US (United States) Code. Title 11. Chapter 3: Case administration

Codificación normativa de EEUU (Estados Unidos). Legislación federal estadounidense # Bankruptcy

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11 USC CHAPTER 3 - CASE ADMINISTRATION 01/06/03

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TITLE 11 - BANKRUPTCY

CHAPTER 3 - CASE ADMINISTRATION

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-HEAD-

CHAPTER 3 - CASE ADMINISTRATION

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SUBCHAPTER I - COMMENCEMENT OF A CASE

Sec.

301. Voluntary cases.

302. Joint cases.

303. Involuntary cases.

304. Cases ancillary to foreign proceedings.

305. Abstention.

306. Limited appearance.

307. United States trustee.

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.

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 tax provisions.

347. Unclaimed property.

348. Effect of conversion.

349. Effect of dismissal.

350. Closing and reopening cases.

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

1986 - Pub. L. 99-554, title II, Sec. 205(b), Oct. 27, 1986, 100

Stat. 3098, added item 307.

-SECREF-

CHAPTER REFERRED TO IN OTHER SECTIONS

This chapter is referred to in sections 103, 782 of this title;

title 15 section 78fff.

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11 USC SUBCHAPTER I - COMMENCEMENT OF A CASE 01/06/03

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TITLE 11 - BANKRUPTCY

CHAPTER 3 - CASE ADMINISTRATION

SUBCHAPTER I - COMMENCEMENT OF A CASE

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-HEAD-

SUBCHAPTER I - COMMENCEMENT OF A CASE

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11 USC Sec. 301 01/06/03

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TITLE 11 - BANKRUPTCY

CHAPTER 3 - CASE ADMINISTRATION

SUBCHAPTER I - COMMENCEMENT OF A CASE

-HEAD-

Sec. 301. Voluntary cases

-STATUTE-

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. 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.)

-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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 101, 362, 365, 522, 541,

901, 921 of this title.

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11 USC Sec. 302 01/06/03

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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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 101, 362, 365, 522, 541

of this title.

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11 USC Sec. 303 01/06/03

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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, or an indenture

trustee representing such a holder, if such 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; 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) 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.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2559; Pub. L. 98-353, title

III, Sec. 426, 427, July 10, 1984, 98 Stat. 369; Pub. L. 99-554,

title II, Sec. 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.)

-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

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 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

For adjustment of dollar amounts specified in subsec. (b)(1), (2)

of this section by the Judicial Conference of the United States,

effective Apr. 1, 2001, see note set out under section 104 of this

title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 101, 104, 106, 306, 362,

503, 504, 522, 541, 549 of this title; title 28 sections 1411,

1480.

-CITE-

11 USC Sec. 304 01/06/03

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TITLE 11 - BANKRUPTCY

CHAPTER 3 - CASE ADMINISTRATION

SUBCHAPTER I - COMMENCEMENT OF A CASE

-HEAD-

Sec. 304. Cases ancillary to foreign proceedings

-STATUTE-

(a) A case ancillary to a foreign proceeding is commenced by the

filing with the bankruptcy court of a petition under this section

by a foreign representative.

(b) Subject to the provisions of subsection (c) of this section,

if a party in interest does not timely controvert the petition, or

after trial, the court may -

(1) enjoin the commencement or continuation of -

(A) any action against -

(i) a debtor with respect to property involved in such

foreign proceeding; or

(ii) such property; or

(B) the enforcement of any judgment against the debtor with

respect to such property, or any act or the commencement or

continuation of any judicial proceeding to create or enforce a

lien against the property of such estate;

(2) order turnover of the property of such estate, or the

proceeds of such property, to such foreign representative; or

(3) order other appropriate relief.

