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11 USC Chapter 3
Posted on Aug 26, 2011 7:11am PDT
-CITE-
11 USC CHAPTER 3 - CASE ADMINISTRATION 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
-HEAD-
CHAPTER 3 - CASE ADMINISTRATION
-MISC1-
SUBCHAPTER I - COMMENCEMENT OF A CASE
Sec.
301. Voluntary cases.
302. Joint cases.
303. Involuntary cases.
[304. Repealed.]
305. Abstention.
306. Limited appearance.
307. United States trustee.
308. Debtor reporting requirements.
SUBCHAPTER II - OFFICERS
321. Eligibility to serve as trustee.
322. Qualification of trustee.
323. Role and capacity of trustee.
324. Removal of trustee or examiner.
325. Effect of vacancy.
326. Limitation on compensation of trustee.
327. Employment of professional persons.
328. Limitation on compensation of professional persons.
329. Debtor's transactions with attorneys.
330. Compensation of officers.
331. Interim compensation.
332. Consumer privacy ombudsman.
333. Appointment of patient care ombudsman.
SUBCHAPTER III - ADMINISTRATION
341. Meetings of creditors and equity security holders.
342. Notice.
343. Examination of the debtor.
344. Self-incrimination; immunity.
345. Money of estates.
346. Special provisions related to the treatment of State
and local taxes.
347. Unclaimed property.
348. Effect of conversion.
349. Effect of dismissal.
350. Closing and reopening cases.
351. Disposal of patient records.
SUBCHAPTER IV - ADMINISTRATIVE POWERS
361. Adequate protection.
362. Automatic stay.
363. Use, sale, or lease of property.
364. Obtaining credit.
365. Executory contracts and unexpired leases.
366. Utility service.
AMENDMENTS
2010 - Pub. L. 111-327, Sec. 2(a)(49), Dec. 22, 2010, 124 Stat.
3562, inserted "patient care" before "ombudsman" in item 333.
2005 - Pub. L. 109-8, title II, Sec. 232(c), title IV, Sec.
434(a)(2), title VII, Sec. 719(a)(2), title VIII, Sec. 802(d)(4),
title XI, Secs. 1102(b), 1104(a)(2), Apr. 20, 2005, 119 Stat. 74,
111, 133, 146, 190, 192, added items 308, 332, 333, and 351,
substituted "Special provisions related to the treatment of State
and local taxes" for "Special tax provisions" in item 346, and
struck out item 304 "Cases ancillary to foreign proceedings".
1986 - Pub. L. 99-554, title II, Sec. 205(b), Oct. 27, 1986, 100
Stat. 3098, added item 307.
-End-
-CITE-
11 USC SUBCHAPTER I - COMMENCEMENT OF A CASE 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
-HEAD-
SUBCHAPTER I - COMMENCEMENT OF A CASE
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-CITE-
11 USC Sec. 301 01/07/2011
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TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
-HEAD-
Sec. 301. Voluntary cases
-STATUTE-
(a) A voluntary case under a chapter of this title is commenced
by the filing with the bankruptcy court of a petition under such
chapter by an entity that may be a debtor under such chapter.
(b) The commencement of a voluntary case under a chapter of this
title constitutes an order for relief under such chapter.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2558; Pub. L. 109-8, title
V, Sec. 501(b), Apr. 20, 2005, 119 Stat. 118.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Sections 301, 302, 303, and 304 are all modified in the House
amendment to adopt an idea contained in sections 301 and 303 of the
Senate amendment requiring a petition commencing a case to be filed
with the bankruptcy court. The exception contained in section 301
of the Senate bill relating to cases filed under chapter 9 is
deleted. Chapter 9 cases will be handled by a bankruptcy court as
are other title 11 cases.
SENATE REPORT NO. 95-989
Section 301 specifies the manner in which a voluntary bankruptcy
case is commenced. The debtor files a petition under this section
under the particular operative chapter of the bankruptcy code under
which he wishes to proceed. The filing of the petition constitutes
an order for relief in the case under that chapter. The section
contains no change from current law, except for the use of the
phrase "order for relief" instead of "adjudication." The term
adjudication is replaced by a less pejorative phrase in light of
the clear power of Congress to permit voluntary bankruptcy without
the necessity for an adjudication, as under the 1898 act [former
title 11], which was adopted when voluntary bankruptcy was a
concept not thoroughly tested.
AMENDMENTS
2005 - Pub. L. 109-8 designated existing provisions as subsec.
(a), struck out "The commencement of a voluntary case under a
chapter of this title constitutes an order for relief under such
chapter." at end, and added subsec. (b).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
of this title.
-End-
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11 USC Sec. 302 01/07/2011
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TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
-HEAD-
Sec. 302. Joint cases
-STATUTE-
(a) A joint case under a chapter of this title is commenced by
the filing with the bankruptcy court of a single petition under
such chapter by an individual that may be a debtor under such
chapter and such individual's spouse. The commencement of a joint
case under a chapter of this title constitutes an order for relief
under such chapter.
(b) After the commencement of a joint case, the court shall
determine the extent, if any, to which the debtors' estates shall
be consolidated.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2558.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
A joint case is a voluntary bankruptcy case concerning a wife and
husband. Under current law, there is no explicit provision for
joint cases. Very often, however, in the consumer debtor context, a
husband and wife are jointly liable on their debts, and jointly
hold most of their property. A joint case will facilitate
consolidation of their estates, to the benefit of both the debtors
and their creditors, because the cost of administration will be
reduced, and there will be only one filing fee.
Section 302 specifies that a joint case is commenced by the
filing of a petition under an appropriate chapter by an individual
and that individual's spouse. Thus, one spouse cannot take the
other into bankruptcy without the other's knowledge or consent. The
filing of the petition constitutes an order for relief under the
chapter selected.
Subsection (b) requires the court to determine the extent, if
any, to which the estates of the two debtors will be consolidated;
that is, assets and liabilities combined in a single pool to pay
creditors. Factors that will be relevant in the court's
determination include the extent of jointly held property and the
amount of jointly-owned debts. The section, of course, is not
license to consolidate in order to avoid other provisions of the
title to the detriment of either the debtors or their creditors. It
is designed mainly for ease of administration.
-End-
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11 USC Sec. 303 01/07/2011
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TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
-HEAD-
Sec. 303. Involuntary cases
-STATUTE-
(a) An involuntary case may be commenced only under chapter 7 or
11 of this title, and only against a person, except a farmer,
family farmer, or a corporation that is not a moneyed, business, or
commercial corporation, that may be a debtor under the chapter
under which such case is commenced.
(b) An involuntary case against a person is commenced by the
filing with the bankruptcy court of a petition under chapter 7 or
11 of this title -
(1) by three or more entities, each of which is either a holder
of a claim against such person that is not contingent as to
liability or the subject of a bona fide dispute as to liability
or amount, or an indenture trustee representing such a holder, if
such noncontingent, undisputed claims aggregate at least $10,000
more than the value of any lien on property of the debtor
securing such claims held by the holders of such claims;
(2) if there are fewer than 12 such holders, excluding any
employee or insider of such person and any transferee of a
transfer that is voidable under section 544, 545, 547, 548, 549,
or 724(a) of this title, by one or more of such holders that hold
in the aggregate at least $10,000 of such claims;
(3) if such person is a partnership -
(A) by fewer than all of the general partners in such
partnership; or
(B) if relief has been ordered under this title with respect
to all of the general partners in such partnership, by a
general partner in such partnership, the trustee of such a
general partner, or a holder of a claim against such
partnership; or
(4) by a foreign representative of the estate in a foreign
proceeding concerning such person.
(c) After the filing of a petition under this section but before
the case is dismissed or relief is ordered, a creditor holding an
unsecured claim that is not contingent, other than a creditor
filing under subsection (b) of this section, may join in the
petition with the same effect as if such joining creditor were a
petitioning creditor under subsection (b) of this section.
(d) The debtor, or a general partner in a partnership debtor that
did not join in the petition, may file an answer to a petition
under this section.
(e) After notice and a hearing, and for cause, the court may
require the petitioners under this section to file a bond to
indemnify the debtor for such amounts as the court may later allow
under subsection (i) of this section.
(f) Notwithstanding section 363 of this title, except to the
extent that the court orders otherwise, and until an order for
relief in the case, any business of the debtor may continue to
operate, and the debtor may continue to use, acquire, or dispose of
property as if an involuntary case concerning the debtor had not
been commenced.
(g) At any time after the commencement of an involuntary case
under chapter 7 of this title but before an order for relief in the
case, the court, on request of a party in interest, after notice to
the debtor and a hearing, and if necessary to preserve the property
of the estate or to prevent loss to the estate, may order the
United States trustee to appoint an interim trustee under section
701 of this title to take possession of the property of the estate
and to operate any business of the debtor. Before an order for
relief, the debtor may regain possession of property in the
possession of a trustee ordered appointed under this subsection if
the debtor files such bond as the court requires, conditioned on
the debtor's accounting for and delivering to the trustee, if there
is an order for relief in the case, such property, or the value, as
of the date the debtor regains possession, of such property.
(h) If the petition is not timely controverted, the court shall
order relief against the debtor in an involuntary case under the
chapter under which the petition was filed. Otherwise, after trial,
the court shall order relief against the debtor in an involuntary
case under the chapter under which the petition was filed, only if -
(1) the debtor is generally not paying such debtor's debts as
such debts become due unless such debts are the subject of a bona
fide dispute as to liability or amount; or
(2) within 120 days before the date of the filing of the
petition, a custodian, other than a trustee, receiver, or agent
appointed or authorized to take charge of less than substantially
all of the property of the debtor for the purpose of enforcing a
lien against such property, was appointed or took possession.
(i) If the court dismisses a petition under this section other
than on consent of all petitioners and the debtor, and if the
debtor does not waive the right to judgment under this subsection,
the court may grant judgment -
(1) against the petitioners and in favor of the debtor for -
(A) costs; or
(B) a reasonable attorney's fee; or
(2) against any petitioner that filed the petition in bad
faith, for -
(A) any damages proximately caused by such filing; or
(B) punitive damages.
(j) Only after notice to all creditors and a hearing may the
court dismiss a petition filed under this section -
(1) on the motion of a petitioner;
(2) on consent of all petitioners and the debtor; or
(3) for want of prosecution.
(k)(1) If -
(A) the petition under this section is false or contains any
materially false, fictitious, or fraudulent statement;
(B) the debtor is an individual; and
(C) the court dismisses such petition,
the court, upon the motion of the debtor, shall seal all the
records of the court relating to such petition, and all references
to such petition.
(2) If the debtor is an individual and the court dismisses a
petition under this section, the court may enter an order
prohibiting all consumer reporting agencies (as defined in section
603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f))) from
making any consumer report (as defined in section 603(d) of that
Act) that contains any information relating to such petition or to
the case commenced by the filing of such petition.
(3) Upon the expiration of the statute of limitations described
in section 3282 of title 18, for a violation of section 152 or 157
of such title, the court, upon the motion of the debtor and for
good cause, may expunge any records relating to a petition filed
under this section.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2559; Pub. L. 98-353, title
III, Secs. 426, 427, July 10, 1984, 98 Stat. 369; Pub. L. 99-554,
title II, Secs. 204, 254, 283(b), Oct. 27, 1986, 100 Stat. 3097,
3105, 3116; Pub. L. 103-394, title I, Sec. 108(b), Oct. 22, 1994,
108 Stat. 4112; Pub. L. 109-8, title III, Sec. 332(b), title VIII,
Sec. 802(d)(2), title XII, Sec. 1234(a), Apr. 20, 2005, 119 Stat.
103, 146, 204; Pub. L. 111-327, Sec. 2(a)(9), Dec. 22, 2010, 124
Stat. 3558.)
-STATAMEND-
ADJUSTMENT OF DOLLAR AMOUNTS
For adjustment of certain dollar amounts specified in this
section, that is not reflected in text, see Adjustment of Dollar
Amounts note below.
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 303(b)(1) is modified to make clear that unsecured claims
against the debtor must be determined by taking into account liens
securing property held by third parties.
Section 303(b)(3) adopts a provision contained in the Senate
amendment indicating that an involuntary petition may be commenced
against a partnership by fewer than all of the general partners in
such partnership. Such action may be taken by fewer than all of the
general partners notwithstanding a contrary agreement between the
partners or State or local law.
Section 303(h)(1) in the House amendment is a compromise of
standards found in H.R. 8200 as passed by the House and the Senate
amendment pertaining to the standards that must be met in order to
obtain an order for relief in an involuntary case under title 11.
The language specifies that the court will order such relief only
if the debtor is generally not paying debtor's debts as they become
due.
Section 303(h)(2) reflects a compromise pertaining to section 543
of title 11 relating to turnover of property by a custodian. It
provides an alternative test to support an order for relief in an
involuntary case. If a custodian, other than a trustee, receiver,
or agent appointed or authorized to take charge of less than
substantially all of the property of the debtor for the purpose of
enforcing a lien against such property, was appointed or took
possession within 120 days before the date of the filing of the
petition, then the court may order relief in the involuntary case.
The test under section 303(h)(2) differs from section 3a(5) of the
Bankruptcy Act [section 21(a)(5) of former title 11], which
requires an involuntary case to be commenced before the earlier of
time such custodian was appointed or took possession. The test in
section 303(h)(2) authorizes an order for relief to be entered in
an involuntary case from the later date on which the custodian was
appointed or took possession.
SENATE REPORT NO. 95-989
Section 303 governs the commencement of involuntary cases under
title 11. An involuntary case may be commenced only under chapter
7, Liquidation, or chapter 11, Reorganization. Involuntary cases
are not permitted for municipalities, because to do so may
constitute an invasion of State sovereignty contrary to the 10th
amendment, and would constitute bad policy, by permitting the fate
of a municipality, governed by officials elected by the people of
the municipality, to be determined by a small number of creditors
of the municipality. Involuntary chapter 13 cases are not permitted
either. To do so would constitute bad policy, because chapter 13
only works when there is a willing debtor that wants to repay his
creditors. Short of involuntary servitude, it is difficult to keep
a debtor working for his creditors when he does not want to pay
them back. See chapter 3, supra.
The exceptions contained in current law that prohibit involuntary
cases against farmers, ranchers and eleemosynary institutions are
continued. Farmers and ranchers are excepted because of the
cyclical nature of their business. One drought year or one year of
low prices, as a result of which a farmer is temporarily unable to
pay his creditors, should not subject him to involuntary
bankruptcy. Eleemosynary institutions, such as churches, schools,
and charitable organizations and foundations, likewise are exempt
from involuntary bankruptcy.
The provisions for involuntary chapter 11 cases is a slight
change from present law, based on the proposed consolidation of the
reorganization chapters. Currently, involuntary cases are permitted
under chapters X and XII [chapters 10 and 12 of former title 11]
but not under chapter XI [chapter 11 of former title 11]. The
consolidation requires a single rule for all kinds of
reorganization proceedings. Because the assets of an insolvent
debtor belong equitably to his creditors, the bill permits
involuntary cases in order that creditors may realize on their
assets through reorganization as well as through liquidation.
Subsection (b) of the section specifies who may file an
involuntary petition. As under current law, if the debtor has more
than 12 creditors, three creditors must join in the involuntary
petition. The dollar amount limitation is changed from current law
to $5,000. The new amount applies both to liquidation and
reorganization cases in order that there not be an artificial
difference between the two chapters that would provide an incentive
for one or the other. Subsection (b)(1) makes explicit the right of
an indenture trustee to be one of the three petitioning creditors
on behalf of the creditors the trustee represents under the
indenture. If all of the general partners in a partnership are in
bankruptcy, then the trustee of a single general partner may file
an involuntary petition against the partnership. Finally, a foreign
representative may file an involuntary case concerning the debtor
in the foreign proceeding, in order to administer assets in this
country. This subsection is not intended to overrule Bankruptcy
Rule 104(d), which places certain restrictions on the transfer of
claims for the purpose of commencing an involuntary case. That Rule
will be continued under section 405(d) of this bill.
Subsection (c) permits creditors other than the original
petitioning creditors to join in the petition with the same effect
as if the joining creditor had been one of the original petitioning
creditors. Thus, if the claim of one of the original petitioning
creditors is disallowed, the case will not be dismissed for want of
three creditors or want of $5,000 in petitioning claims if the
joining creditor suffices to fulfill the statutory requirements.
Subsection (d) permits the debtor to file an answer to an
involuntary petition. The subsection also permits a general partner
in a partnership debtor to answer an involuntary petition against
the partnership if he did not join in the petition. Thus, a
partnership petition by less than all of the general partners is
treated as an involuntary, not a voluntary, petition.
The court may, under subsection (e), require the petitioners to
file a bond to indemnify the debtor for such amounts as the court
may later allow under subsection (i). Subsection (i) provides for
costs, attorneys fees, and damages in certain circumstances. The
bonding requirement will discourage frivolous petitions as well as
spiteful petitions based on a desire to embarrass the debtor (who
may be a competitor of a petitioning creditor) or to put the debtor
out of business without good cause. An involuntary petition may put
a debtor out of business even if it is without foundation and is
later dismissed.
Subsection (f) is both a clarification and a change from existing
law. It permits the debtor to continue to operate any business of
the debtor and to dispose of property as if the case had not been
commenced. The court is permitted, however, to control the debtor's
powers under this subsection by appropriate orders, such as where
there is a fear that the debtor may attempt to abscond with assets,
dispose of them at less than their fair value, or dismantle his
business, all to the detriment of the debtor's creditors.
The court may also, under subsection (g), appoint an interim
trustee to take possession of the debtor's property and to operate
any business of the debtor, pending trial on the involuntary
petition. The court may make such an order only on the request of a
party in interest, and after notice to the debtor and a hearing.
There must be a showing that a trustee is necessary to preserve the
property of the estate or to prevent loss to the estate. The debtor
may regain possession by posting a sufficient bond.
Subsection (h) provides the standard for an order for relief on
an involuntary petition. If the petition is not timely controverted
(the Rules of Bankruptcy Procedure will fix time limits), the court
orders relief after a trial, only if the debtor is generally unable
to pay its debts as they mature, or if the debtor has failed to pay
a major portion of his debts as they become due, or if a custodian
was appointed during the 90-day period preceding the filing of the
petition. The first two tests are variations of the equity
insolvency test. They represent the most significant departure from
present law concerning the grounds for involuntary bankruptcy,
which requires an act of bankruptcy. Proof of the commission of an
act of bankruptcy has frequently required a showing that the debtor
was insolvent on a "balance-sheet" test when the act was committed.
This bill abolishes the concept of acts of bankruptcy.
The equity insolvency test has been in equity jurisprudence for
hundreds of years, and though it is new in the bankruptcy context
(except in chapter X [chapter 10 of former title 11]), the
bankruptcy courts should have no difficulty in applying it. The
third test, appointment of a custodian within ninety days before
the petition, is provided for simplicity. It is not a partial re-
enactment of acts of bankruptcy. If a custodian of all or
substantially all of the property of the debtor has been appointed,
this paragraph creates an irrebuttable presumption that the debtor
is unable to pay its debts as they mature. Moreover, once a
proceeding to liquidate assets has been commenced, the debtor's
creditors have an absolute right to have the liquidation (or
reorganization) proceed in the bankruptcy court and under the
bankruptcy laws with all of the appropriate creditor and debtor
protections that those laws provide. Ninety days gives creditors
ample time in which to seek bankruptcy liquidation after the
appointment of a custodian. If they wait beyond the ninety day
period, they are not precluded from filing an involuntary petition.
They are simply required to prove equity insolvency rather than the
more easily provable custodian test.
Subsection (i) permits the court to award costs, reasonable
attorney's fees, or damages if an involuntary petition is dismissed
other than by consent of all petitioning creditors and the debtor.
The damages that the court may award are those that may be caused
by the taking of possession of the debtor's property under
subsection (g) or section 1104 of the bankruptcy code. In addition,
if a petitioning creditor filed the petition in bad faith, the
court may award the debtor any damages proximately caused by the
filing of the petition. These damages may include such items as
loss of business during and after the pendency of the case, and so
on. "Or" is not exclusive in this paragraph. The court may grant
any or all of the damages provided for under the provision.
Dismissal in the best interests of credits under section 305(a)(1)
would not give rise to a damages claim.
Under subsection (j), the court may dismiss the petition by
consent only after giving notice to all creditors. The purpose of
the subsection is to prevent collusive settlements among the debtor
and the petitioning creditors while other creditors, that wish to
see relief ordered with respect to the debtor but that did not
participate in the case, are left without sufficient protection.
Subsection (k) governs involuntary cases against foreign banks
that are not engaged in business in the United States but that have
assets located here. The subsection prevents a foreign bank from
being placed into bankruptcy in this country unless a foreign
proceeding against the bank is pending. The special protection
afforded by this section is needed to prevent creditors from
effectively closing down a foreign bank by the commencement of an
involuntary bankruptcy case in this country unless that bank is
involved in a proceeding under foreign law. An involuntary case
commenced under this subsection gives the foreign representative an
alternative to commencing a case ancillary to a foreign proceeding
under section 304.
AMENDMENTS
2010 - Subsecs. (k), (l). Pub. L. 111-327 redesignated subsec.
(l) as (k).
2005 - Subsec. (b)(1). Pub. L. 109-8, Sec. 1234(a)(1), inserted
"as to liability or amount" after "bona fide dispute" and
substituted "if such noncontingent, undisputed claims" for "if such
claims".
Subsec. (h)(1). Pub. L. 109-8, Sec. 1234(a)(2), inserted "as to
liability or amount" before semicolon.
Subsec. (k). Pub. L. 109-8, Sec. 802(d)(2), struck out subsec.
(k) which read as follows: "Notwithstanding subsection (a) of this
section, an involuntary case may be commenced against a foreign
bank that is not engaged in such business in the United States only
under chapter 7 of this title and only if a foreign proceeding
concerning such bank is pending."
Subsec. (l). Pub. L. 109-8, Sec. 332(b), added subsec. (l).
1994 - Subsec. (b). Pub. L. 103-394 substituted "$10,000" for
"$5,000" in pars. (1) and (2).
1986 - Subsec. (a). Pub. L. 99-554, Sec. 254, inserted reference
to family farmer.
Subsec. (b). Pub. L. 99-554, Sec. 283(b)(1), substituted "subject
of" for "subject on".
Subsec. (g). Pub. L. 99-554, Sec. 204(1), substituted "may order
the United States trustee to appoint" for "may appoint".
Subsec. (h)(1). Pub. L. 99-554, Sec. 283(b)(2), substituted "are
the" for "that are the".
Subsec. (i)(1). Pub. L. 99-554, Sec. 204(2), inserted "or" at end
of subpar. (A) and struck out subpar. (C) which read as follows:
"any damages proximately caused by the taking of possession of the
debtor's property by a trustee appointed under subsection (g) of
this section or section 1104 of this title; or".
1984 - Subsec. (b). Pub. L. 98-353, Sec. 426(a), inserted
"against a person" after "involuntary case".
Subsec. (b)(1). Pub. L. 98-353, Sec. 426(b)(1), inserted "or the
subject on a bona fide dispute,".
Subsec. (h)(1). Pub. L. 98-353, Sec. 426(b)(2), inserted "unless
such debts that are the subject of a bona fide dispute".
Subsec. (j)(2). Pub. L. 98-353, Sec. 427, substituted "debtor"
for "debtors".
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-8, title XII, Sec. 1234(b), Apr. 20, 2005, 119 Stat.
204, provided that: "This section [amending this section] and the
amendments made by this section shall take effect on the date of
the enactment of this Act [Apr. 20, 2005] and shall apply with
respect to cases commenced under title 11 of the United States Code
before, on, and after such date."
Amendment by sections 332(b) and 802(d)(2) of Pub. L. 109-8
effective 180 days after Apr. 20, 2005, and not applicable with
respect to cases commenced under this title before such effective
date, except as otherwise provided, see section 1501 of Pub. L. 109-
8, set out as a note under section 101 of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
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.
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by section 204 of
Pub. L. 99-554 dependent upon the judicial district involved, see
section 302(d), (e) of Pub. L. 99-554, set out as a note under
section 581 of Title 28, Judiciary and Judicial Procedure.
Amendment by section 254 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.
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.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by sections 426(a) and 427 of Pub. L. 98-353 effective
with respect to cases filed 90 days after July 10, 1984, and
amendment by section 426(b) of Pub. L. 98-353 effective July 10,
1984, see section 552(a), (b) of Pub. L. 98-353, set out as a note
under section 101 of this title.
ADJUSTMENT OF DOLLAR AMOUNTS
The dollar amounts specified in this section were adjusted by
notices of the Judicial Conference of the United States pursuant to
section 104 of this title as follows:
By notice dated Feb. 19, 2010, 75 F.R. 8747, effective Apr. 1,
2010, in subsec. (b)(1), (2), dollar amount "13,475" was adjusted
to "14,425". See notice of the Judicial Conference of the United
States set out as a note under section 104 of this title.
By notice dated Feb. 7, 2007, 72 F.R. 7082, effective Apr. 1,
2007, in subsec. (b)(1), (2), dollar amount "12,300" was adjusted
to "13,475".
By notice dated Feb. 18, 2004, 69 F.R. 8482, effective Apr. 1,
2004, in subsec. (b)(1), (2), dollar amount "11,625" was adjusted
to "12,300".
By notice dated Feb. 13, 2001, 66 F.R. 10910, effective Apr. 1,
2001, in subsec. (b)(1), (2), dollar amount "10,775" was adjusted
to "11,625".
By notice dated Feb. 3, 1998, 63 F.R. 7179, effective Apr. 1,
1998, in subsec. (b)(1), (2), dollar amount "10,000" was adjusted
to "10,775".
-End-
-CITE-
11 USC Sec. 304 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
-HEAD-
Sec. 304. Repealed.
-MISC1-
[Sec. 304. Repealed. Pub. L. 109-8, title VIII, Sec. 802(d)(3),
Apr. 20, 2005, 119 Stat. 146].
Section, Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2560, related to
cases ancillary to foreign proceedings.
EFFECTIVE DATE OF REPEAL
Repeal effective 180 days after Apr. 20, 2005, and not applicable
with respect to cases commenced under this title before such
effective date, except as otherwise provided, see section 1501 of
Pub. L. 109-8, set out as an Effective Date of 2005 Amendment note
under section 101 of this title.
-End-
-CITE-
11 USC Sec. 305 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
-HEAD-
Sec. 305. Abstention
-STATUTE-
(a) The court, after notice and a hearing, may dismiss a case
under this title, or may suspend all proceedings in a case under
this title, at any time if -
(1) the interests of creditors and the debtor would be better
served by such dismissal or suspension; or
(2)(A) a petition under section 1515 for recognition of a
foreign proceeding has been granted; and
(B) the purposes of chapter 15 of this title would be best
served by such dismissal or suspension.
(b) A foreign representative may seek dismissal or suspension
under subsection (a)(2) of this section.
(c) An order under subsection (a) of this section dismissing a
case or suspending all proceedings in a case, or a decision not so
to dismiss or suspend, is not reviewable by appeal or otherwise by
the court of appeals under section 158(d), 1291, or 1292 of title
28 or by the Supreme Court of the United States under section 1254
of title 28.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2561; Pub. L. 101-650,
title III, Sec. 309(a), Dec. 1, 1990, 104 Stat. 5113; Pub. L. 102-
198, Sec. 5, Dec. 9, 1991, 105 Stat. 1623; Pub. L. 109-8, title
VIII, Sec. 802(d)(6), Apr. 20, 2005, 119 Stat. 146.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
A principle of the common law requires a court with jurisdiction
over a particular matter to take jurisdiction. This section
recognizes that there are cases in which it would be appropriate
for the court to decline jurisdiction. Abstention under this
section, however, is of jurisdiction over the entire case.
Abstention from jurisdiction over a particular proceeding in a case
is governed by proposed 28 U.S.C. 1471(c). Thus, the court is
permitted, if the interests of creditors and the debtor would be
better served by dismissal of the case or suspension of all
proceedings in the case, to so order. The court may dismiss or
suspend under the first paragraph, for example, if an arrangement
is being worked out by creditors and the debtor out of court, there
is no prejudice to the results of creditors in that arrangement,
and an involuntary case has been commenced by a few recalcitrant
creditors to provide a basis for future threats to extract full
payment. The less expensive out-of-court workout may better serve
the interests in the case. Likewise, if there is pending a foreign
proceeding concerning the debtor and the factors specified in
proposed 11 U.S.C. 304(c) warrant dismissal or suspension, the
court may so act.
Subsection (b) gives a foreign representative authority to appear
in the bankruptcy court to request dismissal or suspension.
Subsection (c) makes the dismissal or suspension order
nonreviewable by appeal or otherwise. The bankruptcy court, based
on its experience and discretion is vested with the power of
decision.
AMENDMENTS
2005 - Subsec. (a)(2). Pub. L. 109-8 added par. (2) and struck
out former par. (2) which read as follows:
"(2)(A) there is pending a foreign proceeding; and
"(B) the factors specified in section 304(c) of this title
warrant such dismissal or suspension."
1991 - Subsec. (c). Pub. L. 102-198 substituted "title 28" for
"this title" in two places.
1990 - Subsec. (c). Pub. L. 101-650 inserted before period at end
"by the court of appeals under section 158(d), 1291, or 1292 of
this title or by the Supreme Court of the United States under
section 1254 of this title".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
of this title.
-End-
-CITE-
11 USC Sec. 306 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
-HEAD-
Sec. 306. Limited appearance
-STATUTE-
An appearance in a bankruptcy court by a foreign representative
in connection with a petition or request under section 303 or 305
of this title does not submit such foreign representative to the
jurisdiction of any court in the United States for any other
purpose, but the bankruptcy court may condition any order under
section 303 or 305 of this title on compliance by such foreign
representative with the orders of such bankruptcy court.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2561; Pub. L. 109-8, title
VIII, Sec. 802(d)(5), Apr. 20, 2005, 119 Stat. 146.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
Section 306 permits a foreign representative that is seeking
dismissal or suspension under section 305 of an ancillary case or
that is appearing in connection with a petition under section 303
or 304 to appear without subjecting himself to the jurisdiction of
any other court in the United States, including State courts. The
protection is necessary to allow the foreign representative to
present his case and the case of the foreign estate, without
waiving the normal jurisdictional rules of the foreign country.
That is, creditors in this country will still have to seek redress
against the foreign estate according to the host country's
jurisdictional rules. Any other result would permit local creditors
to obtain unfair advantage by filing an involuntary case, thus
requiring the foreign representative to appear, and then obtaining
local jurisdiction over the representative in connection with his
appearance in this country. That kind of bankruptcy law would
legalize an ambush technique that has frequently been rejected by
the common law in other contexts.
However, the bankruptcy court is permitted under section 306 to
condition any relief under section 303, 304, or 305 on the
compliance by the foreign representative with the orders of the
bankruptcy court. The last provision is not carte blanche to the
bankruptcy court to require the foreign representative to submit to
jurisdiction in other courts contrary to the general policy of the
section. It is designed to enable the bankruptcy court to enforce
its own orders that are necessary to the appropriate relief granted
under section 303, 304, or 305.
AMENDMENTS
2005 - Pub. L. 109-8 struck out ", 304," after "section 303" in
two places.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
of this title.
-End-
-CITE-
11 USC Sec. 307 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
-HEAD-
Sec. 307. United States trustee
-STATUTE-
The United States trustee may raise and may appear and be heard
on any issue in any case or proceeding under this title but may not
file a plan pursuant to section 1121(c) of this title.
-SOURCE-
(Added Pub. L. 99-554, title II, Sec. 205(a), Oct. 27, 1986, 100
Stat. 3098.)
-MISC1-
EFFECTIVE DATE
Effective date and applicability of section dependent upon the
judicial district involved, see section 302(d), (e) of Pub. L. 99-
554, set out as a note under section 581 of Title 28, Judiciary
and Judicial Procedure.
STANDING AND AUTHORITY OF BANKRUPTCY ADMINISTRATOR
Pub. L. 101-650, title III, Sec. 317(b), Dec. 1, 1990, 104 Stat.
5115, provided that: "A bankruptcy administrator may raise and may
appear and be heard on any issue in any case under title 11, United
States Code, but may not file a plan pursuant to section 1121(c) of
such title."
-End-
-CITE-
11 USC Sec. 308 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
-HEAD-
Sec. 308. Debtor reporting requirements
-STATUTE-
(a) For purposes of this section, the term "profitability" means,
with respect to a debtor, the amount of money that the debtor has
earned or lost during current and recent fiscal periods.
(b) A debtor in a small business case shall file periodic
financial and other reports containing information including -
(1) the debtor's profitability;
(2) reasonable approximations of the debtor's projected cash
receipts and cash disbursements over a reasonable period;
(3) comparisons of actual cash receipts and disbursements with
projections in prior reports;
(4) whether the debtor is -
(A) in compliance in all material respects with postpetition
requirements imposed by this title and the Federal Rules of
Bankruptcy Procedure; and
(B) timely filing tax returns and other required government
filings and paying taxes and other administrative expenses when
due;
(5) if the debtor is not in compliance with the requirements
referred to in paragraph (4)(A) or filing tax returns and other
required government filings and making the payments referred to
in paragraph (4)(B), what the failures are and how, at what cost,
and when the debtor intends to remedy such failures; and
(6) such other matters as are in the best interests of the
debtor and creditors, and in the public interest in fair and
efficient procedures under chapter 11 of this title.
-SOURCE-
(Added Pub. L. 109-8, title IV, Sec. 434(a)(1), Apr. 20, 2005, 119
Stat. 111; amended Pub. L. 111-327, Sec. 2(a)(10), Dec. 22, 2010,
124 Stat. 3558.)
-REFTEXT-
REFERENCES IN TEXT
The Federal Rules of Bankruptcy Procedure, referred to in subsec.
(b)(4)(A), are set out in the Appendix to this title.
-MISC1-
AMENDMENTS
2010 - Subsec. (b). Pub. L. 111-327, Sec. 2(a)(10)(A),
substituted "debtor in a small business case" for "small business
debtor" in introductory provisions.
Subsec. (b)(4) to (6). Pub. L. 111-327, Sec. 2(a)(10)(B), struck
out subpar. (A) designation before "whether the debtor" in par. (4)
and redesignated cls. (i) and (ii) of former subpar. (A) as
subpars. (A) and (B), respectively, redesignated former subpars.
(B) and (C) of par. (4) as pars. (5) and (6), respectively, and, in
par. (5), substituted "paragraph (4)(A)" for "subparagraph (A)(i)"
and "paragraph (4)(B)" for "subparagraph (A)(ii)".
EFFECTIVE DATE
Pub. L. 109-8, title IV, Sec. 434(b), Apr. 20, 2005, 119 Stat.
111, provided that: "The amendments made by subsection (a)
[enacting this section] shall take effect 60 days after the date on
which rules are prescribed under section 2075 of title 28, United
States Code, to establish forms to be used to comply with section
308 of title 11, United States Code, as added by subsection (a)
[See Bankruptcy Form No. 25C, eff. Dec. 1, 2008, set out in the
Appendix to this title]."
-End-
-CITE-
11 USC SUBCHAPTER II - OFFICERS 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
SUBCHAPTER II - OFFICERS
-End-
-CITE-
11 USC Sec. 321 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 321. Eligibility to serve as trustee
-STATUTE-
(a) A person may serve as trustee in a case under this title only
if such person is -
(1) an individual that is competent to perform the duties of
trustee and, in a case under chapter 7, 12, or 13 of this title,
resides or has an office in the judicial district within which
the case is pending, or in any judicial district adjacent to such
district; or
(2) a corporation authorized by such corporation's charter or
bylaws to act as trustee, and, in a case under chapter 7, 12, or
13 of this title, having an office in at least one of such
districts.
(b) A person that has served as an examiner in the case may not
serve as trustee in the case.
(c) The United States trustee for the judicial district in which
the case is pending is eligible to serve as trustee in the case if
necessary.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2561; Pub. L. 98-353, title
III, Sec. 428, July 10, 1984, 98 Stat. 369; Pub. L. 99-554, title
II, Secs. 206, 257(c), Oct. 27, 1986, 100 Stat. 3098, 3114.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 321 indicates that an examiner may not serve as a trustee
in the case.
SENATE REPORT NO. 95-989
Section 321 is adapted from current Bankruptcy Act Sec. 45
[section 73 of former title 11] and Bankruptcy Rule 209. Subsection
(a) specifies that an individual may serve as trustee in a
bankruptcy case only if he is competent to perform the duties of
trustee and resides or has an office in the judicial district
within which the case is pending, or in an adjacent judicial
district. A corporation must be authorized by its charter or bylaws
to act as trustee, and, for chapter 7 or 13 cases, must have an
office in any of the above mentioned judicial districts.
AMENDMENTS
1986 - Subsec. (a). Pub. L. 99-554, Sec. 257(c), inserted
reference to chapter 12 in two places.
Subsec. (c). Pub. L. 99-554, Sec. 206, added subsec. (c).
1984 - Subsec. (b). Pub. L. 98-353 substituted "the case" for "a
case" after "an examiner in".
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by section 206 of
Pub. L. 99-554 dependent upon the judicial district involved, see
section 302(d), (e) of Pub. L. 99-554, set out as a note under
section 581 of Title 28, Judiciary and Judicial Procedure.
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.
