US (United States) Code. Title 11. Chapter 7: Liquidation

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

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publicidad

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11 USC CHAPTER 7 - LIQUIDATION 01/06/03

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TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

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-HEAD-

CHAPTER 7 - LIQUIDATION

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SUBCHAPTER I - OFFICERS AND ADMINISTRATION

Sec.

701. Interim trustee.

702. Election of trustee.

703. Successor trustee.

704. Duties of trustee.

705. Creditors' committee.

706. Conversion.

707. Dismissal.

SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE

ESTATE

721. Authorization to operate business.

722. Redemption.

723. Rights of partnership trustee against general partners.

724. Treatment of certain liens.

725. Disposition of certain property.

726. Distribution of property of the estate.

727. Discharge.

728. Special tax provisions.

SUBCHAPTER III - STOCKBROKER LIQUIDATION

741. Definitions for this subchapter.

742. Effect of section 362 of this title in this subchapter.

743. Notice.

744. Executory contracts.

745. Treatment of accounts.

746. Extent of customer claims.

747. Subordination of certain customer claims.

748. Reduction of securities to money.

749. Voidable transfers.

750. Distribution of securities.

751. Customer name securities.

752. Customer property.

SUBCHAPTER IV - COMMODITY BROKER LIQUIDATION

761. Definitions for this subchapter.

762. Notice to the Commission and right to be heard.

763. Treatment of accounts.

764. Voidable transfers.

765. Customer instructions.

766. Treatment of customer property.

SUBCHAPTER V - CLEARING BANK LIQUIDATION

781. Definitions.

782. Selection of trustee.

783. Additional powers of trustee.

784. Right to be heard.

AMENDMENTS

2000 - Pub. L. 106-554, Sec. 1(a)(5) (title I, Sec. 112(d)), Dec.

21, 2000, 114 Stat. 2763, 2763A-396, added subchapter V heading and

items 781 to 784.

1984 - Pub. L. 98-353, title III, Sec. 471, July 10, 1984, 98

Stat. 380, substituted ''Successor'' for ''Succesor'' in item 703.

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CHAPTER REFERRED TO IN OTHER SECTIONS

This chapter is referred to in sections 103, 109, 303, 321, 326,

327, 330, 341, 346, 347, 362, 365, 502, 508, 521, 524, 547, 1106,

1112, 1129, 1141, 1173, 1174, 1201, 1207, 1208, 1225, 1228, 1301,

1306, 1307, 1325, 1328 of this title; title 7 section 24; title 15

section 78fff-1; title 20 section 1087; title 21 section 356c;

title 26 sections 108, 1398, 4980, 6012; title 28 sections 586,

1930; title 29 section 1362.

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11 USC SUBCHAPTER I - OFFICERS AND ADMINISTRATION 01/06/03

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TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

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-HEAD-

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

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SUBCHAPTER REFERRED TO IN OTHER SECTIONS

This subchapter is referred to in section 103 of this title;

title 15 section 78fff.

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11 USC Sec. 701 01/06/03

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TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 701. Interim trustee

-STATUTE-

(a)(1) Promptly after the order for relief under this chapter,

the United States trustee shall appoint one disinterested person

that is a member of the panel of private trustees established under

section 586(a)(1) of title 28 or that is serving as trustee in the

case immediately before the order for relief under this chapter to

serve as interim trustee in the case.

(2) If none of the members of such panel is willing to serve as

interim trustee in the case, then the United States trustee may

serve as interim trustee in the case.

(b) The service of an interim trustee under this section

terminates when a trustee elected or designated under section 702

of this title to serve as trustee in the case qualifies under

section 322 of this title.

(c) An interim trustee serving under this section is a trustee in

a case under this title.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2604; Pub. L. 99-554, title

II, Sec. 215, Oct. 27, 1986, 100 Stat. 3100.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

The House amendment deletes section 701(d) of the Senate

amendment. It is anticipated that the Rules of Bankruptcy

Procedure will require the appointment of an interim trustee at the

earliest practical moment in commodity broker bankruptcies, but no

later than noon of the day after the date of the filing of the

petition, due to the volatility of such cases.

SENATE REPORT NO. 95-989

This section requires the court to appoint an interim trustee.

The appointment must be made from the panel of private trustees

established and maintained by the Director of the Administrative

Office under proposed 28 U.S.C. 604(e).

Subsection (a) requires the appointment of an interim trustee to

be made promptly after the order for relief, unless a trustee is

already serving in the case, such as before a conversion from a

reorganization to a liquidation case.

Subsection (b) specifies that the appointment of an interim

trustee expires when the permanent trustee is elected or designated

under section 702.

Subsection (c) makes clear that an interim trustee is a trustee

in a case under the bankruptcy code.

Subsection (d) provides that in a commodity broker case where

speed is essential the interim trustee must be appointed by noon of

the business day immediately following the order for relief.