(c) In determining whether to grant relief under subsection (b)

of this section, the court shall be guided by what will best assure

an economical and expeditious administration of such estate,

consistent with -

(1) just treatment of all holders of claims against or

interests in such estate;

(2) protection of claim holders in the United States against

prejudice and inconvenience in the processing of claims in such

foreign proceeding;

(3) prevention of preferential or fraudulent dispositions of

property of such estate;

(4) distribution of proceeds of such estate substantially in

accordance with the order prescribed by this title;

(5) comity; and

(6) if appropriate, the provision of an opportunity for a fresh

start for the individual that such foreign proceeding concerns.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2560.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 304(b) adopts a provision contained in the Senate

amendment with modifications. The provision indicates that if a

party in interest does not timely controvert the petition in a case

ancillary to a foreign proceeding, or after trial on the merits,

the court may take various actions, including enjoining the

commencement or continuation of any action against the debtor with

respect to property involved in the proceeding, or against the

property itself; enjoining the enforcement of any judgment against

the debtor or the debtor's property; or the commencement or

continuation of any judicial proceeding to create or enforce a lien

against the property of the debtor or the estate.

Section 304(c) is modified to indicate that the court shall be

guided by considerations of comity in addition to the other factors

specified therein.

SENATE REPORT NO. 95-989

This section governs cases filed in the bankruptcy courts that

are ancillary to foreign proceedings. That is, where a foreign

bankruptcy case is pending concerning a particular debtor and that

debtor has assets in this country, the foreign representative may

file a petition under this section, which does not commence a full

bankruptcy case, in order to administer assets located in this

country, to prevent dismemberment by local creditors of assets

located here, or for other appropriate relief. The debtor is given

the opportunity to controvert the petition.

Subsection (c) requires the court to consider several factors in

determining what relief, if any, to grant. The court is to be

guided by what will best assure an economical and expeditious

administration of the estate, consistent with just treatment of all

creditors and equity security holders; protection of local

creditors and equity security holders against prejudice and

inconvenience in processing claims and interests in the foreign

proceeding; prevention of preferential or fraudulent disposition of

property of the estate; distribution of the proceeds of the estate

substantially in conformity with the distribution provisions of the

bankruptcy code; and, if the debtor is an individual, the provision

of an opportunity for a fresh start. These guidelines are designed

to give the court the maximum flexibility in handling ancillary

cases. Principles of international comity and respect for the

judgments and laws of other nations suggest that the court be

permitted to make the appropriate orders under all of the

circumstances of each case, rather than being provided with

inflexible rules.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 101, 305, 306 of this

title; title 28 section 1410.

-CITE-

11 USC Sec. 305 01/06/03

-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) there is pending a foreign proceeding; and

(B) the factors specified in section 304(c) of this title

warrant 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.)

-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

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''.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 306 of this title.

-CITE-

11 USC Sec. 306 01/06/03

-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, 304, 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, 304, 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.)

-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.

-CITE-

11 USC Sec. 307 01/06/03

-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.''

-CITE-

11 USC SUBCHAPTER II - OFFICERS 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 3 - CASE ADMINISTRATION

SUBCHAPTER II - OFFICERS

.

-HEAD-

SUBCHAPTER II - OFFICERS

-CITE-

11 USC Sec. 321 01/06/03

-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, Sec. 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.

-CITE-

11 USC Sec. 322 01/06/03

-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 five 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, Sec. 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.)

-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

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 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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 701, 703, 746, 1101,

1104, 1202, 1302 of this title; title 15 section 78eee.

-CITE-

11 USC Sec. 323 01/06/03

-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.

-CITE-

11 USC Sec. 324 01/06/03

-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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 703, 1104 of this title.

-CITE-

11 USC Sec. 325 01/06/03

-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.

-CITE-

11 USC Sec. 326 01/06/03

-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 (Sec. 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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 330, 557 of this title.

-CITE-

11 USC Sec. 327 01/06/03

-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, Sec. 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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 326, 328, 330, 331, 1107

of this title; title 28 section 586.

-CITE-

11 USC Sec. 328 01/06/03

-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, 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.)