EFFECTIVE DATE OF 1984 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 322 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 322. Qualification of trustee
-STATUTE-
(a) Except as provided in subsection (b)(1), a person selected
under section 701, 702, 703, 1104, 1163, 1202, or 1302 of this
title to serve as trustee in a case under this title qualifies if
before seven days after such selection, and before beginning
official duties, such person has filed with the court a bond in
favor of the United States conditioned on the faithful performance
of such official duties.
(b)(1) The United States trustee qualifies wherever such trustee
serves as trustee in a case under this title.
(2) The United States trustee shall determine -
(A) the amount of a bond required to be filed under subsection
(a) of this section; and
(B) the sufficiency of the surety on such bond.
(c) A trustee is not liable personally or on such trustee's bond
in favor of the United States for any penalty or forfeiture
incurred by the debtor.
(d) A proceeding on a trustee's bond may not be commenced after
two years after the date on which such trustee was discharged.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562; Pub. L. 98-353, title
III, Sec. 429, July 10, 1984, 98 Stat. 369; Pub. L. 99-554, title
II, Secs. 207, 257(d), Oct. 27, 1986, 100 Stat. 3098, 3114; Pub. L.
103-394, title V, Sec. 501(d)(3), Oct. 22, 1994, 108 Stat. 4143;
Pub. L. 111-16, Sec. 2(2), May 7, 2009, 123 Stat. 1607.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 322(a) is modified to include a trustee serving in a
railroad reorganization under subchapter IV of chapter 11.
SENATE REPORT NO. 95-989
A trustee qualifies in a case by filing, within five days after
selection, a bond in favor of the United States, conditioned on the
faithful performance of his official duties. This section is
derived from the Bankruptcy Act section 50b [section 78(b) of
former title 11]. The court is required to determine the amount of
the bond and the sufficiency of the surety on the bond. Subsection
(c), derived from Bankruptcy Act section 50i [section 78(i) of
former title 11], relieves the trustee from personal liability and
from liability on his bond for any penalty or forfeiture incurred
by the debtor. Subsection (d), derived from section 50m [section
78(m) of former title 11], fixes a two-year statute of limitations
on any action on a trustee's bond. Finally, subsection (e)
dispenses with the bonding requirement for the United States
trustee.
AMENDMENTS
2009 - Subsec. (a). Pub. L. 111-16 substituted "seven days" for
"five days".
1994 - Subsec. (a). Pub. L. 103-394 substituted "1202, or 1302"
for "1302, or 1202".
1986 - Subsec. (a). Pub. L. 99-554, Sec. 257(d), inserted
reference to section 1202 of this title.
Pub. L. 99-554, Sec. 207(1), substituted "Except as provided in
subsection (b)(1), a person" for "A person".
Subsec. (b). Pub. L. 99-554, Sec. 207(2), amended subsec. (b)
generally, adding par. (1), designating existing provisions as par.
(2), substituting "The United States trustee" for "The court", "(A)
the amount" for "(1) the amount", and "(B) the sufficiency" for
"(2) the sufficiency".
1984 - Subsec. (b)(1). Pub. L. 98-353 inserted "required to be".
EFFECTIVE DATE OF 2009 AMENDMENT
Amendment by Pub. L. 111-16 effective Dec. 1, 2009, see section 7
of Pub. L. 111-16, set out as a note under section 109 of this
title.
EFFECTIVE DATE OF 1994 AMENDMENT
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.
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by section 207 of
Pub. L. 99-554 dependent upon the judicial district involved, see
section 302(d), (e) of Pub. L. 99-554, set out as a note under
section 581 of Title 28, Judiciary and Judicial Procedure.
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.
EFFECTIVE DATE OF 1984 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 323 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 323. Role and capacity of trustee
-STATUTE-
(a) The trustee in a case under this title is the representative
of the estate.
(b) The trustee in a case under this title has capacity to sue
and be sued.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
Subsection (a) of this section makes the trustee the
representative of the estate. Subsection (b) grants the trustee the
capacity to sue and to be sued. If the debtor remains in possession
in a chapter 11 case, section 1107 gives the debtor in possession
these rights of the trustee: the debtor in possession becomes the
representative of the estate, and may sue and be sued. The same
applies in a chapter 13 case.
-End-
-CITE-
11 USC Sec. 324 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 324. Removal of trustee or examiner
-STATUTE-
(a) The court, after notice and a hearing, may remove a trustee,
other than the United States trustee, or an examiner, for cause.
(b) Whenever the court removes a trustee or examiner under
subsection (a) in a case under this title, such trustee or examiner
shall thereby be removed in all other cases under this title in
which such trustee or examiner is then serving unless the court
orders otherwise.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562; Pub. L. 99-554, title
II, Sec. 208, Oct. 27, 1986, 100 Stat. 3098.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
This section permits the court, after notice and a hearing, to
remove a trustee for cause.
AMENDMENTS
1986 - Pub. L. 99-554 amended section generally, designating
existing provisions as subsec. (a), substituting "a trustee, other
than the United States trustee, or an examiner" for "a trustee or
an examiner", and adding subsec. (b).
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by Pub. L. 99-554
dependent upon the judicial district involved, see section 302(d),
(e) of Pub. L. 99-554, set out as a note under section 581 of Title
28, Judiciary and Judicial Procedure.
-End-
-CITE-
11 USC Sec. 325 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 325. Effect of vacancy
-STATUTE-
A vacancy in the office of trustee during a case does not abate
any pending action or proceeding, and the successor trustee shall
be substituted as a party in such action or proceeding.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
Section 325, derived from Bankruptcy Act section 46 [section 74
of former title 11] and Bankruptcy Rule 221(b), specifies that a
vacancy in the office of trustee during a case does not abate any
pending action or proceeding. The successor trustee, when selected
and qualified, is substituted as a party in any pending action or
proceeding.
-End-
-CITE-
11 USC Sec. 326 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 326. Limitation on compensation of trustee
-STATUTE-
(a) In a case under chapter 7 or 11, the court may allow
reasonable compensation under section 330 of this title of the
trustee for the trustee's services, payable after the trustee
renders such services, not to exceed 25 percent on the first $5,000
or less, 10 percent on any amount in excess of $5,000 but not in
excess of $50,000, 5 percent on any amount in excess of $50,000 but
not in excess of $1,000,000, and reasonable compensation not to
exceed 3 percent of such moneys in excess of $1,000,000, upon all
moneys disbursed or turned over in the case by the trustee to
parties in interest, excluding the debtor, but including holders of
secured claims.
(b) In a case under chapter 12 or 13 of this title, the court may
not allow compensation for services or reimbursement of expenses of
the United States trustee or of a standing trustee appointed under
section 586(b) of title 28, but may allow reasonable compensation
under section 330 of this title of a trustee appointed under
section 1202(a) or 1302(a) of this title for the trustee's
services, payable after the trustee renders such services, not to
exceed five percent upon all payments under the plan.
(c) If more than one person serves as trustee in the case, the
aggregate compensation of such persons for such service may not
exceed the maximum compensation prescribed for a single trustee by
subsection (a) or (b) of this section, as the case may be.
(d) The court may deny allowance of compensation for services or
reimbursement of expenses of the trustee if the trustee failed to
make diligent inquiry into facts that would permit denial of
allowance under section 328(c) of this title or, with knowledge of
such facts, employed a professional person under section 327 of
this title.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562; Pub. L. 98-353, title
III, Sec. 430(a), (b), July 10, 1984, 98 Stat. 369; Pub. L. 99-554,
title II, Sec. 209, Oct. 27, 1986, 100 Stat. 3098; Pub. L. 103-394,
title I, Sec. 107, Oct. 22, 1994, 108 Stat. 4111.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 326(a) of the House amendment modifies a provision as
contained in H.R. 8200 as passed by the House. The percentage
limitation on the fees of a trustee contained in the House bill is
retained, but no additional percentage is specified for cases in
which a trustee operates the business of the debtor. Section 326(b)
of the Senate amendment is deleted as an unnecessary restatement of
the limitation contained in section 326(a) as modified. The
provision contained in section 326(a) of the Senate amendment
authorizing a trustee to receive a maximum fee of $150 regardless
of the availability of assets in the estate is deleted. It will not
be necessary in view of the increase in section 326(a) and the
doubling of the minimum fee as provided in section 330(b).
Section 326(b) of the House amendment derives from section 326(c)
of H.R. 8200 as passed by the House. It is a conforming amendment
to indicate a change with respect to the selection of a trustee in
a chapter 13 case under section 1302(a) of title 11.
SENATE REPORT NO. 95-989
This section is derived in part from section 48c of the
Bankruptcy Act [section 76(c) of former title 11]. It must be
emphasized that this section does not authorize compensation of
trustees. This section simply fixes the maximum compensation of a
trustee. Proposed 11 U.S.C. 330 authorizes and fixes the standard
of compensation. Under section 48c of current law, the maximum
limits have tended to become minimums in many cases. This section
is not intended to be so interpreted. The limits in this section,
together with the limitations found in section 330, are to be
applied as outer limits, and not as grants or entitlements to the
maximum fees specified.
The maximum fee schedule is derived from section 48c(1) of the
present act [section 76(c)(1) of former title 11], but with a
change relating to the bases on which the percentage maxima are
computed. The maximum fee schedule is based on decreasing
percentages of increasing amounts. The amounts are the amounts of
money distributed by the trustee to parties in interest, excluding
the debtor, but including secured creditors. These amounts were
last amended in 1952. Since then, the cost of living has
approximately doubled. Thus, the bases were doubled.
It should be noted that the bases on which the maximum fee is
computed includes moneys turned over to secured creditors, to cover
the situation where the trustee liquidates property subject to a
lien and distributes the proceeds. It does not cover cases in which
the trustee simply turns over the property to the secured creditor,
nor where the trustee abandons the property and the secured
creditor is permitted to foreclose. The provision is also subject
to the rights of the secured creditor generally under proposed
section 506, especially 506(c). The $150 discretionary fee
provision of current law is retained.
Subsection (b) of this section entitles an operating trustee to a
reasonable fee, without any limitation based on the maximum
provided for a liquidating trustee as in current law, Bankruptcy
Act Sec. 48c(2) [section 76(c)(2) of former title 11].
Subsection (c) [enacted as (b)] permits a maximum fee of five
percent on all payments to creditors under a chapter 13 plan to the
trustee appointed in the case.
Subsection (d) [enacted as (c)] provides a limitation not found
in current law. Even if more than one trustee serves in the case,
the maximum fee payable to all trustees does not change. For
example, if an interim trustee is appointed and an elected trustee
replaces him, the combined total of the fees payable to the interim
trustee and the permanent trustee may not exceed the amount
specified in this section. Under current law, very often a receiver
receives a full fee and a subsequent trustee also receives a full
fee. The resultant "double-dipping", especially in cases in which
the receiver and the trustee are the same individual, is
detrimental to the interests of creditors, by needlessly increasing
the cost of administering bankruptcy estates.
Subsection (e) [enacted as (d)] permits the court to deny
compensation to a trustee if the trustee has been derelict in his
duty by employing counsel, who is not disinterested.
AMENDMENTS
1994 - Subsec. (a). Pub. L. 103-394 substituted "25 percent on
the first $5,000 or less, 10 percent on any amount in excess of
$5,000 but not in excess of $50,000, 5 percent on any amount in
excess of $50,000 but not in excess of $1,000,000, and reasonable
compensation not to exceed 3 percent of such moneys in excess of
$1,000,000" for "fifteen percent on the first $1,000 or less, six
percent on any amount in excess of $1,000 but not in excess of
$3,000, and three percent on any amount in excess of $3,000".
1986 - Subsec. (b). Pub. L. 99-554 amended subsec. (b) generally,
substituting "under chapter 12 or 13 of this title" for "under
chapter 13 of this title", "expenses of the United States trustee
or of a standing trustee appointed under section 586(b) of title
28" for "expenses of a standing trustee appointed under section
1302(d) of this title", and "under section 1202(a) or 1302(a) of
this title" for "under section 1302(a) of this title".
1984 - Subsec. (a). Pub. L. 98-353, Sec. 430(a), substituted "and
three percent on any amount in excess of $3000" for "three percent
on any amount in excess of $3,000 but not in excess of $20,000, two
percent on any amount in excess of $20,000 but not in excess of
$50,000, and one percent on any amount in excess of $50,000".
Subsec. (d). Pub. L. 98-353, Sec. 430(b), amended subsec. (d)
generally. Prior to amendment, subsec. (d) read as follows: "The
court may deny allowance of compensation for services and
reimbursement of expenses of the trustee if the trustee -
"(1) failed to make diligent inquiry into facts that would
permit denial of allowance under section 328(c) of this title; or
"(2) with knowledge of such facts, employed a professional
person under section 327 of this title."
EFFECTIVE DATE OF 1994 AMENDMENT
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.
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by Pub. L. 99-554
dependent upon the judicial district involved, see section 302(d),
(e) of Pub. L. 99-554, set out as a note under section 581 of Title
28, Judiciary and Judicial Procedure.
EFFECTIVE DATE OF 1984 AMENDMENT
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 SUBSECTION (B) TEMPORARILY DEEMED TO INCLUDE
ADDITIONAL REFERENCES
Until the amendments made by subtitle A (Secs. 201 to 231) of
title II of Pub. L. 99-554 become effective in a district and apply
to a case, for purposes of such case any reference in subsec. (b)
of this section -
(1) to chapter 13 of this title is deemed to be a reference to
chapter 12 or 13 of this title,
(2) to section 1302(d) of this title is deemed to be a
reference to section 1302(d) of this title or section 586(b) of
Title 28, Judiciary and Judicial Procedure, and
(3) to section 1302(a) of this title is deemed to be a
reference to section 1202(a) or 1302(a) of this title,
see section 302(c)(3)(A), (d), (e) of Pub. L. 99-554, set out as an
Effective Date note under section 581 of Title 28.
-End-
-CITE-
11 USC Sec. 327 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 327. Employment of professional persons
-STATUTE-
(a) Except as otherwise provided in this section, the trustee,
with the court's approval, may employ one or more attorneys,
accountants, appraisers, auctioneers, or other professional
persons, that do not hold or represent an interest adverse to the
estate, and that are disinterested persons, to represent or assist
the trustee in carrying out the trustee's duties under this title.
(b) If the trustee is authorized to operate the business of the
debtor under section 721, 1202, or 1108 of this title, and if the
debtor has regularly employed attorneys, accountants, or other
professional persons on salary, the trustee may retain or replace
such professional persons if necessary in the operation of such
business.
(c) In a case under chapter 7, 12, or 11 of this title, a person
is not disqualified for employment under this section solely
because of such person's employment by or representation of a
creditor, unless there is objection by another creditor or the
United States trustee, in which case the court shall disapprove
such employment if there is an actual conflict of interest.
(d) The court may authorize the trustee to act as attorney or
accountant for the estate if such authorization is in the best
interest of the estate.
(e) The trustee, with the court's approval, may employ, for a
specified special purpose, other than to represent the trustee in
conducting the case, an attorney that has represented the debtor,
if in the best interest of the estate, and if such attorney does
not represent or hold any interest adverse to the debtor or to the
estate with respect to the matter on which such attorney is to be
employed.
(f) The trustee may not employ a person that has served as an
examiner in the case.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2563; Pub. L. 98-353, title
III, Sec. 430(c), July 10, 1984, 98 Stat. 370; Pub. L. 99-554,
title II, Secs. 210, 257(e), Oct. 27, 1986, 100 Stat. 3099, 3114.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 327(a) of the House amendment contains a technical
amendment indicating that attorneys, and perhaps other officers
enumerated therein, represent, rather than assist, the trustee in
carrying out the trustee's duties.
Section 327(c) represents a compromise between H.R. 8200 as
passed by the House and the Senate amendment. The provision states
that former representation of a creditor, whether secured or
unsecured, will not automatically disqualify a person from being
employed by a trustee, but if such person is employed by the
trustee, the person may no longer represent the creditor in
connection with the case.
Section 327(f) prevents an examiner from being employed by the
trustee.
SENATE REPORT NO. 95-989
This section authorizes the trustee, subject to the court's
approval, to employ professional persons, such as attorneys,
accountants, appraisers, and auctioneers, to represent or perform
services for the estate. The trustee may employ only disinterested
persons that do not hold or represent an interest adverse to the
estate.
Subsection (b) is an exception, and authorizes the trustee to
retain or replace professional persons that the debtor has employed
if necessary in the operation of the debtor's business.
Subsection (c) provides a professional person is not disqualified
for employment solely because of the person's prior employment by
or representation of a secured or unsecured creditor.
Subsection (d) permits the court to authorize the trustee, if
qualified to act as his own counsel or accountant.
Subsection (e) permits the trustee, subject to the court's
approval, to employ for a specified special purpose an attorney
that has represented the debtor, if such employment is in the best
interest of the estate and if the attorney does not hold or
represent an interest adverse to the debtor of the estate with
respect to the matter on which he is to be employed. This
subsection does not authorize the employment of the debtor's
attorney to represent the estate generally or to represent the
trustee in the conduct of the bankruptcy case. The subsection will
most likely be used when the debtor is involved in complex
litigation, and changing attorneys in the middle of the case after
the bankruptcy case has commenced would be detrimental to the
progress of that other litigation.
HOUSE REPORT NO. 95-595
Subsection (c) is an additional exception. The trustee may employ
as his counsel a nondisinterested person if the only reason that
the attorney is not disinterested is because of his representation
of an unsecured creditor.
AMENDMENTS
1986 - Subsec. (b). Pub. L. 99-554, Sec. 257(e)(1), which
directed the insertion of ", 1202," after "section 721," was
executed by making the insertion after "section 721" to reflect the
probable intent of Congress.
Subsec. (c). Pub. L. 99-554, Sec. 257(e)(2), which directed the
insertion of ", 12," after "section 7," was executed by making the
insertion after "chapter 7" to reflect the probable intent of
Congress.
Pub. L. 99-554, Sec. 210, inserted "or the United States trustee"
after "another creditor".
1984 - Subsec. (c). Pub. L. 98-353 substituted "In a case under
chapter 7 or 11 of this title, a person is not disqualified for
employment under this section solely because of such person's
employment by or representation of a creditor, unless there is
objection by another creditor, in which case the court shall
disapprove such employment if there is an actual conflict of
interest." for "In a case under chapter 7 or 11 of this title, a
person is not disqualified for employment under this section solely
because of such person's employment by or representation of a
creditor, but may not, while employed by the trustee, represent, in
connection with the case, a creditor."
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by section 210 of
Pub. L. 99-554 dependent upon the judicial district involved, see
section 302(d), (e) of Pub. L. 99-554, set out as a note under
section 581 of Title 28, Judiciary and Judicial Procedure.
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.
EFFECTIVE DATE OF 1984 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 328 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 328. Limitation on compensation of professional persons
-STATUTE-
(a) The trustee, or a committee appointed under section 1102 of
this title, with the court's approval, may employ or authorize the
employment of a professional person under section 327 or 1103 of
this title, as the case may be, on any reasonable terms and
conditions of employment, including on a retainer, on an hourly
basis, on a fixed or percentage fee basis, or on a contingent fee
basis. Notwithstanding such terms and conditions, the court may
allow compensation different from the compensation provided under
such terms and conditions after the conclusion of such employment,
if such terms and conditions prove to have been improvident in
light of developments not capable of being anticipated at the time
of the fixing of such terms and conditions.
(b) If the court has authorized a trustee to serve as an attorney
or accountant for the estate under section 327(d) of this title,
the court may allow compensation for the trustee's services as such
attorney or accountant only to the extent that the trustee
performed services as attorney or accountant for the estate and not
for performance of any of the trustee's duties that are generally
performed by a trustee without the assistance of an attorney or
accountant for the estate.
(c) Except as provided in section 327(c), 327(e), or 1107(b) of
this title, the court may deny allowance of compensation for
services and reimbursement of expenses of a professional person
employed under section 327 or 1103 of this title if, at any time
during such professional person's employment under section 327 or
1103 of this title, such professional person is not a disinterested
person, or represents or holds an interest adverse to the interest
of the estate with respect to the matter on which such professional
person is employed.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2563; Pub. L. 98-353, title
III, Sec. 431, July 10, 1984, 98 Stat. 370; Pub. L. 109-8, title
XII, Sec. 1206, Apr. 20, 2005, 119 Stat. 194.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 328(c) adopts a technical amendment contained in the
Senate amendment indicating that an attorney for the debtor in
possession is not disqualified for compensation for services and
reimbursement of expenses simply because of prior representation of
the debtor.
SENATE REPORT NO. 95-989
This section, which is parallel to section 326, fixes the maximum
compensation allowable to a professional person employed under
section 327. It authorizes the trustee, with the court's approval,
to employ professional persons on any reasonable terms, including
on a retainer, on an hourly or on a contingent fee basis.
Subsection (a) further permits the court to allow compensation
different from the compensation provided under the trustee's
agreement if the prior agreement proves to have been improvident in
light of development unanticipatable at the time of the agreement.
The court's power includes the power to increase as well as
decrease the agreed upon compensation. This provision is
permissive, not mandatory, and should not be used by the court if
to do so would violate the code of ethics of the professional
involved.
Subsection (b) limits a trustee that has been authorized to serve
as his own counsel to only one fee for each service. The purpose of
permitting the trustee to serve as his own counsel is to reduce
costs. It is not included to provide the trustee with a bonus by
permitting him to receive two fees for the same service or to avoid
the maxima fixed in section 326. Thus, this subsection requires the
court to differentiate between the trustee's services as trustee,
and his services as trustee's counsel, and to fix compensation
accordingly. Services that a trustee normally performs for an
estate without assistance of counsel are to be compensated under
the limits fixed in section 326. Only services that he performs
that are normally performed by trustee's counsel may be compensated
under the maxima imposed by this section.
Subsection (c) permits the court to deny compensation for
services and reimbursement of expenses if the professional person
is not disinterested or if he represents or holds an interest
adverse to the estate on the matter on which he is employed. The
subsection provides a penalty for conflicts of interest.
AMENDMENTS
2005 - Subsec. (a). Pub. L. 109-8 inserted "on a fixed or
percentage fee basis," after "hourly basis,".
1984 - Subsec. (a). Pub. L. 98-353 substituted "not capable of
being anticipated" for "unanticipatable".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 329 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 329. Debtor's transactions with attorneys
-STATUTE-
(a) Any attorney representing a debtor in a case under this
title, or in connection with such a case, whether or not such
attorney applies for compensation under this title, shall file with
the court a statement of the compensation paid or agreed to be
paid, if such payment or agreement was made after one year before
the date of the filing of the petition, for services rendered or to
be rendered in contemplation of or in connection with the case by
such attorney, and the source of such compensation.
(b) If such compensation exceeds the reasonable value of any such
services, the court may cancel any such agreement, or order the
return of any such payment, to the extent excessive, to -
(1) the estate, if the property transferred -
(A) would have been property of the estate; or
(B) was to be paid by or on behalf of the debtor under a plan
under chapter 11, 12, or 13 of this title; or
(2) the entity that made such payment.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2564; Pub. L. 98-353, title
III, Sec. 432, July 10, 1984, 98 Stat. 370; Pub. L. 99-554, title
II, Sec. 257(c), Oct. 27, 1986, 100 Stat. 3114.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
This section, derived in large part from current Bankruptcy Act
section 60d [section 96(d) of former title 11], requires the
debtor's attorney to file with the court a statement of the
compensation paid or agreed to be paid to the attorney for services
in contemplation of and in connection with the case, and the source
of the compensation. Payments to a debtor's attorney provide
serious potential for evasion of creditor protection provisions of
the bankruptcy laws, and serious potential for overreaching by the
debtor's attorney, and should be subject to careful scrutiny.
Subsection (b) permits the court to deny compensation to the
attorney, to cancel an agreement to pay compensation, or to order
the return of compensation paid, if the compensation exceeds the
reasonable value of the services provided. The return of payments
already made are generally to the trustee for the benefit of the
estate. However, if the property would not have come into the
estate in any event, the court will order it returned to the entity
that made the payment.
The Bankruptcy Commission recommended a provision similar to this
that would have also permitted an examination of the debtor's
transactions with insiders. S. 236, 94th Cong., 1st sess, sec. 4-
311(b) (1975). Its exclusion here is to permit it to be dealt with
by the Rules of Bankruptcy Procedure. It is not intended that the
provision be deleted entirely, only that the flexibility of the
rules is more appropriate for such evidentiary matters.
AMENDMENTS
1986 - Subsec. (b)(1)(B). Pub. L. 99-554 inserted reference to
chapter 12.
1984 - Subsec. (a). Pub. L. 98-353, Sec. 432(a), substituted "or"
for "and" after "in contemplation of".
Subsec. (b)(1). Pub. L. 98-353, Sec. 432(b), substituted "estate"
for "trustee".
EFFECTIVE DATE OF 1986 AMENDMENT
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 DATE OF 1984 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 330 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 330. Compensation of officers
-STATUTE-
(a)(1) After notice to the parties in interest and the United
States Trustee and a hearing, and subject to sections 326, 328, and
329, the court may award to a trustee, a consumer privacy ombudsman
appointed under section 332, an examiner, an ombudsman appointed
under section 333, or a professional person employed under section
327 or 1103 -
(A) reasonable compensation for actual, necessary services
rendered by the trustee, examiner, ombudsman, professional
person, or attorney and by any paraprofessional person employed
by any such person; and
(B) reimbursement for actual, necessary expenses.
(2) The court may, on its own motion or on the motion of the
United States Trustee, the United States Trustee for the District
or Region, the trustee for the estate, or any other party in
interest, award compensation that is less than the amount of
compensation that is requested.
(3) In determining the amount of reasonable compensation to be
awarded to an examiner, trustee under chapter 11, or professional
person, the court shall consider the nature, the extent, and the
value of such services, taking into account all relevant factors,
including -
(A) the time spent on such services;
(B) the rates charged for such services;
(C) whether the services were necessary to the administration
of, or beneficial at the time at which the service was rendered
toward the completion of, a case under this title;
(D) whether the services were performed within a reasonable
amount of time commensurate with the complexity, importance, and
nature of the problem, issue, or task addressed;
(E) with respect to a professional person, whether the person
is board certified or otherwise has demonstrated skill and
experience in the bankruptcy field; and
(F) whether the compensation is reasonable based on the
customary compensation charged by comparably skilled
practitioners in cases other than cases under this title.
(4)(A) Except as provided in subparagraph (B), the court shall
not allow compensation for -
(i) unnecessary duplication of services; or
(ii) services that were not -
(I) reasonably likely to benefit the debtor's estate; or
(II) necessary to the administration of the case.
(B) In a chapter 12 or chapter 13 case in which the debtor is an
individual, the court may allow reasonable compensation to the
debtor's attorney for representing the interests of the debtor in
connection with the bankruptcy case based on a consideration of the
benefit and necessity of such services to the debtor and the other
factors set forth in this section.
(5) The court shall reduce the amount of compensation awarded
under this section by the amount of any interim compensation
awarded under section 331, and, if the amount of such interim
compensation exceeds the amount of compensation awarded under this
section, may order the return of the excess to the estate.
(6) Any compensation awarded for the preparation of a fee
application shall be based on the level and skill reasonably
required to prepare the application.
(7) In determining the amount of reasonable compensation to be
awarded to a trustee, the court shall treat such compensation as a
commission, based on section 326.
(b)(1) There shall be paid from the filing fee in a case under
chapter 7 of this title $45 to the trustee serving in such case,
after such trustee's services are rendered.
(2) The Judicial Conference of the United States -
(A) shall prescribe additional fees of the same kind as
prescribed under section 1914(b) of title 28; and
(B) may prescribe notice of appearance fees and fees charged
against distributions in cases under this title;
to pay $15 to trustees serving in cases after such trustees'
services are rendered. Beginning 1 year after the date of the
enactment of the Bankruptcy Reform Act of 1994, such $15 shall be
paid in addition to the amount paid under paragraph (1).
(c) Unless the court orders otherwise, in a case under chapter 12
or 13 of this title the compensation paid to the trustee serving in
the case shall not be less than $5 per month from any distribution
under the plan during the administration of the plan.
(d) In a case in which the United States trustee serves as
trustee, the compensation of the trustee under this section shall
be paid to the clerk of the bankruptcy court and deposited by the
clerk into the United States Trustee System Fund established by
section 589a of title 28.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2564; Pub. L. 98-353, title
III, Secs. 433, 434, July 10, 1984, 98 Stat. 370; Pub. L. 99-554,
title II, Secs. 211, 257(f), Oct. 27, 1986, 100 Stat. 3099, 3114;
Pub. L. 103-394, title I, Sec. 117, title II, Sec. 224(b), Oct. 22,
1994, 108 Stat. 4119, 4130; Pub. L. 109-8, title II, Sec. 232(b),
title IV, Secs. 407, 415, title XI, Sec. 1104(b), Apr. 20, 2005,
119 Stat. 74, 106, 107, 192.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 330(a) contains the standard of compensation adopted in
H.R. 8200 as passed by the House rather than the contrary standard
contained in the Senate amendment. Attorneys' fees in bankruptcy
cases can be quite large and should be closely examined by the
court. However bankruptcy legal services are entitled to command
the same competency of counsel as other cases. In that light, the
policy of this section is to compensate attorneys and other
professionals serving in a case under title 11 at the same rate as
the attorney or other professional would be compensated for
performing comparable services other than in a case under title 11.
Contrary language in the Senate report accompanying S. 2266 is
rejected, and Massachusetts Mutual Life Insurance Company v. Brock,
405 F.2d 429, 432 (5th Cir. 1968) is overruled. Notions of economy
of the estate in fixing fees are outdated and have no place in a
bankruptcy code.
Section 330(a)(2) of the Senate amendment is deleted although the
Securities and Exchange Commission retains a right to file an
advisory report under section 1109.
Section 330(b) of the Senate amendment is deleted as unnecessary,
as the limitations contained therein are covered by section 328(c)
of H.R. 8200 as passed by the House and contained in the House
amendment.
Section 330(c) of the Senate amendment providing for a trustee to
receive a fee of $20 for each estate from the filing fee paid to
the clerk is retained as section 330(b) of the House amendment. The
section will encourage private trustees to serve in cases under
title 11 and in pilot districts will place less of a burden on the
U.S. trustee to serve in no-asset cases.
Section 330(b) of H.R. 8200 as passed by the House is retained by
the House amendment as section 330(c) [section 15330].
SENATE REPORT NO. 95-989
Section 330 authorizes the court to award compensation for
services and reimbursement of expenses of officers of the estate,
and other professionals. The compensation is to be reasonable, for
economy in administration is the basic objective. Compensation is
to be for actual necessary services, based on the time spent, the
nature, the extent and the value of the services rendered, and the
cost of comparable services in nonbankruptcy cases. There are the
criteria that have been applied by the courts as analytic aids in
defining "reasonable" compensation.
The reference to "the cost of comparable services" in a
nonbankruptcy case is not intended as a change of existing law. In
a bankruptcy case fees are not a matter for private agreement.
There is inherent a "public interest" that "must be considered in
awarding fees," Massachusetts Mutual Life Insurance Co. v. Brock,
405 F.2d 429, 432 (C.A.5, 1968), cert. denied, 395 U.S. 906 (1969).
An allowance is the result of a balance struck between moderation
in the interest of the estate and its security holders and the need
to be "generous enough to encourage" lawyers and others to render
the necessary and exacting services that bankruptcy cases often
require. In re Yale Express System, Inc., 366 F.Supp. 1376, 1381
(S.D.N.Y. 1973). The rates for similar kinds of services in private
employment is one element, among others, in that balance.
Compensation in private employment noted in subsection (a) is a
point of reference, not a controlling determinant of what shall be
allowed in bankruptcy cases.
One of the major reforms in 1938, especially for reorganization
cases, was centralized control over fees in the bankruptcy courts.
See Brown v. Gerdes, 321 U.S. 178, 182-184 (1944); Leiman v.
Guttman, 336 U.S. 1, 4-9 (1949). It was intended to guard against a
recurrence of "the many sordid chapters" in "the history of fees in
corporate reorganizations." Dickinson Industrial Site, Inc. v.
Cowan, 309 U.S. 382, 388 (1940). In the years since then the
bankruptcy bar has flourished and prospered, and persons of merit
and quality have not eschewed public service in bankruptcy cases
merely because bankruptcy courts, in the interest of economy in
administration, have not allowed them compensation that may be
earned in the private economy of business or the professions. There
is no reason to believe that, in generations to come, their
successors will be less persuaded by the need to serve in the
public interest because of stronger allures of private gain
elsewhere.
Subsection (a) provides for compensation of paraprofessionals in
order to reduce the cost of administering bankruptcy cases.
Paraprofessionals can be employed to perform duties which do not
require the full range of skills of a qualified professional. Some
courts have not hesitated to recognize paraprofessional services as
compensable under existing law. An explicit provision to that
effect is useful and constructive.
The last sentence of subsection (a) provides that in the case of
a public company - defined in section 1101(3) - the court shall
refer, after a hearing, all applications to the Securities and
Exchange Commission for a report, which shall be advisory only. In
Chapter X cases in which the Commission has appeared, it generally
filed reports on fee applications. Usually, courts have accorded
the SEC's views substantial weight, as representing the opinion of
a disinterested agency skilled and experienced in reorganization
affairs. The last sentence intends for the advisory assistance of
the Commission to be sought only in case of a public company in
reorganization under chapter 11.
Subsection (b) reenacts section 249 of Chapter X of the
Bankruptcy Act ([former] 11 U.S.C. 649). It is a codification of
equitable principles designed to prevent fiduciaries in the case
from engaging in the specified transactions since they are in a
position to gain inside information or to shape or influence the
course of the reorganization. Wolf v. Weinstein, 372 U.S. 633
(1963). The statutory bar of compensation and reimbursement is
based on the principle that such transactions involve conflicts of
interest. Private gain undoubtedly prompts the purchase or sale of
claims or stock interests, while the fiduciary's obligation is to
render loyal and disinterested service which his position of trust
has imposed upon him. Subsection (b) extends to a trustee, his
attorney, committees and their attorneys, or any other persons
"acting in the case in a representative or fiduciary capacity." It
bars compensation to any of the foregoing, who after assuming to
act in such capacity has purchased or sold, directly or indirectly,
claims against, or stock in the debtor. The bar is absolute. It
makes no difference whether the transaction brought a gain or loss,
or neither, and the court is not authorized to approve a purchase
or sale, before or after the transaction. The exception is for an
acquisition or transfer "otherwise" than by a voluntary purchase or
sale, such as an acquisition by bequest. See Otis & Co. v.
Insurance Bldg. Corp., 110 F.2d 333, 335 (C.A.1, 1940).
Subsection (c) [enacted as (b)] is intended for no asset
liquidation cases where minimal compensation for trustees is
needed. The sum of $20 will be allowed in each case, which is
double the amount provided under current law.
HOUSE REPORT NO. 95-595
Section 330 authorizes compensation for services and
reimbursement of expenses of officers of the estate. It also
prescribes the standards on which the amount of compensation is to
be determined. As noted above, the compensation allowable under
this section is subject to the maxima set out in sections 326, 328,
and 329. The compensation is to be reasonable, for actual necessary
services rendered, based on the time, the nature, the extent, and
the value of the services rendered, and on the cost of comparable
services other than in a case under the bankruptcy code. The effect
of the last provision is to overrule In re Beverly Crest
Convalescent Hospital, Inc., 548 F.2d 817 (9th Cir. 1976, as
amended 1977), which set an arbitrary limit on fees payable based
on the amount of a district judge's salary, and other, similar
cases that require fees to be determined based on notions of
conservation of the estate and economy of administration. If that
case were allowed to stand, attorneys that could earn much higher
incomes in other fields would leave the bankruptcy arena.
Bankruptcy specialists, who enable the system to operate smoothly,
efficiently, and expeditiously, would be driven elsewhere, and the
bankruptcy field would be occupied by those who could not find
other work and those who practice bankruptcy law only occasionally
almost as a public service. Bankruptcy fees that are lower than
fees in other areas of the legal profession may operate properly
when the attorneys appearing in bankruptcy cases do so
intermittently, because a low fee in a small segment of a practice
can be absorbed by other work. Bankruptcy specialists, however, if
required to accept fees in all of their cases that are consistently
lower than fees they could receive elsewhere, will not remain in
the bankruptcy field.
This subsection provides for reimbursement of actual, necessary
expenses. It further provides for compensation of paraprofessionals
employed by professional persons employed by the estate of the
debtor. The provision is included to reduce the cost of
administering bankruptcy cases. In nonbankruptcy areas, attorneys
are able to charge for a paraprofessional's time on an hourly
basis, and not include it in overhead. If a similar practice does
not pertain in bankruptcy cases then the attorney will be less
inclined to use paraprofessionals even where the work involved
could easily be handled by an attorney's assistant, at much lower
cost to the estate. This provision is designed to encourage
attorneys to use paraprofessional assistance where possible, and to
insure that the estate, not the attorney, will bear the cost, to
the benefit of both the estate and the attorneys involved.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Bankruptcy Reform Act of 1994,
referred to in subsec. (b)(2), is the date of enactment of Pub. L.
103-394, which was approved Oct. 22, 1994.
-MISC2-
AMENDMENTS
2005 - Subsec. (a)(1). Pub. L. 109-8, Sec. 1104(b)(1), inserted
"an ombudsman appointed under section 333, or" before "a
professional person" in introductory provisions.
