


LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 526)

§ 227(a)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 527)


LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 527)

BAPCPA § 228(a)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 528)


LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 528)

BAPCPA § 229(a)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 541)


LEGISLATIVE STATEMENTS

Section 541(a)(7) is new. The provision clarifies that any interest in property that the estate acquires after the commencement of the case is property of the estate; for example, if the estate enters into a contract, after the commencement of the case, such a contract would be property of the estate. The addition of this provision by the House amendment merely clarifies that section 541(a) is an all-embracing definition which includes charges on property, such as liens held by the debtor on property of a third party, or beneficial rights and interests that the debtor may have in property of another. However, only the debtor's interest in such property becomes property of the estate. If the debtor holds bare legal title or holds property in trust for another, only those rights which the debtor would have otherwise had emanating from such interest pass to the estate under section 541. Neither this section nor section 545 will affect various statutory provisions that give a creditor a lien that is valid both inside and outside bankruptcy against a bona fide purchaser of property from the debtor, or that creates a trust fund for the benefit of creditors meeting similar criteria. See Packers and Stockyards Act Sec. 206, 7 U.S.C. 196 (1976). 

Section 541(c)(2) follows the position taken in the House bill and rejects the position taken in the Senate amendment with respect to income limitations on a spend-thrift trust. 

Section 541(d) of the House amendment is derived from section 541(e) of the Senate amendment and reiterates the general principle that where the debtor holds bare legal title without any equitable interest, that the estate acquires bare legal title without any equitable interest in the property. The purpose of section 541(d) as applied to the secondary mortgage market is identical to the purpose of section 541(e) of the Senate amendment and section 541(d) will accomplish the same result as would have been accomplished by section 541(e). Even if a mortgage seller retains for purposes of servicing legal title to mortgages or interests in mortgages sold in the secondary mortgage market, the trustee would be required by section 541(d) to turn over the mortgages or interests in mortgages to the purchaser of those mortgages. 

The seller of mortgages in the secondary mortgage market will often retain the original mortgage notes and related documents and the seller will not endorse the notes to reflect the sale to the purchaser. Similarly, the purchaser will often not record the purchaser's ownership of the mortgages or interests in mortgages under State recording statutes. These facts are irrelevant and the seller's retention of the mortgage documents and the purchaser's decision not to record do not change the trustee's obligation to turn the mortgages or interests in mortgages over to the purchaser. The application of section 541(d) to secondary mortgage market transactions will not be affected by the terms of the servicing agreement between the mortgage servicer and the purchaser of the mortgages. Under section 541(d), the trustee is required to recognize the purchaser's title to the mortgages or interests in mortgages and to turn this property over to the purchaser. It makes no difference whether the servicer and the purchaser characterize their relationship as one of trust, agency, or independent contractor. 

The purpose of section 541(d) as applied to the secondary mortgage market is therefore to make certain that secondary mortgage market sales as they are currently structured are not subject to challenge by bankruptcy trustees and that purchasers of mortgages will be able to obtain the mortgages or interests in mortgages which they have purchased from trustees without the trustees asserting that a sale of mortgages is a loan from the purchaser to the seller. 

Thus, as section 541(a)(1) clearly states, the estate is comprised of all legal or equitable interests of the debtor in property as of the commencement of the case. To the extent such an interest is limited in the hands of the debtor, it is equally limited in the hands of the estate except to the extent that defenses which are personal against the debtor are not effective against the estate. 

Property of the estate: The Senate amendment provided that property of the estate does not include amounts held by the debtor as trustee and any taxes withheld or collected from others before the commencement of the case. The House amendment removes these two provisions. As to property held by the debtor as a trustee, the House amendment provides that property of the estate will include whatever interest the debtor held in the property at the commencement of the case. Thus, where the debtor held only legal title to the property and the beneficial interest in that property belongs to another, such as exists in the case of property held in trust, the property of the estate includes the legal title, but not the beneficial interest in the property. 

As to withheld taxes, the House amendment deletes the rule in the Senate bill as unnecessary since property of the estate does not include the beneficial interest in property held by the debtor as a trustee. Under the Internal Revenue Code of 1954 (section 7501) (26 U.S.C. 7501), the amounts of withheld taxes are held to be a special fund in trust for the United States. Where the Internal Revenue Service can demonstrate that the amounts of taxes withheld are still in the possession of the debtor at the commencement of the case, then if a trust is created, those amounts are not property of the estate. Compare In re Shakesteers Coffee Shops, 546 F.2d 821 (9th Cir. 1976) with In re Glynn Wholesale Building Materials, Inc. (S.D. Ga. 1978) and In re Progress Tech Colleges, Inc., 42 Aftr 2d 78-5573 (S.D. Ohio 1977). 

Where it is not possible for the Internal Revenue Service to demonstrate that the amounts of taxes withheld are still in the possession of the debtor at the commencement of the case, present law generally includes amounts of withheld taxes as property of the estate. See, e.g., United States v. Randall, 401 U.S. 513 (1973) (91 S. Ct. 991, 28 L.Ed.2d 273) and In re Tamasha Town and Country Club, 483 F.2d 1377 (9th Cir. 1973). Nonetheless, a serious problem exists where "trust fund taxes" withheld from others are held to be property of the estate where the withheld amounts are commingled with other assets of the debtor. The courts should permit the use of reasonable assumptions under which the Internal Revenue Service, and other tax authorities, can demonstrate that amounts of withheld taxes are still in the possession of the debtor at the commencement of the case. For example, where the debtor had commingled that amount of withheld taxes in his general checking account, it might be reasonable to assume that any remaining amounts in that account on the commencement of the case are the withheld taxes. In addition, Congress may consider future amendments to the Internal Revenue Code (title 26) making clear that amounts of withheld taxes are held by the debtor in a trust relationship and, consequently, that such amounts are not property of the estate. 

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1994 Acts (Pub. L. 103-394). House Report No. 103-835.

1990 Acts (Pub. L. 101-508).  House Report No. 101-881 and  House Conference Report No. 101-964. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. This section defines property of the estate, and specifies what property becomes property of the estate. The commencement of a bankruptcy case creates an estate. Under paragraph (1) of subsection (a), the estate is comprised of all legal or equitable interest of the debtor in property, wherever located, as of the commencement of the case. The scope of this paragraph is broad. 

It includes all kinds of property, including tangible or intangible property, causes of action (see Bankruptcy Act Sec. 70a(6) (section 110(a)(6) of former title 11)), and all other forms of property currently specified in section 70a of the Bankruptcy Act Sec. 70a (section 110(a) of former title 11), as well as property recovered by the trustee under section 542 of proposed title 11, if the property recovered was merely out of the possession of the debtor, yet remained "property of the debtor." The debtor's interest in property also includes "title" to property, which is an interest, just as are a possessory interest, or lease-hold interest, for example. The result of Segal v. Rochelle, 382 U.S. 375 (1966), is followed, and the right to a refund is property of the estate. 

Though this paragraph will include choses in action and claims by the debtor against others, it is not intended to expand the debtor's rights against others more than they exist at the commencement of the case. For example, if the debtor has a claim that is barred at the time of the commencement of the case by the statute of limitations, then the trustee would not be able to pursue that claim, because he too would be barred. He could take no greater rights than the debtor himself had. But see proposed 11 U.S.C. 108, which would permit the trustee a tolling of the statute of limitations if it had not run before the date of the filing of the petition. 

Paragraph (1) has the effect of overruling Lockwood v. Exchange Bank, 190 U.S. 294 (1903), because it includes as property of the estate all property of the debtor, even that needed for a fresh start. After the property comes into the estate, then the debtor is permitted to exempt it under proposed 11 U.S.C. 522, and the court will have jurisdiction to determine what property may be exempted and what remains as property of the estate. The broad jurisdictional grant in proposed 28 U.S.C. 1334 would have the effect of overruling Lockwood independently of the change made by this provision. Paragraph (1) also has the effect of overruling Lines v. Frederick, 400 U.S. 18 (1970). 

Situations occasionally arise where property ostensibly belonging to the debtor will actually not be property of the debtor, but will be held in trust for another. For example, if the debtor has incurred medical bills that were covered by insurance, and the insurance company had sent the payment of the bills to the debtor before the debtor had paid the bill for which the payment was reimbursement, the payment would actually be held in a constructive trust for the person to whom the bill was owed. This section and proposed 11 U.S.C. 545 also will not affect various statutory provisions that give a creditor of the debtor a lien that is valid outside as well as inside bankruptcy, or that creates a trust fund for the benefit of a creditor of the debtor. See Packers and Stockyards Act Sec. 206, 7 U.S.C. 196. 

Bankruptcy Act Sec. 8 (section 26 of former title 11) has been deleted as unnecessary. Once the estate is created, no interests in property of the estate remain in the debtor. Consequently, if the debtor dies during the case, only property exempted from property of the estate or acquired by the debtor after the commencement of the case and not included as property of the estate will be available to the representative of the debtor's probate estate. The bankruptcy proceeding will continue in rem with respect to property of the state, and the discharge will apply in personam to relieve the debtor, and thus his probate representative, of liability for dischargeable debts

The estate also includes the interests of the debtor and the debtor's spouse in community property, subject to certain limitations; property that the trustee recovers under the avoiding powers; property that the debtor acquires by bequest, devise, inheritance, a property settlement agreement with the debtor's spouse, or as the beneficiary of a life insurance policy within 180 days after the petition; and proceeds, product, offspring, rents, and profits of or from property of the estate, except such as are earning from services performed by an individual debtor after the commencement of the case. Proceeds here is not used in a confining sense, as defined in the Uniform Commercial Code, but is intended to be a broad term to encompass all proceeds of property of the estate. The conversion in form of property of the estate does not change its character as property of the estate. 

Subsection (b) excludes from property of the estate any power, such as a power of appointment, that the debtor may exercise solely for the benefit of an entity other than the debtor. This changes present law which excludes powers solely benefiting other persons but not other entities. 

Subsection (c) invalidates restrictions on the transfer of property of the debtor, in order that all of the interests of the debtor in property will become property of the estate. The provisions invalidated are those that restrict or condition transfer of the debtor's interest, and those that are conditioned on the insolvency or financial condition of the debtor, on the commencement of a bankruptcy case, or on the appointment of a custodian of the debtor's property. Paragraph (2) of subsection (c), however, preserves restrictions on a transfer of a spendthrift trust that the restriction is enforceable nonbankruptcy law to the extent of the income reasonably necessary for the support of a debtor and his dependents. 