-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

1984 - Subsec. (a). Pub. L. 98-353 substituted ''not capable of

being anticipated'' for ''unanticipatable''.

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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 326, 330 of this title.

-CITE-

11 USC Sec. 329 01/06/03

-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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 330, 541 of this title.

-CITE-

11 USC Sec. 330 01/06/03

-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, an examiner, a professional

person employed under section 327 or 1103 -

(A) reasonable compensation for actual, necessary services

rendered by the trustee, examiner, 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)(A) (FOOTNOTE 1) In determining the amount of reasonable

compensation to be awarded, the court shall consider the nature,

the extent, and the value of such services, taking into account all

relevant factors, including -

(FOOTNOTE 1) So in original.

(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; and

(E) 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.

(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, Sec. 433, 434, July 10, 1984, 98 Stat. 370; Pub. L. 99-554,

title II, Sec. 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.)

-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

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 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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 326, 331, 503, 1107, 1203

of this title; title 28 sections 586, 589a.

-CITE-

11 USC Sec. 331 01/06/03

-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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 330 of this title.

-CITE-

11 USC SUBCHAPTER III - ADMINISTRATION 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 3 - CASE ADMINISTRATION

SUBCHAPTER III - ADMINISTRATION

.

-HEAD-

SUBCHAPTER III - ADMINISTRATION

-CITE-

11 USC Sec. 341 01/06/03

-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.

(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.

-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.)

-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

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 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.''

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 343, 702, 705, 1161 of

this title.

-CITE-

11 USC Sec. 342 01/06/03

-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) 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.

(c) 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 taxpayer

identification number of the debtor, but the failure of such notice

to contain such information shall not invalidate the legal effect

of such notice.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565; Pub. L. 98-353, title

III, Sec. 302, 435, July 10, 1984, 98 Stat. 352, 370; Pub. L.

103-394, title II, Sec. 225, Oct. 22, 1994, 108 Stat. 4131.)

-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

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 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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 348, 741, 743, 762, 765

of this title.

-CITE-

11 USC Sec. 343 01/06/03

-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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 1161 of this title.

-CITE-

11 USC Sec. 344 01/06/03

-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).

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 521, 901 of this title.

-CITE-

11 USC Sec. 345 01/06/03

-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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in title 28 section 586.

-CITE-

11 USC Sec. 346 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 3 - CASE ADMINISTRATION

SUBCHAPTER III - ADMINISTRATION

-HEAD-

Sec. 346. Special tax provisions

-STATUTE-

(a) Except to the extent otherwise provided in this section,

subsections (b), (c), (d), (e), (g), (h), (i), and (j) of this

section apply notwithstanding any State or local law imposing a

tax, but subject to the Internal Revenue Code of 1986.

(b)(1) In a case under chapter 7, 12, or 11 of this title

concerning an individual, any income of the estate may be taxed

under a State or local law imposing a tax on or measured by income

only to the estate, and may not be taxed to such individual.

Except as provided in section 728 of this title, if such individual

is a partner in a partnership, any gain or loss resulting from a

distribution of property from such partnership, or any distributive

share of income, gain, loss, deduction, or credit of such

individual that is distributed, or considered distributed, from

such partnership, after the commencement of the case is gain, loss,

income, deduction, or credit, as the case may be, of the estate.

(2) Except as otherwise provided in this section and in section

728 of this title, any income of the estate in such a case, and any

State or local tax on or measured by such income, shall be computed

in the same manner as the income and the tax of an estate.

(3) The estate in such a case shall use the same accounting

method as the debtor used immediately before the commencement of

the case.

(c)(1) The commencement of a case under this title concerning a

corporation or a partnership does not effect a change in the status

of such corporation or partnership for the purposes of any State or

local law imposing a tax on or measured by income. Except as

otherwise provided in this section and in section 728 of this

title, any income of the estate in such case may be taxed only as

though such case had not been commenced.