Pub. L. 109-8, Sec. 232(b), inserted "a consumer privacy
ombudsman appointed under section 332," before "an examiner" in
introductory provisions.
Subsec. (a)(1)(A). Pub. L. 109-8, Sec. 1104(b)(2), inserted
"ombudsman," before "professional person".
Subsec. (a)(3). Pub. L. 109-8, Sec. 407(1), in introductory
provisions, substituted "In" for "(A) In" and inserted "to an
examiner, trustee under chapter 11, or professional person" after
"awarded".
Subsec. (a)(3)(E), (F). Pub. L. 109-8, Sec. 415, added subpar.
(E) and redesignated former subpar. (E) as (F).
Subsec. (a)(7). Pub. L. 109-8, Sec. 407(2), added par. (7).
1994 - Subsec. (a). Pub. L. 103-394, Sec. 224(b), amended subsec.
(a) generally. Prior to amendment, subsec. (a) read as follows:
"After notice to any parties in interest and to the United States
trustee and a hearing, and subject to sections 326, 328, and 329 of
this title, the court may award to a trustee, to an examiner, to a
professional person employed under section 327 or 1103 of this
title, or to the debtor's attorney -
"(1) reasonable compensation for actual, necessary services
rendered by such trustee, examiner, professional person, or
attorney, as the case may be, and by any paraprofessional persons
employed by such trustee, professional person, or attorney, as
the case may be, based on the nature, the extent, and the value
of such services, the time spent on such services, and the cost
of comparable services other than in a case under this title; and
"(2) reimbursement for actual, necessary expenses."
Subsec. (b). Pub. L. 103-394, Sec. 117, designated existing
provisions as par. (1) and added par. (2).
1986 - Subsec. (a). Pub. L. 99-554, Sec. 211(1), inserted "to any
parties in interest and to the United States trustee" after
"notice".
Subsec. (c). Pub. L. 99-554, Sec. 257(f), inserted reference to
chapter 12.
Subsec. (d). Pub. L. 99-554, Sec. 211(2), added subsec. (d).
1984 - Subsec. (a). Pub. L. 98-353, Sec. 433(1), struck out "to
any parties in interest and to the United States trustee" after
"After notice".
Subsec. (a)(1). Pub. L. 98-353, Sec. 433(2), substituted "nature,
the extent, and the value of such services, the time spent on such
services" for "time, the nature, the extent, and the value of such
services".
Subsec. (b). Pub. L. 98-353, Sec. 434(a), substituted "$45" for
"$20".
Subsec. (c). Pub. L. 98-353, Sec. 434(b), added subsec. (c).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by section 117 of Pub. L. 103-394 effective Oct. 22,
1994, and applicable with respect to cases commenced under this
title before, on, and after Oct. 22, 1994, and amendment by section
224(b) of 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.
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by section 211 of
Pub. L. 99-554 dependent upon the judicial district involved, see
section 302(d), (e) of Pub. L. 99-554, set out as a note under
section 581 of Title 28, Judiciary and Judicial Procedure.
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.
EFFECTIVE DATE OF 1984 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 331 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 331. Interim compensation
-STATUTE-
A trustee, an examiner, a debtor's attorney, or any professional
person employed under section 327 or 1103 of this title may apply
to the court not more than once every 120 days after an order for
relief in a case under this title, or more often if the court
permits, for such compensation for services rendered before the
date of such an application or reimbursement for expenses incurred
before such date as is provided under section 330 of this title.
After notice and a hearing, the court may allow and disburse to
such applicant such compensation or reimbursement.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2564.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
Section 331 permits trustees and professional persons to apply to
the court not more than once every 120 days for interim
compensation and reimbursement payments. The court may permit more
frequent applications if the circumstances warrant, such as in very
large cases where the legal work is extensive and merits more
frequent payments. The court is authorized to allow and order
disbursement to the applicant of compensation and reimbursement
that is otherwise allowable under section 330. The only effect of
this section is to remove any doubt that officers of the estate may
apply for, and the court may approve, compensation and
reimbursement during the case, instead of being required to wait
until the end of the case, which in some instances, may be years.
The practice of interim compensation is followed in some courts
today, but has been subject to some question. This section
explicitly authorizes it.
This section will apply to professionals such as auctioneers and
appraisers only if they are not paid on a per job basis.
-End-
-CITE-
11 USC Sec. 332 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 332. Consumer privacy ombudsman
-STATUTE-
(a) If a hearing is required under section 363(b)(1)(B), the
court shall order the United States trustee to appoint, not later
than 7 days before the commencement of the hearing, 1 disinterested
person (other than the United States trustee) to serve as the
consumer privacy ombudsman in the case and shall require that
notice of such hearing be timely given to such ombudsman.
(b) The consumer privacy ombudsman may appear and be heard at
such hearing and shall provide to the court information to assist
the court in its consideration of the facts, circumstances, and
conditions of the proposed sale or lease of personally identifiable
information under section 363(b)(1)(B). Such information may
include presentation of -
(1) the debtor's privacy policy;
(2) the potential losses or gains of privacy to consumers if
such sale or such lease is approved by the court;
(3) the potential costs or benefits to consumers if such sale
or such lease is approved by the court; and
(4) the potential alternatives that would mitigate potential
privacy losses or potential costs to consumers.
(c) A consumer privacy ombudsman shall not disclose any
personally identifiable information obtained by the ombudsman under
this title.
-SOURCE-
(Added Pub. L. 109-8, title II, Sec. 232(a), Apr. 20, 2005, 119
Stat. 73; amended Pub. L. 111-16, Sec. 2(3), May 7, 2009, 123 Stat.
1607.)
-MISC1-
AMENDMENTS
2009 - Subsec. (a). Pub. L. 111-16 substituted "7 days" for "5
days".
EFFECTIVE DATE OF 2009 AMENDMENT
Amendment by Pub. L. 111-16 effective Dec. 1, 2009, see section 7
of Pub. L. 111-16, set out as a note under section 109 of this
title.
EFFECTIVE DATE
Section effective 180 days after Apr. 20, 2005, and not
applicable with respect to cases commenced under this title before
such effective date, except as otherwise provided, see section 1501
of Pub. L. 109-8, set out as an Effective Date of 2005 Amendment
note under section 101 of this title.
-End-
-CITE-
11 USC Sec. 333 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 333. Appointment of patient care ombudsman
-STATUTE-
(a)(1) If the debtor in a case under chapter 7, 9, or 11 is a
health care business, the court shall order, not later than 30 days
after the commencement of the case, the appointment of an ombudsman
to monitor the quality of patient care and to represent the
interests of the patients of the health care business unless the
court finds that the appointment of such ombudsman is not necessary
for the protection of patients under the specific facts of the
case.
(2)(A) If the court orders the appointment of an ombudsman under
paragraph (1), the United States trustee shall appoint 1
disinterested person (other than the United States trustee) to
serve as such ombudsman.
(B) If the debtor is a health care business that provides long-
term care, then the United States trustee may appoint the State
Long-Term Care Ombudsman appointed under the Older Americans Act of
1965 for the State in which the case is pending to serve as the
ombudsman required by paragraph (1).
(C) If the United States trustee does not appoint a State Long-
Term Care Ombudsman under subparagraph (B), the court shall notify
the State Long-Term Care Ombudsman appointed under the Older
Americans Act of 1965 for the State in which the case is pending,
of the name and address of the person who is appointed under
subparagraph (A).
(b) An ombudsman appointed under subsection (a) shall -
(1) monitor the quality of patient care provided to patients of
the debtor, to the extent necessary under the circumstances,
including interviewing patients and physicians;
(2) not later than 60 days after the date of appointment, and
not less frequently than at 60-day intervals thereafter, report
to the court after notice to the parties in interest, at a
hearing or in writing, regarding the quality of patient care
provided to patients of the debtor; and
(3) if such ombudsman determines that the quality of patient
care provided to patients of the debtor is declining
significantly or is otherwise being materially compromised, file
with the court a motion or a written report, with notice to the
parties in interest immediately upon making such determination.
(c)(1) An ombudsman appointed under subsection (a) shall maintain
any information obtained by such ombudsman under this section that
relates to patients (including information relating to patient
records) as confidential information. Such ombudsman may not review
confidential patient records unless the court approves such review
in advance and imposes restrictions on such ombudsman to protect
the confidentiality of such records.
(2) An ombudsman appointed under subsection (a)(2)(B) shall have
access to patient records consistent with authority of such
ombudsman under the Older Americans Act of 1965 and under non-
Federal laws governing the State Long-Term Care Ombudsman program.
-SOURCE-
(Added Pub. L. 109-8, title XI, Sec. 1104(a)(1), Apr. 20, 2005, 119
Stat. 191.)
-REFTEXT-
REFERENCES IN TEXT
The Older Americans Act of 1965, referred to in subsecs.
(a)(2)(B), (C) and (c)(2), is Pub. L. 89-73, July 14, 1965, 79
Stat. 218, as amended, which is classified generally to chapter 35
(Sec. 3001 et seq.) of Title 42, The Public Health and Welfare. For
complete classification of this Act to the Code, see Short Title
note set out under section 3001 of Title 42 and Tables.
-MISC1-
EFFECTIVE DATE
Section effective 180 days after Apr. 20, 2005, and not
applicable with respect to cases commenced under this title before
such effective date, except as otherwise provided, see section 1501
of Pub. L. 109-8, set out as an Effective Date of 2005 Amendment
note under section 101 of this title.
-End-
-CITE-
11 USC SUBCHAPTER III - ADMINISTRATION 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
SUBCHAPTER III - ADMINISTRATION
-End-
-CITE-
11 USC Sec. 341 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 341. Meetings of creditors and equity security holders
-STATUTE-
(a) Within a reasonable time after the order for relief in a case
under this title, the United States trustee shall convene and
preside at a meeting of creditors.
(b) The United States trustee may convene a meeting of any equity
security holders.
(c) The court may not preside at, and may not attend, any meeting
under this section including any final meeting of creditors.
Notwithstanding any local court rule, provision of a State
constitution, any otherwise applicable nonbankruptcy law, or any
other requirement that representation at the meeting of creditors
under subsection (a) be by an attorney, a creditor holding a
consumer debt or any representative of the creditor (which may
include an entity or an employee of an entity and may be a
representative for more than 1 creditor) shall be permitted to
appear at and participate in the meeting of creditors in a case
under chapter 7 or 13, either alone or in conjunction with an
attorney for the creditor. Nothing in this subsection shall be
construed to require any creditor to be represented by an attorney
at any meeting of creditors.
(d) Prior to the conclusion of the meeting of creditors or equity
security holders, the trustee shall orally examine the debtor to
ensure that the debtor in a case under chapter 7 of this title is
aware of -
(1) the potential consequences of seeking a discharge in
bankruptcy, including the effects on credit history;
(2) the debtor's ability to file a petition under a different
chapter of this title;
(3) the effect of receiving a discharge of debts under this
title; and
(4) the effect of reaffirming a debt, including the debtor's
knowledge of the provisions of section 524(d) of this title.
(e) Notwithstanding subsections (a) and (b), the court, on the
request of a party in interest and after notice and a hearing, for
cause may order that the United States trustee not convene a
meeting of creditors or equity security holders if the debtor has
filed a plan as to which the debtor solicited acceptances prior to
the commencement of the case.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2564; Pub. L. 99-554, title
II, Sec. 212, Oct. 27, 1986, 100 Stat. 3099; Pub. L. 103-394, title
I, Sec. 115, Oct. 22, 1994, 108 Stat. 4118; Pub. L. 109-8, title
IV, Secs. 402, 413, Apr. 20, 2005, 119 Stat. 104, 107.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 341(c) of the Senate amendment is deleted and a contrary
provision is added indicating that the bankruptcy judge will not
preside at or attend the first meeting of creditors or equity
security holders but a discharge hearing for all individuals will
be held at which the judge will preside.
SENATE REPORT NO. 95-989
Section [Subsection] (a) of this section requires that there be a
meeting of creditors within a reasonable time after the order for
relief in the case. The Bankruptcy Act [former title 11] and the
current Rules of Bankruptcy Procedure provide for a meeting of
creditors, and specify the time and manner of the meeting, and the
business to be conducted. This bill leaves those matters to the
rules. Under section 405(d) of the bill, the present rules will
continue to govern until new rules are promulgated. Thus, pending
the adoption of different rules, the present procedure for the
meeting will continue.
Subsection (b) authorizes the court to order a meeting of equity
security holders in cases where such a meeting would be beneficial
or useful, for example, in a chapter 11 reorganization case where
it may be necessary for the equity security holders to organize in
order to be able to participate in the negotiation of a plan of
reorganization.
Subsection (c) makes clear that the bankruptcy judge is to
preside at the meeting of creditors.
AMENDMENTS
2005 - Subsec. (c). Pub. L. 109-8, Sec. 413, inserted at end
"Notwithstanding any local court rule, provision of a State
constitution, any otherwise applicable nonbankruptcy law, or any
other requirement that representation at the meeting of creditors
under subsection (a) be by an attorney, a creditor holding a
consumer debt or any representative of the creditor (which may
include an entity or an employee of an entity and may be a
representative for more than 1 creditor) shall be permitted to
appear at and participate in the meeting of creditors in a case
under chapter 7 or 13, either alone or in conjunction with an
attorney for the creditor. Nothing in this subsection shall be
construed to require any creditor to be represented by an attorney
at any meeting of creditors."
Subsec. (e). Pub. L. 109-8, Sec. 402, added subsec. (e).
1994 - Subsec. (d). Pub. L. 103-394 added subsec. (d).
1986 - Subsec. (a). Pub. L. 99-554, Sec. 212(1), substituted "the
United States trustee shall convene and preside at a meeting of
creditors" for "there shall be a meeting of creditors".
Subsec. (b). Pub. L. 99-554, Sec. 212(2), substituted "United
States trustee may convene" for "court may order".
Subsec. (c). Pub. L. 99-554, Sec. 212(3), inserted "including any
final meeting of creditors".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
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.
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by Pub. L. 99-554
dependent upon the judicial district involved, see section 302(d),
(e) of Pub. L. 99-554, set out as a note under section 581 of Title
28, Judiciary and Judicial Procedure.
PARTICIPATION BY BANKRUPTCY ADMINISTRATOR AT MEETINGS OF CREDITORS
AND EQUITY SECURITY HOLDERS
Section 105 of Pub. L. 103-394 provided that:
"(a) Presiding Officer. - A bankruptcy administrator appointed
under section 302(d)(3)(I) of the Bankruptcy Judges, United States
Trustees, and Family Farmer Bankruptcy Act of 1986 (28 U.S.C. 581
note; Public Law 99-554; 100 Stat. 3123), as amended by section
317(a) of the Federal Courts Study Committee Implementation Act of
1990 (Public Law 101-650; 104 Stat. 5115), or the bankruptcy
administrator's designee may preside at the meeting of creditors
convened under section 341(a) of title 11, United States Code. The
bankruptcy administrator or the bankruptcy administrator's designee
may preside at any meeting of equity security holders convened
under section 341(b) of title 11, United States Code.
"(b) Examination of the Debtor. - The bankruptcy administrator or
the bankruptcy administrator's designee may examine the debtor at
the meeting of creditors and may administer the oath required under
section 343 of title 11, United States Code."
-End-
-CITE-
11 USC Sec. 342 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 342. Notice
-STATUTE-
(a) There shall be given such notice as is appropriate, including
notice to any holder of a community claim, of an order for relief
in a case under this title.
(b) Before the commencement of a case under this title by an
individual whose debts are primarily consumer debts, the clerk
shall give to such individual written notice containing -
(1) a brief description of -
(A) chapters 7, 11, 12, and 13 and the general purpose,
benefits, and costs of proceeding under each of those chapters;
and
(B) the types of services available from credit counseling
agencies; and
(2) statements specifying that -
(A) a person who knowingly and fraudulently conceals assets
or makes a false oath or statement under penalty of perjury in
connection with a case under this title shall be subject to
fine, imprisonment, or both; and
(B) all information supplied by a debtor in connection with a
case under this title is subject to examination by the Attorney
General.
(c)(1) If notice is required to be given by the debtor to a
creditor under this title, any rule, any applicable law, or any
order of the court, such notice shall contain the name, address,
and last 4 digits of the taxpayer identification number of the
debtor. If the notice concerns an amendment that adds a creditor to
the schedules of assets and liabilities, the debtor shall include
the full taxpayer identification number in the notice sent to that
creditor, but the debtor shall include only the last 4 digits of
the taxpayer identification number in the copy of the notice filed
with the court.
(2)(A) If, within the 90 days before the commencement of a
voluntary case, a creditor supplies the debtor in at least 2
communications sent to the debtor with the current account number
of the debtor and the address at which such creditor requests to
receive correspondence, then any notice required by this title to
be sent by the debtor to such creditor shall be sent to such
address and shall include such account number.
(B) If a creditor would be in violation of applicable
nonbankruptcy law by sending any such communication within such 90-
day period and if such creditor supplies the debtor in the last 2
communications with the current account number of the debtor and
the address at which such creditor requests to receive
correspondence, then any notice required by this title to be sent
by the debtor to such creditor shall be sent to such address and
shall include such account number.
(d) In a case under chapter 7 of this title in which the debtor
is an individual and in which the presumption of abuse arises under
section 707(b), the clerk shall give written notice to all
creditors not later than 10 days after the date of the filing of
the petition that the presumption of abuse has arisen.
(e)(1) In a case under chapter 7 or 13 of this title of a debtor
who is an individual, a creditor at any time may both file with the
court and serve on the debtor a notice of address to be used to
provide notice in such case to such creditor.
(2) Any notice in such case required to be provided to such
creditor by the debtor or the court later than 7 days after the
court and the debtor receive such creditor's notice of address,
shall be provided to such address.
(f)(1) An entity may file with any bankruptcy court a notice of
address to be used by all the bankruptcy courts or by particular
bankruptcy courts, as so specified by such entity at the time such
notice is filed, to provide notice to such entity in all cases
under chapters 7 and 13 pending in the courts with respect to which
such notice is filed, in which such entity is a creditor.
(2) In any case filed under chapter 7 or 13, any notice required
to be provided by a court with respect to which a notice is filed
under paragraph (1), to such entity later than 30 days after the
filing of such notice under paragraph (1) shall be provided to such
address unless with respect to a particular case a different
address is specified in a notice filed and served in accordance
with subsection (e).
(3) A notice filed under paragraph (1) may be withdrawn by such
entity.
(g)(1) Notice provided to a creditor by the debtor or the court
other than in accordance with this section (excluding this
subsection) shall not be effective notice until such notice is
brought to the attention of such creditor. If such creditor
designates a person or an organizational subdivision of such
creditor to be responsible for receiving notices under this title
and establishes reasonable procedures so that such notices
receivable by such creditor are to be delivered to such person or
such subdivision, then a notice provided to such creditor other
than in accordance with this section (excluding this subsection)
shall not be considered to have been brought to the attention of
such creditor until such notice is received by such person or such
subdivision.
(2) A monetary penalty may not be imposed on a creditor for a
violation of a stay in effect under section 362(a) (including a
monetary penalty imposed under section 362(k)) or for failure to
comply with section 542 or 543 unless the conduct that is the basis
of such violation or of such failure occurs after such creditor
receives notice effective under this section of the order for
relief.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565; Pub. L. 98-353, title
III, Secs. 302, 435, July 10, 1984, 98 Stat. 352, 370; Pub. L. 103-
394, title II, Sec. 225, Oct. 22, 1994, 108 Stat. 4131; Pub. L.
109-8, title I, Secs. 102(d), 104, title II, Sec. 234(b), title
III, Sec. 315(a), Apr. 20, 2005, 119 Stat. 33, 35, 75, 88; Pub. L.
111-16, Sec. 2(4), May 7, 2009, 123 Stat. 1607.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 342(b) and (c) of the Senate amendment are adopted in
principle but moved to section 549(c), in lieu of section 342(b) of
H.R. 8200 as passed by the House.
Section 342(c) of H.R. 8200 as passed by the House is deleted as
a matter to be left to the Rules of Bankruptcy Procedure.
SENATE REPORT NO. 95-989
Subsection (a) of section 342 requires the clerk of the
bankruptcy court to give notice of the order for relief. The rules
will prescribe to whom the notice should be sent and in what manner
notice will be given. The rules already prescribe such things, and
they will continue to govern unless changed as provided in section
404(a) of the bill. Due process will certainly require notice to
all creditors and equity security holders. State and Federal
governmental representatives responsible for collecting taxes will
also receive notice. In cases where the debtor is subject to
regulation, the regulatory agency with jurisdiction will receive
notice. In order to insure maximum notice to all parties in
interest, the Rules will include notice by publication in
appropriate cases and for appropriate issues. Other notices will be
given as appropriate.
Subsections (b) and (c) [enacted as section 549(c)] are derived
from section 21g of the Bankruptcy Act [section 44(g) of former
title 11]. They specify that the trustee may file notice of the
commencement of the case in land recording offices in order to give
notice of the pendency of the case to potential transferees of the
debtor's real property. Such filing is unnecessary in the county in
which the bankruptcy case is commenced. If notice is properly
filed, a subsequent purchaser of the property will not be a bona
fide purchaser. Otherwise, a purchaser, including a purchaser at a
judicial sale, that has no knowledge of the case, is not prevented
from obtaining the status of a bona fide purchaser by the mere
commencement of the case. "County" is defined in title 1 of the
United States Code to include other political subdivisions where
counties are not used.
AMENDMENTS
2009 - Subsec. (e)(2). Pub. L. 111-16 substituted "7 days" for "5
days".
2005 - Subsec. (b). Pub. L. 109-8, Sec. 104, amended subsec. (b)
generally. Prior to amendment, subsec. (b) read as follows: "Prior
to the commencement of a case under this title by an individual
whose debts are primarily consumer debts, the clerk shall give
written notice to such individual that indicates each chapter of
this title under which such individual may proceed."
Subsec. (c). Pub. L. 109-8, Sec. 315(a)(1) designated existing
provisions as par. (1), struck out ", but the failure of such
notice to contain such information shall not invalidate the legal
effect of such notice" after "number of the debtor", and added par.
(2).
Pub. L. 109-8, Sec. 234(b), inserted "last 4 digits of the"
before "taxpayer identification number" and "If the notice concerns
an amendment that adds a creditor to the schedules of assets and
liabilities, the debtor shall include the full taxpayer
identification number in the notice sent to that creditor, but the
debtor shall include only the last 4 digits of the taxpayer
identification number in the copy of the notice filed with the
court." at end.
Subsec. (d). Pub. L. 109-8, Sec. 102(d), added subsec. (d).
Subsecs. (e) to (g). Pub. L. 109-8, Sec. 315(a)(2), added
subsecs. (e) to (g).
1994 - Subsec. (c). Pub. L. 103-394 added subsec. (c).
1984 - Subsec. (a). Pub. L. 98-353, Sec. 435, amended subsec. (a)
generally, inserting requirement respecting notice to any holder of
a community claim.
Pub. L. 98-353, Sec. 302(1), designated existing provisions as
subsec. (a).
Subsec. (b). Pub. L. 98-353, Sec. 302(2), added subsec. (b).
EFFECTIVE DATE OF 2009 AMENDMENT
Amendment by Pub. L. 111-16 effective Dec. 1, 2009, see section 7
of Pub. L. 111-16, set out as a note under section 109 of this
title.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
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.
EFFECTIVE DATE OF 1984 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 343 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 343. Examination of the debtor
-STATUTE-
The debtor shall appear and submit to examination under oath at
the meeting of creditors under section 341(a) of this title.
Creditors, any indenture trustee, any trustee or examiner in the
case, or the United States trustee may examine the debtor. The
United States trustee may administer the oath required under this
section.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565; Pub. L. 98-353, title
III, Sec. 436, July 10, 1984, 98 Stat. 370; Pub. L. 99-554, title
II, Sec. 213, Oct. 27, 1986, 100 Stat. 3099.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
This section, derived from section 21a of the Bankruptcy Act
[section 44(a) of former title 11], requires the debtor to appear
at the meeting of creditors and submit to examination under oath.
The purpose of the examination is to enable creditors and the
trustee to determine if assets have improperly been disposed of or
concealed or if there are grounds for objection to discharge. The
scope of the examination under this section will be governed by the
Rules of Bankruptcy Procedure, as it is today. See rules 205(d), 10-
213(c), and 11-26. It is expected that the scope prescribed by
these rules for liquidation cases, that is, "only the debtor's
acts, conduct, or property, or any matter that may affect the
administration of the estate, or the debtor's right to discharge"
will remain substantially unchanged. In reorganization cases, the
examination would be broader, including inquiry into the
liabilities and financial condition of the debtor, the operation of
his business, and the desirability of the continuance thereof, and
other matters relevant to the case and to the formulation of the
plan. Examination of other persons in connection with the
bankruptcy case is left completely to the rules, just as
examination of witnesses in civil cases is governed by the Federal
Rules of Civil Procedure.
AMENDMENTS
1986 - Pub. L. 99-554 amended section generally. Prior to
amendment, section read as follows: "The debtor shall appear and
submit to examination under oath at the meeting of creditors under
section 341(a) of this title. Creditors, any indenture trustee, or
any trustee or examiner in the case may examine the debtor."
1984 - Pub. L. 98-353 substituted "examine" for "examiner".
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by Pub. L. 99-554
dependent upon the judicial district involved, see section 302(d),
(e) of Pub. L. 99-554, set out as a note under section 581 of Title
28, Judiciary and Judicial Procedure.
EFFECTIVE DATE OF 1984 AMENDMENT
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.
PARTICIPATION BY BANKRUPTCY ADMINISTRATOR AT MEETINGS OF CREDITORS
AND EQUITY SECURITY HOLDERS
A bankruptcy administrator or the bankruptcy administrator's
designee may examine debtor at meeting of creditors and may
administer oath required by this section, see section 105 of Pub.
L. 103-394, set out as a note under section 341 of this title.
-End-
-CITE-
11 USC Sec. 344 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 344. Self-incrimination; immunity
-STATUTE-
Immunity for persons required to submit to examination, to
testify, or to provide information in a case under this title may
be granted under part V of title 18.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
Part V [Sec. 6001 et seq.] of title 18 of the United States Code
governs the granting of immunity to witnesses before Federal
tribunals. The immunity provided under part V is only use immunity,
not transactional immunity. Part V applies to all proceedings
before Federal courts, before Federal grand juries, before
administrative agencies, and before Congressional committees. It
requires the Attorney General or the U. S. attorney to request or
to approve any grant of immunity, whether before a court, grand
jury, agency, or congressional committee.
This section carries part V over into bankruptcy cases. Thus, for
a witness to be ordered to testify before a bankruptcy court in
spite of a claim of privilege, the U. S. attorney for the district
in which the court sits would have to request from the district
court for that district the immunity order. The rule would apply to
both debtors, creditors, and any other witnesses in a bankruptcy
case. If the immunity were granted, the witness would be required
to testify. If not, he could claim the privilege against self-
incrimination.
Part V is a significant departure from current law. Under section
7a(10) of the Bankruptcy Act [section 25(a)(10) of former title
11], a debtor is required to testify in all circumstances, but any
testimony he gives may not be used against him in any criminal
proceeding, except testimony given in any hearing on objections to
discharge. With that exception, section 7a(10) amounts to a blanket
grant of use immunity to all debtors. Immunity for other witnesses
in bankruptcy courts today is governed by part V of title 18.
The consequences of a claim of privileges by a debtor under
proposed law and under current law differ as well. Under section
14c(6) of current law [section 32(c)(6) of former title 11], any
refusal to answer a material question approved by the court will
result in the denial of a discharge, even if the refusal is based
on the privilege against self incrimination. Thus, the debtor is
confronted with the choice between losing his discharge and opening
himself up to possible criminal prosecution.
Under section 727(a)(6) of the proposed title 11, a debtor is
only denied a discharge if he refuses to testify after having been
granted immunity. If the debtor claims the privilege and the U. S.
attorney does not request immunity from the district courts, then
the debtor may refuse to testify and still retain his right to a
discharge. It removes the Scylla and Charibdis choice for debtors
that exists under the Bankruptcy Act [former title 11].
-End-
-CITE-
11 USC Sec. 345 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 345. Money of estates
-STATUTE-
(a) A trustee in a case under this title may make such deposit or
investment of the money of the estate for which such trustee serves
as will yield the maximum reasonable net return on such money,
taking into account the safety of such deposit or investment.
(b) Except with respect to a deposit or investment that is
insured or guaranteed by the United States or by a department,
agency, or instrumentality of the United States or backed by the
full faith and credit of the United States, the trustee shall
require from an entity with which such money is deposited or
invested -
(1) a bond -
(A) in favor of the United States;
(B) secured by the undertaking of a corporate surety approved
by the United States trustee for the district in which the case
is pending; and
(C) conditioned on -
(i) a proper accounting for all money so deposited or
invested and for any return on such money;
(ii) prompt repayment of such money and return; and
(iii) faithful performance of duties as a depository; or
(2) the deposit of securities of the kind specified in section
9303 of title 31;
unless the court for cause orders otherwise.
(c) An entity with which such moneys are deposited or invested is
authorized to deposit or invest such moneys as may be required
under this section.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565; Pub. L. 97-258, Sec.
3(c), Sept. 13, 1982, 96 Stat. 1064; Pub. L. 98-353, title III,
Sec. 437, July 10, 1984, 98 Stat. 370; Pub. L. 99-554, title II,
Sec. 214, Oct. 27, 1986, 100 Stat. 3099; Pub. L. 103-394, title II,
Sec. 210, Oct. 22, 1994, 108 Stat. 4125.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
The House amendment moves section 345(c) of the House bill to
chapter 15 as part of the pilot program for the U.S. trustees. The
bond required by section 345(b) may be a blanket bond posted by the
financial depository sufficient to cover deposits by trustees in
several cases, as is done under current law.
SENATE REPORT NO. 95-989
This section is a significant departure from section 61 of the
Bankruptcy Act [section 101 of former title 11]. It permits a
trustee in a bankruptcy case to make such deposit of investment of
the money of the estate for which he serves as will yield the
maximum reasonable net return on the money, taking into account the
safety of such deposit or investment. Under current law, the
trustee is permitted to deposit money only with banking
institutions. Thus, the trustee is generally unable to secure a
high rate of return on money of estates pending distribution, to
the detriment of creditors. Under this section, the trustee may
make deposits in savings and loans, may purchase government bonds,
or make such other deposit or investment as is appropriate. Under
proposed 11 U.S.C. 541(a)(6), and except as provided in subsection
(c) of this section, any interest or gain realized on the deposit
or investment of funds under this section will become property of
the estate, and will thus enhance the recovery of creditors.
In order to protect the creditors, subsection (b) requires
certain precautions against loss of the money so deposited or
invested. The trustee must require from a person with which he
deposits or invests money of an estate a bond in favor of the
United States secured by approved corporate surety and conditioned
on a proper accounting for all money deposited or invested and for
any return on such money. Alternately, the trustee may require the
deposit of securities of the kind specified in section 15 of title
6 of the United States Code [31 U.S.C. 9303], which governs the
posting of security by banks that receive public moneys on deposit.
These bonding requirements do not apply to deposits or investments
that are insured or guaranteed the United States or a department,
agency, or instrumentality of the United States, or that are backed
by the full faith and credit of the United States.
These provisions do not address the question of aggregation of
funds by a private chapter 13 trustee and are not to be construed
as excluding such possibility. The Rules of Bankruptcy Procedure
may provide for aggregation under appropriate circumstances and
adequate safeguards in cases where there is a significant need,
such as in districts in which there is a standing chapter 13
trustee. In such case, the interest or return on the funds would
help defray the cost of administering the cases in which the
standing trustee serves.
AMENDMENTS
1994 - Subsec. (b). Pub. L. 103-394 substituted semicolon for
period at end of par. (2) and inserted concluding provisions after
par. (2).
1986 - Subsec. (b). Pub. L. 99-554 amended subsec. (b) generally,
substituting "approved by the United States trustee for the
district" for "approved by the court for the district" in par.
(1)(B).
1984 - Subsec. (c). Pub. L. 98-353 added subsec. (c).
1982 - Subsec. (b)(2). Pub. L. 97-258 substituted "section 9303
of title 31" for "section 15 of title 6".
EFFECTIVE DATE OF 1994 AMENDMENT
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.
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by Pub. L. 99-554
dependent upon the judicial district involved, see section 302(d),
(e) of Pub. L. 99-554, set out as a note under section 581 of Title
28, Judiciary and Judicial Procedure.
EFFECTIVE DATE OF 1984 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 346 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 346. Special provisions related to the treatment of State and
local taxes
-STATUTE-
(a) Whenever the Internal Revenue Code of 1986 provides that a
separate taxable estate or entity is created in a case concerning a
debtor under this title, and the income, gain, loss, deductions,
and credits of such estate shall be taxed to or claimed by the
estate, a separate taxable estate is also created for purposes of
any State and local law imposing a tax on or measured by income and
such income, gain, loss, deductions, and credits shall be taxed to
or claimed by the estate and may not be taxed to or claimed by the
debtor. The preceding sentence shall not apply if the case is
dismissed. The trustee shall make tax returns of income required
under any such State or local law.
(b) Whenever the Internal Revenue Code of 1986 provides that no
separate taxable estate shall be created in a case concerning a
debtor under this title, and the income, gain, loss, deductions,
and credits of an estate shall be taxed to or claimed by the
debtor, such income, gain, loss, deductions, and credits shall be
taxed to or claimed by the debtor under a State or local law
imposing a tax on or measured by income and may not be taxed to or
claimed by the estate. The trustee shall make such tax returns of
income of corporations and of partnerships as are required under
any State or local law, but with respect to partnerships, shall
make such returns only to the extent such returns are also required
to be made under such Code. The estate shall be liable for any tax
imposed on such corporation or partnership, but not for any tax
imposed on partners or members.
(c) With respect to a partnership or any entity treated as a
partnership under a State or local law imposing a tax on or
measured by income that is a debtor in a case under this title, any
gain or loss resulting from a distribution of property from such
partnership, or any distributive share of any income, gain, loss,
deduction, or credit of a partner or member that is distributed, or
considered distributed, from such partnership, after the
commencement of the case, is gain, loss, income, deduction, or
credit, as the case may be, of the partner or member, and if such
partner or member is a debtor in a case under this title, shall be
subject to tax in accordance with subsection (a) or (b).
(d) For purposes of any State or local law imposing a tax on or
measured by income, the taxable period of a debtor in a case under
this title shall terminate only if and to the extent that the
taxable period of such debtor terminates under the Internal Revenue
Code of 1986.
(e) The estate in any case described in subsection (a) shall use
the same accounting method as the debtor used immediately before
the commencement of the case, if such method of accounting complies
with applicable nonbankruptcy tax law.
(f) For purposes of any State or local law imposing a tax on or
measured by income, a transfer of property from the debtor to the
estate or from the estate to the debtor shall not be treated as a
disposition for purposes of any provision assigning tax
consequences to a disposition, except to the extent that such
transfer is treated as a disposition under the Internal Revenue
Code of 1986.
(g) Whenever a tax is imposed pursuant to a State or local law
imposing a tax on or measured by income pursuant to subsection (a)
or (b), such tax shall be imposed at rates generally applicable to
the same types of entities under such State or local law.
(h) The trustee shall withhold from any payment of claims for
wages, salaries, commissions, dividends, interest, or other
payments, or collect, any amount required to be withheld or
collected under applicable State or local tax law, and shall pay
such withheld or collected amount to the appropriate governmental
unit at the time and in the manner required by such tax law, and
with the same priority as the claim from which such amount was
withheld or collected was paid.
(i)(1) To the extent that any State or local law imposing a tax
on or measured by income provides for the carryover of any tax
attribute from one taxable period to a subsequent taxable period,
the estate shall succeed to such tax attribute in any case in which
such estate is subject to tax under subsection (a).
(2) After such a case is closed or dismissed, the debtor shall
succeed to any tax attribute to which the estate succeeded under
paragraph (1) to the extent consistent with the Internal Revenue
Code of 1986.
(3) The estate may carry back any loss or tax attribute to a
taxable period of the debtor that ended before the date of the
order for relief under this title to the extent that -
(A) applicable State or local tax law provides for a carryback
in the case of the debtor; and
(B) the same or a similar tax attribute may be carried back by
the estate to such a taxable period of the debtor under the
Internal Revenue Code of 1986.
(j)(1) For purposes of any State or local law imposing a tax on
or measured by income, income is not realized by the estate, the
debtor, or a successor to the debtor by reason of discharge of
indebtedness in a case under this title, except to the extent, if
any, that such income is subject to tax under the Internal Revenue
Code of 1986.
(2) Whenever the Internal Revenue Code of 1986 provides that the
amount excluded from gross income in respect of the discharge of
indebtedness in a case under this title shall be applied to reduce
the tax attributes of the debtor or the estate, a similar reduction
shall be made under any State or local law imposing a tax on or
measured by income to the extent such State or local law recognizes
such attributes. Such State or local law may also provide for the
reduction of other attributes to the extent that the full amount of
income from the discharge of indebtedness has not been applied.
(k)(1) Except as provided in this section and section 505, the
time and manner of filing tax returns and the items of income,
gain, loss, deduction, and credit of any taxpayer shall be
determined under applicable nonbankruptcy law.