Subsection (d) (enacted as (e)), derived from section 70c of the Bankruptcy Act (section 110(c) of former title 11), gives the estate the benefit of all defenses available to the debtor as against an entity other than the estate, including such defenses as statutes of limitations, statutes of frauds, usury, and other personal defenses, and makes waiver by the debtor after the commencement of the case ineffective to bind the estate.

Section 541(e) (enacted as (d)) confirms the current status under the Bankruptcy Act (former title 11) of bona fide secondary mortgage market transactions as the purchase and sale of assets. 

Mortgages or interests in mortgages sold in the secondary market should not be considered as part of the debtor's estate. To permit the efficient servicing of mortgages or interests in mortgages the seller often retains the original mortgage notes and related documents, and the purchaser records under State recording statutes the purchaser's ownership of the mortgages or interests in mortgages purchased. Section 541(e) makes clear that the seller's retention of the mortgage documents and the purchaser's decision not to record do not impair the asset sale character of secondary mortgage market transactions. The committee notes that in secondary mortgage market transactions the parties may characterize their relationship as one of trust, agency, or independent contractor. The characterization adopted by the parties should not affect the statutes in bankruptcy on bona fide secondary mortgage market purchases and sales. 

AMENDMENTS

2005 — Will be supplemented. 

1994

Subsec. (b)(4). Pub. L. 103-394, Sec. 208(b), designated existing provisions of subpar. (A) as cl. (i) of subpar. (A), redesignated subpar. (B) as cl. (ii) of subpar. (A), substituted "the interest referred to in clause (i)" for "such interest", substituted "; or" for period at end of cl. (ii), and added subpar. (B). 

Pub. L. 103-394, Sec. 223(2), which directed the amendment of subsec. (b)(4) by striking out period at end and inserting "; or", was executed by inserting "or" after semicolon at end of subsec. (b)(4)(B)(ii), as added by Pub. L. 103-394, Sec. 208(b)(3), to reflect the probable intent of Congress. 

Subsec. (b)(5). Pub. L. 103-394, Sec. 223, added par. (5).

1992 — Subsec. (b). Pub. L. 102-486 added par. (4) and closing provisions. 

1990 — Subsec. (b)(3). Pub. L. 101-508 added par. (3).

1984

Subsec. (a). Pub. L. 98-353, Sec. 456(a)(1), (2), struck out "under" after "under" and inserted "and by whomever held" after "located". 

Subsec. (a)(3). Pub. L. 98-353, Sec. 456(a)(3), inserted "329(b), 363(n),".

Subsec. (a)(5). Pub. L. 98-353, Sec. 456(a)(4), substituted "Any" for "An". 

Subsec. (a)(6). Pub. L. 98-353, Sec. 456(a)(5), substituted "or profits" for "and profits".

Subsec. (b). Pub. L. 98-353, Sec. 363(a), amended subsec. (b) generally. Prior to amendment, subsec. (b) read as follows: "Property of the estate does not include any power that the debtor may only exercise solely for the benefit of an entity other than the debtor." Subsec. (c)(1). Pub. L. 98-353, Sec. 456(b)(1), inserted "in an agreement, transfer, instrument, or applicable nonbankruptcy law". 

Subsec. (c)(1)(B). Pub. L. 98-353, Sec. 456(b)(2), substituted "taking" for "the taking", and inserted "before such commencement" after "custodian".

Subsec. (d). Pub. L. 98-353, Sec. 456(c), inserted "(1) or (2)" after "(a)". 

Subsec. (e). Pub. L. 98-353, Sec. 456(d), struck out subsec. (e) which read as follows: "The estate shall have the benefit of any defense available to the debtor as against an entity other than the estate, including statutes of limitation, statutes of frauds, usury, and other personal defenses. A waiver of any such defense by the debtor after the commencement of the case does not bind the estate." 

Effective Date of Amendments

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

Pub. L. 109-8, Title XII, § 1221(d) provided that the amendments made to section 541(f) (transfer of property by tax exempt corporations  to non-tax exempt corporations) "shall apply to a case pending under title 11, United States Code, on the date of enactment of this Act, or filed under that title on or after that date of enactment, except that the court shall not confirm a plan under chapter 11 of title 11, United States Code, without considering whether this section would substantially affect the rights of a party in interest who first acquired rights with respect to the debtor after the date of the filing of the petition. The parties who may appear and be heard in a proceeding under this section include the attorney general of the State in which the debtor is incorporated, was formed, or does business." 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1992 Amendments. Amendment by Pub. L. 102-486 effective Oct. 24, 1992, but not applicable with respect to cases commenced under this title before Oct. 24, 1992, see section 3017(c) of Pub. L. 102-486, set out as a note under section 101 of this title. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

REFERENCES IN TEXT

The Higher Education Act of 1965, referred to in subsec. (b)(3), is Pub. L. 89-329, Nov. 8, 1965, 79 Stat. 1219, as amended, which is classified principally to chapter 28 (Sec. 1001 et seq.) of Title 20, Education. For complete classification of this Act to the Code, see Short Title note set out under section 1001 of Title 20 and Tables. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 101 , 365, 522, 524, 726, 728, 1207, 1306 of this title; title 28 section 1409


FOOTNOTES (11 U.S.C. § 541)

29 U.S.C. 1001 et seq.    •   

So in original.  There is no 26 U.S.C. 529(b)(7).    •   


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 541)

BAPCPA § 225(a)(1)(A)    •    House Report 109-31    •   

BAPCPA § 225(a)(1)(B)    •    House Report 109-31    •   

BAPCPA § 225(a)(1)(C)    •    House Report 109-31    •      -  541(b)(5)  -  541(b)(6)

BAPCPA § 225(a)(2)    •    House Report 109-31    •   

BAPCPA § 323    •    House Report 109-31    •   

BAPCPA § 1212    •    House Report 109-31    •   

BAPCPA § 1221(c)    •    House Report 109-31    •    BAPCPA § 1221(d) contains  the following uncodifed provision:

(d) Applicability.—The amendments made by this section shall apply to a case pending under title 11, United States Code, on the date of enactment of this Act, or filed under that title on or after that date of enactment, except that the court shall not confirm a plan under chapter 11 of title 11, United States Code, without considering whether this section would substantially affect the rights of a party in interest who first acquired rights with respect to the debtor after the date of the filing of the petition. The parties who may appear and be heard in a proceeding under this section include the attorney general of the State in which the debtor is incorporated, was formed, or does business.    •   

(e) Rule of Construction.—Nothing in this section shall be construed to require the court in which a case under chapter 11 of title 11, United States Code, is pending to remand or refer any proceeding, issue, or controversy to any other court or to require the approval of any other court for the transfer of property.    •   

BAPCPA § 1230    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 542)


LEGISLATIVE STATEMENTS

Section 542(a) of the House amendment modifies similar provisions contained in the House bill and the Senate amendment treating with turnover of property to the estate. The section makes clear that any entity, other than a custodian, is required to deliver property of the estate to the trustee or debtor in possession whenever such property is acquired by the entity during the case, if the trustee or debtor in possession may use, sell, or lease the property under section 363, or if the debtor may exempt the property under section 522, unless the property is of inconsequential value or benefit to the estate. This section is not intended to require an entity to deliver property to the trustee if such entity has obtained an order of the court authorizing the entity to retain possession, custody or control of the property. 

The House amendment adopts section 542(c) of the House bill in preference to a similar provision contained in section 542(c) of the Senate amendment. Protection afforded by section 542(c) applies only to the transferor or payor and not to a transferee or payee receiving a transfer or payment, as the case may be. Such transferee or payee is treated under section 549 and section 550 of title 11

The extent to which the attorney client privilege is valid against the trustee is unclear under current law and is left to be determined by the courts on a case by case basis. 

LEGISLATIVE REPORTS

1994 Acts (Pub. L. 103-394). House Report No. 103-835. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. Subsection (a) of this section requires anyone holding property of the estate on the date of the filing of the petition, or property that the trustee may use, sell, or lease under section 363, to deliver it to the trustee. The subsection also requires an accounting. The holder of property of the estate is excused from the turnover requirement of this subsection if the property held is of inconsequential value to the estate. However, this provision must be read in conjunction with the remainder of the subsection, so that if the property is of inconsequential monetary value, yet has a significant use value for the estate, the holder of the property would not be excused from turnover. 

Subsection (b) requires an entity that owes money to the debtor as of the date of the petition, or that holds money payable on demand or payable on order, to pay the money to the order of the trustee. An exception is made to the extent that the entity has a valid right of setoff, as recognized by section 553

Subsection (c) provides an exception to subsections (a) and (b). It protects an entity that has neither actual notice nor actual knowledge of the case and that transfers, in good faith, property that is deliverable or payable to the trustee to someone other than to the estate or on order of the estate. This subsection codifies the result of Bank of Marin v. England, 385 U.S. 99 (1966), but does not go so far as to permit bank setoff in violation of the automatic stay, proposed 11 U.S.C. 362(a)(7), even if the bank offsetting the debtor's balance has no knowledge of the case. 

Subsection (d) protects life insurance companies that are required by contract to make automatic premium loans from property that might otherwise be property of the estate. 

Subsection (e) requires an attorney, accountant, or other professional that holds recorded information relating to the debtor's property or financial affairs, to surrender it to the trustee. This duty is subject to any applicable claim of privilege, such as attorney-client privilege. It is a new provision that deprives accountants and attorneys of the leverage that they have today, under State law lien provisions, to receive payment in full ahead of other creditors when the information they hold is necessary to the administration of the estate. 

AMENDMENTS

1994 — Subsec. (e). Pub. L. 103-394 substituted "to" for "to to" after "financial affairs,".

1984 — Subsec. (e). Pub. L. 98-353 inserted "to turn over or" before "disclose". 

Effective Date of Amendments

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title.

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 349, 502, 522, 541, 549 of this title. 


HISTORICAL AND REVISION NOTES (11 U.S.C. § 543)


LEGISLATIVE STATEMENTS

Section 543(a) is a modification of similar provisions contained in the House bill and the Senate amendment. The provision clarifies that a custodian may always act as is necessary to preserve property of the debtor. Section 543(c)(3) excepts from surcharge a custodian that is an assignee for the benefit of creditors, who was appointed or took possession before 120 days before the date of the filing of the petition, whichever is later. The provision also prevents a custodian from being surcharged in connection with payments made in accordance with applicable law. 