AMENDMENTS

1986 - Subsec. (a). Pub. L. 99-554 designated existing provisions

as par. (1), substituted ''the United States trustee shall

appoint'' for ''the court shall appoint'', ''586(a)(1)'' for

''604(f)'', ''that is serving'' for ''that was serving'', and added

par. (2).

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 303, 322, 348, 557, 703

of this title.

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11 USC Sec. 702 01/06/03

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TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 702. Election of trustee

-STATUTE-

(a) A creditor may vote for a candidate for trustee only if such

creditor -

(1) holds an allowable, undisputed, fixed, liquidated,

unsecured claim of a kind entitled to distribution under section

726(a)(2), 726(a)(3), 726(a)(4), 752(a), 766(h), or 766(i) of

this title;

(2) does not have an interest materially adverse, other than an

equity interest that is not substantial in relation to such

creditor's interest as a creditor, to the interest of creditors

entitled to such distribution; and

(3) is not an insider.

(b) At the meeting of creditors held under section 341 of this

title, creditors may elect one person to serve as trustee in the

case if election of a trustee is requested by creditors that may

vote under subsection (a) of this section, and that hold at least

20 percent in amount of the claims specified in subsection (a)(1)

of this section that are held by creditors that may vote under

subsection (a) of this section.

(c) A candidate for trustee is elected trustee if -

(1) creditors holding at least 20 percent in amount of the

claims of a kind specified in subsection (a)(1) of this section

that are held by creditors that may vote under subsection (a) of

this section vote; and

(2) such candidate receives the votes of creditors holding a

majority in amount of claims specified in subsection (a)(1) of

this section that are held by creditors that vote for a trustee.

(d) If a trustee is not elected under this section, then the

interim trustee shall serve as trustee in the case.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2604; Pub. L. 97-222, Sec.

7, July 27, 1982, 96 Stat. 237; Pub. L. 98-353, title III, Sec.

472, July 10, 1984, 98 Stat. 380.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

The House amendment adopts section 702(a)(2) of the Senate

amendment. An insubstantial equity interest does not disqualify a

creditor from voting for a candidate for trustee.

SENATE REPORT NO. 95-989

Subsection (a) of this section specifies which creditors may vote

for a trustee. Only a creditor that holds an allowable,

undisputed, fixed, liquidated, unsecured claim that is not entitled

to priority, that does not have an interest materially adverse to

the interest of general unsecured creditors, and that is not an

insider may vote for a trustee. The phrase ''materially adverse''

is currently used in the Rules of Bankruptcy Procedure, rule

207(d). The application of the standard requires a balancing of

various factors, such as the nature of the adversity. A creditor

with a very small equity position would not be excluded from voting

solely because he holds a small equity in the debtor. The Rules of

Bankruptcy Procedure also currently provide for temporary allowance

of claims, and will continue to do so for the purposes of

determining who is eligible to vote under this provision.

Subsection (b) permits creditors at the meeting of creditors to

elect one person to serve as trustee in the case. Creditors

holding at least 20 percent in amount of the claims specified in

the preceding paragraph must request election before creditors may

elect a trustee. Subsection (c) specifies that a candidate for

trustee is elected trustee if creditors holding at least 20 percent

in amount of those claims actually vote, and if the candidate

receives a majority in amount of votes actually cast.

Subsection (d) specifies that if a trustee is not elected, then

the interim trustee becomes the permanent trustee and serves in the

case permanently.

AMENDMENTS

1984 - Subsec. (b). Pub. L. 98-353, Sec. 472(a), inserted

''held'' after ''meeting of creditors''.

Subsec. (c)(1). Pub. L. 98-353, Sec. 472(b)(1), inserted ''of a

kind'' after ''claims''.

Subsec. (c)(2). Pub. L. 98-353, Sec. 472(b)(2), substituted ''for

a trustee'' for ''for trustee''.

Subsec. (d). Pub. L. 98-353, Sec. 472(c), substituted ''this

section'' for ''subsection (c) of this section''.

1982 - Subsec. (a)(1). Pub. L. 97-222 substituted ''726(a)(4),

752(a), 766(h), or 766(i)'' for ''or 726(a)(4)''.

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 322, 546, 557, 701, 703,

705, 1104 of this title.

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11 USC Sec. 703 01/06/03

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TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 703. Successor trustee

-STATUTE-

(a) If a trustee dies or resigns during a case, fails to qualify

under section 322 of this title, or is removed under section 324 of

this title, creditors may elect, in the manner specified in section

702 of this title, a person to fill the vacancy in the office of

trustee.

(b) Pending election of a trustee under subsection (a) of this

section, if necessary to preserve or prevent loss to the estate,

the United States trustee may appoint an interim trustee in the

manner specified in section 701(a).

