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Union Calendar No. 14

109TH CONGRESS

1ST SESSION

HOUSE OF REPRESENTATIVES

Rept. 109-31

Part 1

BANKRUPTCY ABUSE PREVENTION AND

CONSUMER PROTECTION ACT OF 2005


R E P O R T

of the

COMMITTEE ON THE JUDICIARY

HOUSE OF REPRESENTATIVES

to accompany

S. 256

together with

DISSENTING VIEWS, ADDITIONAL DISSENTING VIEWS, AND

ADDITIONAL MINORITY VIEWS

 

 

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

State of the Union and ordered to be printed 

 


 

Union Calendar No. 14

109TH CONGRESS

1ST SESSION

HOUSE OF REPRESENTATIVES

Rept. 109-31

Part 1

BANKRUPTCY ABUSE PREVENTION AND

CONSUMER PROTECTION ACT OF 2005


R E P O R T

of the

COMMITTEE ON THE JUDICIARY

HOUSE OF REPRESENTATIVES

to accompany

S. 256

together with

DISSENTING VIEWS, ADDITIONAL DISSENTING VIEWS, AND

ADDITIONAL MINORITY VIEWS

 

 

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

State of the Union and ordered to be printed 


U.S. GOVERNMENT PRINTING OFFICE

20–436

WASHINGTON : 2005

20–436

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001


1

Union Calendar No. 14

109TH CONGRESS

1ST SESSION

}

HOUSE OF REPRESENTATIVES

{

Rept. 109-31

Part 1



BANKRUPTCY ABUSE PREVENTION AND

CONSUMER PROTECTION ACT OF 2005


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

State of the Union and ordered to be printed 


Mr. Sensenbrenner, from the Committee on the Judiciary,

submitted the following

R E P O R T

together with

DISSENTING VIEWS, ADDITIONAL DISSENTING VIEWS, AND

ADDITIONAL MINORITY VIEWS

[To accompany S. 256]

[Including cost estimate of the Congressional Budget Office]

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

CONTENTS

PAGE

Purpose and Summary

2

Background and Need for the Legislation

3

Factors Supporting Bankruptcy Reform

3

Prior Congressional Consideration of Bankruptcy Reform

6

Highlights of Bankruptcy Reforms

10

Consumer Creditor Bankruptcy Protections

10

Needs-Based Reforms

10

Other Reforms Dealing with Abuse

15

Protections for Creditors—In General

16

Enforcement of Family Support Obligations

16

Protections for Secured Creditors

17

Protections for Lessors

17

Consumer Debtor Bankruptcy Protections

17

Highlights of Business Bankruptcy Reforms

18

Protections Against Excessive Payments To a Debtor's Insiders and Fraud by a Debtor's Management

19

Protections for Employees

19

Small Business/Single Asset Real Estate Debtors

19

Financial Contracts

20

Family Farmers and Family Fishermen

20

Transnational Insolvencies

20

Protections for Small Business Owners

21

Health Care Providers

21

Other Provisions Having General Impact

21

Privacy Protections

21

Additional Bankruptcy Judgeships

21

Miscellaneous Provisions

22

Hearings

22

Committee Consideration

22

Votes of the Committee

22

1. Conyers — pay day loans made to servicemembers

22

2. Watt and Delahunt — disallowing certain claims

23

3. Watt — postsecondary education expenses

24

4. Nadler — extension of time to assume or reject nonresidential real property

25

5. Schiff — no 707(b)(2) dismissal for identity theft victims

26

6. Delahunt — avoidance of transfers made within 10 years of the bankruptcy filing to an asset protection trust (BC § 548)

27

7. Berman & Meehan — exemption for medically distressed debtors (BC § 522)

27

8. Nadler — nondischarge of debts related to civil rights violations (BC § 523(a) (resubmitted)

28

9. Meehan — no 707(b)(2) dismissal for certain disabled veterans

29

10. Jackson Lee — increase expense allowance for private schools

30

11. Jackson Lee — en bloc amendments - debts related to (1) sex offenses against minors; (2) tobacco claims (BC 523(a)

31

12. Motion to report S. 256 favorably

32

Committee Oversight Findings

33

New Budget Authority and Tax Expenditures

33

Congressional Budget Office Cost Estimate

33

Summary

34

Major Provisions

34

Estimated Cost to the Federal Government

35

Basis of Estimate

36

Spending Subject to Appropriation

37

Means-Testing (Section 102)

37

Studies by the U.S. Trustees, Government Accountability Office (GAO), and Small Business Administration (SBA) (Sections 103, 205, 230, and 443)

37

Debtor Financial Management Test Training Program (Section 105)

38

Credit Counseling Certification (Section 106)

38

Maintenance of Tax Returns (Section 315)

38

Changes in Bankruptcy Filing Fees (Sections 325 and 418)

38

Current Law Filing Fees

38

Distribution of Filing Fees

39

Fee Waivers

39

U.S. Trustee Site Visits in Chapter 11 Cases (Section 439)

39

Compilation and Publication of Bankruptcy Data and Statistics (Sections 601-602)

39

Audit Procedures (Section 603)

40

Additional Judgeships—Support Costs (Section 1223)

40

Federal Trade Commission Toll-Free Hotline (Section 1301)

40

Direct Spending and Revenues

40

Additional Judgeships (Section 1223)

41

Changes in Bankruptcy Filing Fees (Sections 102, 325, and 418))

41

Tax Provisions (Title VII)