LEGISLATIVE REPORTS

1994 Acts (Pub. L. 103-394). House Report No. 103-835. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. This section requires a custodian appointed before the bankruptcy case to deliver to the trustee and to account for property that has come into his possession, custody, or control as a custodian

"Property of the debtor" in section (a) includes property that was property of the debtor at the time the custodian took the property, but the title to which passed to the custodian. The section requires the court to protect any obligations incurred by the custodian, provide for the payment of reasonable compensation for services rendered and costs and expenses incurred by the custodian, and to surcharge the custodian for any improper or excessive disbursement, unless it has been approved by a court of competent jurisdiction. Subsection (d) reinforces the general abstention policy in section 305 by permitting the bankruptcy court to authorize the custodianship to proceed notwithstanding this section. 

AMENDMENTS

1994 — Subsec. (d)(1). Pub. L. 103-394 struck out comma after "section". 

1984

Subsec. (a). Pub. L. 98-353, Sec. 458(a), inserted ", product, offspring, rents, or profits" after "proceeds".

Subsec. (b)(1). Pub. L. 98-353, Sec. 458(b)(1), inserted "held by or" after "debtor", and ", product, offspring, rents, or profits" after "proceeds". 

Subsec. (b)(2). Pub. L. 98-353, Sec. 458(b)(2), inserted ", product, offspring, rents, or profits" after "proceeds".

Subsec. (c)(1). Pub. L. 98-353, Sec. 458(c)(1), inserted "or proceeds, product, offspring, rents, or profits of such property" after "property". 

Subsec. (c)(3). Pub. L. 98-353, Sec. 458(c)(2), inserted "that has been" before "approved".

Subsec. (d). Pub. L. 98-353, Sec. 458(d), designated existing provisions as par. (1) and added par. (2). 

Effective Date of Amendments

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title.

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 349, 502, 503, 522, 541, 726 of this title. 


HISTORICAL AND REVISION NOTES (11 U.S.C. § 544)


LEGISLATIVE STATEMENTS

Section 544(a)(3) modifies similar provisions contained in the House bill and Senate amendment so as not to require a creditor to perform the impossible in order to perfect his interest. Both the lien creditor test in section 544(a)(1), and the bona fide purchaser test in section 544(a)(3) should not require a transferee to perfect a transfer against an entity with respect to which applicable law does not permit perfection. The avoiding powers under section 544(a)(1), (2), and (3) are new. In particular, section 544(a)(1) overrules Pacific Finance Corp. v. Edwards, 309 F.2d 224 (9th Cir. 1962), and In re Federals, Inc., 553 F.2d 509 (6th Cir. 1977), insofar as those cases held that the trustee did not have the status of a creditor who extended credit immediately prior to the commencement of the case. 

The House amendment deletes section 544(c) of the House bill.

LEGISLATIVE REPORTS

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. Subsection (a) is the "strong arm clause" of current law, now found in Bankruptcy Act Sec. 70c (section 110(c) of former title 11). It gives the trustee the rights of a creditor on a simple contract with a judicial lien on the property of the debtor as of the date of the petition; of a creditor with a writ of execution against the property of the debtor unsatisfied as of the date of the petition; and a bona fide purchaser of the real property of the debtor as of the date of the petition. "Simple contract" as used here is derived from Bankruptcy Act Sec. 60a(4) (section 96(a)(4) of former title 11). The third status, that of a bona fide purchaser of real property, is new. 

Subsection (b) is derived from current section 70e (section 110(e) of former title 11). It gives the trustee the rights of actual unsecured creditors under applicable law to void transfers. It follows Moore v. Bay, 284 U.S. 4 (1931), and overrules those cases that hold section 70e gives the trustee the rights of secured creditors

AMENDMENTS

1998 — Subsec. (b). Pub. L. 105-183 designated existing provisions as par. (1), substituted "Except as provided in paragraph (2), the trustee" for "The trustee", and added par. (2). 

1984

 Subsec. (a)(1). Pub. L. 98-353, Sec. 459(1), inserted "such" after "obtained". 

Subsec. (a)(2). Pub. L. 98-353, Sec. 459(2), substituted "; or" for "; and".

Subsec. (a)(3). Pub. L. 98-353, Sec. 459(3), inserted ", other than fixtures," after "property", and "and has perfected such transfer" after "purchaser" the second place it appeared. 

Effective Date of Amendments

1998 Amendments. Pub. L. 105-183, Sec. 5, June 19, 1998, 112 Stat. 518, provided that: "This Act (amending this section and sections 546, 548, 707, and 1325 of this title and enacting provisions set out as notes under this section and section 101 of this title) and the amendments made by this Act shall apply to any case brought under an applicable provision of title 11, United States Code, that is pending or commenced on or after the date of enactment of this Act (June 19, 1998)." 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

CONSTRUCTION OF 1998 AMENDMENT

Pub. L. 105-183, Sec. 6, June 19, 1998, 112 Stat. 519, provided that: "Nothing in the amendments made by this Act (amending this section and sections 546, 548, 707, and 1325 of this title) is intended to limit the applicability of the Religious Freedom Restoration Act of 1993 (42 U.S.C. 2002bb (2000bb) et seq.)." 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 303, 349, 502, 522, 541, 546, 548, 550, 551, 552, 749, 764, 901, 926 of this title; title 28 section 1409


HISTORICAL AND REVISION NOTES (11 U.S.C. § 545)


LEGISLATIVE STATEMENTS

Section 545 of the House amendment modifies similar provisions contained in the House bill and Senate amendment to make clear that a statutory lien may be avoided under section 545 only to the extent the lien violates the perfection standards of section 545. Thus a Federal tax lien is invalid under section 545(2) with respect to property specified in sections 6323(b) and (c) of the Internal Revenue Code of 1954 (title 26). As a result of this modification, section 545(b) of the Senate amendment is deleted as unnecessary. 

Statutory liens: The House amendment retains the provision of section 545(2) of the House bill giving the trustee in a bankruptcy case the same power which a bona fide purchaser has to take over certain kinds of personal property despite the existence of a tax lien covering that property. The amendment thus retains present law, and deletes section 545(b) of the Senate amendment which would have no longer allowed the trustee to step into the shoes of a bona fide purchaser for this purpose. 

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. This section permits the trustee to avoid the fixing of certain Statutory liens. It is derived from subsections 67b and 67c of present law (section 107(b) and (c) of former title 11). Liens that first become effective on the bankruptcy or insolvency of the debtor are voidable by the trustee. Liens that are not perfected or enforceable on the date of the petition against a bona fide purchaser are voidable. If a transferee is able to perfect under section 546(a) and that perfection relates back to an earlier date, then in spite of the filing of the bankruptcy petition, the trustee would not be able to defeat the lien, because the lien would be perfected and enforceable against a bona fide purchaser that purchased the property on the date of the filing of the petition. 

Finally, a lien for rent or of distress for rent is voidable, whether the lien is a statutory lien or a common law lien of distress for rent. See proposed 11 U.S.C. 101(37); Bankruptcy Act Sec. 67(c)(1)(C). The trustee may avoid a lien under this section even if the lien has been enforced by sale before the commencement of the case. To that extent, Bankruptcy Act Sec. 67c(5) is not followed. 

Subsection (b) limits the trustee's power to avoid tax liens under Federal, state, or local law. For example, under Sec. 6323 of the Internal Revenue Code (Title 26). Once public notice of a tax lien has been filed, the Government is generally entitled to priority over subsequent lienholders. However, certain purchasers who acquire an interest in certain specific kinds of personal property will take free of an existing filed tax lien attaching to such property. Among the specific kinds of personal property which a purchaser can acquire free of an existing tax lien (unless the buyer knows of the existence of the lien) are stocks and securities, motor vehicles, inventory, and certain household goods. Under the present Bankruptcy Act (Sec. 67(c)(1)) (section 107(c)(1) of former title 11), the trustee may be viewed as a bona fide purchaser, so that he can take over any such designated items free of tax liens even if the tax authority has perfected its lien. However, the reasons for enabling a bona fide purchaser to take these kinds of assets free of an unfiled tax lien, that is, to encourage free movement of these assets in general commerce, do not apply to a trustee in a title 11 case, who is not in the same position as an ordinary bona fide purchaser as to such property. The bill accordingly adds a new subsection (b) to sec. 545 providing, in effect, that a trustee in bankruptcy does not have the right under this section to take otherwise specially treated items of personal property free of a tax lien filed before the filing of the petition. 

AMENDMENTS

2005 — Will be supplemented. 

1984

Par. (1)(A). Pub. L. 98-353, Sec. 460(1), struck out "is" after "is". 

Par. (1)(C). Pub. L. 98-353, Sec. 460(2), substituted "appointed or authorized to take" for "apponted". 

Par. (2). Pub. L. 98-353, Sec. 460(3), substituted "at the time of the commencement of the case" for "on the date of the filing of the petition" in two places. 

Effective Date of Amendments

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 303, 349, 502, 522, 546, 547, 548, 550, 551, 552, 749, 764, 901, 926 of this title; title 26 sections 6327, 7437. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 545)

BAPCPA § 711    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 546)


LEGISLATIVE STATEMENTS

Section 546(a) of the House amendment is derived from section 546(c) of the Senate amendment. Section 546(c) of the House amendment is derived from section 546(b) of the Senate amendment. It applies to receipt of goods on credit as well as by cash sales. The section clarifies that a demand for reclamation must be made in writing anytime before 10 days after receipt of the goods by the debtor. The section also permits the court to grant the reclaiming creditor a lien or an administrative expense in lieu of turning over the property. 

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31.

1994 Acts (Pub. L. 103-394). House Report No. 103-835. 

1990 Acts (Pub. L. 101-311). House Report No. 101-484.

1986 Acts (Pub. L. 99-554). House Report No. 99-764 and House Conference Report No. 99-958. 

1982 Acts (Pub. L. 97-222). House Report No. 97-420.

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. The trustee's rights and powers under certain of the avoiding powers are limited by section 546. First, if an interest holder against whom the trustee would have rights still has, under applicable nonbankruptcy law, and as of the date of the petition, the opportunity to perfect his lien against an intervening interest holder, then he may perfect his interest against the trustee. If applicable law requires seizure for perfection, then perfection is by notice to the trustee instead. The rights granted to a creditor under this subsection prevail over the trustee only if the transferee has perfected the transfer in accordance with applicable law, and that perfection relates back to a date that is before the commencement of the case. 