(c) If creditors do not elect a successor trustee under

subsection (a) of this section or if a trustee is needed in a case

reopened under section 350 of this title, then the United States

trustee -

(1) shall appoint one disinterested person that is a member of

the panel of private trustees established under section 586(a)(1)

of title 28 to serve as trustee in the case; or

(2) may, if none of the disinterested members of such panel is

willing to serve as trustee, serve as trustee in the case.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2605; Pub. L. 98-353, title

III, Sec. 473, July 10, 1984, 98 Stat. 381; Pub. L. 99-554, title

II, Sec. 216, Oct. 27, 1986, 100 Stat. 3100.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

If the office of trustee becomes vacant during the case, this

section makes provision for the selection of a successor trustee.

The office might become vacant through death, resignation, removal,

failure to qualify under section 322 by posting bond, or the

reopening of a case. If it does, creditors may elect a successor

in the same manner as they may elect a trustee under the previous

section. Pending the election of a successor, the court may

appoint an interim trustee in the usual manner if necessary to

preserve or prevent loss to the estate. If creditors do not elect

a successor, or if a trustee is needed in a reopened case, then the

court appoints a disinterested member of the panel of private

trustees to serve.

AMENDMENTS

1986 - Subsec. (b). Pub. L. 99-554 amended subsec. (b) generally,

substituting ''the United States trustee may appoint'' for ''the

court may appoint'' and ''manner specified in section 701(a)'' for

''manner and subject to the provisions of section 701 of this

title''.

Subsec. (c). Pub. L. 99-554 amended subsec. (c) generally,

substituting ''this section or'' for ''this section, or'', ''then

the United States trustee'' for ''then the court'', designating

part of existing provisions as par. (1), and, as so designated,

substituting ''586(a)(1)'' for ''604(f)'', ''in the case; or'' for

''in the case.'', and adding par. (2).

1984 - Subsec. (b). Pub. L. 98-353 substituted ''and subject to

the provisions of section 701 of this title'' for ''specified in

section 701(a) of this title. Sections 701(b) and 701(c) of this

title apply to such interim trustee''.

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 sections 322, 557 of this title.

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11 USC Sec. 704 01/06/03

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TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 704. Duties of trustee

-STATUTE-

The trustee shall -

(1) collect and reduce to money the property of the estate for

which such trustee serves, and close such estate as expeditiously

as is compatible with the best interests of parties in interest;

(2) be accountable for all property received;

(3) ensure that the debtor shall perform his intention as

specified in section 521(2)(B) of this title;

(4) investigate the financial affairs of the debtor;

(5) if a purpose would be served, examine proofs of claims and

object to the allowance of any claim that is improper;

(6) if advisable, oppose the discharge of the debtor;

(7) unless the court orders otherwise, furnish such information

concerning the estate and the estate's administration as is

requested by a party in interest;

(8) if the business of the debtor is authorized to be operated,

file with the court, with the United States trustee, and with any

governmental unit charged with responsibility for collection or

determination of any tax arising out of such operation, periodic

reports and summaries of the operation of such business,

including a statement of receipts and disbursements, and such

other information as the United States trustee or the court

requires; and

(9) make a final report and file a final account of the

administration of the estate with the court and with the United

States trustee.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2605; Pub. L. 98-353, title

III, Sec. 311(a), 474, July 10, 1984, 98 Stat. 355, 381; Pub. L.

99-554, title II, Sec. 217, Oct. 27, 1986, 100 Stat. 3100.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 704(8) of the Senate amendment is deleted in the House

amendment. Trustees should give constructive notice of the

commencement of the case in the manner specified under section

549(c) of title 11.

SENATE REPORT NO. 95-989

The essential duties of the trustee are enumerated in this

section. Others, or elaborations on these, may be prescribed by

the Rules of Bankruptcy Procedure to the extent not inconsistent

with those prescribed by this section. The duties are derived from

section 47a of the Bankruptcy Act (section 75(a) of former title

11).

The trustee's principal duty is to collect and reduce to money

the property of the estate for which he serves, and to close up the

estate as expeditiously as is compatible with the best interests of

parties in interest. He must be accountable for all property

received, and must investigate the financial affairs of the

debtor. If a purpose would be served (such as if there are assets

that will be distributed), the trustee is required to examine

proofs of claims and object to the allowance of any claim that is

improper. If advisable, the trustee must oppose the discharge of

the debtor, which is for the benefit of general unsecured creditors

whom the trustee represents.

The trustee is responsible to furnish such information concerning

the estate and its administration as is requested by a party in

interest. If the business of the debtor is authorized to be

operated, then the trustee is required to file with governmental

units charged with the responsibility for collection or

determination of any tax arising out of the operation of the

business periodic reports and summaries of the operation, including

a statement of receipts and disbursements, and such other

information as the court requires. He is required to give

constructive notice of the commencement of the case in the manner

specified under section 342(b).