42

Estimated Impact on State, Local, and Tribal Governments

42

Mandates

42

Other Impacts

42

Domestic Support Obligations

42

Exemptions

43

Time Limits on Tax Collection

43

Taxes and Administrative Expenses

43

Tax Return Filing

43

Priority of Payments

44

Municipal Bankruptcy

44

Fuel Tax Claims

44

Single Asset Cases

44

Estimated Impact on the Private Sector

44

Mandates

44

Requirements For Attorneys

45

Notice and Disclosure Requirements

45

Prohibition on Consumer Reporting Agencies

46

Requirement for Closing Credit Accounts

46

Other Impacts on the Private Sector

46

Previous CBO Estimate

46

Estimate Prepared By

47

Estimate Approved By

47

Performance Goals and Objectives

47

Constitutional Authority Statement

47

Section-by-Section Analysis and Discussion

47

101. Conversion

47

102. Dismissal or Conversion

48

103. Sense of Congress and Study

53

104. Notice of Alternatives

53

105. Debtor Financial Management Training Test Program

54

106. Credit Counseling

54

107. Schedules of Reasonable and Necessary Expenses

56

201. Promotion of Alternative Dispute Resolution

57

202. Effect of Discharge

57

203. Discouraging Abuse of Reaffirmation Agreement Practices

57

204. Preservation of Claims and Defenses Upon Sale of Predatory Loans

58

205. GAO Study and Report on Reaffirmation Agreement Process

59

211. Definition of Domestic Support Obligation

59

212. Priorities for Claims for Domestic Support Obligations

59

213. Requirements To Obtain Confirmation and Discharge in Cases Involving Domestic Support Obligations

60

214. Exceptions To Automatic Stay in Domestic Support Proceedings

61

215. Nondischargeability of Certain Debts for Alimony, Maintenance, and Support

61

216. Continued Liability of Property

61

217. Protection of Domestic Support Claims Against Preferential Transfer Motions

62

218. Disposable Income Defined

62

219. Collection of Child Support

62

220. Nondischargeability of Certain Educational Benefits and Loans

62

221. Amendments To Discourage Abusive Bankruptcy Filings

62

222. Sense of Congress

63

223. Additional Amendments to Title 11, United States Code

63

224. Protection of Retirement Savings in Bankruptcy

63

225. Protection of Education Savings in Bankruptcy

65

226. Definitions.

65

227. Restrictions on Debt Relief Agencies

66

229. Requirements for Debt Relief Agencies

66

230. GAO Study

67

231. Protection of Personally Identifiable Information

67

232. Consumer Privacy Ombudsman

68

233. Prohibition on Disclosure of Name of Minor Children

68

234. Protection of Personal Information

68

301. Technical Amendments

69

302. Discouraging Bad Faith Repeat Filings

69

303. Curbing Abusive Filings

70

304. Debtor Retention of Personal Property Security

70

305. Relief from the Automatic Stay When the Debtor Does Not Complete Intended Surrender of Consumer Debt Collateral

71

306. Giving Secured Creditors Fair Treatment in Chapter 13.Subsection

71

307. Domiciliary Requirements for Exemptions

72

308. Reduction of Homestead Exemption for Fraud

72

309. Protecting Secured Creditors in Chapter 13 Cases

73

310. Limitation on Luxury Goods.

74

311. Automatic Stay

74

312. Extension of Period Between Bankruptcy Discharges

76

313. Definition of Household Goods and Antiques

76

314. Debt Incurred To Pay Nondischargeable Debts

76

315. Giving Creditors Fair Notice in Chapters 7 and 13 Cases

77

316. Dismissal for Failure To Timely File Schedules or Provide Required Information

79

317.Adequate Time To Prepare for Hearing on Confirmation of the Plan

79

318. Chapter 13 Plans To Have a 5-Year Duration in Certain Cases

79

319. Sense of Congress Regarding Expansion of Rule 9011 of the Federal Rules of Bankruptcy Procedure

80

320. Prompt Relief from Stay in Individual Cases

80

321. Chapter 11 Cases Filed by Individuals

80

322. Limitations on Homestead Exemption

81

323. Excluding Employee Benefit Plan Participant Contributions and Other Property from the Estate

82

324. Exclusive Jurisdiction in Matters Involving Bankruptcy Professionals

82

325. United States Trustee Program Filing Fee Increase

82

326. Sharing of Compensation

83

327. Fair Valuation of Collateral

83

328. Defaults Based on Nonmonetary Obligations

83

329. Clarification of Postpetition Wages and Benefits

84

330. Delay of Discharge During Pendency of Certain Proceedings

84

331. Limitation on Retention Bonuses, Severance Pay, and Certain Other Payments

84

332. Fraudulent Involuntary Bankruptcy

84

401. Adequate Protection for Investors

86

402. Meetings of Creditors and Equity Security Holders

86

403. Protection of Refinance of Security Interest

86

404. Executory Contracts and Unexpired Leases

86

405. Creditors and Equity Security Holders Committees

87

406. Amendment to Section 546 of Title 11, United States Code

87

407. Amendments to Section 330(a) of Title 11, United States Code

87

408. Postpetition Disclosure and Solicitation

87

409. Preferences.

88

410. Venue of Certain Proceedings

88

411. Period for Filing Plan under Chapter 11

88

412. Fees Arising from Certain Ownership Interests

88

413. Creditor Representation at First Meeting of Creditors

88

414. Definition of Disinterested Person

89

415. Factors for Compensation of Professional Persons

89

416. Appointment of Elected Trustee

89

417. Utility Service. Section

89

418. Bankruptcy Fees

89

419. More Complete Information Regarding Assets of the Estate

90

431. Flexible Rules for Disclosure Statement and Plan

90

432. Definitions

90

433. Standard Form Disclosure Statement and Plan

91

434.Uniform National Reporting Requirements

91

435.Uniform Reporting Rules and Forms for Small Business Cases

91

436. Duties in Small Business Cases

91

437. Plan Filing and Confirmation Deadlines

92

438. Plan Confirmation Deadline

92

439. Duties of the United States Trustee

92

440. Scheduling Conferences

93

441. Serial Filer Provisions

93

442. Expanded Grounds for Dismissal or Conversion and Appointment of Trustee

94

443. Study of Operation of Title 11, United States Code, with Respect to Small Businesses

95

444. Payment of Interest

95

445. Priority for Administrative Expenses

96

446. Duties with Respect to a Debtor Who Is a Plan Administrator of an Employee Benefit Plan

96

447. Appointment of Committee of Retired Employees

96

501. Petition and Proceedings Related to Petition

96

502. Applicability of Other Sections to Chapter 9

96

601. Improved Bankruptcy Statistics

97

602. Uniform Rules for the Collection of Bankruptcy Data

98

603. Audit Procedures

98

604. Sense of Congress Regarding Availability of Bankruptcy Data

99

701. Treatment of Certain Tax Liens

100

702. Treatment of Fuel Tax Claims

100

703.Notice of Request for a Determination of Taxes

100

704. Rate of Interest on Tax Claims

101

705. Priority of Tax Claims

101

706. Priority Property Taxes Incurred

101

707. No Discharge of Fraudulent Taxes in Chapter 13

101

708. No Discharge of Fraudulent Taxes in Chapter 11

102

709. Stay of Tax Proceedings Limited to Prepetition Taxes

102

710. Periodic Payment of Taxes in Chapter 11 Cases

102

711. Avoidance of Statutory Liens Prohibited

102

712. Payment of Taxes in the Conduct of Business

102

713. Tardily Filed Priority Tax Claims

103

714. Income Tax Returns Prepared by Tax Authorities

103

715. Discharge of the Estate's Liability for Unpaid Taxes

103

716. Requirement to File Tax Returns to Confirm Chapter 13 Plans