The phrase "generally applicable law" relates to those provisions of applicable law that apply both in bankruptcy cases and outside of bankruptcy cases. For example, many State laws, under the Uniform Commercial Code, permit perfection of a purchase-money security interest to relate back to defeat an earlier levy by another creditor if the former was perfected within ten days of delivery of the property. U.C.C. Sec. 9-301(2). Such perfection would then be able to defeat an intervening hypothetical judicial lien creditor on the date of the filing of the petition. The purpose of the subsection is to protect, in spite of the surprise intervention of a bankruptcy petition, those whom State law protects by allowing them to perfect their liens or interests as of an effective date that is earlier than the date of perfection. It is not designed to give the States an opportunity to enact disguised priorities in the form of liens that apply only in bankruptcy cases. 

Subsection (b) (enacted as (c) specifies that the trustee's rights and powers under the strong arm clause, the successor to creditors provision, the preference section, and the postpetition transaction section are all subject to any statutory or common-law right of a seller, in the ordinary course of business, of goods to the debtor to reclaim the goods if the debtor received the goods on credit while insolvent. The seller must demand reclamation within ten days after receipt of the goods by the debtor. As under nonbankruptcy law, the right is subject to any superior rights of secured creditors. The purpose of the provision is to recognize, in part, the validity of section 2-702 of the Uniform Commercial Code, which has generated much litigation, confusion, and divergent decisions in different circuits. The right is subject, however, to the power of the court to deny reclamation and protect the seller by granting him a priority as an administrative expense for his claim arising out of the sale of the goods. 

Subsection (c) (enacted as (a)) adds a statute of limitations to the use by the trustee of the avoiding powers. The limitation is two years after his appointment, or the time the case is closed or dismissed, whichever occurs later. 

AMENDMENTS

2005 — Will be supplemented. 

1998 — Subsecs. (e) to (g). Pub. L. 105-183 substituted "548(a)(1)(B)" for "548(a)(2)" and "548(a)(1)(A)" for "548(a)(1)".

1994

Subsec. (a)(1). Pub. L. 103-394, Sec. 216, amended par. (1) generally. Prior to amendment, par. (1) read as follows: "two years after the appointment of a trustee under section 702, 1104, 1163, 1302, or 1202 of this title; or". 

Subsec. (b). Pub. L. 103-394, Sec. 204(b), amended subsec. (b) generally. Prior to amendment, subsec. (b) read as follows: "The rights and powers of a trustee under sections 544, 545, and 549 of this title are subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of such perfection. If such law requires seizure of such property or commencement of an action to accomplish such perfection, and such property has not been seized or such action has not been commenced before the date of the filing of the petition, such interest in such property shall be perfected by notice within the time fixed by such law for such seizure or commencement." Subsec. (c)(1). Pub. L. 103-394, Sec. 209, amended par. (1) generally. Prior to amendment, par. (1) read as follows: "such a seller may not reclaim any such goods unless such seller demands in writing reclamation of such goods before ten days after receipt of such goods by the debtor; and". 

Subsec. (e). Pub. L. 103-394, Sec. 501(b)(4)(A), substituted "section 101, 741, or 761" for "section 101(34), 741(5), or 761(15)" and "section 101 or 741" for "section 101(35) or 741(8)". 

Subsec. (f). Pub. L. 103-394, Sec. 501(b)(4)(B), substituted "section 741 or 761" for "section 741(5) or 761(15)" and "section 741" for "section 741(8)". 

Subsec. (g). Pub. L. 103-394, Sec. 222(a), added subsec. (g) relating to return of goods.

1990 

Subsec. (e). Pub. L. 101-311, Sec. 203, inserted reference to sections 101(34) and 101(35) of this title. 

Subsec. (g). Pub. L. 101-311, Sec. 103, added subsec. (g) relating to trustee's authority to avoid transfer involving swap agreement

1986

Subsec. (a)(1). Pub. L. 99-554, Sec. 257(d), inserted reference to section 1202 of this title. 

Subsec. (e). Pub. L. 99-554, Sec. 283(l), inserted a comma after "stockbroker".

1984

Subsec. (a)(1). Pub. L. 98-353, Sec. 461(a), substituted "; or" for "; and". 

Subsec. (b). Pub. L. 98-353, Sec. 461(b), substituted "a trustee under sections 544, 545, and" for "the trustee under sections 544, 545, or".

Subsec. (c). Pub. L. 98-353, Sec. 351(1), 461(c)(1)-(4), substituted "Except as provided in subsection (d) of this section, the" for "The", substituted "a trustee" for "the trustee", struck out "right" before "or common-law", inserted "of goods that has sold goods to the debtor" after "seller", and struck out "of goods to the debtor" after "business,". 

Subsec. (c)(2). Pub. L. 98-353, Sec. 461(c)(5)(A), inserted "the" after "if" in provisions preceding subpar. (A).

Subsec. (c)(2)(A). Pub. L. 98-353, Sec. 461(c)(5)(B), substituted "a claim of a kind specified in section 503(b) of this title" for "an administrative expense". 

Subsec. (d). Pub. L. 98-353, Sec. 351(3), added subsec. (d).

Former subsec. (d) redesignated (e).

Subsec. (e). Pub. L. 98-353, Sec. 351(2), 461(d), redesignated former subsec. (d) as (e) and inserted "financial institution" after "stockbroker". 

Subsec. (f). Pub. L. 98-353, Sec. 393, added subsec. (f).

1982 — Subsec. (d). Pub. L. 97-222 added subsec. (d)

Effective Date of Amendments

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1998 Amendments. Amendment by Pub. L. 105-183 applicable to any case brought under an applicable provision of this title that is pending or commenced on or after June 19, 1998, see section 5 of Pub. L. 105-183, set out as a note under section 544 of this title. 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1986 Amendments. Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure.

Amendment by section 283 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title.

CODIFICATION NOTE

Should probably be designated as subsection (h). Section 222(a) of Pub. L. 103-394, October 22, 1994, 108 Stat. 4106, added the new subsection (g) to section 546, without repealing former subsection (g), and section 222(b) refers to “546(h)”. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 362, 552, 901 of this title. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 546)

BAPCPA § 406(1)    •    House Report 109-31    •   

BAPCPA § 406(2)    •    House Report 109-31    •   

BAPCPA § 406(3)    •    House Report 109-31    •   

BAPCPA § 907(e)(1)(A)    •    House Report 109-31    •   

BAPCPA §  907(e)(1)(B)    •    House Report 109-31    •   

BAPCPA § 907(e)(1)(C)    •    House Report 109-31    •   

BAPCPA § 907(e)(2)    •    House Report 109-31    •   

BAPCPA § 907(o)(2)    •    House Report 109-31    •   

BAPCPA § 907(o)(3)    •    House Report 109-31    •   

BAPCPA § 1227(a)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 547)


LEGISLATIVE STATEMENTS

No limitation is provided for payments to commodity brokers as in section 766 of the Senate amendment other than the amendment to section 548 of title 11. Section 547(c)(2) protects most payments. 

Section 547(b)(2) of the House amendment adopts a provision contained in the House bill and rejects an alternative contained in the Senate amendment relating to the avoidance of a preferential transfer that is payment of a tax claim owing to a governmental unit. As provided, section 106(b) of the House amendment overrules contrary language in the House report with the result that the Government is subject to avoidance of preferential transfers

Contrary to language contained in the House report, payment of a debt by means of a check is equivalent to a cash payment, unless the check is dishonored. Payment is considered to be made when the check is delivered for purposes of sections 547(c)(1) and (2)

Section 547(c)(6) of the House bill is deleted and is treated in a different fashion in section 553 of the House amendment. 

Section 547(c)(6) represents a modification of a similar provision contained in the House bill and Senate amendment. The exception relating to satisfaction of a statutory lien is deleted. The exception for a lien created under title 11 is deleted since such a lien is a statutory lien that will not be avoidable in a subsequent bankruptcy. 

Section 547(e)(1)(B) is adopted from the House bill and Senate amendment without change. It is intended that the simple contract test used in this section will be applied as under section 544(a)(1) not to require a creditor to perfect against a creditor on a simple contract in the event applicable law makes such perfection impossible. For example, a purchaser from a debtor at an improperly noticed bulk sale may take subject to the rights of a creditor on a simple contract of the debtor for 1 year after the bulk sale. Since the purchaser cannot perfect against such a creditor on a simple contract, he should not be held responsible for failing to do the impossible. In the event the debtor goes into bankruptcy within a short time after the bulk sale, the trustee should not be able to use the avoiding powers under section 544(a)(1) or 547 merely because State law has made some transfers of personal property subject to the rights of a creditor on a simple contract to acquire a judicial lien with no opportunity to perfect against such a creditor

Preferences: The House amendment deletes from the category of transfers on account of antecedent debts which may be avoided under the preference rules, section 547(b)(2), the exception in the Senate amendment for taxes owed to governmental authorities. 

However, for purposes of the "ordinary course" exception to the preference rules contained in section 547(c)(2), the House amendment specifies that the 45-day period referred to in section 547(c)(2)(B) is to begin running, in the case of taxes from the last due date, including extensions, of the return with respect to which the tax payment was made. 

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1994 Acts (Pub. L. 103-394). House Report No. 103-835.

1986 Acts (Pub. L. 99-554). House Report No. 99-764 and House Conference Report No. 99-958. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. This section is a substantial modification of present law. It modernizes the preference provisions and brings them more into conformity with commercial practice and the Uniform Commercial Code. 

Subsection (a) contains three definitions. Inventory, new value, and receivable are defined in their ordinary senses, but are defined to avoid any confusion or uncertainty surrounding the terms. 

Subsection (b) is the operative provision of the section. It authorizes the trustee to avoid a transfer if five conditions are met. These are the five elements of a preference action. First, the transfer must be to or for the benefit of a creditor. Second, the transfer must be for or on account of an antecedent debt owed by the debtor before the transfer was made. Third, the transfer must have been made when the debtor was insolvent. Fourth, the transfer must have been made during the 90 days immediately preceding the commencement of the case. If the transfer was to an insider, the trustee may avoid the transfer if it was made during the period that begins one year before the filing of the petition and ends 90 days before the filing, if the insider to whom the transfer was made had reasonable cause to believe the debtor was insolvent at the time the transfer was made. 