(2) In such a case, except as provided in section 728 of this

title, the trustee shall make any tax return otherwise required by

State or local law to be filed by or on behalf of such corporation

or partnership in the same manner and form as such corporation or

partnership, as the case may be, is required to make such return.

(d) In a case under chapter 13 of this title, any income of the

estate or the debtor may be taxed under a State or local law

imposing a tax on or measured by income only to the debtor, and may

not be taxed to the estate.

(e) A claim allowed under section 502(f) or 503 of this title,

other than a claim for a tax that is not otherwise deductible or a

capital expenditure that is not otherwise deductible, is deductible

by the entity to which income of the estate is taxed unless such

claim was deducted by another entity, and a deduction for such a

claim is deemed to be a deduction attributable to a business.

(f) The trustee shall withhold from any payment of claims for

wages, salaries, commissions, dividends, interest, or other

payments, or collect, any amount required to be withheld or

collected under applicable State or local tax law, and shall pay

such withheld or collected amount to the appropriate governmental

unit at the time and in the manner required by such tax law, and

with the same priority as the claim from which such amount was

withheld was paid.

(g)(1) Neither gain nor loss shall be recognized on a transfer -

(A) by operation of law, of property to the estate;

(B) other than a sale, of property from the estate to the

debtor; or

(C) in a case under chapter 11 or 12 of this title concerning a

corporation, of property from the estate to a corporation that is

an affiliate participating in a joint plan with the debtor, or

that is a successor to the debtor under the plan, except that

gain or loss may be recognized to the same extent that such

transfer results in the recognition of gain or loss under section

371 (FOOTNOTE 1) of the Internal Revenue Code of 1986.

(FOOTNOTE 1) See References in Text note below.

(2) The transferee of a transfer of a kind specified in this

subsection shall take the property transferred with the same

character, and with the transferor's basis, as adjusted under

subsection (j)(5) of this section, and holding period.

(h) Notwithstanding sections 728(a) and 1146(a) of this title,

for the purpose of determining the number of taxable periods during

which the debtor or the estate may use a loss carryover or a loss

carryback, the taxable period of the debtor during which the case

is commenced is deemed not to have been terminated by such

commencement.

(i)(1) In a case under chapter 7, 12, or 11 of this title

concerning an individual, the estate shall succeed to the debtor's

tax attributes, including -

(A) any investment credit carryover;

(B) any recovery exclusion;

(C) any loss carryover;

(D) any foreign tax credit carryover;

(E) any capital loss carryover; and

(F) any claim of right.

(2) After such a case is closed or dismissed, the debtor shall

succeed to any tax attribute to which the estate succeeded under

paragraph (1) of this subsection but that was not utilized by the

estate. The debtor may utilize such tax attributes as though any

applicable time limitations on such utilization by the debtor were

suspended during the time during which the case was pending.

(3) In such a case, the estate may carry back any loss of the

estate to a taxable period of the debtor that ended before the

order for relief under such chapter the same as the debtor could

have carried back such loss had the debtor incurred such loss and

the case under this title had not been commenced, but the debtor

may not carry back any loss of the debtor from a taxable period

that ends after such order to any taxable period of the debtor that

ended before such order until after the case is closed.

(j)(1) Except as otherwise provided in this subsection, income is

not realized by the estate, the debtor, or a successor to the

debtor by reason of forgiveness or discharge of indebtedness in a

case under this title.

(2) For the purposes of any State or local law imposing a tax on

or measured by income, a deduction with respect to a liability may

not be allowed for any taxable period during or after which such

liability is forgiven or discharged under this title. In this

paragraph, ''a deduction with respect to a liability'' includes a

capital loss incurred on the disposition of a capital asset with

respect to a liability that was incurred in connection with the

acquisition of such asset.