104

717. Standards for Tax Disclosure

104

718. Setoff of Tax Refunds

104

719. Special Provisions Related to the Treatment of State and Local Taxes

105

720. Dismissal for Failure to Timely File Tax Returns

105

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

105

1501. Purpose and scope of application

106

1502. Definitions

107

1503. International obligations of the United States

107

1504. Commencement of ancillary case

107

1505. Authorization to act in a foreign country

109

1506. Public policy exception

109

1507. Additional assistance

109

1508. Interpretation

109

1509. Right of direct access

110

1510. Limited jurisdiction

111

1511. Commencement of Case Under Section 301 or 303

111

1512. Participation of a foreign representative in a case under this title

111

1513. Access of foreign creditors to a case under this title

111

1514. Notification of foreign creditors concerning a case under title 11

112

1515. Application for recognition of a foreign proceeding

112

1516. Presumptions concerning recognition

112

1517. Order granting recognition

113

1518. Subsequent information

113

1519. Relief may be granted upon petition for recognition of a foreign proceeding

114

1520. Effects of recognition of a foreign main proceeding

114

1521. Relief that may be granted upon recognition of a foreign proceeding

115

1522. Protection of creditors and other interested persons

116

1523. Actions to avoid acts detrimental to creditors

116

1524. Intervention by a foreign representative

116

1525. Cooperation and direct communication between the court and foreign courts or foreign representatives

117

1526  Cooperation and direct communication between the trustee and foreign courts or foreign representatives

117

1527. Forms of cooperation

117

1528. Commencement of a case under title 11 after recognition of a foreign main proceeding

117

1529. Coordination of a case under title 11 and a foreign proceeding

117

1530. Coordination of more than one foreign proceeding

118

1531. Presumption of insolvency based on recognition of a foreign main proceeding

118

1532. Rule of payment in concurrent proceeding

118

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

118

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

119

902. Authority of the FDIC and NCUAB with respect to failed and failing institutions

123

903. Amendments relating to transfers of qualified financial contracts

123

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

125

905. Clarifying amendment relating to master agreements

125

906. Federal Deposit Insurance Corporation Improvement Act of 1991

125

907. Bankruptcy law amendments

127

908. Recordkeeping requirements

134

909. Exemptions from contemporaneous execution requirement

134

910. Damage measure

134

911. SIPC stay

135

1001. Permanent reenactment of chapter 12

136

1002. Debt limit increase

136

1003.Certain claims owed to governmental units

136

1004. Definition of family farmer

137

1005. Elimination of requirement that family farmer and spouse receive over 50 percent of income from farming operation in year prior to bankruptcy

137

1006. Prohibition of retroactive assessment of disposable income

137

1007. Family fishermen

137

1101. Definitions

138

1102. Disposal of patient records

138

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

139

1104. Appointment of ombudsman to act as patient advocate

139

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

140

1106. Exclusion from program participation not subject to automatic stay

140

1201. Definitions

140

1202. Adjustment of dollar amounts

141

1203. Extension of time

142

1204. Technical amendments

142

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

142

1206. Limitation on compensation of professional persons

142

1207. Effect of conversion

142

1208. Allowance of administrative expenses

142

1209. Exceptions to discharge

142

1210. Effect of discharge

143

1211. Protection against discriminatory treatment

143

1212. Property of the estate

143

1213. Preferences

143

1214. Postpetition transactions

144

1215. Disposition of Property of the Estate

144

1216. General provisions

144

1217. Abandonment of railroad line

144

1218. Contents of plan

145

1219. Bankruptcy cases and proceedings

145

1220. Knowing disregard of bankruptcy law or rule

145

1221. Transfers made by nonprofit charitable corporations

145

1222. Protection of valid purchase money security interests

145

1223. Bankruptcy Judgeship

145

1224. Compensating trustees

146

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

146

1226. Judicial education

146

1227. Reclamation

146

1228. Providing requested tax documents to the court

146

1229. Encouraging creditworthiness

147

1230. Property no longer subject to redemption

147

1231. Trustees.

147

1232. Bankruptcy forms

148

1233. Direct appeals of bankruptcy matters to courts of appeals

148

1234. Involuntary cases

149

1235. Federal election law fines and penalties as nondischargeable debt

149

1301. Enhanced disclosures under an open end credit plan

149

1302. Enhanced disclosure for credit extensions secured by a dwelling

150

1303. Disclosures related to "introductory rates"

150

1304. Internet-based credit card solicitations

152

1305. Disclosures related to late payment deadlines and penalties

152

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

152

1307. Dual use debit card

153

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

153

1309. Clarification of clear and conspicuous

153

1401. Employee wage and benefit priorities

154

1402. Fraudulent transfers and obligations

154

1403. Payment of insurance benefits to retired employees

154

1404. Debts nondischargeable if incurred in violation of securities fraud laws

154

1405. Appointment of trustee in cases of suspected fraud

155

1406. Effective date; application of amendments

155

1501. Effective date; application of amendments

155

1502. Technical corrections

155

Changes in Existing Law Made by the Bill, as Reported

155

CHAPTER 1 — GENERAL PROVISIONS

156

§ 101 •.Definitions

156

§ 101(1) •.Accountant

156

§ 101(2) •.Affiliate

156

§ 101(3) •.Assisted person

156

§ 101(4) •.Attorney

156

§ 101(4A) •.Bankruptcy Assistance

156

§ 101(5) •.Claim

156

§ 101(6) •.Commodity Broker

156

§ 101(7) •.Community Claim

157

§ 101(7A) •.Commercial Fishing Operation

157

§ 101(7B) •.Commercial Fishing Vessel

157

§ 101(8) •.Consumer Debt

157

§ 101(9) •.Corporation

157

§ 101(10) •.Creditor

157

§ 101(10A) •.Current Monthly Income

157

§ 101(11) •.Custodian

158

§ 101(12) •.Debt

158

§ 101(12A) •.Debt for Child Support (Old)

158

§ 101(12A) •.Debt Relief Agency (New)

158

§ 101(13) •.Debtor

158

§ 101(13A) •.Debtor's Principal Residence

158

§ 101(14) •.Disinterested Person (Old)

158

§ 101(14) •.Disinterested Person (New)

159

§ 101(14A) •.Domestic Support Obligation

159

§ 101(15) •.Entity

159

§ 101(16) •.Equity Security

159

§ 101(17) •.Equity Security Holder

160

§ 101(18) •.Family Farmer

160

§ 101(19) •.Family Farmer with Regular Annual Income

161

§ 101(19A) •.Family Fisherman

161

§ 101(19B) •.Family Fisherman with Regular Annual Income

161

§ 101(20) •.Farmer

161

§ 101(21) •.Farming Operation

161

§ 101(21A) •.Farmout Agreement

161

§ 101(21B) •.Federal Depository Institutions Regulatory Agency

162

§ 101(22) •.Financial Institution (Old)