Finally, the transfer must enable the creditor to whom or for whose benefit it was made to receive a greater percentage of his claim than he would receive under the distributive provisions of the bankruptcy code. Specifically, the creditor must receive more than he would if the case were a liquidation case, if the transfer had not been made, and if the creditor received payment of the debt to the extent provided by the provisions of the code. 

The phrasing of the final element changes the application of the greater percentage test from that employed under current law.Under this language, the court must focus on the relative distribution between classes as well as the amount that will be received by the members of the class of which the creditor is a member. The language also requires the court to focus on the allowability of the claim for which the preference was made. If the claim would have been entirely disallowed, for example, then the test of paragraph (5) will be met, because the creditor would have received nothing under the distributive provisions of the bankruptcy code. 

The trustee may avoid a transfer of a lien under this section even if the lien has been enforced by sale before the commencement of the case. 

Subsection (b)(2) of this section in effect exempts from the preference rules payments by the debtor of tax liabilities, regardless of their priority status.

Subsection (c) contains exceptions to the trustee's avoiding power. If a creditor can qualify under any one of the exceptions, then he is protected to that extent. If he can qualify under several, he is protected by each to the extent that he can qualify under each. 

The first exception is for a transfer that was intended by all parties to be a contemporaneous exchange for new value, and was in fact substantially contemporaneous. Normally, a check is a credit transaction. However, for the purposes of this paragraph, a transfer involving a check is considered to be "intended to be contemporaneous", and if the check is presented for payment in the normal course of affairs, which the Uniform Commercial Code specifies as 30 days, U.C.C. Sec. 3-503(2)(a), that will amount to a transfer that is "in fact substantially contemporaneous." 

The second exception protects transfers in the ordinary course of business (or of financial affairs, where a business is not involved) transfers. For the case of a consumer, the paragraph uses the phrase "financial affairs" to include such nonbusiness activities as payment of monthly utility bills. If the debt on account of which the transfer was made was incurred in the ordinary course of both the debtor and the transferee, if the transfer was made not later than 45 days after the debt was incurred, if the transfer itself was made in the ordinary course of both the debtor and the transferee, and if the transfer was made according to ordinary business terms, then the transfer is protected. The purpose of this exception is to leave undisturbed normal financial relations, because it does not detract from the general policy of the preference section to discourage unusual action by either the debtor or his creditors during the debtor's slide into bankruptcy. 

The third exception is for enabling loans in connection with which the debtor acquires the property that the loan enabled him to purchase after the loan is actually made. 

The fourth exception codifies the net result rule in section 60c of current law (section 96(c) of former title 11). If the creditor and the debtor have more than one exchange during the 90-day period, the exchanges are netted out according to the formula in paragraph (4). Any new value that the creditor advances must be unsecured in order for it to qualify under this exception. 

Paragraph (5) codifies the improvement in position test, and thereby overrules such cases as DuBay v. Williams, 417 F.2d 1277 (C.A.9, 1966), and Grain Merchants of Indiana, Inc. v. Union Bank and Savings Co., 408 F.2d 209 (C.A.7, 1969). A creditor with a security interest in a floating mass, such as inventory or accounts receivable, is subject to preference attack to the extent he improves his position during the 90-day period before bankruptcy. 

The test is a two-point test, and requires determination of the secured creditor's position 90 days before the petition and on the date of the petition. If new value was first given after 90 days before the case, the date on which it was first given substitutes for the 90-day point. 

Paragraph (6) excepts Statutory liens validated under section 545 from preference attack. It also protects transfers in satisfaction of such liens, and the fixing of a lien under section 365(j), which protects a vendee whose contract to purchase real property from the debtor is rejected. 

Subsection (d), derived from section 67a of the Bankruptcy Act (section 107(a) of former title 11), permits the trustee to avoid a transfer to reimburse a surety that posts a bond to dissolve a judicial lien that would have been avoidable under this section. The second sentence protects the surety from double liability. 

Subsection (e) determines when a transfer is made for the purposes of the preference section. Paragraph (1) defines when a transfer is perfected. For real property, a transfer is perfected when it is valid against a bona fide purchaser. For personal property and fixtures, a transfer is perfected when it is valid against a creditor on a simple contract that obtains a judicial lien after the transfer is perfected. "Simple contract" as used here is derived from Bankruptcy Act Sec. 60a(4) (section 96(a)(4) of former title 11). Paragraph (2) specifies that a transfer is made when it takes effect between the transferor and the transferee if it is perfected at or within 10 days after that time. 

Otherwise, it is made when the transfer is perfected. If it is not perfected before the commencement of the case, it is made immediately before the commencement of the case. Paragraph (3) specifies that a transfer is not made until the debtor has acquired rights in the property transferred. This provision, more than any other in the section, overrules DuBay and Grain Merchants, and in combination with subsection (b)(2), overrules In re King-Porter Co., 446 F.2d 722 (5th Cir. 1971). 

Subsection (e) is designed to reach the different results under the 1962 version of Article 9 of the U.C.C. and under the 1972 version because different actions are required under each version in order to make a securities clearing agency effective between the parties. 

Subsection (f) creates a presumption of insolvency for the 90 days preceding the bankruptcy case. The presumption is as defined in Rule 301 of the Federal Rules of Evidence, made applicable in bankruptcy cases by sections 224 and 225 of the bill. The presumption requires the party against whom the presumption exists to come forward with some evidence to rebut the presumption, but the burden of proof remains on the party in whose favor the presumption exists. 

AMENDMENTS

2005 — Will be supplemented. 

1994

Subsec. (c)(3)(B). Pub. L. 103-394, Sec. 203(1), substituted "20" for "10". 

Subsec. (c)(7), (8). Pub. L. 103-394, Sec. 304(f), added par. (7) and redesignated former par. (7) as (8).

Subsec. (e)(2)(A). Pub. L. 103-394, Sec. 203(2), inserted before semicolon at end ", except as provided in subsection (c)(3)(B)".

1986 — Subsec. (b)(4)(B). Pub. L. 99-554 inserted "and" after the semicolon. 

1984

Subsec. (a)(2). Pub. L. 98-353, Sec. 462(a)(1), inserted "including proceeds of such property," after "law,".

Subsec. (a)(4). Pub. L. 98-353, Sec. 462(a)(2), struck out ", without penalty" after "any extension", and inserted "without penalty" after "payable". 

Subsec. (b). Pub. L. 98-353, Sec. 462(b)(1), substituted "of an interest of the debtor in property" for "of property of the debtor" in provisions preceding par. (1).

Subsec. (b)(4)(B). Pub. L. 98-353, Sec. 462(b)(2), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: "between 90 days and one year before the date of the filing of the petition, if such creditor, at the time of such transfer -

"(i) was an insider; and

"(ii) had reasonable cause to believe the debtor was insolvent at the time of such transfer; and". 

Subsec. (c)(2)(A). Pub. L. 98-353, Sec. 462(d)(1), inserted "by the debtor" after "incurred".

Subsec. (c)(3)(B) to (D). Pub. L. 98-353, Sec. 462(c), struck out subpar. (B) which read as follows: "made not later than 45 days after such debt was incurred;" and redesignated subpars. (C) and (D) as (B) and (C), respectively. 

Subsec. (c)(3). Pub. L. 98-353, Sec. 462(d)(2), substituted "that creates" for "of".

Subsec. (c)(3)(B). Pub. L. 98-353, Sec. 462(d)(3), inserted "on or" after "perfected", and substituted "the debtor receives possession of such property" for "such security interest attaches". 

Subsec. (c)(5). Pub. L. 98-353, Sec. 462(d)(4), substituted "that creates" for "of", and "all security interests" for "all security interest".

Subsec. (c)(5)(A)(ii). Pub. L. 98-353, Sec. 462(d)(5), substituted "or" for "and". 

Subsec. (c)(7). Pub. L. 98-353, Sec. 310(3), added par. (7).

Subsec. (d). Pub. L. 98-353, Sec. 462(e), substituted "The" for "A" before "trustee may avoid", inserted "an interest in" after "transfer of", inserted "to or for the benefit of a surety" after "transferred", and inserted "such" after "reimbursement of". 

Subsec. (e)(2)(C)(i). Pub. L. 98-353, Sec. 462(f), substituted "or" for "and".

Subsec. (g). Pub. L. 98-353, Sec. 462(g), added subsec. (g). 

Effective Date of Amendments

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

Pub. L. 109-8, Title XII, § 1213(a)(2), amended section 547 by adding par. (i), relating to the applicability of an avoided transfer made between 90 days and 1 year before the date of the filing of the petition, by the debtor to an entity that is not an insider for the benefit of a creditor that is an insider.  Pub. L. 109-8, Title XII, § 1213(b), provided as follows:

(b) APPLICABILITY.—The amendments made by this section shall apply to any case that is pending or commenced on or after the date of enactment of this Act. 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title.

1986 Amendments. Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title.

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 109, 303, 349, 362, 502, 522, 546, 548, 550, 551, 552, 749, 764, 901, 926 of this title. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 547)

BAPCPA § 201(b)    •    House Report 109-31    •   

BAPCPA § 217    •    House Report 109-31    •   

BAPCPA § 403    •    House Report 109-31    •      -  547(e)(2)(A)  -  547(e)(2)(B)  -  547(e)(2)(C)(2)

BAPCPA § 409(1)    •    House Report 109-31    •   

BAPCPA § 409(2)    •    House Report 109-31    •   

BAPCPA § 1213(a)(1)    •    House Report 109-31    •   

BAPCPA § 1213(a)(2)    •    House Report 109-31    •   

BAPCPA § 1222    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 548)


LEGISLATIVE STATEMENTS

Section 548(d)(2) is modified to reflect general application of a provision contained in section 766 of the Senate amendment with respect to commodity brokers. In particular, section 548(d)(2)(B) of the House amendment makes clear that a commodity broker who receives a margin payment is considered to receive the margin payment in return for "value" for purposes of section 548

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1994 Acts (Pub. L. 103-394). House Report No. 103-835.