(2) For Federal tax purposes, the provisions of this section are
subject to the Internal Revenue Code of 1986 and other applicable
Federal nonbankruptcy law.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565; Pub. L. 98-353, title
III, Sec. 438, July 10, 1984, 98 Stat. 370; Pub. L. 99-554, title
II, Secs. 257(g), 283(c), Oct. 27, 1986, 100 Stat. 3114, 3116; Pub.
L. 103-394, title V, Sec. 501(d)(4), Oct. 22, 1994, 108 Stat. 4143;
Pub. L. 109-8, title VII, Sec. 719(a)(1), Apr. 20, 2005, 119 Stat.
131.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 346 of the House amendment, together with sections 728
and 1146, represent special tax provisions applicable in
bankruptcy. The policy contained in those sections reflects the
policy that should be applied in Federal, State, and local taxes in
the view of the House Committee on the Judiciary. The House Ways
and Means Committee and the Senate Finance Committee did not have
time to process a bankruptcy tax bill during the 95th Congress. It
is anticipated that early in the 96th Congress, and before the
effective date of the bankruptcy code [Oct. 1, 1979], the tax
committees of Congress will have an opportunity to consider action
with respect to amendments to the Internal Revenue Code [title 26]
and the special tax provisions in title 11. Since the special tax
provisions are likely to be amended during the first part of the
96th Congress, it is anticipated that the bench and bar will also
study and comment on these special tax provisions prior to their
revision.
Special tax provisions: State and local rules. This section
provides special tax provisions dealing with the treatment, under
State or local, but not Federal, tax law, of the method of taxing
bankruptcy estates of individuals, partnerships, and corporations;
survival and allocation of tax attributes between the bankrupt and
the estate; return filing requirements; and the tax treatment of
income from discharge of indebtedness. The Senate bill removed
these rules pending adoption of Federal rules on these issues in
the next Congress. The House amendment returns the State and local
tax rules to section 346 so that they may be studied by the
bankruptcy and tax bars who may wish to submit comments to
Congress.
Withholding rules: Both the House bill and Senate amendment
provide that the trustee is required to comply with the normal
withholding rules applicable to the payment of wages and other
payments. The House amendment retains this rule for State and local
taxes only. The treatment of withholding of Federal taxes will be
considered in the next Congress.
Section 726 of the Senate amendment provides that the rule
requiring pro rata payment of all expenses within a priority
category does not apply to the payment of amounts withheld by a
bankruptcy trustee. The purpose of this rule was to insure that the
trustee pay the full amount of the withheld taxes to the
appropriate governmental tax authority. The House amendment deletes
this rule as unnecessary because the existing practice conforms
essentially to that rule. If the trustee fails to pay over in full
amounts that he withheld, it is a violation of his trustee's duties
which would permit the taxing authority to sue the trustee on his
bond.
When taxes considered "incurred": The Senate amendment contained
rules of general application dealing with when a tax is "incurred"
for purposes of the various tax collection rules affecting the
debtor and the estate. The House amendment adopts the substance of
these rules and transfers them to section 507 of title 11.
Penalty for failure to pay tax: The Senate amendment contains a
rule which relieves the debtor and the trustee from certain tax
penalties for failure to make timely payment of a tax to the extent
that the bankruptcy rules prevent the trustee or the debtor from
paying the tax on time. Since most of these penalties relate to
Federal taxes, the House amendment deletes these rules pending
consideration of Federal tax rules affecting bankruptcy in the next
Congress.
SENATE REPORT NO. 95-989
Subsection (a) indicates that subsections (b), (c), (d), (e),
(g), (h), (i), and (j) apply notwithstanding any State or local tax
law, but are subject to Federal tax law.
Subsection (b)(1) provides that in a case concerning an
individual under chapter 7 or 11 of title 11, income of the estate
is taxable only to the estate and not to the debtor. The second
sentence of the paragraph provides that if such individual is a
partner, the tax attributes of the partnership are distributable to
the partner's estate rather than to the partner, except to the
extent that section 728 of title 11 provides otherwise.
Subsection (b)(2) states a general rule that the estate of an
individual is to be taxed as an estate. The paragraph is made
subject to the remainder of section 346 and section 728 of title
11.
Subsection (b)(3) requires the accounting method, but not
necessarily the accounting period, of the estate to be the same as
the method used by the individual debtor.
Subsection (c)(1) states a general rule that the estate of a
partnership or a corporated debtor is not a separate entity for tax
purposes. The income of the debtor is to be taxed as if the case
were not commenced, except as provided in the remainder of section
346 and section 728.
Subsection (c)(2) requires the trustee, except as provided in
section 728 of title 11, to file all tax returns on behalf of the
partnership or corporation during the case.
Subsection (d) indicates that the estate in a chapter 13 case is
not a separate taxable entity and that all income of the estate is
to be taxed to the debtor.
Subsection (e) establishes a business deduction consisting of
allowed expenses of administration except for tax or capital
expenses that are not otherwise deductible. The deduction may be
used by the estate when it is a separate taxable entity or by the
entity to which the income of the estate is taxed when it is not.
Subsection (f) imposes a duty on the trustee to comply with any
Federal, State, or local tax law requiring withholding or
collection of taxes from any payment of wages, salaries,
commissions, dividends, interest, or other payments. Any amount
withheld is to be paid to the taxing authority at the same time and
with the same priority as the claim from which such amount withheld
was paid.
Subsection (g)(1)(A) indicates that neither gain nor loss is
recognized on the transfer by law of property from the debtor or a
creditor to the estate. Subparagraph (B) provides a similar policy
if the property of the estate is returned from the estate to the
debtor other than by a sale of property to debtor. Subparagraph (C)
also provides for nonrecognition of gain or loss in a case under
chapter 11 if a corporate debtor transfers property to a successor
corporation or to an affiliate under a joint plan. An exception is
made to enable a taxing authority to cause recognition of gain or
loss to the extent provided in IRC [title 26] section 371 (as
amended by section 109 of this bill).
Subsection (g)(2) provides that any of the three kinds of
transferees specified in paragraph (1) take the property with the
same character, holding period, and basis in the hands of the
transferor at the time of such transfer. The transferor's basis may
be adjusted under section 346(j)(5) even if the discharge of
indebtedness occurs after the transfer of property. Of course, no
adjustment will occur if the transfer is from the debtor to the
estate or if the transfer is from an entity that is not discharged.
Subsection (h) provides that the creation of the estate of an
individual under chapter 7 or 11 of title 11 as a separate taxable
entity does not affect the number of taxable years for purposes of
computing loss carryovers or carrybacks. The section applies with
respect to carryovers or carrybacks of the debtor transferred into
the estate under section 346(i)(1) of title 11 or back to the
debtor under section 346(i)(2) of title 11.
Subsection (i)(1) states a general rule that an estate that is a
separate taxable entity nevertheless succeeds to all tax attributes
of the debtor. The six enumerated attributes are illustrative and
not exhaustive.
Subsection (i)(2) indicates that attributes passing from the
debtor into an estate that is a separate taxable entity will return
to the debtor if unused by the estate. The debtor is permitted to
use any such attribute as though the case had not been commenced.
Subsection (i)(3) permits an estate that is a separate taxable
entity to carryback losses of the estate to a taxable period of the
debtor that ended before the case was filed. The estate is treated
as if it were the debtor with respect to time limitations and other
restrictions. The section makes clear that the debtor may not
carryback any loss of his own from a tax year during the pendency
of the case to such a period until the case is closed. No tolling
of any period of limitation is provided with respect to carrybacks
by the debtor of post-petition losses.
Subsection (j) sets forth seven special rules treating with the
tax effects of forgiveness or discharge of indebtedness. The terms
"forgiveness" and "discharge" are redundant, but are used to
clarify that "discharge" in the context of a special tax provision
in title 11 includes forgiveness of indebtedness whether or not
such indebtedness is "discharged" in the bankruptcy sense.
Paragraph (1) states the general rule that forgiveness of
indebtedness is not taxable except as otherwise provided in
paragraphs (2)-(7). The paragraph is patterned after sections 268,
395, and 520 of the Bankruptcy Act [sections 668, 795, and 920 of
former title 11].
Paragraph (2) disallows deductions for liabilities of a
deductible nature in any year during or after the year of
cancellation of such liabilities. For the purposes of this
paragraph, "a deduction with respect to a liability" includes a
capital loss incurred on the disposition of a capital asset with
respect to a liability that was incurred in connection with the
acquisition of such asset.
Paragraph (3) causes any net operating loss of a debtor that is
an individual or corporation to be reduced by any discharge of
indebtedness except as provided in paragraphs (2) or (4). If a
deduction is disallowed under paragraph (2), then no double
counting occurs. Thus, paragraph (3) will reflect the reduction of
losses by liabilities that have been forgiven, including deductible
liabilities or nondeductible liabilities such as repayment of
principal on borrowed funds.
Paragraph (4) specifically excludes two kinds of indebtedness
from reduction of net operating losses under paragraph (3) or from
reduction of basis under paragraph (5). Subparagraph (A) excludes
items of a deductible nature that were not deducted or that could
not be deducted such as gambling losses or liabilities for interest
owed to a relative of the debtor. Subparagraph (B) excludes
indebtedness of a debtor that is an individual or corporation that
resulted in deductions which did not offset income and that did not
contribute to an unexpired net operating loss or loss carryover. In
these situations, the debtor has derived no tax benefit so there is
no need to incur an offsetting reduction.
Paragraph (5) provides a two-point test for reduction of basis.
The paragraph replaces sections 270, 396, and 522 of the Bankruptcy
Act [sections 670, 796, and 922 of former title 11]. Subparagraph
(A) sets out the maximum amount by which basis may be reduced - the
total indebtedness forgiven less adjustments made under paragraphs
(2) and (3). This avoids double counting. If a deduction is
disallowed under paragraph (2) or a carryover is reduced under
paragraph (3) then the tax benefit is neutralized, and there is no
need to reduce basis. Subparagraph (B) reduces basis to the extent
the debtor's total basis of assets before the discharge exceeds
total preexisting liabilities still remaining after discharge of
indebtedness. This is a "basis solvency" limitation which differs
from the usual test of solvency because it measures against the
remaining liabilities the benefit aspect of assets, their basis,
rather than their value. Paragraph (5) applies so that any
transferee of the debtor's property who is required to use the
debtor's basis takes the debtor's basis reduced by the lesser of
(A) and (B). Thus, basis will be reduced, but never below a level
equal to undischarged liabilities.
Paragraph (6) specifies that basis need not be reduced under
paragraph (5) to the extent the debtor treats discharged
indebtedness as taxable income. This permits the debtor to elect
whether to recognize income, which may be advantageous if the
debtor anticipates subsequent net operating losses, rather than to
reduce basis.
Paragraph (7) establishes two rules excluding from the category
of discharged indebtedness certain indebtedness that is exchanged
for an equity security issued under a plan or that is forgiven as a
contribution to capital by an equity security holder. Subparagraph
(A) creates the first exclusion to the extent indebtedness
consisting of items not of a deductible nature is exchanged for an
equity security, other than the interests of a limited partner in a
limited partnership, issued by the debtor or is forgiven as a
contribution to capital by an equity security holder. Subparagraph
(B) excludes indebtedness consisting of items of a deductible
nature, if the exchange of stock for debts has the same effect as a
cash payment equal to the value of the equity security, in the
amount of the fair market value of the equity security or, if less,
the extent to which such exchange has such effect. The two
provisions treat the debtor as if it had originally issued stock
instead of debt. Subparagraph (B) rectifies the inequity under
current law between a cash basis and accrual basis debtor
concerning the issuance of stock in exchange for previous services
rendered that were of a greater value than the stock. Subparagraph
(B) also changes current law by taxing forgiveness of indebtedness
to the extent that stock is exchanged for the accrued interest
component of a security, because the recipient of such stock would
not be regarded as having received money under the Carman doctrine.
-REFTEXT-
REFERENCES IN TEXT
The Internal Revenue Code of 1986, referred to in text, is
classified generally to Title 26, Internal Revenue Code.
-MISC2-
AMENDMENTS
2005 - Pub. L. 109-8 amended section catchline and text
generally. Prior to amendment, text consisted of subsecs. (a) to
(j) relating to special tax provisions.
1994 - Subsec. (a). Pub. L. 103-394, Sec. 504(d)(4)(A),
substituted "Internal Revenue Code of 1986" for "Internal Revenue
Code of 1954 (26 U.S.C. 1 et seq.)".
Subsec. (g)(1)(C). Pub. L. 103-394, Sec. 501(d)(4)(B),
substituted "Internal Revenue Code of 1986" for "Internal Revenue
Code of 1954 (26 U.S.C. 371)".
1986 - Subsec. (b)(1). Pub. L. 99-554, Sec. 257(g)(1), inserted
reference to chapter 12.
Subsec. (g)(1)(C). Pub. L. 99-554, Sec. 257(g)(2), inserted
reference to chapter 12.
Subsec. (i)(1). Pub. L. 99-554, Sec. 257(g)(3), inserted
reference to chapter 12.
Subsec. (j)(7). Pub. L. 99-554, Sec. 283(c), substituted "owed"
for "owned".
1984 - Subsec. (c)(2). Pub. L. 98-353 substituted "corporation"
for "operation".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
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.
EFFECTIVE DATE OF 1986 AMENDMENT
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.
EFFECTIVE DATE OF 1984 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 347 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 347. Unclaimed property
-STATUTE-
(a) Ninety days after the final distribution under section 726,
1226, or 1326 of this title in a case under chapter 7, 12, or 13 of
this title, as the case may be, the trustee shall stop payment on
any check remaining unpaid, and any remaining property of the
estate shall be paid into the court and disposed of under chapter
129 of title 28.
(b) Any security, money, or other property remaining unclaimed at
the expiration of the time allowed in a case under chapter 9, 11,
or 12 of this title for the presentation of a security or the
performance of any other act as a condition to participation in the
distribution under any plan confirmed under section 943(b), 1129,
1173, or 1225 of this title, as the case may be, becomes the
property of the debtor or of the entity acquiring the assets of the
debtor under the plan, as the case may be.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2568; Pub. L. 99-554, title
II, Sec. 257(h), Oct. 27, 1986, 100 Stat. 3114.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 347(a) of the House amendment adopts a comparable
provision contained in the Senate amendment instructing the trustee
to stop payment on any check remaining unpaid more than 90 days
after the final distribution in a case under Chapter 7 or 13.
Technical changes are made in section 347(b) to cover distributions
in a railroad reorganization.
SENATE REPORT NO. 95-989
Section 347 is derived from Bankruptcy Act Sec. 66 [section 106
of former title 11]. Subsection (a) requires the trustee to stop
payment on any distribution check that is unpaid 90 days after the
final distribution in a case under chapter 7 or 13. The unclaimed
funds, and any other property of the estate are paid into the court
and disposed of under chapter 129 [Sec. 2041 et seq.] of title 28,
which requires the clerk of court to hold the funds for their owner
for 5 years, after which they escheat to the Treasury.
Subsection (b) specifies that any property remaining unclaimed at
the expiration of the time allowed in a chapter 9 or 11 case for
presentation (exchange) of securities or the performance of any
other act as a condition to participation in the plan reverts to
the debtor or the entity acquiring the assets of the debtor under
the plan. Conditions to participation under a plan include such
acts as cashing a check, surrendering securities for cancellation,
and so on. Similar provisions are found in sections 96(d) and 205
of current law [sections 416(d) and 605 of former title 11].
AMENDMENTS
1986 - Subsec. (a). Pub. L. 99-554, Sec. 257(h)(1), inserted
references to section 1226 and chapter 12 of this title.
Subsec. (b). Pub. L. 99-554, Sec. 257(h)(2), inserted references
to chapter 12 and section 1225 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 348 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 348. Effect of conversion
-STATUTE-
(a) Conversion of a case from a case under one chapter of this
title to a case under another chapter of this title constitutes an
order for relief under the chapter to which the case is converted,
but, except as provided in subsections (b) and (c) of this section,
does not effect a change in the date of the filing of the petition,
the commencement of the case, or the order for relief.
(b) Unless the court for cause orders otherwise, in sections
701(a), 727(a)(10), 727(b), 1102(a), 1110(a)(1), 1121(b), 1121(c),
1141(d)(4), 1201(a), 1221, 1228(a), 1301(a), and 1305(a) of this
title, "the order for relief under this chapter" in a chapter to
which a case has been converted under section 706, 1112, 1208, or
1307 of this title means the conversion of such case to such
chapter.
(c) Sections 342 and 365(d) of this title apply in a case that
has been converted under section 706, 1112, 1208, or 1307 of this
title, as if the conversion order were the order for relief.
(d) A claim against the estate or the debtor that arises after
the order for relief but before conversion in a case that is
converted under section 1112, 1208, or 1307 of this title, other
than a claim specified in section 503(b) of this title, shall be
treated for all purposes as if such claim had arisen immediately
before the date of the filing of the petition.
(e) Conversion of a case under section 706, 1112, 1208, or 1307
of this title terminates the service of any trustee or examiner
that is serving in the case before such conversion.
(f)(1) Except as provided in paragraph (2), when a case under
chapter 13 of this title is converted to a case under another
chapter under this title -
(A) property of the estate in the converted case shall consist
of property of the estate, as of the date of filing of the
petition, that remains in the possession of or is under the
control of the debtor on the date of conversion;
(B) valuations of property and of allowed secured claims in the
chapter 13 case shall apply only in a case converted to a case
under chapter 11 or 12, but not in a case converted to a case
under chapter 7, with allowed secured claims in cases under
chapters 11 and 12 reduced to the extent that they have been paid
in accordance with the chapter 13 plan; and
(C) with respect to cases converted from chapter 13 -
(i) the claim of any creditor holding security as of the date
of the filing of the petition shall continue to be secured by
that security unless the full amount of such claim determined
under applicable nonbankruptcy law has been paid in full as of
the date of conversion, notwithstanding any valuation or
determination of the amount of an allowed secured claim made
for the purposes of the case under chapter 13; and
(ii) unless a prebankruptcy default has been fully cured
under the plan at the time of conversion, in any proceeding
under this title or otherwise, the default shall have the
effect given under applicable nonbankruptcy law.
(2) If the debtor converts a case under chapter 13 of this title
to a case under another chapter under this title in bad faith, the
property of the estate in the converted case shall consist of the
property of the estate as of the date of conversion.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2568; Pub. L. 99-554, title
II, Sec. 257(i), Oct. 27, 1986, 100 Stat. 3115; Pub. L. 103-394,
title III, Sec. 311, title V, Sec. 501(d)(5), Oct. 22, 1994, 108
Stat. 4138, 4144; Pub. L. 109-8, title III, Sec. 309(a), title XII,
Sec. 1207, Apr. 20, 2005, 119 Stat. 82, 194; Pub. L. 111-327, Sec.
2(a)(11), Dec. 22, 2010, 124 Stat. 3558.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
The House amendment adopts section 348(b) of the Senate amendment
with slight modifications, as more accurately reflecting sections
to which this particular effect of conversion should apply.
Section 348(e) of the House amendment is a stylistic revision of
similar provisions contained in H.R. 8200 as passed by the House
and in the Senate amendment. Termination of services is expanded to
cover any examiner serving in the case before conversion, as done
in H.R. 8200 as passed by the House.
SENATE REPORT NO. 95-989
This section governs the effect of the conversion of a case from
one chapter of the bankruptcy code to another chapter. Subsection
(a) specifies that the date of the filing of the petition, the
commencement of the case, or the order for relief are unaffected by
conversion, with some exceptions specified in subsections (b) and
(c).
Subsection (b) lists certain sections in the operative chapters
of the bankruptcy code in which there is a reference to "the order
for relief under this chapter." In those sections, the reference is
to be read as a reference to the conversion order if the case has
been converted into the particular chapter. Subsection (c)
specifies that notice is to be given of the conversion order the
same as notice was given of the order for relief, and that the time
the trustee (or debtor in possession) has for assuming or rejecting
executory contracts recommences, thus giving an opportunity for a
newly appointed trustee to familiarize himself with the case.
Subsection (d) provides for special treatment of claims that
arise during chapter 11 or 13 cases before the case is converted to
a liquidation case. With the exception of claims specified in
proposed 11 U.S.C. 503(b) (administrative expenses), preconversion
claims are treated the same as prepetition claims.
Subsection (e) provides that conversion of a case terminates the
service of any trustee serving in the case prior to conversion.
AMENDMENTS
2010 - Subsec. (b). Pub. L. 111-327, Sec. 2(a)(11)(A), struck out
"728(a), 728(b)," after "727(b)," and "1146(a), 1146(b)," after
"1141(d)(4),".
Subsec. (f)(1)(C)(i). Pub. L. 111-327, Sec. 2(a)(11)(B), which
directed insertion of "of the filing" after "date", was executed by
making the insertion after "date" the first time appearing to
reflect the probable intent of Congress.
2005 - Subsec. (f)(1)(B). Pub. L. 109-8, Sec. 309(a)(2)(A),
substituted "only in a case converted to a case under chapter 11 or
12, but not in a case converted to a case under chapter 7, with
allowed secured claims in cases under chapters 11 and 12" for "in
the converted case, with allowed secured claims".
Subsec. (f)(1)(C). Pub. L. 109-8, Sec. 309(a)(1), (2)(B), (3),
added subpar. (C).
Subsec. (f)(2). Pub. L. 109-8, Sec. 1207, inserted "of the
estate" after "bad faith, the property".
1994 - Subsec. (b). Pub. L. 103-394, Sec. 501(d)(5), substituted
"1201(a), 1221, 1228(a), 1301(a), and 1305(a)" for "1301(a),
1305(a), 1201(a), 1221, and 1228(a)" and "1208, or 1307" for "1307,
or 1208".
Subsecs. (c) to (e). Pub. L. 103-394, Sec. 501(d)(5)(B),
substituted "1208, or 1307" for "1307, or 1208".
Subsec. (f). Pub. L. 103-394, Sec. 311, added subsec. (f).
1986 - Subsec. (b). Pub. L. 99-554, Sec. 257(i)(1), substituted
references to sections 1201(a), 1221, and 1228(a) of this title for
reference to section 1328(a) of this title, and inserted reference
to section 1208 of this title.
Subsecs. (c) to (e). Pub. L. 99-554, Sec. 257(i)(2), (3),
inserted reference to section 1208 of this title.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
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.
EFFECTIVE DATE OF 1986 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 349 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 349. Effect of dismissal
-STATUTE-
(a) Unless the court, for cause, orders otherwise, the dismissal
of a case under this title does not bar the discharge, in a later
case under this title, of debts that were dischargeable in the case
dismissed; nor does the dismissal of a case under this title
prejudice the debtor with regard to the filing of a subsequent
petition under this title, except as provided in section 109(g) of
this title.
(b) Unless the court, for cause, orders otherwise, a dismissal of
a case other than under section 742 of this title -
(1) reinstates -
(A) any proceeding or custodianship superseded under section
543 of this title;
(B) any transfer avoided under section 522, 544, 545, 547,
548, 549, or 724(a) of this title, or preserved under section
510(c)(2), 522(i)(2), or 551 of this title; and
(C) any lien voided under section 506(d) of this title;
(2) vacates any order, judgment, or transfer ordered, under
section 522(i)(1), 542, 550, or 553 of this title; and
(3) revests the property of the estate in the entity in which
such property was vested immediately before the commencement of
the case under this title.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2569; Pub. L. 98-353, title
III, Sec. 303, July 10, 1984, 98 Stat. 352; Pub. L. 103-394, title
V, Sec. 501(d)(6), Oct. 22, 1994, 108 Stat. 4144.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 349(b)(2) of the House amendment adds a cross reference
to section 553 to reflect the new right of recovery of setoffs
created under that section. Corresponding changes are made
throughout the House amendment.
SENATE REPORT NO. 95-989
Subsection (a) specifies that unless the court for cause orders
otherwise, the dismissal of a case is without prejudice. The debtor
is not barred from receiving a discharge in a later case of debts
that were dischargeable in the case dismissed. Of course, this
subsection refers only to pre-discharge dismissals. If the debtor
has already received a discharge and it is not revoked, then the
debtor would be barred under section 727(a) from receiving a
discharge in a subsequent liquidation case for six years. Dismissal
of an involuntary on the merits will generally not give rise to
adequate cause so as to bar the debtor from further relief.
Subsection (b) specifies that the dismissal reinstates
proceedings or custodianships that were superseded by the
bankruptcy case, reinstates avoided transfers, reinstates voided
liens, vacates any order, judgment, or transfer ordered as a result
of the avoidance of a transfer, and revests the property of the
estate in the entity in which the property was vested at the
commencement of the case. The court is permitted to order a
different result for cause. The basic purpose of the subsection is
to undo the bankruptcy case, as far as practicable, and to restore
all property rights to the position in which they were found at the
commencement of the case. This does not necessarily encompass
undoing sales of property from the estate to a good faith
purchaser. Where there is a question over the scope of the
subsection, the court will make the appropriate orders to protect
rights acquired in reliance on the bankruptcy case.
AMENDMENTS
1994 - Subsec. (a). Pub. L. 103-394 substituted "109(g)" for
"109(f)".
1984 - Subsec. (a). Pub. L. 98-353 inserted "; nor does the
dismissal of a case under this title prejudice the debtor with
regard to the filing of a subsequent petition under this title,
except as provided in section 109(f) of this title".
EFFECTIVE DATE OF 1994 AMENDMENT
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.
EFFECTIVE DATE OF 1984 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 350 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 350. Closing and reopening cases
-STATUTE-
(a) After an estate is fully administered and the court has
discharged the trustee, the court shall close the case.
(b) A case may be reopened in the court in which such case was
closed to administer assets, to accord relief to the debtor, or for
other cause.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2569; Pub. L. 98-353, title
III, Sec. 439, July 10, 1984, 98 Stat. 370.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
Subsection (a) requires the court to close a bankruptcy case
after the estate is fully administered and the trustee discharged.
The Rules of Bankruptcy Procedure will provide the procedure for
case closing. Subsection (b) permits reopening of the case to
administer assets, to accord relief to the debtor, or for other
cause. Though the court may permit reopening of a case so that the
trustee may exercise an avoiding power, laches may constitute a bar
to an action that has been delayed too long. The case may be
reopened in the court in which it was closed. The rules will
prescribe the procedure by which a case is reopened and how it will
be conducted after reopening.
AMENDMENTS
1984 - Subsec. (b). Pub. L. 98-353 substituted "A" for "a".
EFFECTIVE DATE OF 1984 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 351 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 351. Disposal of patient records
-STATUTE-
If a health care business commences a case under chapter 7, 9, or
11, and the trustee does not have a sufficient amount of funds to
pay for the storage of patient records in the manner required under
applicable Federal or State law, the following requirements shall
apply:
(1) The trustee shall -
(A) promptly publish notice, in 1 or more appropriate
newspapers, that if patient records are not claimed by the
patient or an insurance provider (if applicable law permits the
insurance provider to make that claim) by the date that is 365
days after the date of that notification, the trustee will
destroy the patient records; and
(B) during the first 180 days of the 365-day period described
in subparagraph (A), promptly attempt to notify directly each
patient that is the subject of the patient records and
appropriate insurance carrier concerning the patient records by
mailing to the most recent known address of that patient, or a
family member or contact person for that patient, and to the
appropriate insurance carrier an appropriate notice regarding
the claiming or disposing of patient records.
(2) If, after providing the notification under paragraph (1),
patient records are not claimed during the 365-day period
described under that paragraph, the trustee shall mail, by
certified mail, at the end of such 365-day period a written
request to each appropriate Federal agency to request permission
from that agency to deposit the patient records with that agency,
except that no Federal agency is required to accept patient
records under this paragraph.
(3) If, following the 365-day period described in paragraph (2)
and after providing the notification under paragraph (1), patient
records are not claimed by a patient or insurance provider, or
request is not granted by a Federal agency to deposit such
records with that agency, the trustee shall destroy those records
by -
(A) if the records are written, shredding or burning the
records; or
(B) if the records are magnetic, optical, or other electronic
records, by otherwise destroying those records so that those
records cannot be retrieved.
-SOURCE-
(Added Pub. L. 109-8, title XI, Sec. 1102(a), Apr. 20, 2005, 119
Stat. 189.)
-MISC1-
EFFECTIVE DATE
Section effective 180 days after Apr. 20, 2005, and not
applicable with respect to cases commenced under this title before
such effective date, except as otherwise provided, see section 1501
of Pub. L. 109-8, set out as an Effective Date of 2005 Amendment
note under section 101 of this title.
-End-
-CITE-
11 USC SUBCHAPTER IV - ADMINISTRATIVE POWERS 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-HEAD-
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-End-
-CITE-
11 USC Sec. 361 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-HEAD-
Sec. 361. Adequate protection
-STATUTE-
When adequate protection is required under section 362, 363, or
364 of this title of an interest of an entity in property, such
adequate protection may be provided by -
(1) requiring the trustee to make a cash payment or periodic
cash payments to such entity, to the extent that the stay under
section 362 of this title, use, sale, or lease under section 363
of this title, or any grant of a lien under section 364 of this
title results in a decrease in the value of such entity's
interest in such property;
(2) providing to such entity an additional or replacement lien
to the extent that such stay, use, sale, lease, or grant results
in a decrease in the value of such entity's interest in such
property; or
(3) granting such other relief, other than entitling such
entity to compensation allowable under section 503(b)(1) of this
title as an administrative expense, as will result in the
realization by such entity of the indubitable equivalent of such
entity's interest in such property.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2569; Pub. L. 98-353, title
III, Sec. 440, July 10, 1984, 98 Stat. 370.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 361 of the House amendment represents a compromise
between H.R. 8200 as passed by the House and the Senate amendment
regarding the issue of "adequate protection" of a secured party.
The House amendment deletes the provision found in section 361(3)
of H.R. 8200 as passed by the House. It would have permitted
adequate protection to be provided by giving the secured party an
administrative expense regarding any decrease in the value of such
party's collateral. In every case there is the uncertainty that the
estate will have sufficient property to pay administrative expenses
in full.
Section 361(4) of H.R. 8200 as passed by the House is modified in
section 361(3) of the House amendment to indicate that the court
may grant other forms of adequate protection, other than an
administrative expense, which will result in the realization by the
secured creditor of the indubitable equivalent of the creditor's
interest in property. In the special instance where there is a
reserve fund maintained under the security agreement, such as in
the typical bondholder case, indubitable equivalent means that the
bondholders would be entitled to be protected as to the reserve
fund, in addition to the regular payments needed to service the
debt. Adequate protection of an interest of an entity in property
is intended to protect a creditor's allowed secured claim. To the
extent the protection proves to be inadequate after the fact, the
creditor is entitled to a first priority administrative expense
under section 503(b).
In the special case of a creditor who has elected application of
creditor making an election under section 1111(b)(2), that creditor
is entitled to adequate protection of the creditor's interest in
property to the extent of the value of the collateral not to the
extent of the creditor's allowed secured claim, which is inflated
to cover a deficiency as a result of such election.
SENATE REPORT NO. 95-989
Sections 362, 363, and 364 require, in certain circumstances,
that the court determine in noticed hearings whether the interest
of a secured creditor or co-owner of property with the debtor is
adequately protected in connection with the sale or use of
property. The interests of which the court may provide protection
in the ways described in this section include equitable as well as
legal interests. For example, a right to enforce a pledge and a
right to recover property delivered to a debtor under a consignment
agreement or an agreement of sale or return are interests that may
be entitled to protection. This section specifies means by which
adequate protection may be provided but, to avoid placing the court
in an administrative role, does not require the court to provide
it. Instead, the trustee or debtor in possession or the creditor
will provide or propose a protection method. If the party that is
affected by the proposed action objects, the court will determine
whether the protection provided is adequate. The purpose of this
section is to illustrate means by which it may be provided and to
define the limits of the concept.
The concept of adequate protection is derived from the fifth
amendment protection of property interests as enunciated by the
Supreme Court. See Wright v. Union Central Life Ins. Co., 311 U.S.
273 (1940); Louisville Joint Stock Land Bank v. Radford, 295 U.S.
555 (1935).
The automatic stay also provides creditor protection. Without it,
certain creditors would be able to pursue their own remedies
against the debtor's property. Those who acted first would obtain
payment of the claims in preference to and to the detriment of
other creditors. Bankruptcy is designed to provide an orderly
liquidation procedure under which all creditors are treated
equally. A race of diligence by creditors for the debtor's assets
prevents that.
Subsection (a) defines the scope of the automatic stay, by
listing the acts that are stayed by the commencement of the case.
The commencement or continuation, including the issuance of
process, of a judicial, administrative or other proceeding against
the debtor that was or could have been commenced before the
commencement of the bankruptcy case is stayed under paragraph (1).
The scope of this paragraph is broad. All proceedings are stayed,
including arbitration, administrative, and judicial proceedings.
Proceeding in this sense encompasses civil actions and all
proceedings even if they are not before governmental tribunals.
The stay is not permanent. There is adequate provision for relief
from the stay elsewhere in the section. However, it is important
that the trustee have an opportunity to inventory the debtor's
position before proceeding with the administration of the case.
Undoubtedly the court will lift the stay for proceedings before
specialized or nongovernmental tribunals to allow those proceedings
to come to a conclusion. Any party desiring to enforce an order in
such a proceeding would thereafter have to come before the
bankruptcy court to collect assets. Nevertheless, it will often be
more appropriate to permit proceedings to continue in their place
of origin, when no great prejudice to the bankruptcy estate would
result, in order to leave the parties to their chosen forum and to
relieve the bankruptcy court from many duties that may be handled
elsewhere.
Paragraph (2) stays the enforcement, against the debtor or
against property of the estate, of a judgment obtained before the
commencement of the bankruptcy case. Thus, execution and levy
against the debtors' prepetition property are stayed, and attempts
to collect a judgment from the debtor personally are stayed.
Paragraph (3) stays any act to obtain possession of property of
the estate (that is, property of the debtor as of the date of the
filing of the petition) or property from the estate (property over
which the estate has control or possession). The purpose of this
provision is to prevent dismemberment of the estate. Liquidation
must proceed in an orderly fashion. Any distribution of property
must be by the trustee after he has had an opportunity to
familiarize himself with the various rights and interests involved
and with the property available for distribution.
Paragraph (4) stays lien creation against property of the estate.
Thus, taking possession to perfect a lien or obtaining court
process is prohibited. To permit lien creation after bankruptcy
would give certain creditors preferential treatment by making them
secured instead of unsecured.
Paragraph (5) stays any act to create or enforce a lien against
property of the debtor, that is, most property that is acquired
after the date of the filing of the petition, property that is
exempted, or property that does not pass to the estate, to the
extent that the lien secures a prepetition claim. Again, to permit
postbankruptcy lien creation or enforcement would permit certain
creditors to receive preferential treatment. It may also circumvent
the debtors' discharge.
Paragraph (6) prevents creditors from attempting in any way to
collect a prepetition debt. Creditors in consumer cases
occasionally telephone debtors to encourage repayment in spite of
bankruptcy. Inexperienced, frightened, or ill-counseled debtors may
succumb to suggestions to repay notwithstanding their bankruptcy.
This provision prevents evasion of the purpose of the bankruptcy
laws by sophisticated creditors.
Paragraph (7) stays setoffs of mutual debts and credits between
the debtor and creditors. As with all other paragraphs of
subsection (a), this paragraph does not affect the right of
creditors. It simply stays its enforcement pending an orderly
examination of the debtor's and creditors' rights.
Subsection (b) lists seven exceptions to the automatic stay. The
effect of an exception is not to make the action immune from
injunction.
The court has ample other powers to stay actions not covered by
the automatic stay. Section 105, of proposed title 11, derived from
Bankruptcy Act Sec. 2a(15) [section 11(a)(15) of former title 11],
grants the power to issue orders necessary or appropriate to carry
out the provisions of title 11. The district court and the
bankruptcy court as its adjunct have all the traditional injunctive
powers of a court of equity, 28 U.S.C. Secs. 151 and 164 as
proposed in S. 2266, Sec. 201, and 28 U.S.C. Sec. 1334, as proposed
in S. 2266, Sec. 216. Stays or injunctions issued under these other
sections will not be automatic upon the commencement of the case,
but will be granted or issued under the usual rules for the
issuance of injunctions. By excepting an act or action from the
automatic stay, the bill simply requires that the trustee move the
court into action, rather than requiring the stayed party to
request relief from the stay. There are some actions, enumerated in
the exceptions, that generally should not be stayed automatically
upon the commencement of the case, for reasons of either policy or
practicality. Thus, the court will have to determine on a case-by-
case basis whether a particular action which may be harming the
estate should be stayed.
With respect to stays issued under other powers, or the
application of the automatic stay, to governmental actions, this
section and the other sections mentioned are intended to be an
express waiver of sovereign immunity of the Federal Government, and
an assertion of the bankruptcy power over State governments under
the supremacy clause notwithstanding a State's sovereign immunity.
The first exception is of criminal proceedings against the
debtor. The bankruptcy laws are not a haven for criminal offenders,
but are designed to give relief from financial overextension. Thus,
criminal actions and proceedings may proceed in spite of
bankruptcy.