162

§ 101(23) •.Foreign Proceeding (Old)

162

§ 101(24) •.Foreign Representative (Old)

162

§ 101(22) •.Financial Institution (New)

162

§ 101(22A) •.Financial Participant

162

§ 101(23) •.Foreign Proceeding (New)

162

§ 101(24) •.Foreign Representative (New)

163

§ 101(25) •.Forward Contract

163

§ 101(26) •.Forward Contract Merchant (Old)

164

§ 101(26) •.Forward Contract Merchant (New)

164

§ 101(27) •.Governmental Unit

164

§ 101(27A) •.Health Care Business

164

§ 101(27B) •.Incidental Property

165

§ 101(28) •.Indenture

165

§ 101(29) •.Indenture Trustee

165

§ 101(30) •.Individual with Regular Income

165

§ 101(31) •.Insider

165

§ 101(32) •.Insolvent

165

§ 101(33) •.Institution-affiliated Party

165

§ 101(34) •.Insured Credit Union

165

§ 101(35) •.Insured Depository Institution

165

§ 101(35A) • Intellectual Property

165

§ 101(36) • Judicial Lien

166

§ 101(37) • Lien

166

§ 101(38) • Margin Payment

166

§ 101(38A) • Master Netting Agreement

166

§ 101(38B) • Master Netting Agreement Participant

166

§ 101(39) • Mask Work

166

§ 101(39A) • Median Family Income

166

§ 101(40) •  Municipality

166

§ 101(40A) • Patient

166

§ 101(40B) • Patient Records

166

§ 101(41) • Person

167

§ 101(41A) • Personally Identifiable Information

167

§ 101(42) • Petition

167

§ 101(42A) • Production Payment

167

§ 101(43) •  Purchaser

167

§ 101(44) • Railroad

167

§ 101(45) • Relative

167

§ 101(46) • Repo Participant

168

§ 101(47) • Repurchase Agreement (Old)

168

§ 101(47) • Repurchase Agreement (New)

168

§ 101(48) • Securities Clearing Agency

169

§ 101(48A) • Securities Self Regulatory Organization

169

§ 101(49) • Security

169

§ 101(50) • Security Agreement

169

§ 101(51) • Security Interest

169

§ 101(51A) • Settlement Payment

169

§ 101(51B) • Single Asset Real Estate

169

§ 101(51C) • Small Business (Old)

170

§ 101(51C) • Small Business Case (New)

170

§ 101(51D) • Small Business Debtor

170

§ 101(52) • State

170

§ 101(53) • Statutory Lien

170

§ 101(53A) • Stockbroker

170

§ 101(53B) • Swap Agreement (Old)

170

§ 101(53B) • Swap Agreement (New)

171

§ 101(53C) • Swap Participant

172

§ 101(56A) • Term Overriding Royalty

172

§ 101(53D) • Timeshare Plan

172

§ 101(54) • Transfer (Old)

172

§ 101(54) • Transfer (New)

173

§ 101(54A) • Uninsured State Member Bank

173

§ 101(55) • United States

173

§ 103. Applicability of chapters

173

§ 104. Adjustment of dollar amounts

173

§ 105. Power of court

174

§ 107. Public access to papers

174

§ 108. Extension of time

174

§ 109. Who may be a debtor

175

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

176

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

180

§ 112. Prohibition on disclosure of name of minor children

183

CHAPTER 3 — CASE ADMINISTRATION

184

§ 301. Voluntary cases

184

§ 303. Involuntary cases

184

[§ 304. Cases ancillary to foreign proceedings]

185

§ 305. Abstention

186

§ 306. Limited appearance

186

§ 308. Debtor reporting requirements

186

§ 328. Limitation on compensation of professional persons

187

§ 330. Compensation of officers

187

§ 332. Consumer privacy ombudsman

188

§ 333. Appointment of patient care ombudsman

188

§ 341. Meetings of creditors and equity security holders

189

§ 342. Notice

189

§ 346. Special provisions related to the treatment of State and local taxes (Old)

191

§ 346. Special provisions related to the treatment of State and local taxes (New)

194

§ 348. Effect of conversion

196

§ 351. Disposal of patient records

197

§ 362. Automatic stay

198

§ 363. Use, sale, or lease of property

209

§ 365. Executory contracts and unexpired leases

210

§ 366. Utility service

213

CHAPTER 5 — CREDITORS, THE DEBTOR, AND THE ESTATE

214

§ 501. Filing of proofs of claims or interests

215

§ 502. Allowance of claims or interests

215

§ 503. Allowance of administrative expenses

216

§ 504. Sharing of compensation

219

§ 505. Determination of tax liability

219

§ 506. Determination of secured status

220

§ 507. Priorities

220

§ 508. Effect of distribution other than under this title

223

§ 511. Rate of interest on tax claims

224

§ 521. Debtor's duties

224

§ 522. Exemptions

228

§ 523. Exceptions to discharge

233

§ 524. Effect of discharge

237

§ 525. Protection against discriminatory treatment

244

§ 526. Restrictions on debt relief agencies

244

§ 527. Disclosures

246

§ 528. Requirements for debt relief agencies

248

§ 541. Property of the estate

248

§ 545. Statutory liens

251

§ 546. Limitations on avoiding powers

251

§ 547. Preferences

253

§ 548. Fraudulent transfers and obligations

254

§ 549. Postpetition transactions

256

§ 552. Postpetition effect of security interest

256

§ 553. Setoff

257

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

257

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

258

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

258

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

260

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

260

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

261

CHAPTER 7 — LIQUIDATION

262

§ 704. Duties of trustee

262

§ 706. Conversion

264

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

264

§ 722. Redemption

270

§ 724. Treatment of certain liens

270

§ 726. Distribution of property of the estate

271

§ 727. Discharge

271

[§ 728. Special tax provisions]

272

§ 741. Definitions for this subchapter

273

§ 752. Customer property

274

§ 753. Stockbroker liquidation and forward contract merchants, commodity brokers, stockbrokers, financial institutions, financial participants, securities clearing agencies, swap participants, repo participants, and master netting agreement participants

275

§ 761. Definitions for this subchapter

275

§ 766. Treatment of customer property

276

§ 767. Commodity broker liquidation and forward contract merchants, commodity brokers, stockbrokers, financial institutions, financial participants, securities clearing agencies, swap participants, repo participants, and master netting agreement participants