1990 Acts (Pub. L. 101-311). House Report No. 101-484.

1986 Acts (Pub. L. 99-554). House Report No. 99-764 and House Conference Report No. 99-958. 

1982 Acts (Pub. L. 97-222). House Report No. 97-420.

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. This section is derived in large part from section 67d of the Bankruptcy Act (section 107(d) of former title 11). It permits the trustee to avoid transfers by the debtor in fraud of his creditors. Its history dates from the statute of 13 Eliz. c. 5 (1570). 

The trustee may avoid fraudulent transfers or obligations if made with actual intent to hinder, delay, or defraud a past or future creditor. Transfers made for less than a reasonably equivalent consideration are also vulnerable if the debtor was or thereby becomes insolvent, was engaged in business with an unreasonably small capital, or intended to incur debts that would be beyond his ability to repay. 

The trustee of a partnership debtor may avoid any transfer of partnership property to a partner in the debtor if the debtor was or thereby became insolvent.

If a transferee's only liability to the trustee is unde r this section, and if he takes for value and in good faith, then subsection (c) grants him a lien on the property transferred, or other similar protection. 

Subsection (d) specifies that for the purposes of fraudulent transfer section, a transfer is made when it is valid against a subsequent bona fide purchaser. If not made before the commencement of the case, it is considered made immediately before then. Subsection (d) also defines "value" to mean property, or the satisfaction or securing of a present or antecedent debt, but does not include an unperformed promise to furnish support to the debtor or a relative of the debtor

AMENDMENTS

2005 — Will be supplemented. 

1998

Subsec. (a). Pub. L. 105-183, Sec. 3(a), designated existing provisions as par. (1), redesignated former pars. (1) and (2) as par. (1)(A) and (B), respectively, redesignated former par. (2)(A) and (B) as par. (1)(B)(i) and (ii), respectively, and redesignated former par. (2)(B)(i) to (iii) as par. (1)(B)(ii)(I) to (III), respectively, and added par. (2). 

Subsec. (d)(3), (4). Pub. L. 105-183, Sec. 2, added pars. (3) and (4). 

1994

Subsec. (d)(2)(B). Pub. L. 103-394, Sec. 501(b)(5)(A), substituted "section 101, 741, or 761" for "section 101(34), 741(5) or 761(15)" and "section 101 or 741" for "section 101 (35) or 741(8)". 

Subsec. (d)(2)(C). Pub. L. 103-394, Sec. 501(b)(5)(B), substituted "section 741 or 761" for "section 741(5) or 761(15)" and "section 741" for "section 741(8)". 

1990

Subsec. (d)(2)(B). Pub. L. 101-311, Sec. 204, inserted reference to sections 101(34) and 101(35) of this title. 

Subsec. (d)(2)(D). Pub. L. 101-311, Sec. 104, added subpar. (D). 

1986 — Subsec. (d)(2)(B). Pub. L. 99-554 substituted ", financial institution" for "financial institution,". 

1984

Subsec. (a). Pub. L. 98-353, Sec. 463(a)(1), substituted "if the debtor voluntarily or involuntarily" for "if the debtor" in provisions preceding par. (1). 

Subsec. (a)(1). Pub. L. 98-353, Sec. 463(a)(2), substituted "was made" for "occurred". 

Subsec. (a)(2)(B)(ii). Pub. L. 98-353, Sec. 463(a)(3), inserted "or a transaction" after "engaged in business". 

Subsec. (c). Pub. L. 98-353, Sec. 463(b), inserted "or may retain" after "lien on" and struck out ", may retain any lien transferred," before "or may enforce any obligation incurred". 

Subsec. (d)(1). Pub. L. 98-353, Sec. 463(c)(1), substituted "is so" for "becomes so far", "applicable law permits such transfer to be" for "such transfer could have been", and "is made" for "occurs".

Subsec. (d)(2)(B). Pub. L. 98-353, Sec. 463(c)(2), inserted "financial institution," after "stockbroker". 

Subsec. (d)(2)(C). Pub. L. 98-353, Sec. 394(2), added subpar. (C). 

1982 — Subsec. (d)(2)(B). Pub. L. 97-222 substituted "a commodity broker, forward contract merchant, stockbroker, or securities clearing agency that receives a margin payment, as defined in section 741(5) or 761(15) of this title, or settlement payment, as defined in section 741(8) of this title, takes for value to extent of such payment" for "a commodity broker or forward contract merchant that receives a margin payment, as defined in section 761(15) of this title, takes for value".

Effective Date of Amendments

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date.  

Pub. L. 109-8, Title XV, § 1406(b)(2) provided that the amendments to section  548(a) & (b) which extend time period for avoidance of fraudulent transfers from 1 to 2 years "apply only with respect to cases commenced under title 11 of the United States Code more than 1 year after the date of the enactment of this Act."  Pub. L. 109-8, Title XV, § 1406(b)(1) provided that the following amendments "apply only with respect to cases commenced under title 11 of the United States Code on or after the date of the enactment of this Act." (April 20, 2005) 

• section  548(a) & (b) (all amendments extention of time period for avoidance of fraudulent transfers from 1 to 2 years);

•  section  548(e) (10 year time period for avoidance of fraudulent transfers relating to self-settled trusts). 

1998 Amendments. Amendment by Pub. L. 105-183 applicable to any case brought under an applicable provision of this title that is pending or commenced on or after June 19, 1998, see section 5 of Pub. L. 105-183, set out as a note under section 544 of this title. 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1986 Amendments. Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title.

REFERENCES IN TEXT

Sections 170(c) and 731(c)(2)(C) of the Internal Revenue Code of 1986, referred to in subsec. (d)(3), (4), are classified to sections 170(c) and 731(c)(2)(C), respectively, of Title 26, Internal Revenue Code. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 303, 349, 502, 522, 544, 546, 550, 551, 552, 707, 749, 764, 901, 926, 1325 of this title. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 548)

BAPCPA § 907(f)(1)    •    House Report 109-31    •   

BAPCPA § 907(f)(2)    •    House Report 109-31    •   

BAPCPA § 907(f)(3)    •    House Report 109-31    •   

BAPCPA § 907(o)(4)    •    House Report 109-31    •   

BAPCPA § 907(o)(5)    •    House Report 109-31    •   

BAPCPA § 907(o)(6)    •    House Report 109-31    •   

BAPCPA § 1402(1)    •    House Report 109-31    •    See note at BAPCPA § 1402(4) for effective date of changes made by BAPCPA §§ 1401 - 1405.    •      -  548(a)  -  548(b)

BAPCPA § 1402(2)(A)    •    House Report 109-31    •    See note at BAPCPA § 1402(4) for effective date of changes made by BAPCPA §§ 1401 - 1405.    •   

BAPCPA § 1402(2)(B)    •    House Report 109-31    •    See note at BAPCPA § 1402(4) for effective date of changes made by BAPCPA §§ 1401 - 1405.    •   

BAPCPA § 1402(3)(A)    •    House Report 109-31    •    See note at BAPCPA § 1402(4) for effective date of changes made by BAPCPA §§ 1401 - 1405.    •   

BAPCPA § 1402(3)(B)    •    House Report 109-31    •    See note at BAPCPA § 1402(4) for effective date of changes made by BAPCPA §§ 1401 - 1405.    •   

BAPCPA § 1402(3)(C)    •    House Report 109-31    •    See note at BAPCPA § 1402(4) for effective date of changes made by BAPCPA §§ 1401 - 1405.    •   

BAPCPA § 1402(4)    •    House Report 109-31    •    BAPCPA § 1406 contains the following uncodified provision:

(a) Effective Date.—Except as provided in subsection (b), this title and the amendments made by this title shall take effect on the date of the enactment of this Act.

(b) Application of Amendments.— 

(1) In General—cept as provided in paragraph (2), the amendments made by this title shall apply only with respect to cases commenced under title 11 of the United States Code on or after the date of the enactment of this Act.

(2) Avoidance Period.—The amendment made by section 1402(1) shall apply only with respect to cases commenced under title 11 of the United States Code more than 1 year after the date of the enactment of this Act. 


So in the original.  Should probably read "Except."    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 549)


LEGISLATIVE STATEMENTS

Section 549 of the House amendment has been redrafted in order to incorporate sections 342(b) and (c) of the Senate amendment. Those sections have been consolidated and redrafted in section 549(c) of the House amendment. Section 549(d) of the House amendment adopts a provision contained in section 549(c) of the Senate amendment. 

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1994 Acts (Pub. L. 103-394). House Report No. 103-835.

1986 Acts (Pub. L. 99-554). House Report No. 99-764 and House Conference Report No. 99-958. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. This section modifies section 70d of current law (section 110(d) of former title 11). It permits the trustee to avoid transfers of property that occur after the commencement of the case. The transfer must either have been unauthorized, or authorized under a section that protects only the transferor. Subsection (b) protects "involuntary gap" transferees to the extent of any value (including services, but not including satisfaction of a debt that arose before the commencement of the case), given after commencement in exchange for the transfer. Notice or knowledge of the transferee is irrelevant in determining whether he is protected under this provision. 

AMENDMENTS

2005 — Will be supplemented. 

1994 — Subsec. (b). Pub. L. 103-394 inserted "the trustee may not avoid under subsection (a) of this section" after "involuntary case,".

1986 — Subsec. (b). Pub. L. 99-554 substituted "made" for "that occurs", and "to the extent" for "is valid against the trustee to the extent of", and inserted "is" before "given". 

1984

Subsec. (a). Pub. L. 98-353, Sec. 464(a)(1), (2), substituted "(b) or (c)" for "(b) and (c)" in provisions preceding par. (1) and inserted "only" between "authorized" and "under" in par. (2)(A). In the original of Pub. L. 98-353, subsec. (a)(2) of section 464 thereof ended with a period but was followed by pars. (3), (4), and (5). Such pars. (3), (4), and (5) purported to amend subsec. (a) of this section in ways not susceptible of execution. In a predecessor bill (S. 445), these pars. (3), (4), and (5) formed a part of a subsec. (b) of section 361 thereof which amended subsec. (b) of this section. Such subsec. (b) of section 361 of S. 445 was not carried into Pub. L. 98-353, Sec. 464. 