Paragraph (2) excepts from the stay the collection of alimony,
maintenance or support from property that is not property of the
estate. This will include property acquired after the commencement
of the case, exempted property, and property that does not pass to
the estate. The automatic stay is one means of protecting the
debtor's discharge. Alimony, maintenance and support obligations
are excepted from discharge. Staying collection of them, when not
to the detriment of other creditors (because the collection effort
is against property that is not property of the estate) does not
further that goal. Moreover, it could lead to hardship on the part
of the protected spouse or children.
Paragraph (3) excepts any act to perfect an interest in property
to the extent that the trustee's rights and powers are limited
under section 546(a) of the bankruptcy code. That section permits
postpetition perfection of certain liens to be effective against
the trustee. If the act of perfection, such as filing, were stayed,
the section would be nullified.
Paragraph (4) excepts commencement or continuation of actions and
proceedings by governmental units to enforce police or regulatory
powers. Thus, where a governmental unit is suing a debtor to
prevent or stop violation of fraud, environmental protection,
consumer protection, safety, or similar police or regulatory laws,
or attempting to fix damages for violation of such a law, the
action or proceeding is not stayed under the automatic stay.
Paragraph (5) makes clear that the exception extends to permit an
injunction and enforcement of an injunction, and to permit the
entry of a money judgment, but does not extend to permit
enforcement of a money judgment. Since the assets of the debtor are
in the possession and control of the bankruptcy court, and since
they constitute a fund out of which all creditors are entitled to
share, enforcement by a governmental unit of a money judgment would
give it preferential treatment to the detriment of all other
creditors.
Paragraph (6) excepts the setoff of any mutual debt and claim for
commodity transactions.
Paragraph (7) excepts actions by the Secretary of Housing and
Urban Development to foreclose or take possession in a case of a
loan insured under the National Housing Act [12 U.S.C. 1701 et
seq.]. A general exception for such loans is found in current
sections 263 and 517 [sections 663 and 917 of former title 11], the
exception allowed by this paragraph is much more limited.
Subsection (c) of section 362 specifies the duration of the
automatic stay. Paragraph (1) terminates a stay of an act against
property of the estate when the property ceases to be property of
the estate, such as by sale, abandonment, or exemption. It does not
terminate the stay against property of the debtor if the property
leaves the estate and goes to the debtor. Paragraph (2) terminates
the stay of any other act on the earliest of the time the case is
closed, the time the case is dismissed, or the time a discharge is
granted or denied (unless the debtor is a corporation or
partnership in a chapter 7 case).
Subsection (c) governs automatic termination of the stay.
Subsections (d) through (g) govern termination of the stay by the
court on the request of a party in interest.
Subsection (d) requires the court, upon motion of a party in
interest, to grant relief from the stay for cause, such as by
terminating, annulling, modifying, or conditioning the stay. The
lack of adequate protection of an interest in property is one cause
for relief, but is not the only cause. Other causes might include
the lack of any connection with or interference with the pending
bankruptcy case. Generally, proceedings in which the debtor is a
fiduciary, or involving postpetition activities of the debtor, need
not be stayed because they bear no relationship to the purpose of
the automatic stay, which is protection of the debtor and his
estate from his creditors.
Upon the court's finding that the debtor has no equity in the
property subject to the stay and that the property is not necessary
to an effective reorganization of the debtor, the subsection
requires the court grant relief from the stay. To aid in this
determination, guidelines are established where the property
subject to the stay is real property. An exception to "the
necessary to an effective reorganization" requirement is made for
real property on which no business is being conducted other than
operating the real property and activities incident thereto. The
intent of this exception is to reach the single-asset apartment
type cases which involve primarily tax-shelter investments and for
which the bankruptcy laws have provided a too facile method to
relay conditions, but not the operating shopping center and hotel
cases where attempts at reorganization should be permitted.
Property in which the debtor has equity but which is not necessary
to an effective reorganization of the debtor should be sold under
section 363. Hearings under this subsection are given calendar
priority to ensure that court congestion will not unduly prejudice
the rights of creditors who may be obviously entitled to relief
from the operation of the automatic stay.
Subsection (e) provides protection that is not always available
under present law. The subsection sets a time certain within which
the bankruptcy court must rule on the adequacy of protection
provided for the secured creditor's interest. If the court does not
rule within 30 days from a request by motion for relief from the
stay, the stay is automatically terminated with respect to the
property in question. To accommodate more complex cases, the
subsection permits the court to make a preliminary ruling after a
preliminary hearing. After a preliminary hearing, the court may
continue the stay only if there is a reasonable likelihood that the
party opposing relief from the stay will prevail at the final
hearing. Because the stay is essentially an injunction, the three
stages of the stay may be analogized to the three stages of an
injunction. The filing of the petition which gives rise to the
automatic stay is similar to a temporary restraining order. The
preliminary hearing is similar to the hearing on a preliminary
injunction, and the final hearing and order are similar to the
hearing and issuance or denial of a permanent injunction. The main
difference lies in which party must bring the issue before the
court. While in the injunction setting, the party seeking the
injunction must prosecute the action, in proceeding for relief from
the automatic stay, the enjoined party must move. The difference
does not, however, shift the burden of proof. Subsection (g) leaves
that burden on the party opposing relief from the stay (that is, on
the party seeking continuance of the injunction) on the issue of
adequate protection and existence of an equity. It is not, however,
intended to be confined strictly to the constitutional requirement.
This section and the concept of adequate protection are based as
much on policy grounds as on constitutional grounds. Secured
creditors should not be deprived of the benefit of their bargain.
There may be situations in bankruptcy where giving a secured
creditor an absolute right to his bargain may be impossible or
seriously detrimental to the policy of the bankruptcy laws. Thus,
this section recognizes the availability of alternate means of
protecting a secured creditor's interest where such steps are a
necessary part of the rehabilitative process. Though the creditor
might not be able to retain his lien upon the specific collateral
held at the time of filing, the purpose of the section is to insure
that the secured creditor receives the value for which he
bargained.
The section specifies two exclusive means of providing adequate
protection, both of which may require an approximate determination
of the value of the protected entity's interest in the property
involved. The section does not specify how value is to be
determined, nor does it specify when it is to be determined. These
matters are left to case-by-case interpretation and development. In
light of the restrictive approach of the section to the
availability of means of providing adequate protection, this
flexibility is important to permit the courts to adapt to varying
circumstances and changing modes of financing.
Neither is it expected that the courts will construe the term
value to mean, in every case, forced sale liquidation value or full
going concern value. There is wide latitude between those two
extremes although forced sale liquidation value will be a minimum.
In any particular case, especially a reorganization case, the
determination of which entity should be entitled to the difference
between the going concern value and the liquidation value must be
based on equitable considerations arising from the facts of the
case. Finally, the determination of value is binding only for the
purposes of the specific hearing and is not to have a res judicata
effect.
The first method of adequate protection outlined is the making of
cash payments to compensate for the expected decrease in value of
the opposing entity's interest. This provision is derived from In
re Bermec Corporation, 445 F.2d 367 (2d Cir. 1971), though in that
case it is not clear whether the payments offered were adequate to
compensate the secured creditors for their loss. The use of
periodic payments may be appropriate where, for example, the
property in question is depreciating at a relatively fixed rate.
The periodic payments would be to compensate for the depreciation
and might, but need not necessarily, be in the same amount as
payments due on the secured obligation.
The second method is the fixing of an additional or replacement
lien on other property of the debtor to the extent of the decrease
in value or actual consumption of the property involved. The
purpose of this method is to provide the protected entity with an
alternative means of realizing the value of the original property,
if it should decline during the case, by granting an interest in
additional property from whose value the entity may realize its
loss. This is consistent with the view expressed in Wright v. Union
Central Life Ins. Co., 311 U.S. 273 (1940), where the Court
suggested that it was the value of the secured creditor's
collateral, and not necessarily his rights in specific collateral,
that was entitled to protection.
The section makes no provision for the granting of an
administrative priority as a method of providing adequate
protection to an entity as was suggested in In re Yale Express
System, Inc., 384 F.2d 990 (2d Cir. 1967), because such protection
is too uncertain to be meaningful.
HOUSE REPORT NO. 95-595
The section specifies four means of providing adequate
protection. They are neither exclusive nor exhaustive. They all
rely, however, on the value of the protected entity's interest in
the property involved. The section does not specify how value is to
be determined, nor does it specify when it is to be determined.
These matters are left to case-by-case interpretation and
development. It is expected that the courts will apply the concept
in light of facts of each case and general equitable principles. It
is not intended that the courts will develop a hard and fast rule
that will apply in every case. The time and method of valuation is
not specified precisely, in order to avoid that result. There are
an infinite number of variations possible in dealings between
debtors and creditors, the law is continually developing, and new
ideas are continually being implemented in this field. The
flexibility is important to permit the courts to adapt to varying
circumstances and changing modes of financing.
Neither is it expected that the courts will construe the term
value to mean, in every case, forced sale liquidation value or full
going concern value. There is wide latitude between those two
extremes. In any particular case, especially a reorganization case,
the determination of which entity should be entitled to the
difference between the going concern value and the liquidation
value must be based on equitable considerations based on the facts
of the case. It will frequently be based on negotiation between the
parties. Only if they cannot agree will the court become involved.
The first method of adequate protection specified is periodic
cash payments by the estate, to the extent of a decrease in value
of the opposing entity's interest in the property involved. This
provision is derived from In re Yale Express, Inc., 384 F.2d 990
(2d Cir. 1967) (though in that case it is not clear whether the
payments required were adequate to compensate the secured creditors
for their loss). The use of periodic payments may be appropriate,
where for example, the property in question is depreciating at a
relatively fixed rate. The periodic payments would be to compensate
for the depreciation.
The second method is the provision of an additional or
replacement lien on other property to the extent of the decrease in
value of the property involved. The purpose of this method is to
provide the protected entity with a means of realizing the value of
the original property, if it should decline during the case, by
granting an interest in additional property from whose value the
entity may realize its loss.
The third method is the granting of an administrative expense
priority to the protected entity to the extent of his loss. This
method, more than the others, requires a prediction as to whether
the unencumbered assets that will remain if the case if converted
from reorganization to liquidation will be sufficient to pay the
protected entity in full. It is clearly the most risky, from the
entity's perspective, and should be used only when there is
relative certainty that administrative expenses will be able to be
paid in full in the event of liquidation.
The fourth [enacted as third] method gives the parties and the
courts flexibility by allowing such other relief as will result in
the realization by the protected entity of the value of its
interest in the property involved. Under this provision, the courts
will be able to adapt to new methods of financing and to formulate
protection that is appropriate to the circumstances of the case if
none of the other methods would accomplish the desired result. For
example, another form of adequate protection might be the guarantee
by a third party outside the judicial process of compensation for
any loss incurred in the case. Adequate protection might also, in
some circumstances, be provided by permitting a secured creditor to
bid in his claim at the sale of the property and to offset the
claim against the price bid in.
The paragraph also defines, more clearly than the others, the
general concept of adequate protection, by requiring such relief as
will result in the realization of value. It is the general
category, and as such, is defined by the concept involved rather
than any particular method of adequate protection.
AMENDMENTS
1984 - Par. (1). Pub. L. 98-353 inserted "a cash payment or"
after "make".
EFFECTIVE DATE OF 1984 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 362 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-HEAD-
Sec. 362. Automatic stay
-STATUTE-
(a) Except as provided in subsection (b) of this section, a
petition filed under section 301, 302, or 303 of this title, or an
application filed under section 5(a)(3) of the Securities Investor
Protection Act of 1970, operates as a stay, applicable to all
entities, of -
(1) the commencement or continuation, including the issuance or
employment of process, of a judicial, administrative, or other
action or proceeding against the debtor that was or could have
been commenced before the commencement of the case under this
title, or to recover a claim against the debtor that arose before
the commencement of the case under this title;
(2) the enforcement, against the debtor or against property of
the estate, of a judgment obtained before the commencement of the
case under this title;
(3) any act to obtain possession of property of the estate or
of property from the estate or to exercise control over property
of the estate;
(4) any act to create, perfect, or enforce any lien against
property of the estate;
(5) any act to create, perfect, or enforce against property of
the debtor any lien to the extent that such lien secures a claim
that arose before the commencement of the case under this title;
(6) any act to collect, assess, or recover a claim against the
debtor that arose before the commencement of the case under this
title;
(7) the setoff of any debt owing to the debtor that arose
before the commencement of the case under this title against any
claim against the debtor; and
(8) the commencement or continuation of a proceeding before the
United States Tax Court concerning a tax liability of a debtor
that is a corporation for a taxable period the bankruptcy court
may determine or concerning the tax liability of a debtor who is
an individual for a taxable period ending before the date of the
order for relief under this title.
(b) The filing of a petition under section 301, 302, or 303 of
this title, or of an application under section 5(a)(3) of the
Securities Investor Protection Act of 1970, does not operate as a
stay -
(1) under subsection (a) of this section, of the commencement
or continuation of a criminal action or proceeding against the
debtor;
(2) under subsection (a) -
(A) of the commencement or continuation of a civil action or
proceeding -
(i) for the establishment of paternity;
(ii) for the establishment or modification of an order for
domestic support obligations;
(iii) concerning child custody or visitation;
(iv) for the dissolution of a marriage, except to the
extent that such proceeding seeks to determine the division
of property that is property of the estate; or
(v) regarding domestic violence;
(B) of the collection of a domestic support obligation from
property that is not property of the estate;
(C) with respect to the withholding of income that is
property of the estate or property of the debtor for payment of
a domestic support obligation under a judicial or
administrative order or a statute;
(D) of the withholding, suspension, or restriction of a
driver's license, a professional or occupational license, or a
recreational license, under State law, as specified in section
466(a)(16) of the Social Security Act;
(E) of the reporting of overdue support owed by a parent to
any consumer reporting agency as specified in section 466(a)(7)
of the Social Security Act;
(F) of the interception of a tax refund, as specified in
sections 464 and 466(a)(3) of the Social Security Act or under
an analogous State law; or
(G) of the enforcement of a medical obligation, as specified
under title IV of the Social Security Act;
(3) under subsection (a) of this section, of any act to
perfect, or to maintain or continue the perfection of, an
interest in property to the extent that the trustee's rights and
powers are subject to such perfection under section 546(b) of
this title or to the extent that such act is accomplished within
the period provided under section 547(e)(2)(A) of this title;
(4) under paragraph (1), (2), (3), or (6) of subsection (a) of
this section, of the commencement or continuation of an action or
proceeding by a governmental unit or any organization exercising
authority under the Convention on the Prohibition of the
Development, Production, Stockpiling and Use of Chemical Weapons
and on Their Destruction, opened for signature on January 13,
1993, to enforce such governmental unit's or organization's
police and regulatory power, including the enforcement of a
judgment other than a money judgment, obtained in an action or
proceeding by the governmental unit to enforce such governmental
unit's or organization's police or regulatory power;
[(5) Repealed. Pub. L. 105-277, div. I, title VI, Sec. 603(1),
Oct. 21, 1998, 112 Stat. 2681-866;]
(6) under subsection (a) of this section, of the exercise by a
commodity broker, forward contract merchant, stockbroker,
financial institution, financial participant, or securities
clearing agency of any contractual right (as defined in section
555 or 556) under any security agreement or arrangement or other
credit enhancement forming a part of or related to any commodity
contract, forward contract or securities contract, or of any
contractual right (as defined in section 555 or 556) to offset or
net out any termination value, payment amount, or other transfer
obligation arising under or in connection with 1 or more such
contracts, including any master agreement for such contracts;
(7) under subsection (a) of this section, of the exercise by a
repo participant or financial participant of any contractual
right (as defined in section 559) under any security agreement or
arrangement or other credit enhancement forming a part of or
related to any repurchase agreement, or of any contractual right
(as defined in section 559) to offset or net out any termination
value, payment amount, or other transfer obligation arising under
or in connection with 1 or more such agreements, including any
master agreement for such agreements;
(8) under subsection (a) of this section, of the commencement
of any action by the Secretary of Housing and Urban Development
to foreclose a mortgage or deed of trust in any case in which the
mortgage or deed of trust held by the Secretary is insured or was
formerly insured under the National Housing Act and covers
property, or combinations of property, consisting of five or more
living units;
(9) under subsection (a), of -
(A) an audit by a governmental unit to determine tax
liability;
(B) the issuance to the debtor by a governmental unit of a
notice of tax deficiency;
(C) a demand for tax returns; or
(D) the making of an assessment for any tax and issuance of a
notice and demand for payment of such an assessment (but any
tax lien that would otherwise attach to property of the estate
by reason of such an assessment shall not take effect unless
such tax is a debt of the debtor that will not be discharged in
the case and such property or its proceeds are transferred out
of the estate to, or otherwise revested in, the debtor).
(10) under subsection (a) of this section, of any act by a
lessor to the debtor under a lease of nonresidential real
property that has terminated by the expiration of the stated term
of the lease before the commencement of or during a case under
this title to obtain possession of such property;
(11) under subsection (a) of this section, of the presentment
of a negotiable instrument and the giving of notice of and
protesting dishonor of such an instrument;
(12) under subsection (a) of this section, after the date which
is 90 days after the filing of such petition, of the commencement
or continuation, and conclusion to the entry of final judgment,
of an action which involves a debtor subject to reorganization
pursuant to chapter 11 of this title and which was brought by the
Secretary of Transportation under section 31325 of title 46
(including distribution of any proceeds of sale) to foreclose a
preferred ship or fleet mortgage, or a security interest in or
relating to a vessel or vessel under construction, held by the
Secretary of Transportation under chapter 537 of title 46 or
section 109(h) of title 49, or under applicable State law;
(13) under subsection (a) of this section, after the date which
is 90 days after the filing of such petition, of the commencement
or continuation, and conclusion to the entry of final judgment,
of an action which involves a debtor subject to reorganization
pursuant to chapter 11 of this title and which was brought by the
Secretary of Commerce under section 31325 of title 46 (including
distribution of any proceeds of sale) to foreclose a preferred
ship or fleet mortgage in a vessel or a mortgage, deed of trust,
or other security interest in a fishing facility held by the
Secretary of Commerce under chapter 537 of title 46;
(14) under subsection (a) of this section, of any action by an
accrediting agency regarding the accreditation status of the
debtor as an educational institution;
(15) under subsection (a) of this section, of any action by a
State licensing body regarding the licensure of the debtor as an
educational institution;
(16) under subsection (a) of this section, of any action by a
guaranty agency, as defined in section 435(j) of the Higher
Education Act of 1965 or the Secretary of Education regarding the
eligibility of the debtor to participate in programs authorized
under such Act;
(17) under subsection (a) of this section, of the exercise by a
swap participant or financial participant of any contractual
right (as defined in section 560) under any security agreement or
arrangement or other credit enhancement forming a part of or
related to any swap agreement, or of any contractual right (as
defined in section 560) to offset or net out any termination
value, payment amount, or other transfer obligation arising under
or in connection with 1 or more such agreements, including any
master agreement for such agreements;
(18) under subsection (a) of the creation or perfection of a
statutory lien for an ad valorem property tax, or a special tax
or special assessment on real property whether or not ad valorem,
imposed by a governmental unit, if such tax or assessment comes
due after the date of the filing of the petition;
(19) under subsection (a), of withholding of income from a
debtor's wages and collection of amounts withheld, under the
debtor's agreement authorizing that withholding and collection
for the benefit of a pension, profit-sharing, stock bonus, or
other plan established under section 401, 403, 408, 408A, 414,
457, or 501(c) of the Internal Revenue Code of 1986, that is
sponsored by the employer of the debtor, or an affiliate,
successor, or predecessor of such employer -
(A) to the extent that the amounts withheld and collected are
used solely for payments relating to a loan from a plan under
section 408(b)(1) of the Employee Retirement Income Security
Act of 1974 or is subject to section 72(p) of the Internal
Revenue Code of 1986; or
(B) a loan from a thrift savings plan permitted under
subchapter III of chapter 84 of title 5, that satisfies the
requirements of section 8433(g) of such title;
but nothing in this paragraph may be construed to provide that
any loan made under a governmental plan under section 414(d), or
a contract or account under section 403(b), of the Internal
Revenue Code of 1986 constitutes a claim or a debt under this
title;
(20) under subsection (a), of any act to enforce any lien
against or security interest in real property following entry of
the order under subsection (d)(4) as to such real property in any
prior case under this title, for a period of 2 years after the
date of the entry of such an order, except that the debtor, in a
subsequent case under this title, may move for relief from such
order based upon changed circumstances or for other good cause
shown, after notice and a hearing;
(21) under subsection (a), of any act to enforce any lien
against or security interest in real property -
(A) if the debtor is ineligible under section 109(g) to be a
debtor in a case under this title; or
(B) if the case under this title was filed in violation of a
bankruptcy court order in a prior case under this title
prohibiting the debtor from being a debtor in another case
under this title;
(22) subject to subsection (l), under subsection (a)(3), of the
continuation of any eviction, unlawful detainer action, or
similar proceeding by a lessor against a debtor involving
residential property in which the debtor resides as a tenant
under a lease or rental agreement and with respect to which the
lessor has obtained before the date of the filing of the
bankruptcy petition, a judgment for possession of such property
against the debtor;
(23) subject to subsection (m), under subsection (a)(3), of an
eviction action that seeks possession of the residential property
in which the debtor resides as a tenant under a lease or rental
agreement based on endangerment of such property or the illegal
use of controlled substances on such property, but only if the
lessor files with the court, and serves upon the debtor, a
certification under penalty of perjury that such an eviction
action has been filed, or that the debtor, during the 30-day
period preceding the date of the filing of the certification, has
endangered property or illegally used or allowed to be used a
controlled substance on the property;
(24) under subsection (a), of any transfer that is not
avoidable under section 544 and that is not avoidable under
section 549;
(25) under subsection (a), of -
(A) the commencement or continuation of an investigation or
action by a securities self regulatory organization to enforce
such organization's regulatory power;
(B) the enforcement of an order or decision, other than for
monetary sanctions, obtained in an action by such securities
self regulatory organization to enforce such organization's
regulatory power; or
(C) any act taken by such securities self regulatory
organization to delist, delete, or refuse to permit quotation
of any stock that does not meet applicable regulatory
requirements;
(26) under subsection (a), of the setoff under applicable
nonbankruptcy law of an income tax refund, by a governmental
unit, with respect to a taxable period that ended before the date
of the order for relief against an income tax liability for a
taxable period that also ended before the date of the order for
relief, except that in any case in which the setoff of an income
tax refund is not permitted under applicable nonbankruptcy law
because of a pending action to determine the amount or legality
of a tax liability, the governmental unit may hold the refund
pending the resolution of the action, unless the court, on the
motion of the trustee and after notice and a hearing, grants the
taxing authority adequate protection (within the meaning of
section 361) for the secured claim of such authority in the
setoff under section 506(a);
(27) under subsection (a) of this section, of the exercise by a
master netting agreement participant of any contractual right (as
defined in section 555, 556, 559, or 560) under any security
agreement or arrangement or other credit enhancement forming a
part of or related to any master netting agreement, or of any
contractual right (as defined in section 555, 556, 559, or 560)
to offset or net out any termination value, payment amount, or
other transfer obligation arising under or in connection with 1
or more such master netting agreements to the extent that such
participant is eligible to exercise such rights under paragraph
(6), (7), or (17) for each individual contract covered by the
master netting agreement in issue; and
(28) under subsection (a), of the exclusion by the Secretary of
Health and Human Services of the debtor from participation in the
medicare program or any other Federal health care program (as
defined in section 1128B(f) of the Social Security Act pursuant
to title XI or XVIII of such Act).
The provisions of paragraphs (12) and (13) of this subsection shall
apply with respect to any such petition filed on or before December
31, 1989.
(c) Except as provided in subsections (d), (e), (f), and (h) of
this section -
(1) the stay of an act against property of the estate under
subsection (a) of this section continues until such property is
no longer property of the estate;
(2) the stay of any other act under subsection (a) of this
section continues until the earliest of -
(A) the time the case is closed;
(B) the time the case is dismissed; or
(C) if the case is a case under chapter 7 of this title
concerning an individual or a case under chapter 9, 11, 12, or
13 of this title, the time a discharge is granted or denied;
(3) if a single or joint case is filed by or against a debtor
who is an individual in a case under chapter 7, 11, or 13, and if
a single or joint case of the debtor was pending within the
preceding 1-year period but was dismissed, other than a case
refiled under a chapter other than chapter 7 after dismissal
under section 707(b) -
(A) the stay under subsection (a) with respect to any action
taken with respect to a debt or property securing such debt or
with respect to any lease shall terminate with respect to the
debtor on the 30th day after the filing of the later case;
(B) on the motion of a party in interest for continuation of
the automatic stay and upon notice and a hearing, the court may
extend the stay in particular cases as to any or all creditors
(subject to such conditions or limitations as the court may
then impose) after notice and a hearing completed before the
expiration of the 30-day period only if the party in interest
demonstrates that the filing of the later case is in good faith
as to the creditors to be stayed; and
(C) for purposes of subparagraph (B), a case is presumptively
filed not in good faith (but such presumption may be rebutted
by clear and convincing evidence to the contrary) -
(i) as to all creditors, if -
(I) more than 1 previous case under any of chapters 7,
11, and 13 in which the individual was a debtor was pending
within the preceding 1-year period;
(II) a previous case under any of chapters 7, 11, and 13
in which the individual was a debtor was dismissed within
such 1-year period, after the debtor failed to -
(aa) file or amend the petition or other documents as
required by this title or the court without substantial
excuse (but mere inadvertence or negligence shall not be
a substantial excuse unless the dismissal was caused by
the negligence of the debtor's attorney);
(bb) provide adequate protection as ordered by the
court; or
(cc) perform the terms of a plan confirmed by the
court; or
(III) there has not been a substantial change in the
financial or personal affairs of the debtor since the
dismissal of the next most previous case under chapter 7,
11, or 13 or any other reason to conclude that the later
case will be concluded -
(aa) if a case under chapter 7, with a discharge; or
(bb) if a case under chapter 11 or 13, with a confirmed
plan that will be fully performed; and
(ii) as to any creditor that commenced an action under
subsection (d) in a previous case in which the individual was
a debtor if, as of the date of dismissal of such case, that
action was still pending or had been resolved by terminating,
conditioning, or limiting the stay as to actions of such
creditor; and
(4)(A)(i) if a single or joint case is filed by or against a
debtor who is an individual under this title, and if 2 or more
single or joint cases of the debtor were pending within the
previous year but were dismissed, other than a case refiled under
a chapter other than chapter 7 after dismissal under section
707(b), the stay under subsection (a) shall not go into effect
upon the filing of the later case; and
(ii) on request of a party in interest, the court shall
promptly enter an order confirming that no stay is in effect;
(B) if, within 30 days after the filing of the later case, a
party in interest requests the court may order the stay to take
effect in the case as to any or all creditors (subject to such
conditions or limitations as the court may impose), after notice
and a hearing, only if the party in interest demonstrates that
the filing of the later case is in good faith as to the creditors
to be stayed;
(C) a stay imposed under subparagraph (B) shall be effective on
the date of the entry of the order allowing the stay to go into
effect; and
(D) for purposes of subparagraph (B), a case is presumptively
filed not in good faith (but such presumption may be rebutted by
clear and convincing evidence to the contrary) -
(i) as to all creditors if -
(I) 2 or more previous cases under this title in which the
individual was a debtor were pending within the 1-year
period;
(II) a previous case under this title in which the
individual was a debtor was dismissed within the time period
stated in this paragraph after the debtor failed to file or
amend the petition or other documents as required by this
title or the court without substantial excuse (but mere
inadvertence or negligence shall not be substantial excuse
unless the dismissal was caused by the negligence of the
debtor's attorney), failed to provide adequate protection as
ordered by the court, or failed to perform the terms of a
plan confirmed by the court; or
(III) there has not been a substantial change in the
financial or personal affairs of the debtor since the
dismissal of the next most previous case under this title, or
any other reason to conclude that the later case will not be
concluded, if a case under chapter 7, with a discharge, and
if a case under chapter 11 or 13, with a confirmed plan that
will be fully performed; or
(ii) as to any creditor that commenced an action under
subsection (d) in a previous case in which the individual was a
debtor if, as of the date of dismissal of such case, such
action was still pending or had been resolved by terminating,
conditioning, or limiting the stay as to such action of such
creditor.
(d) On request of a party in interest and after notice and a
hearing, the court shall grant relief from the stay provided under
subsection (a) of this section, such as by terminating, annulling,
modifying, or conditioning such stay -
(1) for cause, including the lack of adequate protection of an
interest in property of such party in interest;
(2) with respect to a stay of an act against property under
subsection (a) of this section, if -
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective
reorganization;
(3) with respect to a stay of an act against single asset real
estate under subsection (a), by a creditor whose claim is secured
by an interest in such real estate, unless, not later than the
date that is 90 days after the entry of the order for relief (or
such later date as the court may determine for cause by order
entered within that 90-day period) or 30 days after the court
determines that the debtor is subject to this paragraph,
whichever is later -
(A) the debtor has filed a plan of reorganization that has a
reasonable possibility of being confirmed within a reasonable
time; or
(B) the debtor has commenced monthly payments that -
(i) may, in the debtor's sole discretion, notwithstanding
section 363(c)(2), be made from rents or other income
generated before, on, or after the date of the commencement
of the case by or from the property to each creditor whose
claim is secured by such real estate (other than a claim
secured by a judgment lien or by an unmatured statutory
lien); and
(ii) are in an amount equal to interest at the then
applicable nondefault contract rate of interest on the value
of the creditor's interest in the real estate; or
(4) with respect to a stay of an act against real property
under subsection (a), by a creditor whose claim is secured by an
interest in such real property, if the court finds that the
filing of the petition was part of a scheme to delay, hinder, or
defraud creditors that involved either -
(A) transfer of all or part ownership of, or other interest
in, such real property without the consent of the secured
creditor or court approval; or
(B) multiple bankruptcy filings affecting such real property.
If recorded in compliance with applicable State laws governing
notices of interests or liens in real property, an order entered
under paragraph (4) shall be binding in any other case under this
title purporting to affect such real property filed not later than
2 years after the date of the entry of such order by the court,
except that a debtor in a subsequent case under this title may move
for relief from such order based upon changed circumstances or for
good cause shown, after notice and a hearing. Any Federal, State,
or local governmental unit that accepts notices of interests or
liens in real property shall accept any certified copy of an order
described in this subsection for indexing and recording.
(e)(1) Thirty days after a request under subsection (d) of this
section for relief from the stay of any act against property of the
estate under subsection (a) of this section, such stay is
terminated with respect to the party in interest making such
request, unless the court, after notice and a hearing, orders such
stay continued in effect pending the conclusion of, or as a result
of, a final hearing and determination under subsection (d) of this
section. A hearing under this subsection may be a preliminary
hearing, or may be consolidated with the final hearing under
subsection (d) of this section. The court shall order such stay
continued in effect pending the conclusion of the final hearing
under subsection (d) of this section if there is a reasonable
likelihood that the party opposing relief from such stay will
prevail at the conclusion of such final hearing. If the hearing
under this subsection is a preliminary hearing, then such final
hearing shall be concluded not later than thirty days after the
conclusion of such preliminary hearing, unless the 30-day period is
extended with the consent of the parties in interest or for a
specific time which the court finds is required by compelling
circumstances.
(2) Notwithstanding paragraph (1), in a case under chapter 7, 11,
or 13 in which the debtor is an individual, the stay under
subsection (a) shall terminate on the date that is 60 days after a
request is made by a party in interest under subsection (d), unless
-
(A) a final decision is rendered by the court during the 60-day
period beginning on the date of the request; or
(B) such 60-day period is extended -
(i) by agreement of all parties in interest; or
(ii) by the court for such specific period of time as the
court finds is required for good cause, as described in
findings made by the court.
(f) Upon request of a party in interest, the court, with or
without a hearing, shall grant such relief from the stay provided
under subsection (a) of this section as is necessary to prevent
irreparable damage to the interest of an entity in property, if
such interest will suffer such damage before there is an
opportunity for notice and a hearing under subsection (d) or (e) of
this section.
(g) In any hearing under subsection (d) or (e) of this section
concerning relief from the stay of any act under subsection (a) of
this section -
(1) the party requesting such relief has the burden of proof on
the issue of the debtor's equity in property; and
(2) the party opposing such relief has the burden of proof on
all other issues.
(h)(1) In a case in which the debtor is an individual, the stay
provided by subsection (a) is terminated with respect to personal
property of the estate or of the debtor securing in whole or in
part a claim, or subject to an unexpired lease, and such personal
property shall no longer be property of the estate if the debtor
fails within the applicable time set by section 521(a)(2) -
(A) to file timely any statement of intention required under
section 521(a)(2) with respect to such personal property or to
indicate in such statement that the debtor will either surrender
such personal property or retain it and, if retaining such
personal property, either redeem such personal property pursuant
to section 722, enter into an agreement of the kind specified in
section 524(c) applicable to the debt secured by such personal
property, or assume such unexpired lease pursuant to section
365(p) if the trustee does not do so, as applicable; and
(B) to take timely the action specified in such statement, as
it may be amended before expiration of the period for taking
action, unless such statement specifies the debtor's intention to
reaffirm such debt on the original contract terms and the
creditor refuses to agree to the reaffirmation on such terms.
(2) Paragraph (1) does not apply if the court determines, on the
motion of the trustee filed before the expiration of the applicable
time set by section 521(a)(2), after notice and a hearing, that
such personal property is of consequential value or benefit to the
estate, and orders appropriate adequate protection of the
creditor's interest, and orders the debtor to deliver any
collateral in the debtor's possession to the trustee. If the court
does not so determine, the stay provided by subsection (a) shall
terminate upon the conclusion of the hearing on the motion.
(i) If a case commenced under chapter 7, 11, or 13 is dismissed
due to the creation of a debt repayment plan, for purposes of
subsection (c)(3), any subsequent case commenced by the debtor
under any such chapter shall not be presumed to be filed not in
good faith.
(j) On request of a party in interest, the court shall issue an
order under subsection (c) confirming that the automatic stay has
been terminated.
(k)(1) Except as provided in paragraph (2), an individual injured
by any willful violation of a stay provided by this section shall
recover actual damages, including costs and attorneys' fees, and,
in appropriate circumstances, may recover punitive damages.
(2) If such violation is based on an action taken by an entity in
the good faith belief that subsection (h) applies to the debtor,
the recovery under paragraph (1) of this subsection against such
entity shall be limited to actual damages.
(l)(1) Except as otherwise provided in this subsection,
subsection (b)(22) shall apply on the date that is 30 days after
the date on which the bankruptcy petition is filed, if the debtor
files with the petition and serves upon the lessor a certification
under penalty of perjury that -
(A) under nonbankruptcy law applicable in the jurisdiction,
there are circumstances under which the debtor would be permitted
to cure the entire monetary default that gave rise to the
judgment for possession, after that judgment for possession was
entered; and
(B) the debtor (or an adult dependent of the debtor) has
deposited with the clerk of the court, any rent that would become
due during the 30-day period after the filing of the bankruptcy
petition.
(2) If, within the 30-day period after the filing of the
bankruptcy petition, the debtor (or an adult dependent of the
debtor) complies with paragraph (1) and files with the court and
serves upon the lessor a further certification under penalty of
perjury that the debtor (or an adult dependent of the debtor) has
cured, under nonbankruptcy law applicable in the jurisdiction, the
entire monetary default that gave rise to the judgment under which
possession is sought by the lessor, subsection (b)(22) shall not
apply, unless ordered to apply by the court under paragraph (3).
(3)(A) If the lessor files an objection to any certification
filed by the debtor under paragraph (1) or (2), and serves such
objection upon the debtor, the court shall hold a hearing within 10
days after the filing and service of such objection to determine if
the certification filed by the debtor under paragraph (1) or (2) is
true.
(B) If the court upholds the objection of the lessor filed under
subparagraph (A) -
(i) subsection (b)(22) shall apply immediately and relief from
the stay provided under subsection (a)(3) shall not be required
to enable the lessor to complete the process to recover full
possession of the property; and
(ii) the clerk of the court shall immediately serve upon the
lessor and the debtor a certified copy of the court's order
upholding the lessor's objection.
(4) If a debtor, in accordance with paragraph (5), indicates on
the petition that there was a judgment for possession of the
residential rental property in which the debtor resides and does
not file a certification under paragraph (1) or (2) -
(A) subsection (b)(22) shall apply immediately upon failure to
file such certification, and relief from the stay provided under
subsection (a)(3) shall not be required to enable the lessor to
complete the process to recover full possession of the property;
and
(B) the clerk of the court shall immediately serve upon the
lessor and the debtor a certified copy of the docket indicating
the absence of a filed certification and the applicability of the
exception to the stay under subsection (b)(22).
(5)(A) Where a judgment for possession of residential property in
which the debtor resides as a tenant under a lease or rental
agreement has been obtained by the lessor, the debtor shall so
indicate on the bankruptcy petition and shall provide the name and
address of the lessor that obtained that pre-petition judgment on
the petition and on any certification filed under this subsection.
(B) The form of certification filed with the petition, as
specified in this subsection, shall provide for the debtor to
certify, and the debtor shall certify -
(i) whether a judgment for possession of residential rental
housing in which the debtor resides has been obtained against the
debtor before the date of the filing of the petition; and
(ii) whether the debtor is claiming under paragraph (1) that
under nonbankruptcy law applicable in the jurisdiction, there are
circumstances under which the debtor would be permitted to cure
the entire monetary default that gave rise to the judgment for
possession, after that judgment of possession was entered, and
has made the appropriate deposit with the court.