(3) Except as provided in paragraph (4) of this subsection, for

the purpose of any State or local law imposing a tax on or measured

by income, any net operating loss of an individual or corporate

debtor, including a net operating loss carryover to such debtor,

shall be reduced by the amount of indebtedness forgiven or

discharged in a case under this title, except to the extent that

such forgiveness or discharge resulted in a disallowance under

paragraph (2) of this subsection.

(4) A reduction of a net operating loss or a net operating loss

carryover under paragraph (3) of this subsection or of basis under

paragraph (5) of this subsection is not required to the extent that

the indebtedness of an individual or corporate debtor forgiven or

discharged -

(A) consisted of items of a deductible nature that were not

deducted by such debtor; or

(B) resulted in an expired net operating loss carryover or

other deduction that -

(i) did not offset income for any taxable period; and

(ii) did not contribute to a net operating loss in or a net

operating loss carryover to the taxable period during or after

which such indebtedness was discharged.

(5) For the purposes of a State or local law imposing a tax on or

measured by income, the basis of the debtor's property or of

property transferred to an entity required to use the debtor's

basis in whole or in part shall be reduced by the lesser of -

(A)(i) the amount by which the indebtedness of the debtor has

been forgiven or discharged in a case under this title; minus

(ii) the total amount of adjustments made under paragraphs (2)

and (3) of this subsection; and

(B) the amount by which the total basis of the debtor's assets

that were property of the estate before such forgiveness or

discharge exceeds the debtor's total liabilities that were

liabilities both before and after such forgiveness or discharge.

(6) Notwithstanding paragraph (5) of this subsection, basis is

not required to be reduced to the extent that the debtor elects to

treat as taxable income, of the taxable period in which

indebtedness is forgiven or discharged, the amount of indebtedness

forgiven or discharged that otherwise would be applied in reduction

of basis under paragraph (5) of this subsection.

(7) For the purposes of this subsection, indebtedness with

respect to which an equity security, other than an interest of a

limited partner in a limited partnership, is issued to the creditor

to whom such indebtedness was owed, or that is forgiven as a

contribution to capital by an equity security holder other than a

limited partner in the debtor, is not forgiven or discharged in a

case under this title -

(A) to any extent that such indebtedness did not consist of

items of a deductible nature; or

(B) if the issuance of such equity security has the same

consequences under a law imposing a tax on or measured by income

to such creditor as a payment in cash to such creditor in an

amount equal to the fair market value of such equity security,

then to the lesser of -

(i) the extent that such issuance has the same such

consequences; and

(ii) the extent of such fair market value.

-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, Sec. 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.)

-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 subsec. (a), is

classified generally to Title 26, Internal Revenue Code.

Section 371 of the Internal Revenue Code of 1986, referred to in

subsec. (g)(1)(C), was repealed by Pub. L. 101-508, title XI, Sec.

11801(a)(19), Nov. 5, 1990, 104 Stat. 1388-521.

-MISC2-

AMENDMENTS

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 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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 1146, 1231 of this

title.

-CITE-

11 USC Sec. 347 01/06/03

-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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 901 of this title.

-CITE-

11 USC Sec. 348 01/06/03

-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), 728(a), 728(b), 1102(a), 1110(a)(1),

1121(b), 1121(c), 1141(d)(4), 1146(a), 1146(b), 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; and

(B) valuations of property and of allowed secured claims in the

chapter 13 case shall apply in the converted case, with allowed

secured claims reduced to the extent that they have been paid in

accordance with the chapter 13 plan.

(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 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.)

-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

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 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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 101 of this title.

-CITE-

11 USC Sec. 349 01/06/03

-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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 901 of this title.

-CITE-

11 USC Sec. 350 01/06/03

-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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 554, 703, 901 of this

title.

-CITE-

11 USC SUBCHAPTER IV - ADMINISTRATIVE POWERS 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 3 - CASE ADMINISTRATION

SUBCHAPTER IV - ADMINISTRATIVE POWERS

.