Subsec. (c). Pub. L. 98-353, Sec. 464(c), amended subsec. (c) generally. Prior to amendment, subsec. (c) read as follows: "The trustee may not avoid under subsection (a) of this section a transfer, to a good faith purchaser without knowledge of the commencement of the case and for present fair equivalent value or to a purchaser at a judicial sale, of real property located other than in the county in which the case is commenced, unless a copy of the petition was filed in the office where conveyances of real property in such county are recorded before such transfer was so far perfected that a bona fide purchaser of such property against whom applicable law permits such transfer to be perfected cannot acquire an interest that is superior to the interest of such good faith or judicial sale purchaser. A good faith purchaser, without knowledge of the commencement of the case and for less than present fair equivalent value, of real property located other than in the county in which the case is commenced, under a transfer that the trustee may avoid under this section, has a lien on the property transferred to the extent of any present value given, unless a copy of the petition was so filed before such transfer was so perfected." Subsec. (d)(1). Pub. L. 98-353, Sec. 464(d), substituted "or" for "and". 

Effective Date of Amendments

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1986 Amendments. Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title.

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 303, 349, 502, 522, 546, 550, 551, 749, 764, 901, 926 of this title. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 549)

BAPCPA § 1214(1)    •    House Report 109-31    •   

BAPCPA § 1214(2)    •    House Report 109-31    •   

BAPCPA § 1214(3)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 550)


LEGISLATIVE STATEMENTS

Section 550(a)(1) of the House amendment has been modified in order to permit recovery from an entity for whose benefit an avoided transfer is made in addition to a recovery from the initial transferee of the transfer. Section 550(c) would still apply, and the trustee is entitled only to a single satisfaction. The liability of a transferee under section 550(a) applies only "to the extent that a transfer is avoided". This means that liability is not imposed on a transferee to the extent that a transferee is protected under a provision such as section 548(c) which grants a good faith transferee for value of a transfer that is avoided only as a fraudulent transfer, a lien on the property transferred to the extent of value given. 

Section 550(b) of the House amendment is modified to indicate that value includes satisfaction or securing of a present antecedent debt. This means that the trustee may not recover under subsection (a)(2) from a subsequent transferee that takes for "value", provided the subsequent transferee also takes in good faith and without knowledge of the transfer avoided. 

Section 550(e) of the House amendment is derived from section 550(e) of the Senate amendment. 

LEGISLATIVE REPORTS

1994 Acts (Pub. L. 103-394). House Report No. 103-835. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. Section 550 prescribes the liability of a transferee of an avoided transfer, and enunciates the separation between the concepts of avoiding a transfer and recovering from the transferee. 

Subsection (a) permits the trustee to recover from the initial transferee of an avoided transfer or from any immediate or mediate transferee of the initial transferee. The words "to the extent that" in the lead in to this subsection are designed to incorporate the protection of transferees found in proposed 11 U.S.C. 549(b) and 548(c)

Subsection (b) limits the liability of an immediate or mediate transferee of the initial transferee if such secondary transferee takes for value, in good faith and without knowledge of the voidability of the transfer. An immediate or mediate good faith transferee of a protected secondary transferee is also shielded from liability. This subsection is limited to the trustee's right to recover from subsequent transferees under subsection (a)(2). It does not limit the trustee's rights against the initial transferee under subsection (a)(1). The phrase "good faith" in this paragraph is intended to prevent a transferee from whom the trustee could recover from transferring the recoverable property to an innocent transferee, and receiving a retransfer from him, that is, "washing" the transaction through an innocent third party. In order for the transferee to be excepted from liability under this paragraph, he himself must be a good faith transferee. 

Subsection (c) is a further limitation on recovery. It specifies that the trustee is entitled to only one satisfactory, under subsection (a), even if more than one transferee is liable. 

Subsection (d) protects good faith transferees, either initial or subsequent, to the extent of the lesser of the cost of any improvement the transferee makes in the transferred property and the increase in value of the property as a result of the improvement. Paragraph (2) of the subsection defines improvement to include physical additions or changes to the property, repairs, payment of taxes on the property, payment of a debt secured by a lien on the property, discharge of a lien on the property, and preservation of the property. 

Subsection (e) establishes a statute of limitations on avoidance by the Trustee. The limitation is one year after the avoidance of the transfer or the time the case is closed or dismissed, whichever is earlier. 

AMENDMENTS

1994 — Subsecs. (c) to (f). Pub. L. 103-394 added subsec. (c) and redesignated former subsecs. (c) to (e) as (d) to (f), respectively. 

1984

Subsec. (a). Pub. L. 98-353, Sec. 465(a), substituted "549, 553(b), or 724(a) of this title" for "549, or 724(a) of this title". 

Subsec. (d)(1)(A). Pub. L. 98-353, Sec. 465(b)(1), inserted "or accruing to" after "by". 

Subsec. (d)(1)(B). Pub. L. 98-353, Sec. 465(b)(2), substituted "the value of such property" for "value".

Subsec. (d)(2)(D). Pub. L. 98-353, Sec. 465(b)(3), substituted "payment of any debt secured by a lien on such property that is superior or equal to the rights of the trustee; and" for "payment of any debt secured by a lien on such property." Subsec. (d)(2)(E), (F). Pub. L. 98-353, Sec. 465(b)(3), (4), struck out subpar. (E) "discharge of any lien against such property that is superior or equal to the rights of the trustee; and" and redesignated subpar. (F) as (E). 

Subsec. (e)(1). Pub. L. 98-353, Sec. 465(c), substituted "or" for "and". 

Effective Date of Amendments

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 349, 502, 522, 541, 901, 926 of this title. 


HISTORICAL AND REVISION NOTES (11 U.S.C. § 551)


LEGISLATIVE STATEMENTS

Section 551 is adopted from the House bill and the alternative in the Senate amendment is rejected. The section is clarified to indicate that a transfer avoided or a lien that is void is preserved for the benefit of the estate, but only with respect to property of the estate. This prevents the trustee from asserting an avoided tax lien against after acquired property of the debtor

LEGISLATIVE REPORTS

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. This section is a change from present law. It specifies that any avoided transfer is automatically preserved for the benefit of the estate. Under current law, the court must determine whether or not the transfer should be preserved. The operation of the section is automatic, unlike current law, even though preservation may not benefit the estate in every instance. A preserved lien may be abandoned by the trustee under proposed 11 U.S.C. 554 if the preservation does not benefit the estate. The section as a whole prevents junior lienors from improving their position at the expense of the estate when a senior lien is avoided. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 522, 541, 901 of this title. 


HISTORICAL AND REVISION NOTES (11 U.S.C. § 552)


LEGISLATIVE STATEMENTS

Section 552(a) is derived from the House bill and the alternative provision in the Senate amendment is rejected. Section 552(b) represents a compromise between the House bill and the Senate amendment. Proceeds coverage, but not after acquired property clauses, are valid under title 11. The provision allows the court to consider the equities in each case. In the course of such consideration the court may evaluate any expenditures by the estate relating to proceeds and any related improvement in position of the secured party. Although this section grants a secured party a security interest in proceeds, product, offspring, rents, or profits, the section is explicitly subject to other sections of title 11. For example, the trustee or debtor in possession may use, sell, or lease proceeds, product, offspring, rents or profits under section 363

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31.

1994 Acts (Pub. L. 103-394). House Report No. 103-835. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. Under the Uniform Commercial Code, article 9, creditors may take security interests in after-acquired property. Section 552 governs the effect of such a prepetition security interest in postpetition property. It applies to all security interests as defined in section 101(37) of the bankruptcy code, not only to U.C.C. security interests. 

As a general rule, if a securities clearing agency is entered into before the commencement of the case, then property that the estate acquires is not subject to the security interest created by a provision in the securities clearing agency extending the security interest to after-acquired property. Subsection (b) provides an important exception consistent with the Uniform Commercial Code. If the securities clearing agency extends to proceeds, product, offspring, rents, or profits of the property in question, then the proceeds would continue to be subject to the security interest pursuant to the terms of the securities clearing agency and provisions of applicable law, except to the extent that where the estate acquires the proceeds at the expense of other creditors holding unsecured claims, the expenditure resulted in an improvement in the position of the secured party. 

The exception covers the situation where raw materials, for example, are converted into inventory, or inventory into accounts, at some expense to the estate, thus depleting the fund available for general unsecured creditors, but is limited to the benefit inuring to the secured party thereby. Situations in which the estate incurs expense in simply protecting collateral are governed by 11 U.S.C. 506(c). In ordinary circumstances, the risk of loss in continued operations will remain with the estate. 

House Report No. 95-595. Under the Uniform Commercial Code, Article 9, creditors may take security interests in after-acquired property. This section governs the effect of such a prepetition security interest in postpetition property. It applies to all security interests as defined in section 101 of the bankruptcy code, not only to U.C.C. security interests. 

As a general rule, if a securities clearing agency is entered into before the case, then property that the estate acquires is not subject to the security interest created by the securities clearing agency. Subsection (b) provides the only exception. If the securities clearing agency extends to proceeds, product, offspring, rents, or profits of property that the debtor had before the commencement of the case, then the proceeds, etc., continue to be subject to the security interest, except to the extent that the estate acquired the proceeds to the prejudice of other creditors holding unsecured claims. "Extends to" as used here would include an automatically arising security interest in proceeds, as permitted under the 1972 version of the Uniform Commercial Code, as well as an interest in proceeds specifically designated, as required under the 1962 Code or similar statutes covering property not covered by the Code. "Prejudice" is not intended to be a broad term here, but is designed to cover the situation where the estate expends funds that result in an increase in the value of collateral. The exception is to cover the situation where raw materials, for example, are converted into inventory, or inventory into accounts, at some expense to the estate, thus depleting the fund available for general unsecured creditors. The term "proceeds" is not limited to the technical definition of that term in the U.C.C., but covers any property into which property subject to the security interest is converted. 

AMENDMENTS

2005 — Will be supplemented. 

1994 — Subsec. (b). Pub. L. 103-394 designated existing provisions as par. (1), struck out "rents," after "offspring," in two places, and added par. (2).

1984 — Subsec. (b). Pub. L. 98-353 inserted "522," after "506(c),", substituted "an entity entered" for "a secured party enter", and substituted "except to any extent" for "except to the extent". 

Effective Date of Amendments

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 363, 901, 928 of this title; title 26 section 1398. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 552)

BAPCPA § 1204(2)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 553)


LEGISLATIVE STATEMENTS

Section 553 of the House amendment is derived from a similar provision contained in the Senate amendment, but is modified to clarify application of a two-point test with respect to setoffs. 

LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1994 Acts (Pub. L. 103-394). House Report No. 103-835.