(C) The standard forms (electronic and otherwise) used in a
bankruptcy proceeding shall be amended to reflect the requirements
of this subsection.
(D) The clerk of the court shall arrange for the prompt
transmittal of the rent deposited in accordance with paragraph
(1)(B) to the lessor.
(m)(1) Except as otherwise provided in this subsection,
subsection (b)(23) shall apply on the date that is 15 days after
the date on which the lessor files and serves a certification
described in subsection (b)(23).
(2)(A) If the debtor files with the court an objection to the
truth or legal sufficiency of the certification described in
subsection (b)(23) and serves such objection upon the lessor,
subsection (b)(23) shall not apply, unless ordered to apply by the
court under this subsection.
(B) If the debtor files and serves the objection under
subparagraph (A), the court shall hold a hearing within 10 days
after the filing and service of such objection to determine if the
situation giving rise to the lessor's certification under paragraph
(1) existed or has been remedied.
(C) If the debtor can demonstrate to the satisfaction of the
court that the situation giving rise to the lessor's certification
under paragraph (1) did not exist or has been remedied, the stay
provided under subsection (a)(3) shall remain in effect until the
termination of the stay under this section.
(D) If the debtor cannot demonstrate to the satisfaction of the
court that the situation giving rise to the lessor's certification
under paragraph (1) did not exist or has been remedied -
(i) relief from the stay provided under subsection (a)(3) shall
not be required to enable the lessor to proceed with the
eviction; and
(ii) the clerk of the court shall immediately serve upon the
lessor and the debtor a certified copy of the court's order
upholding the lessor's certification.
(3) If the debtor fails to file, within 15 days, an objection
under paragraph (2)(A) -
(A) subsection (b)(23) shall apply immediately upon such
failure and relief from the stay provided under subsection (a)(3)
shall not be required to enable the lessor to complete the
process to recover full possession of the property; and
(B) the clerk of the court shall immediately serve upon the
lessor and the debtor a certified copy of the docket indicating
such failure.
(n)(1) Except as provided in paragraph (2), subsection (a) does
not apply in a case in which the debtor -
(A) is a debtor in a small business case pending at the time
the petition is filed;
(B) was a debtor in a small business case that was dismissed
for any reason by an order that became final in the 2-year period
ending on the date of the order for relief entered with respect
to the petition;
(C) was a debtor in a small business case in which a plan was
confirmed in the 2-year period ending on the date of the order
for relief entered with respect to the petition; or
(D) is an entity that has acquired substantially all of the
assets or business of a small business debtor described in
subparagraph (A), (B), or (C), unless such entity establishes by
a preponderance of the evidence that such entity acquired
substantially all of the assets or business of such small
business debtor in good faith and not for the purpose of evading
this paragraph.
(2) Paragraph (1) does not apply -
(A) to an involuntary case involving no collusion by the debtor
with creditors; or
(B) to the filing of a petition if -
(i) the debtor proves by a preponderance of the evidence that
the filing of the petition resulted from circumstances beyond
the control of the debtor not foreseeable at the time the case
then pending was filed; and
(ii) it is more likely than not that the court will confirm a
feasible plan, but not a liquidating plan, within a reasonable
period of time.
(o) The exercise of rights not subject to the stay arising under
subsection (a) pursuant to paragraph (6), (7), (17), or (27) of
subsection (b) shall not be stayed by any order of a court or
administrative agency in any proceeding under this title.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2570; Pub. L. 97-222, Sec.
3, July 27, 1982, 96 Stat. 235; Pub. L. 98-353, title III, Secs.
304, 363(b), 392, 441, July 10, 1984, 98 Stat. 352, 363, 365, 371;
Pub. L. 99-509, title V, Sec. 5001(a), Oct. 21, 1986, 100 Stat.
1911; Pub. L. 99-554, title II, Secs. 257(j), 283(d), Oct. 27,
1986, 100 Stat. 3115, 3116; Pub. L. 101-311, title I, Sec. 102,
title II, Sec. 202, June 25, 1990, 104 Stat. 267, 269; Pub. L. 101-
508, title III, Sec. 3007(a)(1), Nov. 5, 1990, 104 Stat. 1388-28;
Pub. L. 103-394, title I, Secs. 101, 116, title II, Secs. 204(a),
218(b), title III, Sec. 304(b), title IV, Sec. 401, title V, Sec.
501(b)(2), (d)(7), Oct. 22, 1994, 108 Stat. 4107, 4119, 4122, 4128,
4132, 4141, 4142, 4144; Pub. L. 105-277, div. I, title VI, Sec.
603, Oct. 21, 1998, 112 Stat. 2681-886; Pub. L. 109-8, title I,
Sec. 106(f), title II, Secs. 214, 224(b), title III, Secs. 302,
303, 305(1), 311, 320, title IV, Secs. 401(b), 441, 444, title VII,
Secs. 709, 718, title IX, Sec. 907(d), (o)(1), (2), title XI, Sec.
1106, title XII, Sec. 1225, Apr. 20, 2005, 119 Stat. 41, 54, 64,
75, 77, 79, 84, 94, 104, 114, 117, 127, 131, 176, 181, 182, 192,
199; Pub. L. 109-304, Sec. 17(b)(1), Oct. 6, 2006, 120 Stat. 1706;
Pub. L. 109-390, Sec. 5(a)(2), Dec. 12, 2006, 120 Stat. 2696; Pub.
L. 111-327, Sec. 2(a)(12), Dec. 22, 2010, 124 Stat. 3558.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 362(a)(1) of the House amendment adopts the provision
contained in the Senate amendment enjoining the commencement or
continuation of a judicial, administrative, or other proceeding to
recover a claim against the debtor that arose before the
commencement of the case. The provision is beneficial and interacts
with section 362(a)(6), which also covers assessment, to prevent
harassment of the debtor with respect to pre-petition claims.
Section 362(a)(7) contains a provision contained in H.R. 8200 as
passed by the House. The differing provision in the Senate
amendment was rejected. It is not possible that a debt owing to the
debtor may be offset against an interest in the debtor.
Section 362(a)(8) is new. The provision stays the commencement or
continuation of any proceeding concerning the debtor before the
U.S. Tax Court.
Section 362(b)(4) indicates that the stay under section 362(a)(1)
does not apply to affect the commencement or continuation of an
action or proceeding by a governmental unit to enforce the
governmental unit's police or regulatory power. This section is
intended to be given a narrow construction in order to permit
governmental units to pursue actions to protect the public health
and safety and not to apply to actions by a governmental unit to
protect a pecuniary interest in property of the debtor or property
of the estate.
Section 362(b)(6) of the House amendment adopts a provision
contained in the Senate amendment restricting the exception to the
automatic stay with respect to setoffs to permit only the setoff of
mutual debts and claims. Traditionally, the right of setoff has
been limited to mutual debts and claims and the lack of the
clarifying term "mutual" in H.R. 8200 as passed by the House
created an unintentional ambiguity. Section 362(b)(7) of the House
amendment permits the issuance of a notice of tax deficiency. The
House amendment rejects section 362(b)(7) in the Senate amendment.
It would have permitted a particular governmental unit to obtain a
pecuniary advantage without a hearing on the merits contrary to the
exceptions contained in sections 362(b)(4) and (5).
Section 362(d) of the House amendment represents a compromise
between comparable provisions in the House bill and Senate
amendment. Under section 362(d)(1) of the House amendment, the
court may terminate, annul, modify, or condition the automatic stay
for cause, including lack of adequate protection of an interest in
property of a secured party. It is anticipated that the Rules of
Bankruptcy Procedure will provide that those hearings will receive
priority on the calendar. Under section 362(d)(2) the court may
alternatively terminate, annul, modify, or condition the automatic
stay for cause including inadequate protection for the creditor.
The court shall grant relief from the stay if there is no equity
and it is not necessary to an effective reorganization of the
debtor.
The latter requirement is contained in section 362(d)(2). This
section is intended to solve the problem of real property mortgage
foreclosures of property where the bankruptcy petition is filed on
the eve of foreclosure. The section is not intended to apply if the
business of the debtor is managing or leasing real property, such
as a hotel operation, even though the debtor has no equity if the
property is necessary to an effective reorganization of the debtor.
Similarly, if the debtor does have an equity in the property, there
is no requirement that the property be sold under section 363 of
title 11 as would have been required by the Senate amendment.
Section 362(e) of the House amendment represents a modification
of provisions in H.R. 8200 as passed by the House and the Senate
amendment to make clear that a final hearing must be commenced
within 30 days after a preliminary hearing is held to determine
whether a creditor will be entitled to relief from the automatic
stay. In order to insure that those hearings will in fact occur
within such 30-day period, it is anticipated that the rules of
bankruptcy procedure provide that such final hearings receive
priority on the court calendar.
Section 362(g) places the burden of proof on the issue of the
debtor's equity in collateral on the party requesting relief from
the automatic stay and the burden on other issues on the debtor.
An amendment has been made to section 362(b) to permit the
Secretary of the Department of Housing and Urban Development to
commence an action to foreclose a mortgage or deed of trust. The
commencement of such an action is necessary for tax purposes. The
section is not intended to permit the continuation of such an
action after it is commenced nor is the section to be construed to
entitle the Secretary to take possession in lieu of foreclosure.
Automatic stay: Sections 362(b)(8) and (9) contained in the
Senate amendment are largely deleted in the House amendment. Those
provisions add to the list of actions not stayed (a) jeopardy
assessments, (b) other assessments, and (c) the issuance of
deficiency notices. In the House amendment, jeopardy assessments
against property which ceases to be property of the estate is
already authorized by section 362(c)(1). Other assessments are
specifically stayed under section 362(a)(6), while the issuance of
a deficiency notice is specifically permitted. Stay of the
assessment and the permission to issue a statutory notice of a tax
deficiency will permit the debtor to take his personal tax case to
the Tax Court, if the bankruptcy judge authorizes him to do so (as
explained more fully in the discussion of section 505).
SENATE REPORT NO. 95-989
The automatic stay is one of the fundamental debtor protections
provided by the bankruptcy laws. It gives the debtor a breathing
spell from his creditors. It stops all collection efforts, all
harassment, and all foreclosure actions. It permits the debtor to
attempt a repayment or reorganization plan, or simply to be
relieved of the financial pressures that drove him into bankruptcy.
The action commenced by the party seeking relief from the stay is
referred to as a motion to make it clear that at the expedited
hearing under subsection (e), and at hearings on relief from the
stay, the only issue will be the lack of adequate protection, the
debtor's equity in the property, and the necessity of the property
to an effective reorganization of the debtor, or the existence of
other cause for relief from the stay. This hearing will not be the
appropriate time at which to bring in other issues, such as
counterclaims against the creditor, which, although relevant to the
question of the amount of the debt, concern largely collateral or
unrelated matters. This approach is consistent with that taken in
cases such as In re Essex Properties, Ltd., 430 F.Supp. 1112
(N.D.Cal.1977), that an action seeking relief from the stay is not
the assertion of a claim which would give rise to the right or
obligation to assert counterclaims. Those counterclaims are not to
be handled in the summary fashion that the preliminary hearing
under this provision will be. Rather, they will be the subject of
more complete proceedings by the trustee to recover property of the
estate or to object to the allowance of a claim. However, this
would not preclude the party seeking continuance of the stay from
presenting evidence on the existence of claims which the court may
consider in exercising its discretion. What is precluded is a
determination of such collateral claims on the merits at the
hearing.
HOUSE REPORT NO. 95-595
Paragraph (7) [of subsec. (a)] stays setoffs of mutual debts and
credits between the debtor and creditors. As with all other
paragraphs of subsection (a), this paragraph does not affect the
right of creditors. It simply stays its enforcement pending an
orderly examination of the debtor's and creditors' rights.
Subsection (c) governs automatic termination of the stay.
Subsections (d) through (g) govern termination of the stay by the
court on the request of a party in interest. Subsection (d)
requires the court, on request of a party in interest, to grant
relief from the stay, such as by terminating, annulling, modifying,
or conditioning the stay, for cause. The lack of adequate
protection of an interest in property of the party requesting
relief from the stay is one cause for relief, but is not the only
cause. As noted above, a desire to permit an action to proceed to
completion in another tribunal may provide another cause. Other
causes might include the lack of any connection with or
interference with the pending bankruptcy case. For example, a
divorce or child custody proceeding involving the debtor may bear
no relation to the bankruptcy case. In that case, it should not be
stayed. A probate proceeding in which the debtor is the executor or
administrator of another's estate usually will not be related to
the bankruptcy case, and should not be stayed. Generally,
proceedings in which the debtor is a fiduciary, or involving
postpetition activities of the debtor, need not be stayed because
they bear no relationship to the purpose of the automatic stay,
which is debtor protection from his creditors. The facts of each
request will determine whether relief is appropriate under the
circumstances.
Subsection (e) provides a protection for secured creditors that
is not available under present law. The subsection sets a time
certain within which the bankruptcy court must rule on the adequacy
of protection provided of the secured creditor's interest. If the
court does not rule within 30 days from a request for relief from
the stay, the stay is automatically terminated with respect to the
property in question. In order to accommodate more complex cases,
the subsection permits the court to make a preliminary ruling after
a preliminary hearing. After a preliminary hearing, the court may
continue the stay only if there is a reasonable likelihood that the
party opposing relief from the stay will prevail at the final
hearing. Because the stay is essentially an injunction, the three
stages of the stay may be analogized to the three stages of an
injunction. The filing of the petition which gives rise to the
automatic stay is similar to a temporary restraining order. The
preliminary hearing is similar to the hearing on a preliminary
injunction, and the final hearing and order is similar to a
permanent injunction. The main difference lies in which party must
bring the issue before the court. While in the injunction setting,
the party seeking the injunction must prosecute the action, in
proceedings for relief from the automatic stay, the enjoined party
must move. The difference does not, however, shift the burden of
proof. Subsection (g) leaves that burden on the party opposing
relief from the stay (that is, on the party seeking continuance of
the injunction) on the issue of adequate protection.
At the expedited hearing under subsection (e), and at all
hearings on relief from the stay, the only issue will be the claim
of the creditor and the lack of adequate protection or existence of
other cause for relief from the stay. This hearing will not be the
appropriate time at which to bring in other issues, such as
counterclaims against the creditor on largely unrelated matters.
Those counterclaims are not to be handled in the summary fashion
that the preliminary hearing under this provision will be. Rather,
they will be the subject of more complete proceedings by the
trustees to recover property of the estate or to object to the
allowance of a claim.
-REFTEXT-
REFERENCES IN TEXT
Section 5(a)(3) of the Securities Investor Protection Act of
1970, referred to in subsecs. (a) and (b), is classified to section
78eee(a)(3) of Title 15, Commerce and Trade.
The Social Security Act, referred to in subsec. (b)(2)(D) to (G),
(28), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended.
Titles IV, XI, and XVIII of the Act are classified generally to
subchapters IV (Sec. 601 et seq.), XI (Sec. 1301 et seq.), and
XVIII (Sec. 1395 et seq.), respectively, of chapter 7 of Title 42,
The Public Health and Welfare. Sections 464, 466, and 1128B of the
Act are classified to sections 664, 666, and 1320a-7b,
respectively, of Title 42. For complete classification of this Act
to the Code, see section 1305 of Title 42 and Tables.
The National Housing Act, referred in subsec. (b)(8), is act June
27, 1934, ch. 847, 48 Stat. 1246, as amended, which is classified
principally to chapter 13 (Sec. 1701 et seq.) of Title 12, Banks
and Banking. For complete classification of this Act to the Code,
see section 1701 of Title 12 and Tables.
The Higher Education Act of 1965, referred to in subsec. (b)(16),
is Pub. L. 89-329, Nov. 8, 1965, 79 Stat. 1219, which is classified
generally to chapter 28 (Sec. 1001 et seq.) of Title 20, Education,
and part C (Sec. 2751 et seq.) of subchapter I of chapter 34 of
Title 42, The Public Health and Welfare. Section 435(j) of the Act
is classified to section 1085(j) of Title 20. For complete
classification of this Act to the Code, see Short Title note set
out under section 1001 of Title 20 and Tables.
The Internal Revenue Code of 1986, referred to in subsec.
(b)(19), is classified generally to Title 26, Internal Revenue
Code.
Section 408(b)(1) of the Employee Retirement Income Security Act
of 1974, referred to in subsec. (b)(19)(A), is classified to
section 1108(b)(1) of Title 29, Labor.
-MISC2-
AMENDMENTS
2010 - Subsec. (a)(8). Pub. L. 111-327, Sec. 2(a)(12)(A),
substituted "tax liability of a debtor that is a corporation" for
"corporate debtor's tax liability".
Subsec. (c)(3). Pub. L. 111-327, Sec. 2(a)(12)(B)(i), inserted
"a" after "against" in introductory provisions.
Subsec. (c)(4)(A)(i). Pub. L. 111-327, Sec. 2(a)(12)(B)(ii),
inserted "under a chapter other than chapter 7 after dismissal"
after "refiled".
Subsec. (d)(4). Pub. L. 111-327, Sec. 2(a)(12)(C), substituted
"hinder, or" for "hinder, and" in introductory provisions.
Subsec. (l)(2). Pub. L. 111-327, Sec. 2(a)(12)(D), substituted
"nonbankruptcy" for "nonbankrupcty".
2006 - Subsec. (b)(6), (7). Pub. L. 109-390, Sec. 5(a)(2)(A),
added pars. (6) and (7) and struck out former pars. (6) and (7)
which read as follows:
"(6) under subsection (a) of this section, of the setoff by a
commodity broker, forward contract merchant, stockbroker, financial
institution, financial participant, or securities clearing agency
of any mutual debt and claim under or in connection with commodity
contracts, as defined in section 761 of this title, forward
contracts, or securities contracts, as defined in section 741 of
this title, that constitutes the setoff of a claim against the
debtor for a margin payment, as defined in section 101, 741, or 761
of this title, or settlement payment, as defined in section 101 or
741 of this title, arising out of commodity contracts, forward
contracts, or securities contracts against cash, securities, or
other property held by, pledged to, under the control of, or due
from such commodity broker, forward contract merchant, stockbroker,
financial institution, financial participant, or securities
clearing agency to margin, guarantee, secure, or settle commodity
contracts, forward contracts, or securities contracts;
"(7) under subsection (a) of this section, of the setoff by a
repo participant or financial participant, of any mutual debt and
claim under or in connection with repurchase agreements that
constitutes the setoff of a claim against the debtor for a margin
payment, as defined in section 741 or 761 of this title, or
settlement payment, as defined in section 741 of this title,
arising out of repurchase agreements against cash, securities, or
other property held by, pledged to, under the control of, or due
from such repo participant or financial participant to margin,
guarantee, secure or settle repurchase agreements;".
Subsec. (b)(12). Pub. L. 109-304, Sec. 17(b)(1)(A), substituted
"chapter 537 of title 46 or section 109(h) of title 49" for
"section 207 or title XI of the Merchant Marine Act, 1936".
Subsec. (b)(13). Pub. L. 109-304, Sec. 17(b)(1)(B), substituted
"chapter 537 of title 46" for "section 207 or title XI of the
Merchant Marine Act, 1936".
Subsec. (b)(17). Pub. L. 109-390, Sec. 5(a)(2)(B), added par.
(17) and struck out former par. (17) which read as follows: "under
subsection (a), of the setoff by a swap participant or financial
participant of a mutual debt and claim under or in connection with
one or more swap agreements that constitutes the setoff of a claim
against the debtor for any payment or other transfer of property
due from the debtor under or in connection with any swap agreement
against any payment due to the debtor from the swap participant or
financial participant under or in connection with any swap
agreement or against cash, securities, or other property held by,
pledged to, under the control of, or due from such swap participant
or financial participant to margin, guarantee, secure, or settle
any swap agreement;".
Subsec. (b)(27). Pub. L. 109-390, Sec. 5(a)(2)(C), added par.
(27) and struck out former par. (27) which read as follows: "under
subsection (a), of the setoff by a master netting agreement
participant of a mutual debt and claim under or in connection with
one or more master netting agreements or any contract or agreement
subject to such agreements that constitutes the setoff of a claim
against the debtor for any payment or other transfer of property
due from the debtor under or in connection with such agreements or
any contract or agreement subject to such agreements against any
payment due to the debtor from such master netting agreement
participant under or in connection with such agreements or any
contract or agreement subject to such agreements or against cash,
securities, or other property held by, pledged to, under the
control of, or due from such master netting agreement participant
to margin, guarantee, secure, or settle such agreements or any
contract or agreement subject to such agreements, to the extent
that such participant is eligible to exercise such offset rights
under paragraph (6), (7), or (17) for each individual contract
covered by the master netting agreement in issue; and".
2005 - Subsec. (a)(8). Pub. L. 109-8, Sec. 709, substituted "a
corporate debtor's tax liability for a taxable period the
bankruptcy court may determine or concerning the tax liability of a
debtor who is an individual for a taxable period ending before the
date of the order for relief under this title" for "the debtor".
Subsec. (b)(2). Pub. L. 109-8, Sec. 214, added par. (2) and
struck out former par. (2) which read as follows: "under subsection
(a) of this section -
"(A) of the commencement or continuation of an action or
proceeding for -
"(i) the establishment of paternity; or
"(ii) the establishment or modification of an order for
alimony, maintenance, or support; or
"(B) of the collection of alimony, maintenance, or support from
property that is not property of the estate;".
Subsec. (b)(6). Pub. L. 109-8, Sec. 907(d)(1)(A), (o)(1),
substituted "financial institution, financial participant," for
"financial institutions," in two places and inserted ", pledged to,
under the control of," after "held by".
Subsec. (b)(7). Pub. L. 109-8, Sec. 907(d)(1)(B), (o)(2),
inserted "or financial participant" after "repo participant" in two
places and ", pledged to, under the control of," after "held by".
Subsec. (b)(17). Pub. L. 109-8, Sec. 907(d)(1)(C), added par.
(17) and struck out former par. (17) which read as follows: "under
subsection (a) of this section, of the setoff by a swap
participant, of any mutual debt and claim under or in connection
with any swap agreement that constitutes the setoff of a claim
against the debtor for any payment due from the debtor under or in
connection with any swap agreement against any payment due to the
debtor from the swap participant under or in connection with any
swap agreement or against cash, securities, or other property of
the debtor held by or due from such swap participant to guarantee,
secure or settle any swap agreement;".
Subsec. (b)(18). Pub. L. 109-8, Sec. 1225, amended par. (18)
generally. Prior to amendment, par. (18) read as follows: "under
subsection (a) of the creation or perfection of a statutory lien
for an ad valorem property tax imposed by the District of Columbia,
or a political subdivision of a State, if such tax comes due after
the filing of the petition;".
Subsec. (b)(19). Pub. L. 109-8, Sec. 224(b), added par. (19).
Subsec. (b)(20), (21). Pub. L. 109-8, Sec. 303(b), added pars.
(20) and (21).
Subsec. (b)(22) to (24). Pub. L. 109-8, Sec. 311(a), added pars.
(22) to (24).
Subsec. (b)(25). Pub. L. 109-8, Sec. 401(b), added par. (25).
Subsec. (b)(26). Pub. L. 109-8, Sec. 718, added par. (26).
Subsec. (b)(27). Pub. L. 109-8, Sec. 907(d)(1)(D), added par.
(27).
Subsec. (b)(28). Pub. L. 109-8, Sec. 1106, added par. (28).
Subsec. (c). Pub. L. 109-8, Sec. 305(1)(A), substituted "(e),
(f), and (h)" for "(e), and (f)" in introductory provisions.
Subsec. (c)(3), (4). Pub. L. 109-8, Sec. 302, added pars. (3) and
(4).
Subsec. (d). Pub. L. 109-8, Sec. 303(a), added par. (4) and
concluding provisions.
Subsec. (d)(3). Pub. L. 109-8, Sec. 444(1), inserted "or 30 days
after the court determines that the debtor is subject to this
paragraph, whichever is later" after "90-day period)" in
introductory provisions.
Subsec. (d)(3)(B). Pub. L. 109-8, Sec. 444(2), added subpar. (B)
and struck out former subpar. (B) which read as follows: "the
debtor has commenced monthly payments to each creditor whose claim
is secured by such real estate (other than a claim secured by a
judgment lien or by an unmatured statutory lien), which payments
are in an amount equal to interest at a current fair market rate on
the value of the creditor's interest in the real estate; or".
Subsec. (e). Pub. L. 109-8, Sec. 320, designated existing
provisions as par. (1) and added par. (2).
Subsec. (h). Pub. L. 109-8, Sec. 305(1)(C), added subsec. (h).
Former subsec. (h) redesignated (k).
Subsecs. (i), (j). Pub. L. 109-8, Sec. 106(f), added subsecs. (i)
and (j).
Subsec. (k). Pub. L. 109-8, Sec. 441(1), designated existing
provisions as par. (1), substituted "Except as provided in
paragraph (2), an" for "An", and added par. (2).
Pub. L. 109-8, Sec. 305(1)(B), redesignated subsec. (h) as (k).
Subsecs. (l), (m). Pub. L. 109-8, Sec. 311(b), added subsecs. (l)
and (m).
Subsec. (n). Pub. L. 109-8, Sec. 441(2), added subsec. (n).
Subsec. (o). Pub. L. 109-8, Sec. 907(d)(2), added subsec. (o).
1998 - Subsec. (b)(4), (5). Pub. L. 105-277 added par. (4) and
struck out former pars. (4) and (5) which read as follows:
"(4) under subsection (a)(1) of this section, of the commencement
or continuation of an action or proceeding by a governmental unit
to enforce such governmental unit's police or regulatory power;
"(5) under subsection (a)(2) of this section, of the enforcement
of a judgment, other than a money judgment, obtained in an action
or proceeding by a governmental unit to enforce such governmental
unit's police or regulatory power;".
1994 - Subsecs. (a), (b). Pub. L. 103-394, Sec. 501(d)(7)(A),
(B)(i), struck out "(15 U.S.C. 78eee(a)(3))" after "Act of 1970" in
introductory provisions.
Subsec. (b)(2). Pub. L. 103-394, Sec. 304(b), amended par. (2)
generally. Prior to amendment, par. (2) read as follows: "under
subsection (a) of this section, of the collection of alimony,
maintenance, or support from property that is not property of the
estate;".
Subsec. (b)(3). Pub. L. 103-394, Sec. 204(a), inserted ", or to
maintain or continue the perfection of," after "to perfect".
Subsec. (b)(6). Pub. L. 103-394, Sec. 501(b)(2)(A), substituted
"section 761" for "section 761(4)", "section 741" for "section
741(7)", "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. (b)(7). Pub. L. 103-394, Sec. 501(b)(2)(B), substituted
"section 741 or 761" for "section 741(5) or 761(15)" and "section
741" for "section 741(8)".
Subsec. (b)(9). Pub. L. 103-394, Sec. 116, amended par. (9)
generally. Prior to amendment, par. (9) read as follows: "under
subsection (a) of this section, of the issuance to the debtor by a
governmental unit of a notice of tax deficiency;".
Subsec. (b)(10). Pub. L. 103-394, Sec. 501(d)(7)(B)(ii), struck
out "or" at end.
Subsec. (b)(12). Pub. L. 103-394, Sec. 501(d)(7)(B)(iii),
substituted "section 31325 of title 46" for "the Ship Mortgage Act,
1920 (46 App. U.S.C. 911 et seq.)" and struck out "(46 App. U.S.C.
1117 and 1271 et seq., respectively)" after "Act, 1936".
Subsec. (b)(13). Pub. L. 103-394, Sec. 501(d)(7)(B)(iv),
substituted "section 31325 of title 46" for "the Ship Mortgage Act,
1920 (46 App. U.S.C. 911 et seq.)" and struck out "(46 App. U.S.C.
1117 and 1271 et seq., respectively)" after "Act, 1936" and "or" at
end.
Subsec. (b)(14). Pub. L. 103-394, Sec. 501(d)(7)(B)(vii), amended
par. (14) relating to the setoff by a swap participant of any
mutual debt and claim under or in connection with a swap agreement
by substituting "; or" for period at end, redesignating par. (14)
as (17), and inserting it after par. (16).
Subsec. (b)(15). Pub. L. 103-394, Sec. 501(d)(7)(B)(v), struck
out "or" at end.
Subsec. (b)(16). Pub. L. 103-394, Sec. 501(d)(7)(B)(vi), struck
out "(20 U.S.C. 1001 et seq.)" after "Act of 1965" and substituted
semicolon for period at end.
Subsec. (b)(17). Pub. L. 103-394, Sec. 501(d)(7)(B)(vii)(II),
(III), redesignated par. (14) relating to the setoff by a swap
participant of any mutual debt and claim under or in connection
with a swap agreement as (17) and inserted it after par. (16).
Subsec. (b)(18). Pub. L. 103-394, Sec. 401, added par. (18).
Subsec. (d)(3). Pub. L. 103-394, Sec. 218(b), added par. (3).
Subsec. (e). Pub. L. 103-394, Sec. 101, in last sentence
substituted "concluded" for "commenced" and inserted before period
at end ", unless the 30-day period is extended with the consent of
the parties in interest or for a specific time which the court
finds is required by compelling circumstances".
1990 - Subsec. (b)(6). Pub. L. 101-311, Sec. 202, inserted
reference to sections 101(34) and 101(35) of this title.
Subsec. (b)(12). Pub. L. 101-508, Sec. 3007(a)(1)(A), which
directed the striking of "or" after "State law;", could not be
executed because of a prior amendment by Pub. L. 101-311. See
below.
Pub. L. 101-311, Sec. 102(1), struck out "or" after "State law;".
Subsec. (b)(13). Pub. L. 101-508, Sec. 3007(a)(1)(B), which
directed the substitution of a semicolon for period at end, could
not be executed because of a prior amendment by Pub. L. 101-311.
See below.
Pub. L. 101-311, Sec. 102(2), substituted "; or" for period at
end.
Subsec. (b)(14) to (16). Pub. L. 101-508, Sec. 3007(a)(1)(C),
added pars. (14) to (16). Notwithstanding directory language adding
pars. (14) to (16) immediately following par. (13), pars. (14) to
(16) were added after par. (14), as added by Pub. L. 101-311, to
reflect the probable intent of Congress.
Pub. L. 101-311, Sec. 102(3), added par. (14) relating to the
setoff by a swap participant of any mutual debt and claim under or
in connection with a swap agreement. Notwithstanding directory
language adding par. (14) at end of subsec. (b), par. (14) was
added after par. (13) to reflect the probable intent of Congress.
1986 - Subsec. (b). Pub. L. 99-509 inserted sentence at end.
Subsec. (b)(6). Pub. L. 99-554, Sec. 283(d)(1), substituted ",
financial institutions" for "financial institution," in two places.
Subsec. (b)(9). Pub. L. 99-554, Sec. 283(d)(2), (3), struck out
"or" at end of first par. (9) and redesignated as par. (10) the
second par. (9) relating to leases of nonresidential property,
which was added by section 363(b) of Pub. L. 98-353.
Subsec. (b)(10). Pub. L. 99-554, Sec. 283(d)(3), (4),
redesignated as par. (10) the second par. (9) relating to leases of
nonresidential property, added by section 363(b) of Pub. L. 99-353,
and substituted "property; or" for "property.". Former par. (10)
redesignated (11).
Subsec. (b)(11). Pub. L. 99-554, Sec. 283(d)(3), redesignated
former par. (10) as (11).
Subsec. (b)(12), (13). Pub. L. 99-509 added pars. (12) and (13).
Subsec. (c)(2)(C). Pub. L. 99-554, Sec. 257(j), inserted
reference to chapter 12 of this title.
1984 - Subsec. (a)(1). Pub. L. 98-353, Sec. 441(a)(1), inserted
"action or" after "other".
Subsec. (a)(3). Pub. L. 98-353, Sec. 441(a)(2), inserted "or to
exercise control over property of the estate".
Subsec. (b)(3). Pub. L. 98-353, Sec. 441(b)(1), inserted "or to
the extent that such act is accomplished within the period provided
under section 547(e)(2)(A) of this title".
Subsec. (b)(6). Pub. L. 98-353, Sec. 441(b)(2), inserted "or due
from" after "held by" and "financial institution," after
"stockbroker" in two places, and substituted "secure, or settle
commodity contracts" for "or secure commodity contracts".
Subsec. (b)(7) to (9). Pub. L. 98-353, Sec. 441(b)(3), (4), in
par. (8) as redesignated by Pub. L. 98-353, Sec. 392, substituted
"the" for "said" and struck out "or" the last place it appeared
which probably meant "or" after "units;" that was struck out by
Pub. L. 98-353, Sec. 363(b)(1); and, in par. (9), relating to
notices of deficiencies, as redesignated by Pub. L. 98-353, Sec.
392, substituted a semicolon for the period.
Pub. L. 98-353, Sec. 392, added par. (7) and redesignated former
pars. (7) and (8) as (8) and (9), respectively.
Pub. L. 98-353, Sec. 363(b), struck out "or" at end of par. (7),
substituted "; or" for the period at end of par. (8), and added
par. (9) relating to leases of nonresidential property.
Subsec. (b)(10). Pub. L. 98-353, Sec. 441(b)(5), added par. (10).
Subsec. (c)(2)(B). Pub. L. 98-353, Sec. 441(c), substituted "or"
for "and".
Subsec. (d)(2). Pub. L. 98-353, Sec. 441(d), inserted "under
subsection (a) of this section" after "property".
Subsec. (e). Pub. L. 98-353, Sec. 441(e), inserted "the
conclusion of" after "pending" and substituted "The court shall
order such stay continued in effect pending the conclusion of the
final hearing under subsection (d) of this section if there is a
reasonable likelihood that the party opposing relief from such stay
will prevail at the conclusion of such final hearing. If the
hearing under this subsection is a preliminary hearing, then such
final hearing shall be commenced not later than thirty days after
the conclusion of such preliminary hearing." for "If the hearing
under this subsection is a preliminary hearing -
"(1) the court shall order such stay so continued if there is a
reasonable likelihood that the party opposing relief from such
stay will prevail at the final hearing under subsection (d) of
this section; and
"(2) such final hearing shall be commenced within thirty days
after such preliminary hearing."
Subsec. (f). Pub. L. 98-353, Sec. 441(f), substituted "Upon
request of a party in interest, the court, with or" for "The
court,".
Subsec. (h). Pub. L. 98-353, Sec. 304, added subsec. (h).
1982 - Subsec. (a). Pub. L. 97-222, Sec. 3(a), inserted ", or an
application filed under section 5(a)(3) of the Securities Investor
Protection Act of 1970 (15 U.S.C. 78eee(a)(3))," after "this title"
in provisions preceding par. (1).
Subsec. (b). Pub. L. 97-222, Sec. 3(b), inserted ", or of an
application under section 5(a)(3) of the Securities Investor
Protection Act of 1970 (15 U.S.C. 78eee(a)(3))," after "this title"
in provisions preceding par. (1).
Subsec. (b)(6). Pub. L. 97-222, Sec. 3(c), substituted provisions
that the filing of a bankruptcy petition would not operate as a
stay, under subsec. (a) of this section, of the setoff by a
commodity broker, forward contract merchant, stockbroker, or
securities clearing agency of any mutual debt and claim under or in
connection with commodity, forward, or securities contracts that
constitutes the setoff of a claim against the debtor for a margin
or settlement payment arising out of commodity, forward, or
securities contracts against cash, securities, or other property
held by any of the above agents to margin, guarantee, or secure
commodity, forward, or securities contracts, for provisions that
such filing would not operate as a stay under subsection (a)(7) of
this section, of the setoff of any mutual debt and claim that are
commodity futures contracts, forward commodity contracts, leverage
transactions, options, warrants, rights to purchase or sell
commodity futures contracts or securities, or options to purchase
or sell commodities or securities.
EFFECTIVE DATE OF 2006 AMENDMENT
Amendment by Pub. L. 109-390 not applicable to any cases
commenced under this title or to appointments made under any
Federal or State law, before Dec. 12, 2006, see section 7 of Pub.
L. 109-390, set out as a note under section 101 of this title.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
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.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 3007(a)(3) of Pub. L. 101-508 provided that: "The
amendments made by this subsection [amending this section and
section 541 of this title] shall be effective upon date of
enactment of this Act [Nov. 5, 1990]."
Section 3008 of Pub. L. 101-508, provided that the amendments
made by subtitle A (Secs. 3001-3008) of title III of Pub. L. 101-
508, amending this section, sections 541 and 1328 of this title,
and sections 1078, 1078-1, 1078-7, 1085, 1088, and 1091 of Title
20, Education, and provisions set out as a note under section 1078-
1 of Title 20, were to cease to be effective Oct. 1, 1996, prior
to repeal by Pub. L. 102-325, title XV, Sec. 1558, July 23, 1992,
106 Stat. 841.
EFFECTIVE DATE OF 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.
Section 5001(b) of Pub. L. 99-509 provided that: "The amendments
made by subsection (a) of this section [amending this section]
shall apply only to petitions filed under section 362 of title 11,
United States Code, which are made after August 1, 1986."
EFFECTIVE DATE OF 1984 AMENDMENT
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.