276

CHAPTER 9 — ADJUSTMENT OF DEBTS OF A MUNICIPALITY

276

§ 901. Applicability of other sections of this title

277

§ 921. Petition and proceedings relating to petition

277

§ 943. Confirmation

277

CHAPTER 11 — REORGANIZATION

277

§ 1102. Creditors' and equity security holders' committees

278

§ 1104. Appointment of trustee or examiner

278

§ 1106. Duties of trustee and examiner

279

§ 1112. Conversion or dismissal

280

§ 1114. Payment of insurance benefits to retired employees

282

§ 1115. Property of the estate

283

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

283

§ 1121. Who may file a plan

284

§ 1123. Contents of plan

285

§ 1124. Impairment of claims or interests

285

§ 1125. Postpetition disclosure and solicitation

286

§ 1127. Modification of plan

287

§ 1129. Confirmation of plan

287

§ 1141. Effect of confirmation

289

§ 1146. Special tax provisions

290

§ 1170. Abandonment of railroad line

291

§ 1172. Contents of plan

291

CHAPTER 12 — ADJUSTMENT OF DEBTS OF A FAMILY FARMER OR FISHERMAN WITH REGULAR ANNUAL INCOME

291

§ 1202. Trustee

291

§ 1203. Rights and powers of debtor

292

§ 1206. Sales free of interests

292

§ 1208. Conversion or dismissal

292

§ 1222. Contents of plan

293

§ 1225. Confirmation of plan

294

§ 1226. Payments

295

§ 1228. Discharge

295

§ 1229. Modification of plan after confirmation

295

§ 1231. Special tax provisions

296

CHAPTER 13 — ADJUSTMENT OF DEBTS OF AN INDIVIDUAL WITH REGULAR INCOME

296

§ 1302. Trustee

296

§ 1307. Conversion or dismissal

297

§ 1308. Filing of prepetition tax returns

298

§ 1322. Contents of plan

299

§ 1324. Confirmation hearing

300

§ 1325. Confirmation of plan

300

§ 1326. Payments

303

§ 1328. Discharge

304

§ 1329. Modification of plan after confirmation

306

CHAPTER 15 — ANCILLARY AND OTHER CROSS-BORDER CASES

306

§ 1501. Purpose and scope of application

307

§ 1502. Definitions

308

§ 1503. International obligations of the United States

309

§ 1504. Commencement of ancillary case

309

§ 1505. Authorization to act in a foreign country

309

§ 1506. Public policy exception

309

§ 1507. Additional assistance

309

§ 1508. Interpretation

309

§ 1509. Right of direct access

310

§ 1510. Limited jurisdiction

310

§ 1511. Commencement of case under section 301 or 303

310

§ 1512. Participation of a foreign representative in a case under this title

310

§ 1513. Access of foreign creditors to a case under this title

311

§ 1514. Notification to foreign creditors concerning a case under this title

311

§ 1515. Application for recognition

311

§ 1516. Presumptions concerning recognition

312

§ 1517. Order granting recognition

312

§ 1518. Subsequent information

313

§ 1519. Relief that may be granted upon filing petition for recognition

313

§ 1520. Effects of recognition of a foreign main proceeding

313

§ 1521. Relief that may be granted upon recognition

314

§ 1522. Protection of creditors and other interested persons

315

§ 1523. Actions to avoid acts detrimental to creditors

316

§ 1524. Intervention by a foreign representative

316

§ 1525. Cooperation and direct communication between the court and foreign courts or foreign representatives

316

§ 1526. Cooperation and direct communication between the trustee and foreign courts or foreign representatives

316

§ 1527. Forms of cooperation

316

§ 1528. Commencement of a case under this title after recognition of a foreign main proceeding

316

§ 1529. Coordination of a case under this title and a foreign proceeding

317

§ 1530. Coordination of more than 1 foreign proceeding

317

§ 1531. Presumption of insolvency based on recognition of a foreign main proceeding

317

§ 1532. Rule of payment in concurrent proceedings

317

TITLE 18 — CRIMES AND CRIMINAL PROCEDURE

318

§ 156. Knowing disregard of bankruptcy law or rule

318

§ 157. Bankruptcy fraud

318

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

319

TITLE 28 — JUDICIARY AND JUDICIAL PROCEDURE

319

§ 152. Appointment of bankruptcy judges

319

§ 157. Procedures

320

§ 158. Appeals

320

§ 159. Bankruptcy statistics

321

§ 586. Duties; supervision by Attorney General

323

§ 589a. United States Trustee System Fund

325

§ 589b. Bankruptcy data

326

§ 960. Tax liability

327

§ 1334. Bankruptcy cases and proceedings

328

§ 1409. Venue of proceedings arising under title 11 or arising in or related to cases under title 11

329

§ 1410. Venue of cases ancillary to foreign proceedings (Old)

329

§ 1410. Venue of cases ancillary to foreign proceedings (New)

329

§ 1930. Bankruptcy fees

329

§ 2075. Bankruptcy rules

330

SECTION 406 OF THE JUDICIARY APPROPRIATIONS ACT, 1990

331

FEDERAL DEPOSIT INSURANCE ACT

331

FEDERAL CREDIT UNION ACT

344

FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991

356

SECURITIES INVESTOR PROTECTION ACT OF 1970

360

SECTION 302 OF THE BANKRUPTCY JUDGES, UNITED STATES TRUSTEES, AND FAMILY FARMER BANKRUPTCY ACT OF 1986

361

TRUTH IN LENDING ACT

361

Committee Jurisdiction Letters

370

Markup Transcript

373

Sensenbrenner — opening remarks

373

Conyers — opening remarks

374

Conyers amendment — pay day loans made to servicemembers (roll call)

376

Watt and Delahunt amendment — prohibition against usury (roll call)

394

Watt amendment — postsecondary education expenses (roll call)

402

Bush Plan Cuts College Aid for 500,000 (article)

407

Nadler amendment — nondischarge of debts related to civil rights violations (withdrawn)

418

Nadler amendment — extension of time to assume or reject nonresidential real property (roll call)

422

Schiff amendment — no BC § 707(b)(2) dismissal for identity theft victims (roll call)

432

Delahunt amendment — avoidance of transfers made within 10 years of the bankruptcy filing to an asset protection trust (BC § 548) (roll call)

445

Berman & Meehan — exemption for medically distressed debtors (BC § 522) (roll call)

453

Prepared Statement of Zoe Lofgren

458

U.S. Attorney letter to Rep. Grassley re: U.S. Trustee data on medical debts

460

Nadler amendment — nondischarge of debts related to civil rights violations (BC § 523(a) (resubmitted) (roll call)