-HEAD-

SUBCHAPTER IV - ADMINISTRATIVE POWERS

-CITE-

11 USC Sec. 361 01/06/03

-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. Sec. 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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 901, 1205 of this title.

-CITE-

11 USC Sec. 362 01/06/03

-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 the debtor.

(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) 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;

(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 setoff by a

commodity broker, forward contract merchant, stockbroker,

financial institutions, 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 or due from such commodity

broker, forward contract merchant, stockbroker, financial

institutions, 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, 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 or

due from such repo participant to margin, guarantee, secure or

settle repurchase 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 section 207 or title XI of the

Merchant Marine Act, 1936, 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 section 207 or title XI of the

Merchant Marine Act, 1936;

(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 setoff by a

swap participant, of any mutual debt and claim under or in

connection with any swap agreement that constitutes the setoff of

a claim against the debtor for any payment due from the debtor

under or in connection with any swap agreement against any

payment due to the debtor from the swap participant under or in

connection with any swap agreement or against cash, securities,

or other property of the debtor held by or due from such swap

participant to guarantee, secure or settle any swap agreement; or

(18) under subsection (a) of the creation or perfection of a

statutory lien for an ad valorem property tax imposed by the

District of Columbia, or a political subdivision of a State, if

such tax comes due after the filing of the petition.

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), and (f) 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; and

(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.

(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; or

(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) -

(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 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.

(e) 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.

(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) 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.

-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, Sec.

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, Sec. 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, Sec. 101, 116, title II, Sec. 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.)

-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 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 Merchant Marine Act, 1936, referred to in subsec. (b)(12),

(13), is act June 29, 1936, ch. 858, 49 Stat. 1985, as amended.

Title XI of the Act is classified generally to subchapter XI (Sec.

1271 et seq.) of chapter 27 of Title 46, Appendix, Shipping.

Section 207 of the Act is classified to section 1117 of Title 46,

Appendix. For complete classification of this Act to the Code, see

section 1245 of Title 46, Appendix, 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, as amended, which

is classified principally to chapter 28 (Sec. 1001 et seq.) of

Title 20, Education. 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.

-MISC2-

AMENDMENTS

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 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 (Sec. 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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 108, 109, 361, 363,

365, 505, 507, 542, 553, 557, 742, 901, 922, 1110, 1168, 1205 of

this title; title 26 section 7433; title 28 section 1334; title 46

section 31308.

-CITE-

11 USC Sec. 363 01/06/03

-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.

(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 only to the extent not inconsistent with

any relief granted under section 362(c), 362(d), 362(e), or 362(f)

of this title.

(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, 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) 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, Sec. 214(b), 219(c), title V, Sec.

501(d)(8), Oct. 22, 1994, 108 Stat. 4113, 4126, 4129, 4144.)

-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.

-MISC2-

AMENDMENTS

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, Sec. 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 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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 303, 361, 507, 541,

542, 552, 553, 557, 1111, 1129, 1205, 1206, 1303, 1304 of this

title.

-CITE-

11 USC Sec. 364 01/06/03

-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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 361, 507, 901, 921,

922, 1205, 1304 of this title.

-CITE-

11 USC Sec. 365 01/06/03

-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;

(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 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;

(3) such lease is of nonresidential real property and has been

terminated under applicable nonbankruptcy law prior to the order

for relief; or

(4) such lease is of nonresidential real property under which

the debtor is the lessee of an aircraft terminal or aircraft gate

at an airport at which the debtor is the lessee under one or more

additional nonresidential leases of an aircraft terminal or

aircraft gate and the trustee, in connection with such assumption

or assignment, does not assume all such leases or does not assume

and assign all of such leases to the same person, except that the

trustee may assume or assign less than all of such leases with

the airport operator's written consent.

(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) 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.