REPORT TO CONGRESSIONAL COMMITTEES
Section 5001(a) of Pub. L. 99-509 directed Secretary of
Transportation and Secretary of Commerce, before July 1, 1989, to
submit reports to Congress on the effects of amendments to 11
U.S.C. 362 by this subsection.
-End-
-CITE-
11 USC Sec. 363 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-HEAD-
Sec. 363. Use, sale, or lease of property
-STATUTE-
(a) In this section, "cash collateral" means cash, negotiable
instruments, documents of title, securities, deposit accounts, or
other cash equivalents whenever acquired in which the estate and an
entity other than the estate have an interest and includes the
proceeds, products, offspring, rents, or profits of property and
the fees, charges, accounts or other payments for the use or
occupancy of rooms and other public facilities in hotels, motels,
or other lodging properties subject to a security interest as
provided in section 552(b) of this title, whether existing before
or after the commencement of a case under this title.
(b)(1) The trustee, after notice and a hearing, may use, sell, or
lease, other than in the ordinary course of business, property of
the estate, except that if the debtor in connection with offering a
product or a service discloses to an individual a policy
prohibiting the transfer of personally identifiable information
about individuals to persons that are not affiliated with the
debtor and if such policy is in effect on the date of the
commencement of the case, then the trustee may not sell or lease
personally identifiable information to any person unless -
(A) such sale or such lease is consistent with such policy; or
(B) after appointment of a consumer privacy ombudsman in
accordance with section 332, and after notice and a hearing, the
court approves such sale or such lease -
(i) giving due consideration to the facts, circumstances, and
conditions of such sale or such lease; and
(ii) finding that no showing was made that such sale or such
lease would violate applicable nonbankruptcy law.
(2) If notification is required under subsection (a) of section
7A of the Clayton Act in the case of a transaction under this
subsection, then -
(A) notwithstanding subsection (a) of such section, the
notification required by such subsection to be given by the
debtor shall be given by the trustee; and
(B) notwithstanding subsection (b) of such section, the
required waiting period shall end on the 15th day after the date
of the receipt, by the Federal Trade Commission and the Assistant
Attorney General in charge of the Antitrust Division of the
Department of Justice, of the notification required under such
subsection (a), unless such waiting period is extended -
(i) pursuant to subsection (e)(2) of such section, in the
same manner as such subsection (e)(2) applies to a cash tender
offer;
(ii) pursuant to subsection (g)(2) of such section; or
(iii) by the court after notice and a hearing.
(c)(1) If the business of the debtor is authorized to be operated
under section 721, 1108, 1203, 1204, or 1304 of this title and
unless the court orders otherwise, the trustee may enter into
transactions, including the sale or lease of property of the
estate, in the ordinary course of business, without notice or a
hearing, and may use property of the estate in the ordinary course
of business without notice or a hearing.
(2) The trustee may not use, sell, or lease cash collateral under
paragraph (1) of this subsection unless -
(A) each entity that has an interest in such cash collateral
consents; or
(B) the court, after notice and a hearing, authorizes such use,
sale, or lease in accordance with the provisions of this section.
(3) Any hearing under paragraph (2)(B) of this subsection may be
a preliminary hearing or may be consolidated with a hearing under
subsection (e) of this section, but shall be scheduled in
accordance with the needs of the debtor. If the hearing under
paragraph (2)(B) of this subsection is a preliminary hearing, the
court may authorize such use, sale, or lease only if there is a
reasonable likelihood that the trustee will prevail at the final
hearing under subsection (e) of this section. The court shall act
promptly on any request for authorization under paragraph (2)(B) of
this subsection.
(4) Except as provided in paragraph (2) of this subsection, the
trustee shall segregate and account for any cash collateral in the
trustee's possession, custody, or control.
(d) The trustee may use, sell, or lease property under subsection
(b) or (c) of this section -
(1) in the case of a debtor that is a corporation or trust that
is not a moneyed business, commercial corporation, or trust, only
in accordance with nonbankruptcy law applicable to the transfer
of property by a debtor that is such a corporation or trust; and
(2) only to the extent not inconsistent with any relief granted
under subsection (c), (d), (e), or (f) of section 362.
(e) Notwithstanding any other provision of this section, at any
time, on request of an entity that has an interest in property
used, sold, or leased, or proposed to be used, sold, or leased, by
the trustee, the court, with or without a hearing, shall prohibit
or condition such use, sale, or lease as is necessary to provide
adequate protection of such interest. This subsection also applies
to property that is subject to any unexpired lease of personal
property (to the exclusion of such property being subject to an
order to grant relief from the stay under section 362).
(f) The trustee may sell property under subsection (b) or (c) of
this section free and clear of any interest in such property of an
entity other than the estate, only if -
(1) applicable nonbankruptcy law permits sale of such property
free and clear of such interest;
(2) such entity consents;
(3) such interest is a lien and the price at which such
property is to be sold is greater than the aggregate value of all
liens on such property;
(4) such interest is in bona fide dispute; or
(5) such entity could be compelled, in a legal or equitable
proceeding, to accept a money satisfaction of such interest.
(g) Notwithstanding subsection (f) of this section, the trustee
may sell property under subsection (b) or (c) of this section free
and clear of any vested or contingent right in the nature of dower
or curtesy.
(h) Notwithstanding subsection (f) of this section, the trustee
may sell both the estate's interest, under subsection (b) or (c) of
this section, and the interest of any co-owner in property in which
the debtor had, at the time of the commencement of the case, an
undivided interest as a tenant in common, joint tenant, or tenant
by the entirety, only if -
(1) partition in kind of such property among the estate and
such co-owners is impracticable;
(2) sale of the estate's undivided interest in such property
would realize significantly less for the estate than sale of such
property free of the interests of such co-owners;
(3) the benefit to the estate of a sale of such property free
of the interests of co-owners outweighs the detriment, if any, to
such co-owners; and
(4) such property is not used in the production, transmission,
or distribution, for sale, of electric energy or of natural or
synthetic gas for heat, light, or power.
(i) Before the consummation of a sale of property to which
subsection (g) or (h) of this section applies, or of property of
the estate that was community property of the debtor and the
debtor's spouse immediately before the commencement of the case,
the debtor's spouse, or a co-owner of such property, as the case
may be, may purchase such property at the price at which such sale
is to be consummated.
(j) After a sale of property to which subsection (g) or (h) of
this section applies, the trustee shall distribute to the debtor's
spouse or the co-owners of such property, as the case may be, and
to the estate, the proceeds of such sale, less the costs and
expenses, not including any compensation of the trustee, of such
sale, according to the interests of such spouse or co-owners, and
of the estate.
(k) At a sale under subsection (b) of this section of property
that is subject to a lien that secures an allowed claim, unless the
court for cause orders otherwise the holder of such claim may bid
at such sale, and, if the holder of such claim purchases such
property, such holder may offset such claim against the purchase
price of such property.
(l) Subject to the provisions of section 365, the trustee may
use, sell, or lease property under subsection (b) or (c) of this
section, or a plan under chapter 11, 12, or 13 of this title may
provide for the use, sale, or lease of property, notwithstanding
any provision in a contract, a lease, or applicable law that is
conditioned on the insolvency or financial condition of the debtor,
on the commencement of a case under this title concerning the
debtor, or on the appointment of or the taking possession by a
trustee in a case under this title or a custodian, and that
effects, or gives an option to effect, a forfeiture, modification,
or termination of the debtor's interest in such property.
(m) The reversal or modification on appeal of an authorization
under subsection (b) or (c) of this section of a sale or lease of
property does not affect the validity of a sale or lease under such
authorization to an entity that purchased or leased such property
in good faith, whether or not such entity knew of the pendency of
the appeal, unless such authorization and such sale or lease were
stayed pending appeal.
(n) The trustee may avoid a sale under this section if the sale
price was controlled by an agreement among potential bidders at
such sale, or may recover from a party to such agreement any amount
by which the value of the property sold exceeds the price at which
such sale was consummated, and may recover any costs, attorneys'
fees, or expenses incurred in avoiding such sale or recovering such
amount. In addition to any recovery under the preceding sentence,
the court may grant judgment for punitive damages in favor of the
estate and against any such party that entered into such an
agreement in willful disregard of this subsection.
(o) Notwithstanding subsection (f), if a person purchases any
interest in a consumer credit transaction that is subject to the
Truth in Lending Act or any interest in a consumer credit contract
(as defined in section 433.1 of title 16 of the Code of Federal
Regulations (January 1, 2004), as amended from time to time), and
if such interest is purchased through a sale under this section,
then such person shall remain subject to all claims and defenses
that are related to such consumer credit transaction or such
consumer credit contract, to the same extent as such person would
be subject to such claims and defenses of the consumer had such
interest been purchased at a sale not under this section.
(p) In any hearing under this section -
(1) the trustee has the burden of proof on the issue of
adequate protection; and
(2) the entity asserting an interest in property has the burden
of proof on the issue of the validity, priority, or extent of
such interest.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2572; Pub. L. 98-353, title
III, Sec. 442, July 10, 1984, 98 Stat. 371; Pub. L. 99-554, title
II, Sec. 257(k), Oct. 27, 1986, 100 Stat. 3115; Pub. L. 103-394,
title I, Sec. 109, title II, Secs. 214(b), 219(c), title V, Sec.
501(d)(8), Oct. 22, 1994, 108 Stat. 4113, 4126, 4129, 4144; Pub. L.
109-8, title II, Secs. 204, 231(a), title XII, Sec. 1221(a), Apr.
20, 2005, 119 Stat. 49, 72, 195; Pub. L. 111-327, Sec. 2(a)(13),
Dec. 22, 2010, 124 Stat. 3559.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 363(a) of the House amendment defines "cash collateral"
as defined in the Senate amendment. The broader definition of "soft
collateral" contained in H.R. 8200 as passed by the House is
deleted to remove limitations that were placed on the use, lease,
or sale of inventory, accounts, contract rights, general
intangibles, and chattel paper by the trustee or debtor in
possession.
Section 363(c)(2) of the House amendment is derived from the
Senate amendment. Similarly, sections 363(c)(3) and (4) are derived
from comparable provisions in the Senate amendment in lieu of the
contrary procedure contained in section 363(c) as passed by the
House. The policy of the House amendment will generally require the
court to schedule a preliminary hearing in accordance with the
needs of the debtor to authorize the trustee or debtor in
possession to use, sell, or lease cash collateral. The trustee or
debtor in possession may use, sell, or lease cash collateral in the
ordinary course of business only "after notice and a hearing."
Section 363(f) of the House amendment adopts an identical
provision contained in the House bill, as opposed to an alternative
provision contained in the Senate amendment.
Section 363(h) of the House amendment adopts a new paragraph (4)
representing a compromise between the House bill and Senate
amendment. The provision adds a limitation indicating that a
trustee or debtor in possession sell jointly owned property only if
the property is not used in the production, transmission, or
distribution for sale, of electric energy or of natural or
synthetic gas for heat, light, or power. This limitation is
intended to protect public utilities from being deprived of power
sources because of the bankruptcy of a joint owner.
Section 363(k) of the House amendment is derived from the third
sentence of section 363(e) of the Senate amendment. The provision
indicates that a secured creditor may bid in the full amount of the
creditor's allowed claim, including the secured portion and any
unsecured portion thereof in the event the creditor is
undersecured, with respect to property that is subject to a lien
that secures the allowed claim of the sale of the property.
SENATE REPORT NO. 95-989
This section defines the right and powers of the trustee with
respect to the use, sale or lease of property and the rights of
other parties that have interests in the property involved. It
applies in both liquidation and reorganization cases.
Subsection (a) defines "cash collateral" as cash, negotiable
instruments, documents of title, securities, deposit accounts, or
other cash equivalents in which the estate and an entity other than
the estate have an interest, such as a lien or a co-ownership
interest. The definition is not restricted to property of the
estate that is cash collateral on the date of the filing of the
petition. Thus, if "non-cash" collateral is disposed of and the
proceeds come within the definition of "cash collateral" as set
forth in this subsection, the proceeds would be cash collateral as
long as they remain subject to the original lien on the "non-cash"
collateral under section 552(b). To illustrate, rents received from
real property before or after the commencement of the case would be
cash collateral to the extent that they are subject to a lien.
Subsection (b) permits the trustees to use, sell, or lease, other
than in the ordinary course of business, property of the estate
upon notice and opportunity for objections and hearing thereon.
Subsection (c) governs use, sale, or lease in the ordinary course
of business. If the business of the debtor is authorized to be
operated under Sec. 721, 1108, or 1304 of the bankruptcy code, then
the trustee may use, sell, or lease property in the ordinary course
of business or enter into ordinary course transactions without need
for notice and hearing. This power is subject to several
limitations. First, the court may restrict the trustee's powers in
the order authorizing operation of the business. Second, with
respect to cash collateral, the trustee may not use, sell, or lease
cash collateral except upon court authorization after notice and a
hearing, or with the consent of each entity that has an interest in
such cash collateral. The same preliminary hearing procedure in the
automatic stay section applies to a hearing under this subsection.
In addition, the trustee is required to segregate and account for
any cash collateral in the trustee's possession, custody, or
control.
Under subsections (d) and (e), the use, sale, or lease of
property is further limited by the concept of adequate protection.
Sale, use, or lease of property in which an entity other than the
estate has an interest may be effected only to the extent not
inconsistent with any relief from the stay granted to that
interest's holder. Moreover, the court may prohibit or condition
the use, sale, or lease as is necessary to provide adequate
protection of that interest. Again, the trustee has the burden of
proof on the issue of adequate protection. Subsection (e) also
provides that where a sale of the property is proposed, an entity
that has an interest in such property may bid at the sale thereof
and set off against the purchase price up to the amount of such
entity's claim. No prior valuation under section 506(a) would limit
this bidding right, since the bid at the sale would be
determinative of value.
Subsection (f) permits sale of property free and clear of any
interest in the property of an entity other than the estate. The
trustee may sell free and clear if applicable nonbankruptcy law
permits it, if the other entity consents, if the interest is a lien
and the sale price of the property is greater than the amount
secured by the lien, if the interest is in bona fide dispute, or if
the other entity could be compelled to accept a money satisfaction
of the interest in a legal or equitable proceeding. Sale under this
subsection is subject to the adequate protection requirement. Most
often, adequate protection in connection with a sale free and clear
of other interests will be to have those interests attach to the
proceeds of the sale.
At a sale free and clear of other interests, any holder of any
interest in the property being sold will be permitted to bid. If
that holder is the high bidder, he will be permitted to offset the
value of his interest against the purchase price of the property.
Thus, in the most common situation, a holder of a lien on property
being sold may bid at the sale and, if successful, may offset the
amount owed to him that is secured by the lien on the property (but
may not offset other amounts owed to him) against the purchase
price, and be liable to the trustee for the balance of the sale
price, if any.
Subsection (g) permits the trustee to sell free and clear of any
vested or contingent right in the nature of dower or curtesy.
Subsection (h) permits sale of a co-owner's interest in property
in which the debtor had an undivided ownership interest such as a
joint tenancy, a tenancy in common, or a tenancy by the entirety.
Such a sale is permissible only if partition is impracticable, if
sale of the estate's interest would realize significantly less for
the estate that sale of the property free of the interests of the
co-owners, and if the benefit to the estate of such a sale
outweighs any detriment to the co-owners. This subsection does not
apply to a co-owner's interest in a public utility when a
disruption of the utilities services could result.
Subsection (i) provides protections for co-owners and spouses
with dower, curtesy, or community property rights. It gives a right
of first refusal to the co-owner or spouse at the price at which
the sale is to be consummated.
Subsection (j) requires the trustee to distribute to the spouse
or co-owner the appropriate portion of the proceeds of the sale,
less certain administrative expenses.
Subsection (k) [enacted as (l)] permits the trustee to use, sell,
or lease property notwithstanding certain bankruptcy or ipso facto
clauses that terminate the debtor's interest in the property or
that work a forfeiture or modification of that interest. This
subsection is not as broad as the anti-ipso facto provision in
proposed 11 U.S.C. 541(c)(1).
Subsection (l) [enacted as (m)] protects good faith purchasers of
property sold under this section from a reversal on appeal of the
sale authorization, unless the authorization for the sale and the
sale itself were stayed pending appeal. The purchaser's knowledge
of the appeal is irrelevant to the issue of good faith.
Subsection (m) [enacted as (n)] is directed at collusive bidding
on property sold under this section. It permits the trustee to void
a sale if the price of the sale was controlled by an agreement
among potential bidders. The trustees may also recover the excess
of the value of the property over the purchase price, and may
recover any costs, attorney's fees, or expenses incurred in voiding
the sale or recovering the difference. In addition, the court is
authorized to grant judgment in favor of the estate and against the
collusive bidder if the agreement controlling the sale price was
entered into in willful disregard of this subsection. The
subsection does not specify the precise measure of damages, but
simply provides for punitive damages, to be fixed in light of the
circumstances.
-REFTEXT-
REFERENCES IN TEXT
Section 7A of the Clayton Act, referred to in subsec. (b)(2), is
classified to section 18a of Title 15, Commerce and Trade.
The Truth in Lending Act, referred to in subsec. (o), is title I
of Pub. L. 90-321, May 29, 1968, 82 Stat. 146, as amended, which is
classified generally to subchapter I (Sec. 1601 et seq.) of chapter
41 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.
-MISC2-
AMENDMENTS
2010 - Subsec. (d). Pub. L. 111-327, Sec. 2(a)(13)(A), struck out
"only" before dash at end of introductory provisions.
Subsec. (d)(1). Pub. L. 111-327, Sec. 2(a)(13)(B), amended par.
(1) generally. Prior to amendment, par. (1) read as follows: "in
accordance with applicable nonbankruptcy law that governs the
transfer of property by a corporation or trust that is not a
moneyed, business, or commercial corporation or trust; and".
Subsec. (d)(2). Pub. L. 111-327, Sec. 2(a)(13)(C), inserted
"only" before "to the extent".
2005 - Subsec. (b)(1). Pub. L. 109-8, Sec. 231(a), substituted ",
except that if the debtor in connection with offering a product or
a service discloses to an individual a policy prohibiting the
transfer of personally identifiable information about individuals
to persons that are not affiliated with the debtor and if such
policy is in effect on the date of the commencement of the case,
then the trustee may not sell or lease personally identifiable
information to any person unless - " and subpars. (A) and (B) for
period at end.
Subsec. (d). Pub. L. 109-8, Sec. 1221(a), substituted "only - "
and pars. (1) and (2) for "only to the extent not inconsistent with
any relief granted under section 362(c), 362(d), 362(e), or 362(f)
of this title."
Subsecs. (o), (p). Pub. L. 109-8, Sec. 204, added subsec. (o) and
redesignated former subsec. (o) as (p).
1994 - Subsec. (a). Pub. L. 103-394, Sec. 214(b), inserted "and
the fees, charges, accounts or other payments for the use or
occupancy of rooms and other public facilities in hotels, motels,
or other lodging properties" after "property".
Subsec. (b)(2). Pub. L. 103-394, Secs. 109, 501(d)(8)(A), struck
out "(15 U.S.C. 18a)" after "Clayton Act" and amended subpars. (A)
and (B) generally. Prior to amendment, subpars. (A) and (B) read as
follows:
"(A) notwithstanding subsection (a) of such section, such
notification shall be given by the trustee; and
"(B) notwithstanding subsection (b) of such section, the required
waiting period shall end on the tenth day after the date of the
receipt of such notification, unless the court, after notice and
hearing, orders otherwise."
Subsec. (c)(1). Pub. L. 103-394, Sec. 501(d)(8)(B), substituted
"1203, 1204, or 1304" for "1304, 1203, or 1204".
Subsec. (e). Pub. L. 103-394, Sec. 219(c), inserted at end "This
subsection also applies to property that is subject to any
unexpired lease of personal property (to the exclusion of such
property being subject to an order to grant relief from the stay
under section 362)."
1986 - Subsec. (c)(1). Pub. L. 99-554, Sec. 257(k)(1), inserted
reference to sections 1203 and 1204 of this title.
Subsec. (l). Pub. L. 99-554, Sec. 257(k)(2), inserted reference
to chapter 12.
1984 - Subsec. (a). Pub. L. 98-353, Sec. 442(a), inserted
"whenever acquired" after "equivalents" and "and includes the
proceeds, products, offspring, rents, or profits of property
subject to a security interest as provided in section 552(b) of
this title, whether existing before or after the commencement of a
case under this title" after "interest".
Subsec. (b). Pub. L. 98-353, Sec. 442(b), designated existing
provisions as par. (1) and added par. (2).
Subsec. (e). Pub. L. 98-353, Sec. 442(c), inserted ", with or
without a hearing," after "court" and struck out "In any hearing
under this section, the trustee has the burden of proof on the
issue of adequate protection".
Subsec. (f)(3). Pub. L. 98-353, Sec. 442(d), substituted "all
liens on such property" for "such interest".
Subsec. (h). Pub. L. 98-353, Sec. 442(e), substituted "at the
time of" for "immediately before".
Subsec. (j). Pub. L. 98-353, Sec. 442(f), substituted
"compensation" for "compenation".
Subsec. (k). Pub. L. 98-353, Sec. 442(g), substituted "unless the
court for cause orders otherwise the holder of such claim may bid
at such sale, and, if the holder" for "if the holder".
Subsec. (l). Pub. L. 98-353, Sec. 442(h), substituted "Subject to
the provisions of section 365, the trustee" for "The trustee",
"condition" for "conditions", "or the taking" for "a taking", and
"interest" for "interests".
Subsec. (n). Pub. L. 98-353, Sec. 442(i), substituted "avoid" for
"void", "avoiding" for "voiding", and "In addition to any recovery
under the preceding sentence, the court may grant judgment for
punitive damages in favor of the estate and against any such party
that entered into such an agreement in willful disregard of this
subsection" for "The court may grant judgment in favor of the
estate and against any such party that entered into such agreement
in willful disregard of this subsection for punitive damages in
addition to any recovery under the preceding sentence".
Subsec. (o). Pub. L. 98-353, Sec. 442(j), added subsec. (o).
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-8, title XII, Sec. 1221(d), Apr. 20, 2005, 119 Stat.
196, provided that: "The amendments made by this section [amending
this section and sections 541 and 1129 of this title and enacting
provisions set out as a note under this section] shall apply to a
case pending under title 11, United States Code, on the date of
enactment of this Act [Apr. 20, 2005], 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."
Amendment by sections 204 and 231(a) of Pub. L. 109-8 effective
180 days after Apr. 20, 2005, and not applicable with respect to
cases commenced under this title before such effective date, except
as otherwise provided, see section 1501 of Pub. L. 109-8, set out
as a note under section 101 of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
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.
EFFECTIVE DATE OF 1986 AMENDMENT
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 DATE OF 1984 AMENDMENT
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 SECTION 1221 OF PUB. L. 109-8
Pub. L. 109-8, title XII, Sec. 1221(e), Apr. 20, 2005, 119 Stat.
196, provided that: "Nothing in this section [see Effective Date of
2005 Amendment note above] 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."
-End-
-CITE-
11 USC Sec. 364 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-HEAD-
Sec. 364. Obtaining credit
-STATUTE-
(a) If the trustee is authorized to operate the business of the
debtor under section 721, 1108, 1203, 1204, or 1304 of this title,
unless the court orders otherwise, the trustee may obtain unsecured
credit and incur unsecured debt in the ordinary course of business
allowable under section 503(b)(1) of this title as an
administrative expense.
(b) The court, after notice and a hearing, may authorize the
trustee to obtain unsecured credit or to incur unsecured debt other
than under subsection (a) of this section, allowable under section
503(b)(1) of this title as an administrative expense.
(c) If the trustee is unable to obtain unsecured credit allowable
under section 503(b)(1) of this title as an administrative expense,
the court, after notice and a hearing, may authorize the obtaining
of credit or the incurring of debt -
(1) with priority over any or all administrative expenses of
the kind specified in section 503(b) or 507(b) of this title;
(2) secured by a lien on property of the estate that is not
otherwise subject to a lien; or
(3) secured by a junior lien on property of the estate that is
subject to a lien.
(d)(1) The court, after notice and a hearing, may authorize the
obtaining of credit or the incurring of debt secured by a senior or
equal lien on property of the estate that is subject to a lien only
if -
(A) the trustee is unable to obtain such credit otherwise; and
(B) there is adequate protection of the interest of the holder
of the lien on the property of the estate on which such senior or
equal lien is proposed to be granted.
(2) In any hearing under this subsection, the trustee has the
burden of proof on the issue of adequate protection.
(e) The reversal or modification on appeal of an authorization
under this section to obtain credit or incur debt, or of a grant
under this section of a priority or a lien, does not affect the
validity of any debt so incurred, or any priority or lien so
granted, to an entity that extended such credit in good faith,
whether or not such entity knew of the pendency of the appeal,
unless such authorization and the incurring of such debt, or the
granting of such priority or lien, were stayed pending appeal.
(f) Except with respect to an entity that is an underwriter as
defined in section 1145(b) of this title, section 5 of the
Securities Act of 1933, the Trust Indenture Act of 1939, and any
State or local law requiring registration for offer or sale of a
security or registration or licensing of an issuer of, underwriter
of, or broker or dealer in, a security does not apply to the offer
or sale under this section of a security that is not an equity
security.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2574; Pub. L. 99-554, title
II, Sec. 257(l), Oct. 27, 1986, 100 Stat. 3115; Pub. L. 103-394,
title V, Sec. 501(d)(9), Oct. 22, 1994, 108 Stat. 4144.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 364(f) of the House amendment is new. This provision
continues the exemption found in section 3(a)(7) of the Securities
Act of 1933 [15 U.S.C. 77c(a)(7)] for certificates of indebtedness
issued by a trustee in bankruptcy. The exemption applies to any
debt security issued under section 364 of title 11. The section
does not intend to change present law which exempts such securities
from the Trust Indenture Act, 15 U.S.C. 77aaa, et seq. (1976).
SENATE REPORT NO. 95-989
This section is derived from provisions in current law governing
certificates of indebtedness, but is much broader. It governs all
obtaining of credit and incurring of debt by the estate.
Subsection (a) authorizes the obtaining of unsecured credit and
the incurring of unsecured debt in the ordinary course of business
if the business of the debtor is authorized to be operated under
section 721, 1108, or 1304. The debts so incurred are allowable as
administrative expenses under section 503(b)(1). The court may
limit the estate's ability to incur debt under this subsection.
Subsection (b) permits the court to authorize the trustee to
obtain unsecured credit and incur unsecured debts other than in the
ordinary course of business, such as in order to wind up a
liquidation case, or to obtain a substantial loan in an operating
case. Debt incurred under this subsection is allowable as an
administrative expense under section 503(b)(1).
Subsection (c) is closer to the concept of certificates of
indebtedness in current law. It authorizes the obtaining of credit
and the incurring of debt with some special priority, if the
trustee is unable to obtain unsecured credit under subsection (a)
or (b). The various priorities are (1) with priority over any or
all administrative expenses: (2) secured by a lien on unencumbered
property of the estate; or (3) secured by a junior lien on
encumbered property. The priorities granted under this subsection
do not interfere with existing property rights.
Subsection (d) grants the court the authority to authorize the
obtaining of credit and the incurring of debt with a superiority,
that is a lien on encumbered property that is senior or equal to
the existing lien on the property. The court may authorize such a
superpriority only if the trustee is otherwise unable to obtain
credit, and if there is adequate protection of the original lien
holder's interest. Again, the trustee has the burden of proof on
the issue of adequate protection.
Subsection (e) provides the same protection for credit extenders
pending an appeal of an authorization to incur debt as is provided
under section 363(l) for purchasers: the credit is not affected on
appeal by reversal of the authorization and the incurring of the
debt were stayed pending appeal. The protection runs to a good
faith lender, whether or not he knew of the pendency of the appeal.
A claim arising as a result of lending or borrowing under this
section will be a priority claim, as defined in proposed section
507(a)(1), even if the claim is granted a super-priority over
administrative expenses and is to be paid in advance of other first
priority claims.
-REFTEXT-
REFERENCES IN TEXT
Section 5 of the Securities Act of 1933, referred to in subsec.
(f), is classified to section 77e of Title 15, Commerce and Trade.
The Trust Indenture Act of 1939, referred to in subsec. (f), is
title III of act May 27, 1933, ch. 38, as added Aug. 3, 1939, ch.
411, 53 Stat. 1149, as amended, which is classified generally to
subchapter III (Sec. 77aaa et seq.) of chapter 2A of Title 15. For
complete classification of this Act to the Code, see section 77aaa
of Title 15 and Tables.
-MISC2-
AMENDMENTS
1994 - Subsec. (a). Pub. L. 103-394, Sec. 501(d)(9)(A),
substituted "1203, 1204, or 1304" for "1304, 1203, or 1204".
Subsec. (f). Pub. L. 103-394, Sec. 501(d)(9)(B), struck out "(15
U.S.C. 77e)" after "Act of 1933" and "(15 U.S.C. 77aaa et seq.)"
after "Act of 1939".
1986 - Subsec. (a). Pub. L. 99-554 inserted reference to sections
1203 and 1204 of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
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.
EFFECTIVE DATE OF 1986 AMENDMENT
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.
-End-
-CITE-
11 USC Sec. 365 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-HEAD-
Sec. 365. Executory contracts and unexpired leases
-STATUTE-
(a) Except as provided in sections 765 and 766 of this title and
in subsections (b), (c), and (d) of this section, the trustee,
subject to the court's approval, may assume or reject any executory
contract or unexpired lease of the debtor.
(b)(1) If there has been a default in an executory contract or
unexpired lease of the debtor, the trustee may not assume such
contract or lease unless, at the time of assumption of such
contract or lease, the trustee -
(A) cures, or provides adequate assurance that the trustee will
promptly cure, such default other than a default that is a breach
of a provision relating to the satisfaction of any provision
(other than a penalty rate or penalty provision) relating to a
default arising from any failure to perform nonmonetary
obligations under an unexpired lease of real property, if it is
impossible for the trustee to cure such default by performing
nonmonetary acts at and after the time of assumption, except that
if such default arises from a failure to operate in accordance
with a nonresidential real property lease, then such default
shall be cured by performance at and after the time of assumption
in accordance with such lease, and pecuniary losses resulting
from such default shall be compensated in accordance with the
provisions of this paragraph;
(B) compensates, or provides adequate assurance that the
trustee will promptly compensate, a party other than the debtor
to such contract or lease, for any actual pecuniary loss to such
party resulting from such default; and
(C) provides adequate assurance of future performance under
such contract or lease.
(2) Paragraph (1) of this subsection does not apply to a default
that is a breach of a provision relating to -
(A) the insolvency or financial condition of the debtor at any
time before the closing of the case;
(B) the commencement of a case under this title;
(C) the appointment of or taking possession by a trustee in a
case under this title or a custodian before such commencement; or
(D) the satisfaction of any penalty rate or penalty provision
relating to a default arising from any failure by the debtor to
perform nonmonetary obligations under the executory contract or
unexpired lease.
(3) For the purposes of paragraph (1) of this subsection and
paragraph (2)(B) of subsection (f), adequate assurance of future
performance of a lease of real property in a shopping center
includes adequate assurance -
(A) of the source of rent and other consideration due under
such lease, and in the case of an assignment, that the financial
condition and operating performance of the proposed assignee and
its guarantors, if any, shall be similar to the financial
condition and operating performance of the debtor and its
guarantors, if any, as of the time the debtor became the lessee
under the lease;
(B) that any percentage rent due under such lease will not
decline substantially;
(C) that assumption or assignment of such lease is subject to
all the provisions thereof, including (but not limited to)
provisions such as a radius, location, use, or exclusivity
provision, and will not breach any such provision contained in
any other lease, financing agreement, or master agreement
relating to such shopping center; and
(D) that assumption or assignment of such lease will not
disrupt any tenant mix or balance in such shopping center.
(4) Notwithstanding any other provision of this section, if there
has been a default in an unexpired lease of the debtor, other than
a default of a kind specified in paragraph (2) of this subsection,
the trustee may not require a lessor to provide services or
supplies incidental to such lease before assumption of such lease
unless the lessor is compensated under the terms of such lease for
any services and supplies provided under such lease before
assumption of such lease.
(c) The trustee may not assume or assign any executory contract
or unexpired lease of the debtor, whether or not such contract or
lease prohibits or restricts assignment of rights or delegation of
duties, if -
(1)(A) applicable law excuses a party, other than the debtor,
to such contract or lease from accepting performance from or
rendering performance to an entity other than the debtor or the
debtor in possession, whether or not such contract or lease
prohibits or restricts assignment of rights or delegation of
duties; and
(B) such party does not consent to such assumption or
assignment; or
(2) such contract is a contract to make a loan, or extend other
debt financing or financial accommodations, to or for the benefit
of the debtor, or to issue a security of the debtor; or
(3) such lease is of nonresidential real property and has been
terminated under applicable nonbankruptcy law prior to the order
for relief.
(d)(1) In a case under chapter 7 of this title, if the trustee
does not assume or reject an executory contract or unexpired lease
of residential real property or of personal property of the debtor
within 60 days after the order for relief, or within such
additional time as the court, for cause, within such 60-day period,
fixes, then such contract or lease is deemed rejected.
(2) In a case under chapter 9, 11, 12, or 13 of this title, the
trustee may assume or reject an executory contract or unexpired
lease of residential real property or of personal property of the
debtor at any time before the confirmation of a plan but the court,
on the request of any party to such contract or lease, may order
the trustee to determine within a specified period of time whether
to assume or reject such contract or lease.
(3) The trustee shall timely perform all the obligations of the
debtor, except those specified in section 365(b)(2), arising from
and after the order for relief under any unexpired lease of
nonresidential real property, until such lease is assumed or
rejected, notwithstanding section 503(b)(1) of this title. The
court may extend, for cause, the time for performance of any such
obligation that arises within 60 days after the date of the order
for relief, but the time for performance shall not be extended
beyond such 60-day period. This subsection shall not be deemed to
affect the trustee's obligations under the provisions of subsection
(b) or (f) of this section. Acceptance of any such performance does
not constitute waiver or relinquishment of the lessor's rights
under such lease or under this title.
(4)(A) Subject to subparagraph (B), an unexpired lease of
nonresidential real property under which the debtor is the lessee
shall be deemed rejected, and the trustee shall immediately
surrender that nonresidential real property to the lessor, if the
trustee does not assume or reject the unexpired lease by the
earlier of -
(i) the date that is 120 days after the date of the order for
relief; or
(ii) the date of the entry of an order confirming a plan.
(B)(i) The court may extend the period determined under
subparagraph (A), prior to the expiration of the 120-day period,
for 90 days on the motion of the trustee or lessor for cause.
(ii) If the court grants an extension under clause (i), the court
may grant a subsequent extension only upon prior written consent of
the lessor in each instance.
(5) The trustee shall timely perform all of the obligations of
the debtor, except those specified in section 365(b)(2), first
arising from or after 60 days after the order for relief in a case
under chapter 11 of this title under an unexpired lease of personal
property (other than personal property leased to an individual
primarily for personal, family, or household purposes), until such
lease is assumed or rejected notwithstanding section 503(b)(1) of
this title, unless the court, after notice and a hearing and based
on the equities of the case, orders otherwise with respect to the
obligations or timely performance thereof. This subsection shall
not be deemed to affect the trustee's obligations under the
provisions of subsection (b) or (f). Acceptance of any such
performance does not constitute waiver or relinquishment of the
lessor's rights under such lease or under this title.
(e)(1) Notwithstanding a provision in an executory contract or
unexpired lease, or in applicable law, an executory contract or
unexpired lease of the debtor may not be terminated or modified,
and any right or obligation under such contract or lease may not be
terminated or modified, at any time after the commencement of the
case solely because of a provision in such contract or lease that
is conditioned on -
(A) the insolvency or financial condition of the debtor at any
time before the closing of the case;
(B) the commencement of a case under this title; or
(C) the appointment of or taking possession by a trustee in a
case under this title or a custodian before such commencement.
(2) Paragraph (1) of this subsection does not apply to an
executory contract or unexpired lease of the debtor, whether or not
such contract or lease prohibits or restricts assignment of rights
or delegation of duties, if -
(A)(i) applicable law excuses a party, other than the debtor,
to such contract or lease from accepting performance from or
rendering performance to the trustee or to an assignee of such
contract or lease, whether or not such contract or lease
prohibits or restricts assignment of rights or delegation of
duties; and
(ii) such party does not consent to such assumption or
assignment; or
(B) such contract is a contract to make a loan, or extend other
debt financing or financial accommodations, to or for the benefit
of the debtor, or to issue a security of the debtor.
(f)(1) Except as provided in subsections (b) and (c) of this
section, notwithstanding a provision in an executory contract or
unexpired lease of the debtor, or in applicable law, that
prohibits, restricts, or conditions the assignment of such contract
or lease, the trustee may assign such contract or lease under
paragraph (2) of this subsection.
(2) The trustee may assign an executory contract or unexpired
lease of the debtor only if -
(A) the trustee assumes such contract or lease in accordance
with the provisions of this section; and
(B) adequate assurance of future performance by the assignee of
such contract or lease is provided, whether or not there has been
a default in such contract or lease.