467

Scott amendment — no 707(b)(2) dismissal if substantial portion of debt related to illness (voice vote only)

474

Scott amendment — no 707(b)(2) dismissal if substantial portion of debt related to (1) business losses incurred by a spouse or (2) unforeseen loss of employment (voice vote only)

477

Meehan amendment — no 707(b)(2) dismissal for certain disabled veterans (roll call)

481

Schiff amendment — GAO study relating to Child Support Payments (withdrawn)

488

National Child Support Enforcement Letter: Child Centered Reforms in H.R. 333

492

Jackson Lee amendment — increase expense allowance for private schools (roll call)

493

Washington Post: A Bankruptcy Reform

496

Jackson Lee amendment — exclude funds received as a result of a natural disaster as expenses for means testing expenses (voice vote only)

500

Jackson Lee en bloc amendments — debts related to (1) sex offenses against minors; (2) tobacco claims (BC 523(a)(roll call)

502

Waters en bloc amendments — (1) no relief from stay to evict victims of domestic violence (BC § 362(b)(22); (2) exemptions for the elderly (BC § 522(r); (3) issuance of credit cards to underage consumers (15 U.S.C. § 1637(c))(voice vote only)

511

Watt en bloc amendments — (1) eliminate requirement for debtor's attorney to certify accuracy of schedules; (2) correct provisions requiring attorney to identify themselves as debt relief agencies; (3) prevent sale of personal consumer information on the eve of a corporate bankruptcy (voice vote only)

517

Prepared Statement of the Maxine Waters — 1

524

Prepared Statement of the Maxine Waters — 2

525

Prepared Statement of the Maxine Waters — 3

525

ABA letter re: attorney certification requirements

526

Motion to report S. 256 favorably

533


The Table of Contents has been expanded beyond that contained in the original PDF version issued by the U.S. Government Printing Office.  In all other respects, this version is identical to the official PDF version.  The pagination of the official PDF version has been retained.


2

Dissenting Views

537

Additional Dissenting Views

591

I. the Unlimited Homestead Exemption

591

Domiciliary Requirement

593

Converting a non-exempt asset into an exempt homestead asset

594

Another domiciliary requirement and conversion of non-exempt assets limitation

594

Cap on homestead exemption for certain types of wrongdoing

594

II. The Bill Does Not Address the Asset Protection Trust Loophole

596

Additional Minority Views

597

PURPOSE AND SUMMARY

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

With respect to the interests of creditors, the proposed reforms respond to many of the factors contributing to the increase in consumer bankruptcy filings, such as lack of personal financial accountability, 1  the proliferation of serial filings, and the absence of effective oversight to eliminate abuse in the system. The heart of the bill's consumer bankruptcy reforms consists of the implementation of an income/expense screening mechanism ("needs-based bankruptcy relief" or "means testing"), which is intended to ensure that debtors repay creditors the maximum they can afford. S. 256 also establishes new eligibility standards for consumer bankruptcy relief and includes provisions intended to deter serial and abusive bankruptcy filings. It substantially augments the responsibilities of those charged with administering consumer bankruptcy cases as well as those who counsel debtors with respect to obtaining such relief. In addition, the bill caps the amount of homestead equity a debtor may shield from creditors, under certain circumstances.

S. 256 also includes various consumer protection reforms. The bill penalizes a creditor who unreasonably refuses to negotiate a pre-bankruptcy debt repayment plan with a debtor. It strengthens the disclosure requirements for reaffirmation agreements (agreements by which debtors obligate themselves to repay otherwise dischargeable debts) so that debtors will be better informed about their rights and responsibilities. The legislation requires certain monthly credit card billing statements to include specified explanatory statements regarding the increased amount of interest and repayment time associated with making minimum payments. The bill requires certain home equity loan and credit card solicitations to include enhanced consumer disclosures. It also prohibits a creditor from terminating an open end consumer credit plan simply because the consumer has not incurred finance charges on the account. S. 256 allows debtors to shelter from the claims of creditors certain education IRA plans and retirement pension funds. It requires debtors to receive credit counseling before they can be eligible for bankruptcy relief so that they will make an informed choice about bankruptcy, its alternatives, and consequences. The bill also re-

 

 

 

 

 

 


1.  As one academic explained:

[S]hoplifting is wrong; bankruptcy is also a moral act. Bankruptcy is a moral as well as an economic act. There is a conscious decision not to keep one's promises. It is a decision not to reciprocate a benefit received, a good deed done on the promise that you will reciprocate. Promise-keeping and reciprocity are the foundation of an economy and healthy civil society.

Bankruptcy Reform: Joint Hearing Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary and the Subcomm. on Administrative Oversight and the Courts of the Senate Comm. on the Judiciary, 106th Cong. 98 (1999) (statement of Prof. Todd Zywicki)


3

quires debtors, after they have filed for bankruptcy, to participate in financial management instructional courses so they can hopefully avoid future financial distress.

With respect to business bankruptcy, S. 256 includes several significant provisions intended to heighten administrative scrutiny and judicial oversight of small business bankruptcy cases, which often are the least likely to reorganize successfully. In addition, it contains provisions designed to reduce systemic risk in the financial marketplace, the enactment of which Federal Reserve Board Chairman Alan Greenspan described as being "extremely important." 2  The bill includes heightened protections for family farmers facing financial distress and allows family fishermen to qualify for a specialized form of bankruptcy relief currently available only to family farmers. The bill also includes provisions concerning transnational insolvencies, bankrupt health care providers, the treatment of tax claims, and data collection. In response to the exponential increase in bankruptcy filings, the bill authorizes the creation of 28 additional bankruptcy judgeships.

BACKGROUND AND NEED FOR THE LEGISLATION

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

S. 256, as introduced, is substantively identical to legislation that the House passed in the prior Congress on two separate occasions with overwhelming bipartisan support. 3  It is also substantively similar to a modified version of a bankruptcy reform conference report that the House passed in the 107th Congress by a vote of 244 to 116. 4

FACTORS SUPPORTING BANKRUPTCY REFORM

Representing the most comprehensive set of reforms in more than 25 years, S. 256's consumer bankruptcy provisions respond to several factors. First, the recent escalation of consumer bankruptcy filings does not appear to be just a temporary event, but part of a generally consistent upward trend. 5  In 1998, for example, bankruptcy filings exceeded one million for the first time in our nation's


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

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

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

5. Press Release, Administrative Office of the U.S. Courts, Record Breaking Bankruptcy Filings Reported in Calendar Year 2002, at 1 (Feb. 14, 2003) (noting that "[b]ankruptcy filings continue to break historic records").