1990 Acts (Pub. L. 101-311). House Report No. 101-484. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. This section preserves, with some changes, the right of setoff in bankruptcy cases now found in section 68 of the Bankruptcy Act (section 108 of former title 11). One exception to the right is the automatic stay, discussed in connection with proposed 11 U.S.C. 362. Another is the right of the trustee to use property under section 363 that is subject to a right of setoff. 

The section states that the right of setoff is unaffected by the bankruptcy code except to the extent that the creditor's claim is disallowed, the creditor acquired (other than from the debtor) the claim during the 90 days preceding the case while the debtor was insolvent, the debt being offset was incurred for the purpose of obtaining a right of setoff, while the debtor was insolvent and during the 90-day prebankruptcy period, or the creditor improved his position in the 90-day period (similar to the improvement in position test found in the preference section 547(c)(5)). Only the last exception is an addition to current law. 

As under section 547(f), the debtor is presumed to have been insolvent during the 90 days before the case. 

AMENDMENTS

2005 — Will be supplemented. 

1994

Subsec. (a)(1). Pub. L. 103-394, Sec. 501(d)(19)(A), struck out before semicolon at end "other than under section 502(b)(3) of this title". 

Subsec. ((b)(1). Pub. L. 103-394, Sec. 501(d)(19)(B), substituted "section 362(b)(14)," for "section 362(b)(14),,".

Pub. L. 103-394, Sec. 222(b), which directed the amendment of section 553(b)(1) by inserting "546(h)," after "365(h)," was executed by making the insertion in section 553(b)(1) of this title to reflect the probable intent of Congress.

Pub. L. 103-394, Sec. 205(b), substituted "365(h)" for "365(h)(2)". 

1990 — Subsec. (b)(1). Pub. L. 101-311 substituted "362(b)(7), 362(b)(14)," for "362(b)(7),".

1984 — Subsec. (b)(1). Pub. L. 98-353 inserted ", 362(b)(7)," after "362(b)(6)", and substituted ", 365(h)(2), or 365(i)(2)" for "or 365(h)(1)". 

Effective Date of Amendments

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

REFERENCES IN TEXT

Section 362(b)(14), referred to in subsec. (b)(1), was redesignated section 362(b)(17) by Pub. L. 103-394, title V, Sec. 501(d)(7)(B)(vii)(II), (III), Oct. 22, 1994, 108 Stat. 4144. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 349, 502, 506, 522, 541, 542, 546, 550, 901 of this title; title 15 section 78eee. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 553)

BAPCPA § 907(n)(1)    •    House Report 109-31    •   

BAPCPA § 907(n)(2)    •    House Report 109-31    •   

BAPCPA § 907(n)(3)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 554)


LEGISLATIVE STATEMENTS

Section 554(b) is new and permits a party in interest to request the court to order the trustee to abandon property of the estate that is burdensome to the estate or that is of inconsequential value to the estate. 

LEGISLATIVE REPORTS

1986 Acts (Pub. L. 99-554). House Report No. 99-764 and House Conference Report No. 99-958. 

1978 Acts (Pub. L. 95-598).

Senate Report No. 95-989. Under this section the court may authorize the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value to the estate. Abandonment may be to any party with a possessory interest in the property abandoned. In order to aid administration of the case, subsection (b) deems the court to have authorized abandonment of any property that is scheduled under section 521(1) and that is not administered before the case is closed. That property is deemed abandoned to the debtor. Subsection (c) specifies that if property is neither abandoned nor administered it remains property of the estate. 

AMENDMENTS

1986 — Subsec. (c). Pub. L. 99-554 substituted "521(1)" for "521(1)". 

1984

Subsecs. (a), (b). Pub. L. 98-353, Sec. 468(a), inserted "and benefit" after "value". 

Subsec. (c). Pub. L. 98-353, Sec. 468(b), amended subsec. (c) generally. Prior to amendment, subsec. (c) read as follows: "Unless the court orders otherwise, any property that is scheduled under section 521(1) of this title and that is not administered before a case is closed under section 350 of this title is deemed abandoned."

Subsec. (d). Pub. L. 98-353, Sec. 468(c), struck out "section (a) or (b) of" after "not abandoned under". 

Effective Date of Amendments

1986 Amendments. Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title.

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 557, 722 of this title. 


HISTORICAL AND REVISION NOTES (11 U.S.C. § 555)


LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1994 Acts (Pub. L. 103-394). House Report No. 103-835.

1982 Acts (Pub. L. 97-222). House Report No. 97-420. 

AMENDMENTS

2005 — Will be supplemented. 

1994 — Pub. L. 103-394 substituted "section 741 of this title" for "section 741(7)" and struck out "(15 U.S.C. 78aaa et seq.)" after "Act of 1970".

1984 — Pub. L. 98-353 inserted ", financial institution," after "stockbroker". 

Effective Date of Amendments

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1984 Amendments. Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. 

REFERENCES IN TEXT

The Securities Investor Protection Act of 1970, referred to in text, is Pub. L. 91-598, Dec. 30, 1970, 84 Stat. 1636, as amended, which is classified generally to chapter 2B-1 (Sec. 78aaa et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see section 78aaa of Title 15 and Tables. 


FOOTNOTES (11 U.S.C. § 555)

12 U.S.C. § 4421(1)    •   

7 U.S.C. § 1, et seq.    •   

15 U.S.C. § 78aaa, et seq.    •   


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 555)

BAPCPA § 907(g)(1)    •    House Report 109-31    •   

BAPCPA § 907(g)(2)    •    House Report 109-31    •   

BAPCPA § 907(o)(7)(A)    •    House Report 109-31    •   

BAPCPA § 907(o)(7)(B)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 556)


LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1994 Acts (Pub. L. 103-394). House Report No. 103-835.

1990 Acts (Pub. L. 101-311). House Report No. 101-484. 

1982 Acts (Pub. L. 97-222). House Report No. 97-420.

AMENDMENTS

2005 — Will be supplemented. 

1994 — Pub. L. 103-394 substituted "section 761 of this title" for "section 761(4)".

1990 — Pub. L. 101-311 inserted before period at end "and a right, whether or not evidenced in writing, arising under common law, under law merchant or by reason of normal business practice". 

Effective Date of Amendments

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1994. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 


FOOTNOTES (11 U.S.C. § 556)

12 U.S.C. § 4421(1)    •   

7 U.S.C. § 1, et seq.    •   


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 556)

BAPCPA § 907(h)(1)    •    House Report 109-31    •   

BAPCPA § 907(h)(2)    •    House Report 109-31    •   

BAPCPA § 907(h)(3)    •    House Report 109-31    •   

BAPCPA § 907(o)(8)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 557)


LEGISLATIVE REPORTS

1986 Acts (Pub. L. 99-554). House Report No. 99-764 and House Conference Report No. 99-958. 

AMENDMENTS

1986 — Subsec. (d)(3). Pub. L. 99-554 inserted reference to section 1202 of this title. 

Effective Date of Amendments

1986 Amendments. Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. 

EFFECTIVE DATES

Section effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as an Effective Date of 1984 Amendment note under section 101 of this title. 

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 507, 546, 901 of this title. 


HISTORICAL AND REVISION NOTES (11 U.S.C. § 558)


EFFECTIVE DATES

Section effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as an Effective Date of 1984 Amendment note under section 101 of this title. 


HISTORICAL AND REVISION NOTES (11 U.S.C. § 559)


LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1994 Acts (Pub. L. 103-394). House Report No. 103-835.


AMENDMENTS

2005 — Will be supplemented. 

1994 — Pub. L. 103-394 struck out "(15 U.S.C. 78aaa et seq.)" after "Act of 1970". 

Effective Date of Amendments

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 

1994 Acts. Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. 

1984 Acts. Section effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as an Effective Date of 1984 Amendment note under section 101 of this title. 

REFERENCES IN TEXT

The Securities Investor Protection Act of 1970, referred to in text, is Pub. L. 91-598, Dec. 30, 1970, 84 Stat. 1636, as amended, which is classified generally to chapter 2B-1 (Sec. 78aaa et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see section 78aaa of Title 15 and Tables. 


FOOTNOTES (11 U.S.C. § 559)

12 U.S.C. § 4421(1)    •   

7 U.S.C. § 1, et seq.    •   

15 U.S.C. § 78aaa, et seq.    •   


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 559)

BAPCPA § 907(i)(1)    •    House Report 109-31    •   

BAPCPA § 907(i)(2)    •    House Report 109-31    •   

BAPCPA § 907(i)(3)    •    House Report 109-31    •   

BAPCPA § 907(o)(9)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 560)


LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

1990 Acts (Pub. L. 101-311). House Report No. 101-484.

AMENDMENTS

2005 — Will be supplemented. 

Effective Date of Amendments

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 


FOOTNOTES (11 U.S.C. § 560)

12 U.S.C. § 4421(1)    •   

7 U.S.C. § 1, et seq.    •   


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 560)

BAPCPA § 907(j)(1)    •    House Report 109-31    •   

BAPCPA § 907(j)(2)    •    House Report 109-31    •   

BAPCPA § 907(j)(3)    •    House Report 109-31    •   

BAPCPA § 907(j)(4)    •    House Report 109-31    •   

BAPCPA § 907(o)(10)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 561)


LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 


FOOTNOTES (11 U.S.C. § 561)

12 U.S.C. § 4421(1)    •   

7 U.S.C. § 1, et seq.    •      -  561(b)(2)(A)  -  561(b)(2)(B)  -  561(c)

7 U.S.C. § 7a-2(c)(1) & (2)    •        


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 561)

BAPCPA § 907(k)(i)    •    House Report 109-31    •   


HISTORICAL AND REVISION NOTES (11 U.S.C. § 562)


LEGISLATIVE REPORTS

2005 Acts (Pub. L. 109-8). House Report No. 109-31

EFFECTIVE DATES

2005 Acts. Pub. L. 109-8, Title XV, § 1501, Apr. 20, 2005, provided that, except as otherwise specifically provided, all amendments, except for amendments provided in Pub. L. 109-8, Title III, §§ 308, 322, and 330, are effective 180 days after enactment of the Act on April 20, 2005 (which occurs on October 17, 2005), and are inapplicable with respect to cases commenced under Title 11 before the effective date. 


BAPCPA & LEGISLATIVE REPORT LINKS (11 U.S.C. § 562)

BAPCPA § 910(a)(1)    •    House Report 109-31    •   


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