(3) Notwithstanding a provision in an executory contract or
unexpired lease of the debtor, or in applicable law that terminates
or modifies, or permits a party other than the debtor to terminate
or modify, such contract or lease or a right or obligation under
such contract or lease on account of an assignment of such contract
or lease, such contract, lease, right, or obligation may not be
terminated or modified under such provision because of the
assumption or assignment of such contract or lease by the trustee.
(g) Except as provided in subsections (h)(2) and (i)(2) of this
section, the rejection of an executory contract or unexpired lease
of the debtor constitutes a breach of such contract or lease -
(1) if such contract or lease has not been assumed under this
section or under a plan confirmed under chapter 9, 11, 12, or 13
of this title, immediately before the date of the filing of the
petition; or
(2) if such contract or lease has been assumed under this
section or under a plan confirmed under chapter 9, 11, 12, or 13
of this title -
(A) if before such rejection the case has not been converted
under section 1112, 1208, or 1307 of this title, at the time of
such rejection; or
(B) if before such rejection the case has been converted
under section 1112, 1208, or 1307 of this title -
(i) immediately before the date of such conversion, if such
contract or lease was assumed before such conversion; or
(ii) at the time of such rejection, if such contract or
lease was assumed after such conversion.
(h)(1)(A) If the trustee rejects an unexpired lease of real
property under which the debtor is the lessor and -
(i) if the rejection by the trustee amounts to such a breach as
would entitle the lessee to treat such lease as terminated by
virtue of its terms, applicable nonbankruptcy law, or any
agreement made by the lessee, then the lessee under such lease
may treat such lease as terminated by the rejection; or
(ii) if the term of such lease has commenced, the lessee may
retain its rights under such lease (including rights such as
those relating to the amount and timing of payment of rent and
other amounts payable by the lessee and any right of use,
possession, quiet enjoyment, subletting, assignment, or
hypothecation) that are in or appurtenant to the real property
for the balance of the term of such lease and for any renewal or
extension of such rights to the extent that such rights are
enforceable under applicable nonbankruptcy law.
(B) If the lessee retains its rights under subparagraph (A)(ii),
the lessee may offset against the rent reserved under such lease
for the balance of the term after the date of the rejection of such
lease and for the term of any renewal or extension of such lease,
the value of any damage caused by the nonperformance after the date
of such rejection, of any obligation of the debtor under such
lease, but the lessee shall not have any other right against the
estate or the debtor on account of any damage occurring after such
date caused by such nonperformance.
(C) The rejection of a lease of real property in a shopping
center with respect to which the lessee elects to retain its rights
under subparagraph (A)(ii) does not affect the enforceability under
applicable nonbankruptcy law of any provision in the lease
pertaining to radius, location, use, exclusivity, or tenant mix or
balance.
(D) In this paragraph, "lessee" includes any successor, assign,
or mortgagee permitted under the terms of such lease.
(2)(A) If the trustee rejects a timeshare interest under a
timeshare plan under which the debtor is the timeshare interest
seller and -
(i) if the rejection amounts to such a breach as would entitle
the timeshare interest purchaser to treat the timeshare plan as
terminated under its terms, applicable nonbankruptcy law, or any
agreement made by timeshare interest purchaser, the timeshare
interest purchaser under the timeshare plan may treat the
timeshare plan as terminated by such rejection; or
(ii) if the term of such timeshare interest has commenced, then
the timeshare interest purchaser may retain its rights in such
timeshare interest for the balance of such term and for any term
of renewal or extension of such timeshare interest to the extent
that such rights are enforceable under applicable nonbankruptcy
law.
(B) If the timeshare interest purchaser retains its rights under
subparagraph (A), such timeshare interest purchaser may offset
against the moneys due for such timeshare interest for the balance
of the term after the date of the rejection of such timeshare
interest, and the term of any renewal or extension of such
timeshare interest, the value of any damage caused by the
nonperformance after the date of such rejection, of any obligation
of the debtor under such timeshare plan, but the timeshare interest
purchaser shall not have any right against the estate or the debtor
on account of any damage occurring after such date caused by such
nonperformance.
(i)(1) If the trustee rejects an executory contract of the debtor
for the sale of real property or for the sale of a timeshare
interest under a timeshare plan, under which the purchaser is in
possession, such purchaser may treat such contract as terminated,
or, in the alternative, may remain in possession of such real
property or timeshare interest.
(2) If such purchaser remains in possession -
(A) such purchaser shall continue to make all payments due
under such contract, but may, offset against such payments any
damages occurring after the date of the rejection of such
contract caused by the nonperformance of any obligation of the
debtor after such date, but such purchaser does not have any
rights against the estate on account of any damages arising after
such date from such rejection, other than such offset; and
(B) the trustee shall deliver title to such purchaser in
accordance with the provisions of such contract, but is relieved
of all other obligations to perform under such contract.
(j) A purchaser that treats an executory contract as terminated
under subsection (i) of this section, or a party whose executory
contract to purchase real property from the debtor is rejected and
under which such party is not in possession, has a lien on the
interest of the debtor in such property for the recovery of any
portion of the purchase price that such purchaser or party has
paid.
(k) Assignment by the trustee to an entity of a contract or lease
assumed under this section relieves the trustee and the estate from
any liability for any breach of such contract or lease occurring
after such assignment.
(l) If an unexpired lease under which the debtor is the lessee is
assigned pursuant to this section, the lessor of the property may
require a deposit or other security for the performance of the
debtor's obligations under the lease substantially the same as
would have been required by the landlord upon the initial leasing
to a similar tenant.
(m) For purposes of this section 365 and sections 541(b)(2) and
362(b)(10), leases of real property shall include any rental
agreement to use real property.
(n)(1) If the trustee rejects an executory contract under which
the debtor is a licensor of a right to intellectual property, the
licensee under such contract may elect -
(A) to treat such contract as terminated by such rejection if
such rejection by the trustee amounts to such a breach as would
entitle the licensee to treat such contract as terminated by
virtue of its own terms, applicable nonbankruptcy law, or an
agreement made by the licensee with another entity; or
(B) to retain its rights (including a right to enforce any
exclusivity provision of such contract, but excluding any other
right under applicable nonbankruptcy law to specific performance
of such contract) under such contract and under any agreement
supplementary to such contract, to such intellectual property
(including any embodiment of such intellectual property to the
extent protected by applicable nonbankruptcy law), as such rights
existed immediately before the case commenced, for -
(i) the duration of such contract; and
(ii) any period for which such contract may be extended by
the licensee as of right under applicable nonbankruptcy law.
(2) If the licensee elects to retain its rights, as described in
paragraph (1)(B) of this subsection, under such contract -
(A) the trustee shall allow the licensee to exercise such
rights;
(B) the licensee shall make all royalty payments due under such
contract for the duration of such contract and for any period
described in paragraph (1)(B) of this subsection for which the
licensee extends such contract; and
(C) the licensee shall be deemed to waive -
(i) any right of setoff it may have with respect to such
contract under this title or applicable nonbankruptcy law; and
(ii) any claim allowable under section 503(b) of this title
arising from the performance of such contract.
(3) If the licensee elects to retain its rights, as described in
paragraph (1)(B) of this subsection, then on the written request of
the licensee the trustee shall -
(A) to the extent provided in such contract, or any agreement
supplementary to such contract, provide to the licensee any
intellectual property (including such embodiment) held by the
trustee; and
(B) not interfere with the rights of the licensee as provided
in such contract, or any agreement supplementary to such
contract, to such intellectual property (including such
embodiment) including any right to obtain such intellectual
property (or such embodiment) from another entity.
(4) Unless and until the trustee rejects such contract, on the
written request of the licensee the trustee shall -
(A) to the extent provided in such contract or any agreement
supplementary to such contract -
(i) perform such contract; or
(ii) provide to the licensee such intellectual property
(including any embodiment of such intellectual property to the
extent protected by applicable nonbankruptcy law) held by the
trustee; and
(B) not interfere with the rights of the licensee as provided
in such contract, or any agreement supplementary to such
contract, to such intellectual property (including such
embodiment), including any right to obtain such intellectual
property (or such embodiment) from another entity.
(o) In a case under chapter 11 of this title, the trustee shall
be deemed to have assumed (consistent with the debtor's other
obligations under section 507), and shall immediately cure any
deficit under, any commitment by the debtor to a Federal depository
institutions regulatory agency (or predecessor to such agency) to
maintain the capital of an insured depository institution, and any
claim for a subsequent breach of the obligations thereunder shall
be entitled to priority under section 507. This subsection shall
not extend any commitment that would otherwise be terminated by any
act of such an agency.
(p)(1) If a lease of personal property is rejected or not timely
assumed by the trustee under subsection (d), the leased property is
no longer property of the estate and the stay under section 362(a)
is automatically terminated.
(2)(A) If the debtor in a case under chapter 7 is an individual,
the debtor may notify the creditor in writing that the debtor
desires to assume the lease. Upon being so notified, the creditor
may, at its option, notify the debtor that it is willing to have
the lease assumed by the debtor and may condition such assumption
on cure of any outstanding default on terms set by the contract.
(B) If, not later than 30 days after notice is provided under
subparagraph (A), the debtor notifies the lessor in writing that
the lease is assumed, the liability under the lease will be assumed
by the debtor and not by the estate.
(C) The stay under section 362 and the injunction under section
524(a)(2) shall not be violated by notification of the debtor and
negotiation of cure under this subsection.
(3) In a case under chapter 11 in which the debtor is an
individual and in a case under chapter 13, if the debtor is the
lessee with respect to personal property and the lease is not
assumed in the plan confirmed by the court, the lease is deemed
rejected as of the conclusion of the hearing on confirmation. If
the lease is rejected, the stay under section 362 and any stay
under section 1301 is automatically terminated with respect to the
property subject to the lease.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2574; Pub. L. 98-353, title
III, Secs. 362, 402-404, July 10, 1984, 98 Stat. 361, 367; Pub. L.
99-554, title II, Secs. 257(j), (m), 283(e), Oct. 27, 1986, 100
Stat. 3115, 3117; Pub. L. 100-506, Sec. 1(b), Oct. 18, 1988, 102
Stat. 2538; Pub. L. 101-647, title XXV, Sec. 2522(c), Nov. 29,
1990, 104 Stat. 4866; Pub. L. 102-365, Sec. 19(b)-(e), Sept. 3,
1992, 106 Stat. 982-984; Pub. L. 103-394, title II, Secs. 205(a),
219(a), (b), title V, Sec. 501(d)(10), Oct. 22, 1994, 108 Stat.
4122, 4128, 4145; Pub. L. 103-429, Sec. 1, Oct. 31, 1994, 108 Stat.
4377; Pub. L. 109-8, title III, Secs. 309(b), 328(a), title IV,
Sec. 404, Apr. 20, 2005, 119 Stat. 82, 100, 104.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 365(b)(3) represents a compromise between H.R. 8200 as
passed by the House and the Senate amendment. The provision adopts
standards contained in section 365(b)(5) of the Senate amendment to
define adequate assurance of future performance of a lease of real
property in a shopping center.
Section 365(b)(4) of the House amendment indicates that after
default the trustee may not require a lessor to supply services or
materials without assumption unless the lessor is compensated as
provided in the lease.
Section 365(c)(2) and (3) likewise represent a compromise between
H.R. 8200 as passed by the House and the Senate amendment. Section
365(c)(2) is derived from section 365(b)(4) of the Senate amendment
but does not apply to a contract to deliver equipment as provided
in the Senate amendment. As contained in the House amendment, the
provision prohibits a trustee or debtor in possession from assuming
or assigning an executory contract of the debtor to make a loan, or
extend other debt financing or financial accommodations, to or for
the benefit of the debtor, or the issuance of a security of the
debtor.
Section 365(e) is a refinement of comparable provisions contained
in the House bill and Senate amendment. Sections 365(e)(1) and
(2)(A) restate section 365(e) of H.R. 8200 as passed by the House.
Sections 365(e)(2)(B) expands the section to permit termination of
an executory contract or unexpired lease of the debtor if such
contract is a contract to make a loan, or extend other debt
financing or financial accommodations, to or for the benefit of the
debtor, or for the issuance of a security of the debtor.
Characterization of contracts to make a loan, or extend other
debt financing or financial accommodations, is limited to the
extension of cash or a line of credit and is not intended to
embrace ordinary leases or contracts to provide goods or services
with payments to be made over time.
Section 365(f) is derived from H.R. 8200 as passed by the House.
Deletion of language in section 365(f)(3) of the Senate amendment
is done as a matter of style. Restrictions with respect to
assignment of an executory contract or unexpired lease are
superfluous since the debtor may assign an executory contract or
unexpired lease of the debtor only if such contract is first
assumed under section 364(f)(2)(A) of the House amendment.
Section 363(h) of the House amendment represents a modification
of section 365(h) of the Senate amendment. The House amendment
makes clear that in the case of a bankrupt lessor, a lessee may
remain in possession for the balance of the term of a lease and any
renewal or extension of the term only to the extent that such
renewal or extension may be obtained by the lessee without the
permission of the landlord or some third party under applicable non-
bankruptcy law.
SENATE REPORT NO. 95-989
Subsection (a) of this section authorizes the trustee, subject to
the court's approval, to assume or reject an executory contract or
unexpired lease. Though there is no precise definition of what
contracts are executory, it generally includes contracts on which
performance remains due to some extent on both sides. A note is not
usually an executory contract if the only performance that remains
is repayment. Performance on one side of the contract would have
been completed and the contract is no longer executory.
Because of the volatile nature of the commodities markets and the
special provisions governing commodity broker liquidations in
subchapter IV of chapter 7, the provisions governing distribution
in section 765(a) will govern if any conflict between those
provisions and the provisions of this section arise.
Subsections (b), (c), and (d) provide limitations on the
trustee's powers. Subsection (b) requires the trustee to cure any
default in the contract or lease and to provide adequate assurance
of future performance if there has been a default, before he may
assume. This provision does not apply to defaults under ipso facto
or bankruptcy clauses, which is a significant departure from
present law.
Subsection (b)(3) permits termination of leases entered into
prior to the effective date of this title in liquidation cases if
certain other conditions are met.
Subsection (b)(4) [enacted as (c)(2)] prohibits the trustee's
assumption of an executory contract requiring the other party to
make a loan or deliver equipment to or to issue a security of the
debtor. The purpose of this subsection is to make it clear that a
party to a transaction which is based upon the financial strength
of a debtor should not be required to extend new credit to the
debtor whether in the form of loans, lease financing, or the
purchase or discount of notes.
Subsection (b)(5) provides that in lease situations common to
shopping centers, protections must be provided for the lessor if
the trustee assumes the lease, including protection against decline
in percentage rents, breach of agreements with other tenants, and
preservation of the tenant mix. Protection for tenant mix will not
be required in the office building situation.
Subsection (c) prohibits the trustee from assuming or assigning a
contract or lease if applicable nonbankruptcy law excuses the other
party from performance to someone other than the debtor, unless the
other party consents. This prohibition applies only in the
situation in which applicable law excuses the other party from
performance independent of any restrictive language in the contract
or lease itself.
Subsection (d) places time limits on assumption and rejection. In
a liquidation case, the trustee must assume within 60 days (or
within an additional 60 days, if the court, for cause, extends the
time). If not assumed, the contract or lease is deemed rejected. In
a rehabilitation case, the time limit is not fixed in the bill.
However, if the other party to the contract or lease requests the
court to fix a time, the court may specify a time within which the
trustee must act. This provision will prevent parties in
contractual or lease relationships with the debtor from being left
in doubt concerning their status vis-a-vis the estate.
Subsection (e) invalidates ipso facto or bankruptcy clauses.
These clauses, protected under present law, automatically terminate
the contract or lease, or permit the other contracting party to
terminate the contract or lease, in the event of bankruptcy. This
frequently hampers rehabilitation efforts. If the trustee may
assume or assign the contract under the limitations imposed by the
remainder of the section, the contract or lease may be utilized to
assist in the debtor's rehabilitation or liquidation.
The unenforcibility [sic] of ipso facto or bankruptcy clauses
proposed under this section will require the courts to be sensitive
to the rights of the nondebtor party to executory contracts and
unexpired leases. If the trustee is to assume a contract or lease,
the court will have to insure that the trustee's performance under
the contract or lease gives the other contracting party the full
benefit of his bargain.
This subsection does not limit the application of an ipso facto
or bankruptcy clause if a new insolvency or receivership occurs
after the bankruptcy case is closed. That is, the clause is not
invalidated in toto, but merely made inapplicable during the case
for the purposes of disposition of the executory contract or
unexpired lease.
Subsection (f) partially invalidates restrictions on assignment
of contracts or leases by the trustee to a third party. The
subsection imposes two restrictions on the trustee: he must first
assume the contract or lease, subject to all the restrictions on
assumption found in the section, and adequate assurance of future
performance must be provided to the other contracting party.
Paragraph (3) of the subsection invalidates contractual provisions
that permit termination or modification in the event of an
assignment, as contrary to the policy of this subsection.
Subsection (g) defines the time as of which a rejection of an
executory contract or unexpired lease constitutes a breach of the
contract or lease. Generally, the breach is as of the date
immediately preceding the date of the petition. The purpose is to
treat rejection claims as prepetition claims. The remainder of the
subsection specifies different times for cases that are converted
from one chapter to another. The provisions of this subsection are
not a substantive authorization to breach or reject an assumed
contract. Rather, they prescribe the rules for the allowance of
claims in case an assumed contract is breached, or if a case under
chapter 11 in which a contract has been assumed is converted to a
case under chapter 7 in which the contract is rejected.
Subsection (h) protects real property lessees of the debtor if
the trustee rejects an unexpired lease under which the debtor is
the lessor (or sublessor). The subsection permits the lessee to
remain in possession of the leased property or to treat the lease
as terminated by the rejection. The balance of the term of the
lease referred to in paragraph (1) will include any renewal terms
that are enforceable by the tenant, but not renewal terms if the
landlord had an option to terminate. Thus, the tenant will not be
deprived of his estate for the term for which he bargained. If the
lessee remains in possession, he may offset the rent reserved under
the lease against damages caused by the rejection, but does not
have any affirmative rights against the estate for any damages
after the rejection that result from the rejection.
Subsection (i) gives a purchaser of real property under a land
installment sales contract similar protection. The purchaser, if
the contract is rejected, may remain in possession or may treat the
contract as terminated. If the purchaser remains in possession, he
is required to continue to make the payments due, but may offset
damages that occur after rejection. The trustee is required to
deliver title, but is relieved of all other obligations to perform.
A purchaser that treats the contract as terminated is granted a
lien on the property to the extent of the purchase price paid. A
party with a contract to purchase land from the debtor has a lien
on the property to secure the price already paid, if the contract
is rejected and the purchaser is not yet in possession.
Subsection (k) relieves the trustee and the estate of liability
for a breach of an assigned contract or lease that occurs after the
assignment.
HOUSE REPORT NO. 95-595
Subsection (c) prohibits the trustee from assuming or assigning a
contract or lease if applicable nonbankruptcy law excuses the other
party from performance to someone other than the debtor, unless the
other party consents. This prohibition applies only in the
situation in which applicable law excuses the other party from
performance independent of any restrictive language in the contract
or lease itself. The purpose of this subsection, at least in part,
is to prevent the trustee from requiring new advances of money or
other property. The section permits the trustee to continue to use
and pay for property already advanced, but is not designed to
permit the trustee to demand new loans or additional transfers of
property under lease commitments.
Thus, under this provision, contracts such as loan commitments
and letters of credit are nonassignable, and may not be assumed by
the trustee.
Subsection (e) invalidates ipso facto or bankruptcy clauses.
These clauses, protected under present law, automatically terminate
the contract or lease, or permit the other contracting party to
terminate the contract or lease, in the event of bankruptcy. This
frequently hampers rehabilitation efforts. If the trustee may
assume or assign the contract under the limitations imposed by the
remainder of the section, then the contract or lease may be
utilized to assist in the debtor's rehabilitation or liquidation.
The unenforceability of ipso facto or bankruptcy clauses proposed
under this section will require the courts to be sensitive to the
rights of the nondebtor party to executory contracts and unexpired
leases. If the trustee is to assume a contract or lease, the courts
will have to insure that the trustee's performance under the
contract or lease gives the other contracting party the full
benefit of his bargain. An example of the complexity that may arise
in these situations and the need for a determination of all aspects
of a particular executory contract or unexpired lease is the
shopping center lease under which the debtor is a tenant in a
shopping center.
A shopping center is often a carefully planned enterprise, and
though it consists of numerous individual tenants, the center is
planned as a single unit, often subject to a master lease or
financing agreement. Under these agreements, the tenant mix in a
shopping center may be as important to the lessor as the actual
promised rental payments, because certain mixes will attract higher
patronage of the stores in the center, and thus a higher rental for
the landlord from those stores that are subject to a percentage of
gross receipts rental agreement. Thus, in order to assure a
landlord of his bargained for exchange, the court would have to
consider such factors as the nature of the business to be conducted
by the trustee or his assignee, whether that business complies with
the requirements of any master agreement, whether the kind of
business proposed will generate gross sales in an amount such that
the percentage rent specified in the lease is substantially the
same as what would have been provided by the debtor, and whether
the business proposed to be conducted would result in a breach of
other clauses in master agreements relating, for example, to tenant
mix and location.
This subsection does not limit the application of an ipso facto
or bankruptcy clause to a new insolvency or receivership after the
bankruptcy case is closed. That is, the clause is not invalidated
in toto, but merely made inapplicable during the case for the
purpose of disposition of the executory contract or unexpired
lease.
AMENDMENTS
2005 - Subsec. (b)(1)(A). Pub. L. 109-8, Sec. 328(a)(1)(A),
inserted before semicolon at end "other than a default that is a
breach of a provision relating to the satisfaction of any provision
(other than a penalty rate or penalty provision) relating to a
default arising from any failure to perform nonmonetary obligations
under an unexpired lease of real property, if it is impossible for
the trustee to cure such default by performing nonmonetary acts at
and after the time of assumption, except that if such default
arises from a failure to operate in accordance with a
nonresidential real property lease, then such default shall be
cured by performance at and after the time of assumption in
accordance with such lease, and pecuniary losses resulting from
such default shall be compensated in accordance with the provisions
of this paragraph".
Subsec. (b)(2)(D). Pub. L. 109-8, Sec. 328(a)(1)(B), substituted
"penalty rate or penalty provision" for "penalty rate or
provision".
Subsec. (c)(4). Pub. L. 109-8, Sec. 328(a)(2), struck out par.
(4) which read as follows: "such lease is of nonresidential real
property under which the debtor is the lessee of an aircraft
terminal or aircraft gate at an airport at which the debtor is the
lessee under one or more additional nonresidential leases of an
aircraft terminal or aircraft gate and the trustee, in connection
with such assumption or assignment, does not assume all such leases
or does not assume and assign all of such leases to the same
person, except that the trustee may assume or assign less than all
of such leases with the airport operator's written consent."
Subsec. (d)(4). Pub. L. 109-8, Sec. 404(a), amended par. (4)
generally. Prior to amendment, par. (4) read as follows:
"Notwithstanding paragraphs (1) and (2), in a case under any
chapter of this title, if the trustee does not assume or reject an
unexpired lease of nonresidential real property under which the
debtor is the lessee within 60 days after the date of the order for
relief, or within such additional time as the court, for cause,
within such 60-day period, fixes, then such lease is deemed
rejected, and the trustee shall immediately surrender such
nonresidential real property to the lessor."
Subsec. (d)(5) to (10). Pub. L. 109-8, Sec. 328(a)(3),
redesignated par. (10) as (5) and struck out former pars. (5) to
(9) which related to rejection of leases under which the debtor is
an affected air carrier that is the lessee of an aircraft terminal
or aircraft gate.
Subsec. (f)(1). Pub. L. 109-8, Sec. 404(b), substituted "provided
in subsections (b) and" for "provided in subsection".
Pub. L. 109-8, Sec. 328(a)(4), struck out "; except that the
trustee may not assign an unexpired lease of nonresidential real
property under which the debtor is an affected air carrier that is
the lessee of an aircraft terminal or aircraft gate if there has
occurred a termination event" before period at end.
Subsec. (p). Pub. L. 109-8, Sec. 309(b), added subsec. (p).
1994 - Subsec. (b)(2)(D). Pub. L. 103-394, Sec. 219(a), added
subpar. (D).
Subsec. (d)(6)(C). Pub. L. 103-429, Sec. 1(1), substituted
"section 40102(a) of title 49" for "section 101 of the Federal
Aviation Act of 1958 (49 App. U.S.C. 1301)".
Pub. L. 103-394, Sec. 501(d)(10)(A), which directed the
substitution of "section 40102 of title 49" for "the Federal
Aviation Act of 1958 (49 U.S.C. 1301)", could not be executed
because the phrase "(49 U.S.C. 1301)" did not appear in text.
Subsec. (d)(10). Pub. L. 103-394, Sec. 219(b), added par. (10).
Subsec. (g)(2)(A), (B). Pub. L. 103-394, Sec. 501(d)(10)(B),
substituted "1208, or 1307" for "1307, or 1208".
Subsec. (h). Pub. L. 103-394, Sec. 205(a), amended subsec. (h)
generally. Prior to amendment, subsec. (h) read as follows:
"(h)(1) If the trustee rejects an unexpired lease of real
property of the debtor under which the debtor is the lessor, or a
timeshare interest under a timeshare plan under which the debtor is
the timeshare interest seller, the lessee or timeshare interest
purchaser under such lease or timeshare plan may treat such lease
or timeshare plan as terminated by such rejection, where the
disaffirmance by the trustee amounts to such a breach as would
entitle the lessee or timeshare interest purchaser to treat such
lease or timeshare plan as terminated by virtue of its own terms,
applicable nonbankruptcy law, or other agreements the lessee or
timeshare interest purchaser has made with other parties; or, in
the alternative, the lessee or timeshare interest purchaser may
remain in possession of the leasehold or timeshare interest under
any lease or timeshare plan the term of which has commenced for the
balance of such term and for any renewal or extension of such term
that is enforceable by such lessee or timeshare interest purchaser
under applicable nonbankruptcy law.
"(2) If such lessee or timeshare interest purchaser remains in
possession as provided in paragraph (1) of this subsection, such
lessee or timeshare interest purchaser may offset against the rent
reserved under such lease or moneys due for such timeshare interest
for the balance of the term after the date of the rejection of such
lease or timeshare interest, and any such renewal or extension
thereof, any damages occurring after such date caused by the
nonperformance of any obligation of the debtor under such lease or
timeshare plan after such date, but such lessee or timeshare
interest purchaser does not have any rights against the estate on
account of any damages arising after such date from such rejection,
other than such offset."
Subsec. (n)(1)(B). Pub. L. 103-394, Sec. 501(d)(10)(C),
substituted "a right to" for "a right to to".
Subsec. (o). Pub. L. 103-394, Sec. 501(d)(10)(D), substituted "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 its predecessors or
successors,".
Subsec. (p). Pub. L. 103-429, Sec. 1(2), which directed the
amendment of subsec. (p) by substituting "section 40102(a) of title
49" for "section 101(3) of the Federal Aviation Act of 1958", could
not be executed because subsec. (p) was repealed by Pub. L. 103-
394, Sec. 501(d)(10)(E). See below.
Pub. L. 103-394, Sec. 501(d)(10)(E), struck out subsec. (p),
which read as follows: "In this section, 'affected air carrier'
means an air carrier, as defined in section 101(3) of the Federal
Aviation Act of 1958, that holds 65 percent or more in number of
the aircraft gates at an airport -
"(1) which is a Large Air Traffic Hub as defined by the Federal
Aviation Administration in Report FAA-AP 92-1, February 1992; and
"(2) all of whose remaining aircraft gates are leased or under
contract on the date of enactment of this subsection."
1992 - Subsec. (c)(4). Pub. L. 102-365, Sec. 19(c), added par.
(4).
Subsec. (d)(5) to (9). Pub. L. 102-365, Sec. 19(b), added pars.
(5) to (9).
Subsec. (f)(1). Pub. L. 102-365, Sec. 19(d), substituted for
period at end "; except that the trustee may not assign an
unexpired lease of nonresidential real property under which the
debtor is an affected air carrier that is the lessee of an aircraft
terminal or aircraft gate if there has occurred a termination
event."
Subsec. (p). Pub. L. 102-365, Sec. 19(e), added subsec. (p).
1990 - Subsec. (o). Pub. L. 101-647 added subsec. (o).
1988 - Subsec. (n). Pub. L. 100-506 added subsec. (n).
1986 - Subsec. (c)(1)(A). Pub. L. 99-554, Sec. 283(e)(1), struck
out "or an assignee of such contract or lease" after "debtor in
possession".
Subsec. (c)(3). Pub. L. 99-554, Sec. 283(e)(2), inserted "is"
after "lease" and "and" after "property".
Subsecs. (d)(2), (g)(1). Pub. L. 99-554, Sec. 257(j), (m)(1),
inserted reference to chapter 12.
Subsec. (g)(2). Pub. L. 99-554, Sec. 257(m)(2), inserted
references to chapter 12 and section 1208 of this title.
Subsec. (h)(1). Pub. L. 99-554, Sec. 283(e)(2), inserted "or
timeshare plan" after "to treat such lease".
Subsec. (m). Pub. L. 99-554, Sec. 283(e)(3), substituted
"362(b)(10)" for "362(b)(9)".
1984 - Subsec. (a). Pub. L. 98-353, Sec. 362(a), amended subsec.
(a) generally, making minor changes.
Subsec. (b). Pub. L. 98-353, Sec. 362(a), amended subsec. (b)
generally, inserting in par. (3) reference to par. (2)(B) of
subsec. (f) of this section, in par. (3)(A) inserting provisions
relating to financial condition and operating performance in the
case of an assignment, and in par. (3)(C) substituting "that
assumption or assignment of such lease is subject to all the
provisions thereof, including (but not limited to) provisions such
as a radius, location, use, or exclusivity provision, and will not
breach any such provision contained in any other lease, financing
agreement, or master agreement relating to such shopping center"
for "that assumption or assignment of such lease will not breach
substantially any provision, such as a radius, location, use, or
exclusivity provision, in any other lease, financing agreement, or
master agreement relating to such shopping center".
Subsec. (c). Pub. L. 98-353, Sec. 362(a), amended subsec. (c)
generally, substituting in par. (1)(A) "applicable law excuses a
party, other than the debtor, to such contract or lease from
accepting performance from or rendering performance to an entity
other than the debtor or the debtor in possession or an assignee of
such contract or lease, whether or not such contract or lease
prohibits or restricts assignment of rights or delegation of
duties" for "applicable law excuses a party, other than the debtor,
to such contract or lease from accepting performance from or
rendering performance to the trustee or an assignee of such
contract or lease, whether or not such contract or lease prohibits
or restricts assignment of rights or delegation of duties" and
adding par. (3).
Subsec. (d). Pub. L. 98-353, Sec. 362(a), amended subsec. (d)
generally, inserting in par. (1) reference to residential real
property or personal property of the debtor, inserting in par. (2)
reference to residential real property or personal property of the
debtor, and adding pars. (3) and (4).
Subsec. (h)(1). Pub. L. 98-353, Sec. 402, amended par. (1)
generally. Prior to amendment, par. (1) read as follows: "If the
trustee rejects an unexpired lease of real property of the debtor
under which the debtor is the lessor, the lessee under such lease
may treat the lease as terminated by such rejection, or, in the
alternative, may remain in possession for the balance of the term
of such lease and any renewal or extension of such term that is
enforceable by such lessee under applicable nonbankruptcy law."
Subsec. (h)(2). Pub. L. 98-353, Sec. 403, amended par. (2)
generally. Prior to amendment, par. (2) read as follows: "If such
lessee remains in possession, such lessee may offset against the
rent reserved under such lease for the balance of the term after
the date of the rejection of such lease, and any such renewal or
extension, any damages occurring after such date caused by the
nonperformance of any obligation of the debtor after such date, but
such lessee does not have any rights against the estate on account
of any damages arising after such date from such rejection, other
than such offset."
Subsec. (i)(1). Pub. L. 98-353, Sec. 404, amended par. (1)
generally, inserting provisions relating to timeshare interests
under timeshare plans.
Subsecs. (l), (m). Pub. L. 98-353, Sec. 362(b), added subsecs.
(l) and (m).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
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.
EFFECTIVE DATE OF 1992 AMENDMENT
Section 19(f) of Pub. L. 102-365 provided that: "The amendments
made by this section [amending this section] shall be in effect for
the 12-month period that begins on the date of enactment of this
Act [Sept. 3, 1992] and shall apply in all proceedings involving an
affected air carrier (as defined in section 365(p) of title 11,
United States Code, as amended by this section) that are pending
during such 12-month period. Not later than 9 months after the date
of enactment, the Administrator of the Federal Aviation
Administration shall report to the Committee on Commerce, Science,
and Transportation and Committee on the Judiciary of the Senate and
the Committee on the Judiciary and Committee on Public Works and
Transportation of the House of Representatives on whether this
section shall apply to proceedings that are commenced after such 12-
month period."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-506 effective Oct. 18, 1988, but not
applicable to any case commenced under this title before such date,
see section 2 of Pub. L. 100-506, set out as a note under section
101 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
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.
EFFECTIVE DATE OF 1984 AMENDMENT
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.
AIRPORT LEASES
Section 19(a) of Pub. L. 102-365 provided that: "Congress finds
that -
"(1) there are major airports served by an air carrier that has
leased a substantial majority of the airport's gates;
"(2) the commerce in the region served by such a major airport
can be disrupted if the air carrier that leases most of its gates
enters bankruptcy and either discontinues or materially reduces
service; and
"(3) it is important that such airports be empowered to
continue service in the event of such a disruption."
-End-
-CITE-
11 USC Sec. 366 01/07/2011
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-HEAD-
Sec. 366. Utility service
-STATUTE-
(a) Except as provided in subsections (b) and (c) of this
section, a utility may not alter, refuse, or discontinue service
to, or discriminate against, the trustee or the debtor solely on
the basis of the commencement of a case under this title or that a
debt owed by the debtor to such utility for service rendered before
the order for relief was not paid when due.
(b) Such utility may alter, refuse, or discontinue service if
neither the trustee nor the debtor, within 20 days after the date
of the order for relief, furnishes adequate assurance of payment,
in the form of a deposit or other security, for service after such
date. On request of a party in interest and after notice and a
hearing, the court may order reasonable modification of the amount
of the deposit or other security necessary to provide adequate
assurance of payment.
(c)(1)(A) For purposes of this subsection, the term "assurance of
payment" means -
(i) a cash deposit;
(ii) a letter of credit;
(iii) a certificate of deposit;
(iv) a surety bond;
(v) a prepayment of utility consumption; or
(vi) another form of security that is mutually agreed on
between the utility and the debtor or the trustee.
(B) For purposes of this subsection an administrative expense
priority shall not constitute an assurance of payment.
(2) Subject to paragraphs (3) and (4), with respect to a case
filed under chapter 11, a utility referred to in subsection (a) may
alter, refuse, or discontinue utility service, if during the 30-day
period beginning on the date of the filing of the petition, the
utility does not receive from the debtor or the trustee adequate
assurance of payment for utility service that is satisfactory to
the utility.
(3)(A) On request of a party in interest and after notice and a
hearing, the court may order modification of the amount of an
assurance of payment under paragraph (2).
(B) In making a determination under this paragraph whether an
assurance of payment is adequate, the court may not consider -
(i) the absence of security before the date of the filing of
the petition;
(ii) the payment by the debtor of charges for utility service
in a timely manner before the date of the filing of the petition;
or
(iii) the availability of an administrative expense priority.
(4) Notwithstanding any other provision of law, with respect to a
case subject to this subsection, a utility may recover or set off
against a security deposit provided to the utility by the debtor
before the date of the filing of the petition without notice or
order of the court.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2578; Pub. L. 98-353, title
III, Sec. 443, July 10, 1984, 98 Stat. 373; Pub. L. 109-8, title
IV, Sec. 417, Apr. 20, 2005, 119 Stat. 108.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 366 of the House amendment represents a compromise
between comparable provisions contained in H.R. 8200 as passed by
the House and the Senate amendment. Subsection (a) is modified so
that the applicable date is the date of the order for relief rather
than the date of the filing of the petition. Subsection (b)
contains a similar change but is otherwise derived from section
366(b) of the Senate amendment, with the exception that a time
period for continued service of 20 days rather than 10 days is
adopted.
SENATE REPORT NO. 95-989
This section gives debtors protection from a cut-off of service
by a utility because of the filing of a bankruptcy case. This
section is intended to cover utilities that have some special
position with respect to the debtor, such as an electric company,
gas supplier, or telephone company that is a monopoly in the area
so that the debtor cannot easily obtain comparable service from
another utility. The utility may not alter, refuse, or discontinue
service because of the nonpayment of a bill that would be
discharged in the bankruptcy case. Subsection (b) protects the
utility company by requiring the trustee or the debtor to provide,
within ten days, adequate assurance of payment for service provided
after the date of the petition.
AMENDMENTS
2005 - Subsec. (a). Pub. L. 109-8, Sec. 417(1), substituted
"subsections (b) and (c)" for "subsection (b)".
Subsec. (c). Pub. L. 109-8, Sec. 417(2), added subsec. (c).
1984 - Subsec. (a). Pub. L. 98-353 inserted "of the commencement
of a case under this title or" after "basis".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
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.
-End-
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