4

history. Over the past decade, the number of bankruptcy filings has nearly doubled to more than 1.6 million cases filed in fiscal year 2004.  6  As a result, there is a growing perception that bankruptcy relief may be too readily available and is sometimes used as a first resort, rather than a last resort.  7  Despite the view of opponents of bankruptcy reform that abuse in the system is not widespread and that most bankruptcy filings result from causes beyond debtors' control, such as family illness, job loss or disruption, or divorce, 8  the Committee concluded that reforms were nevertheless necessary.

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

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

According to some analyses, the increase in consumer bankruptcy filings has adverse financial consequences for our nation's economy. For instance, it was estimated that in 1997 alone more than $44 billion of debt was discharged by debtors who filed for bankruptcy relief, 10 a figure when amortized on a yearly basis amounts to a loss of at least $110 million every day. 11  These losses, according to one estimate, translate into a $400 annual "tax" on every household in our nation. 12  In 2003, the Nilson Report (a credit industry newsletter) announced that issuers of proprietary and general pur-

 

 

 

 

 

 


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

7. See, e.g., Becky Yerak, Bankrupt Filings in E. Mich. Skyrocket; High Debt, Slow Economy Spur 22% Increase in 2002, Biggest Jump in the United States, THE DETROIT NEWS, Feb. 24, 2003, at 1A (noting that "[t]he stigma of filing for bankruptcy continues to abate while, at the same time, lenders impose few if any credit restrictions").

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

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

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

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

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


5

pose credit cards "lost $18.9 billion in 2002 from consumer bankruptcy filings," an increase of 15.1 percent over the prior year. 13  The Credit Union National Association (CUNA) reported that credit unions, as of 2002, lost "nearly $3 billion from bankruptcies" since Congress began its consideration of bankruptcy reform legislation in 1998. 14  CUNA estimates that over 40% of all credit union losses in 2004 will be bankruptcy-related, and those losses will total approximately $900 million. 15

A third factor motivating comprehensive reform is that the present bankruptcy system has loopholes and incentives that allow and—sometimes—even encourage opportunistic personal filings and abuse. A civil enforcement initiative undertaken in 2002 by the United States Trustee Program (a component of the Justice Department charged with administrative oversight of bankruptcy cases) has "consistently identified" such problems as "debtor misconduct and abuse, misconduct by attorneys and other professionals, problems associated with bankruptcy petition preparers, and instances where a debtor's discharge should be challenged." 16  According to the United States Trustee Program, "Abuse of the system is more widespread than many would have estimated." 17  Such abuse ultimately hurts consumers as well as creditors.

A fourth factor relates to the fact that some bankruptcy debtors are able to repay a significant portion of their debts, according to several studies. 18  Current law, however, has no clear mandate requiring these debtors to repay their debts. Accordingly, "[w]hile there is a universal agreement among the courts that an individual debtor's ability to repay his or her debts from future earnings is, at the very least, a factor in determining whether substantial abuse would occur in a chapter 7 case, there are differences among the courts as to the extent to which they rely on a debtor's ability to repay." 19

 

 

 

 

 

 


13. Bankruptcy Losses on Cards, THE NILSON REPORT, Jan. 2003, at 1.

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

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

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

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

18. See, e.g., Bankruptcy Reform Act of 1999 (Pt. II): Hearing on H.R. 833 Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary, 106th Cong. 298 (1999) (statement of Thomas S. Neubig, Ernst & Young LLP—Policy Economics and Quantitative Analysis Group, concluding that "large numbers of 1997 U.S. chapter 7 filers have the ability to repay large portions of their debts"); id. at 228-29 (statement of Michael E. Staten, Credit Research Center, concluding that "about 25 percent of chapter 7 debtors could have repaid at least 30 percent of their non-housing debts over a 5-year repayment plan, after accounting for monthly expenses and housing payments" and that "[a]bout 5 percent of chapter 7 filers appeared capable of repaying all of their non-housing debt over a 5-year plan," although these "calculations assumed income would remain unchanged relative to expenses over the 5 years"); Marianne B. Culhane & Michaela M. White, Taking the New Consumer Bankruptcy Model for a Test Drive: Means-Testing Real Chapter 7 Debtors, 7 AM. BANKR. L. J. 27, 31 (1999) (concluding that 3.6% of sampled debtors "emerged as apparent can-pays").

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


6

PRIOR CONGRESSIONAL CONSIDERATION OF BANKRUPTCY REFORM

Proposed reforms to bankruptcy law and practice have been under consideration by Congress for nearly eight years 20  and have generally enjoyed broad support from the business community, banking and financial services industries as well as other groups such as family farmers and child support enforcement agencies. In Congress, support for bankruptcy reform legislation has likewise been overwhelming, bipartisan and bicameral.

Since the 105th Congress, the House has passed bankruptcy reform legislation on eight separate occasions. In the 105th Congress, for example, the House passed both H.R. 3150, the "Bankruptcy Reform Act of 1998," and the conference report on that bill by veto-proof margins. 21  In the 106th Congress, the House passed H.R. 833, the successor to H.R. 3150, by a veto-proof margin of 313 to 108 22  and agreed to the conference report 23  by voice vote. 24 Although the enate subsequently passed this legislation by a vote of 70 to 28, 25  President Clinton pocket-vetoed it. In the 107th Congress, the House again registered its overwhelming support for bankruptcy reform on two more occasions. On March 1, 2001, the House passed H.R. 333, the "Bankruptcy Abuse Prevention and Consumer Protection Act," by a vote of 306 to 108. 26  The House thereafter passed a modified version of the conference report on H.R. 333, as previously noted.  27  In the last Congress, the House passed H.R. 975, the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2003," by a vote of 315 to 113 and S. 1920, which consisted of the text of H.R. 975, as passed by the House, by a vote of 265 to 99. 28

Likewise, the Senate has on numerous occasions expressed strong bipartisan support for bankruptcy reform legislation. In the 105th Congress, the Senate passed bankruptcy reform legislation by a vote of 97 to 1. 29  In the 106th Congress, the Senate passed similar legislation by a vote of 83 to 14 30 and a subsequent conference report by a vote of 70 to 28. 31  In the 107th Congress, the Senate passed a bankruptcy reform bill by a vote of 82 to 16. 32  Last month, the Senate passed S. 256, as amended, by a vote of 74 to 25. 33

The Committee and the Subcommittee on Commercial and Administrative Law (Subcommittee), beginning in the 105th Congress, have held a total of 18 days of hearings on the operation of the

 

 

 

 

 

 


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

21. 44 CONG. REC. H4442 (daily ed. June 10, 1998) (vote on final passage of H.R. 3150 was 306 to 118); 144 CONG. REC. H10239-40 (daily ed. Oct. 9, 1998) (vote on final passage of the conference report on H.R. 3150 was 300 to 125).