(5) Notwithstanding paragraphs (1) and (4) of this subsection, in

a case under any chapter of this title, if the trustee does not

assume or reject an unexpired lease of nonresidential real property

under which the debtor is an affected air carrier that is the

lessee of an aircraft terminal or aircraft gate before the

occurrence of a termination event, then (unless the court orders

the trustee to assume such unexpired leases within 5 days after the

termination event), at the option of the airport operator, such

lease is deemed rejected 5 days after the occurrence of a

termination event and the trustee shall immediately surrender

possession of the premises to the airport operator; except that the

lease shall not be deemed to be rejected unless the airport

operator first waives the right to damages related to the

rejection. In the event that the lease is deemed to be rejected

under this paragraph, the airport operator shall provide the

affected air carrier adequate opportunity after the surrender of

the premises to remove the fixtures and equipment installed by the

affected air carrier.

(6) For the purpose of paragraph (5) of this subsection and

paragraph (f)(1) of this section, the occurrence of a termination

event means, with respect to a debtor which is an affected air

carrier that is the lessee of an aircraft terminal or aircraft gate

-

(A) the entry under section 301 or 302 of this title of an

order for relief under chapter 7 of this title;

(B) the conversion of a case under any chapter of this title to

a case under chapter 7 of this title; or

(C) the granting of relief from the stay provided under section

362(a) of this title with respect to aircraft, aircraft engines,

propellers, appliances, or spare parts, as defined in section

40102(a) of title 49, except for property of the debtor found by

the court not to be necessary to an effective reorganization.

(7) Any order entered by the court pursuant to paragraph (4)

extending the period within which the trustee of an affected air

carrier must assume or reject an unexpired lease of nonresidential

real property shall be without prejudice to -

(A) the right of the trustee to seek further extensions within

such additional time period granted by the court pursuant to

paragraph (4); and

(B) the right of any lessor or any other party in interest to

request, at any time, a shortening or termination of the period

within which the trustee must assume or reject an unexpired lease

of nonresidential real property.

(8) The burden of proof for establishing cause for an extension

by an affected air carrier under paragraph (4) or the maintenance

of a previously granted extension under paragraph (7)(A) and (B)

shall at all times remain with the trustee.

(9) For purposes of determining cause under paragraph (7) with

respect to an unexpired lease of nonresidential real property

between the debtor that is an affected air carrier and an airport

operator under which such debtor is the lessee of an airport

terminal or an airport gate, the court shall consider, among other

relevant factors, whether substantial harm will result to the

airport operator or airline passengers as a result of the extension

or the maintenance of a previously granted extension. In making

the determination of substantial harm, the court shall consider,

among other relevant factors, the level of actual use of the

terminals or gates which are the subject of the lease, the public

interest in actual use of such terminals or gates, the existence of

competing demands for the use of such terminals or gates, the

effect of the court's extension or termination of the period of

time to assume or reject the lease on such debtor's ability to

successfully reorganize under chapter 11 of this title, and whether

the trustee of the affected air carrier is capable of continuing to

comply with its obligations under section 365(d)(3) of this title.

(10) 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 subsection (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; 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.

(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.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2574; Pub. L. 98-353, title

III, Sec. 362, 402-404, July 10, 1984, 98 Stat. 361, 367; Pub. L.

99-554, title II, Sec. 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, Sec. 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.)

-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

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 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.''

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 348, 363, 502, 541,

553, 555, 556, 557, 559, 560, 744, 901, 929, 1110, 1123, 1124,

1167, 1168, 1169, 1222, 1322 of this title.

-CITE-

11 USC Sec. 366 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 3 - CASE ADMINISTRATION

SUBCHAPTER IV - ADMINISTRATIVE POWERS

-HEAD-

Sec. 366. Utility service

-STATUTE-

(a) Except as provided in subsection (b) 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.

-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.)

-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

1984 - Subsec. (a). Pub. L. 98-353 inserted ''of the commencement

of a case under this title or'' after ''basis''.

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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 901 of this title.

-CITE-