22. 145 CONG. REC. H2771 (daily ed. May 5, 1999).

23. H.R. REP. NO. 106-970 (2000).

24. 146 CONG. REC. H9840 (daily ed. Oct. 12, 2000).

25. 146 CONG. REC. S11730 (daily ed. Dec. 7, 2000).

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

27. See supra note 3.

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

29. 144 CONG. REC. S10767 (daily ed. Sept. 23, 1998).

30. 146 CONG. REC. S255 (daily ed. Feb. 2, 2000).

31. 146 CONG. REC. S11730 (daily ed. Dec. 7, 2000).

32. 147 CONG. REC. S2379 (daily ed. Mar. 15, 2001).

33. 151 CONG. REC. S2474 (daily ed. Mar. 10, 2005).


7

bankruptcy system and the need for reform. 34  Eleven of these hearings were devoted solely to consideration of S. 256's predecessors, H.R. 3150 (105th Congress), H.R. 833 (106th Congress), H.R. 333 (107th Congress), and H.R. 975 (108th Congress). Over the course of these hearings, nearly 130 witnesses, representing nearly every major constituency in the bankruptcy community, testified. With regard to H.R. 833 alone, testimony was received from 69 witnesses, representing 23 organizations, with additional material submitted by other groups.

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


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

April 16, 1997:

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

April 30, 1997:

Hearing on H.R. 764, the "Bankruptcy Amendments of 1997," and H.R. 120, the "Bankruptcy Law Technical Corrections Act of 1997."

October 9, 1997:

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

November 13, 1997:

Hearing on the Report of the National Bankruptcy Review Commission.

February 12, 1998:

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

March 10-11, 18-19, 1998:

Hearings on H.R. 3150, the "Bankruptcy Reform Act of 1998," H.R. 3146, the "Consumer Lenders and Borrowers Bankruptcy Accountability Act of 1998," and H.R. 2500, the "Responsible Borrower Protection Bankruptcy Act."

March 11-12, 18-19, 1999:

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

November 2, 1999:

Joint oversight hearing on additional bankruptcy judgeship needs.

April 11, 2000:

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

February 7-8, 2001:

Hearings on H.R. 333, the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2001."

March 4, 2003:

Hearing on H.R. 975, the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2003" and the need for bankruptcy reform.

 

 

 

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

April 11, 1997:

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

August 1, 1997:

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

August 8, 1997:

Hearing regarding bankruptcy laws for family farmers.

September 22, 1997:

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

October 21, 1997:

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

December 7, 1997:

Hearing regarding international bankruptcy laws.

March 11, 1998:

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

May 19, 1998:

Hearing to review business bankruptcy issues.

March 11, 1999:

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

November 2, 1999:

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

February 10, 2005:

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

 

 

 

 


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833 during the 106th Congress was held jointly by the Subcommittee together with the Senate Subcommittee on Administrative Oversight and the Courts on March 11, 1999, 36  marking the first time in more than 60 years that a bicameral hearing was held on the subject of bankruptcy reform. 37

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

On February 10, 2005, the Senate Committee on the Judiciary held a hearing on S. 256 that provided an opportunity to review the reasons why the current bankruptcy system needs reform and how this legislation would implement those reforms. 39  Testimony was received from eight witnesses, including: Kenneth Beine on behalf of CUNA; Maria Vullo, a partner with the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP; Malcom Bennett on behalf of the National Multi Housing Council/National Apartment Association; Philip Strauss on behalf of the National Child Support Enforcement Association; Dave McCall on behalf of the United Steel Workers of America, AFL-CIO; R. Michael Stewart Menzies, Sr. on behalf of the Independent Community Bankers of America; Prof. Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School; and Prof. Todd J. Zywicki, Visiting Professor of Law at Georgetown University Law Center.

Among the matters considered at the hearing were: (1) the adequacy of the current bankruptcy system with respect to the detection of fraud and abuse; (2) how abuse and fraud in the current bankruptcy system impact on American businesses and our nation's citizens generally; (3) whether the legislation adversely impacts individuals deserving of bankruptcy relief; (4) whether the

 

 

 

 

 

 


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

37. Senators testifying at the hearing included Charles Grassley (R-IA), Joseph Biden (D-DE) and Christopher Dodd (D-CT). House Members included Jim Moran (D-VA), Pete Sessions (R-TX) and Nick Smith (R-MI). Id.

38. H.R. REP. NO. 107-617 (2002). Signatories on behalf of the House included: F. James Sensenbrenner, Jr. (R-WI), Henry Hyde (R-IL), George Gekas (R-PA), Lamar Smith (R-TX), Steve Chabot (R-OH), Bob Barr (R-GA), Rick Boucher (D-VA), Michael Oxley (R-OH), Spencer Bachus (R-AL), Billy Tauzin (R-LA), Joe Barton (R-TX), John Boehner (R-OH), and Michael Castle (R-DE). Signatories on behalf of the Senate included: Patrick Leahy (D-VT), Joe Biden (D-DE), Charles Schumer (D-NY), Orrin Hatch (R-UT), Chuck Grassley (R-IA), Jon Kyl (R-AZ), Mike DeWine (R-OH), Jeff Sessions (R-AL), and Mitch McConnell (R-KY).

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


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proposed reforms would assist those who are charged with administrative oversight of bankruptcy cases and law enforcement matters; and (5) whether, given current economic circumstances, the need for comprehensive bankruptcy reform still exists.

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

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

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

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

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

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

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

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

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

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

 

 

 

 

 

 

 

 


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

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

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

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

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

 

 

 

 

 

 

HIGHLIGHTS OF BANKRUPTCY REFORMS

Consumer Creditor Bankruptcy Protections.

Needs-Based Reforms. Chapter 7 is a form of bankruptcy relief by which an individual debtor receives an immediate unconditional discharge of personal liability for certain debts in exchange for relinquishing his or her nonexempt assets to a bankruptcy trustee for liquidation and distribution to creditors. 41  This "unconditional discharge" in chapter 7 contrasts with the "conditional discharge" provisions of chapter 13, under which a debtor commits to repay some portion of his or her financial obligations in exchange for retaining nonexempt assets and receiving a broader discharge of debt than is available under chapter 7. Allowing consumer debtors in financial distress to choose voluntarily an "unconditional discharge" has

 

 

 

 


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

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


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