AMENDMENTS

1986 - Par. (8). Pub. L. 99-554, Sec. 217(1), inserted '', with

the United States trustee,'' after ''with the court'' and ''the

United States trustee or'' after ''information as''.

Par. (9). Pub. L. 99-554, Sec. 217(2), inserted ''with the United

States trustee'' after ''court''.

1984 - Par. (1). Pub. L. 98-353, Sec. 474, substituted ''close

such estate'' for ''close up such estate''.

Pars. (3) to (9). Pub. L. 98-353, Sec. 311(a), added par. (3) and

redesignated former pars. (3) to (8) as (4) to (9), respectively.

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 sections 782, 1106, 1202, 1302,

1304 of this title; title 29 section 1342.

-CITE-

11 USC Sec. 705 01/06/03

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TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 705. Creditors' committee

-STATUTE-

(a) At the meeting under section 341(a) of this title, creditors

that may vote for a trustee under section 702(a) of this title may

elect a committee of not fewer than three, and not more than

eleven, creditors, each of whom holds an allowable unsecured claim

of a kind entitled to distribution under section 726(a)(2) of this

title.

(b) A committee elected under subsection (a) of this section may

consult with the trustee or the United States trustee in connection

with the administration of the estate, make recommendations to the

trustee or the United States trustee respecting the performance of

the trustee's duties, and submit to the court or the United States

trustee any question affecting the administration of the estate.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2605; Pub. L. 99-554, title

II, Sec. 218, Oct. 27, 1986, 100 Stat. 3100.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 705(a) of the House amendment adopts a provision

contained in the Senate amendment that limits a committee of

creditors to not more than 11; the House bill contained no maximum

limitation.

SENATE REPORT NO. 95-989

This section is derived from section 44b of the Bankruptcy Act

(section 72(b) of former title 11) without substantial change. It

permits election by general unsecured creditors of a committee of

not fewer than 3 members and not more than 11 members to consult

with the trustee in connection with the administration of the

estate, to make recommendations to the trustee respecting the

performance of his duties, and to submit to the court any question

affecting the administration of the estate. There is no provision

for compensation or reimbursement of its counsel.

AMENDMENTS

1986 - Subsec. (b). Pub. L. 99-554 inserted ''or the United

States trustee'' in three places.

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 section 782 of this title.

-CITE-

11 USC Sec. 706 01/06/03

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TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 706. Conversion

-STATUTE-

(a) The debtor may convert a case under this chapter to a case

under chapter 11, 12, or 13 of this title at any time, if the case

has not been converted under section 1112, 1208, or 1307 of this

title. Any waiver of the right to convert a case under this

subsection is unenforceable.

(b) On request of a party in interest and after notice and a

hearing, the court may convert a case under this chapter to a case

under chapter 11 of this title at any time.

(c) The court may not convert a case under this chapter to a case

under chapter 12 or 13 of this title unless the debtor requests

such conversion.

(d) Notwithstanding any other provision of this section, a case

may not be converted to a case under another chapter of this title

unless the debtor may be a debtor under such chapter.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606; Pub. L. 99-554, title

II, Sec. 257(q), Oct. 27, 1986, 100 Stat. 3115; Pub. L. 103-394,

title V, Sec. 501(d)(22), Oct. 22, 1994, 108 Stat. 4146.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 706(a) of the House amendment adopts a provision

contained in the Senate amendment indicating that a waiver of the

right to convert a case under section 706(a) is unenforceable. The

explicit reference in title 11 forbidding the waiver of certain

rights is not intended to imply that other rights, such as the

right to file a voluntary bankruptcy case under section 301, may be

waived.

Section 706 of the House amendment adopts a similar provision

contained in H.R. 8200 as passed by the House. Competing proposals

contained in section 706(c) and section 706(d) of the Senate

amendment are rejected.

SENATE REPORT NO. 95-989

Subsection (a) of this section gives the debtor the one-time

absolute right of conversion of a liquidation case to a

reorganization or individual repayment plan case. If the case has

already once been converted from chapter 11 or 13 to chapter 7,

then the debtor does not have that right. The policy of the

provision is that the debtor should always be given the opportunity

to repay his debts, and a waiver of the right to convert a case is

unenforceable.

Subsection (b) permits the court, on request of a party in

interest and after notice and a hearing, to convert the case to

chapter 11 at any time. The decision whether to convert is left in

the sound discretion of the court, based on what will most inure to

the benefit of all parties in interest.

Subsection (c) is part of the prohibition against involuntary

chapter 13 cases, and prohibits the court from converting a case to

chapter 13 without the debtor's consent.

Subsection (d) reinforces section 109 by prohibiting conversion

to a chapter unless the debtor is eligible to be a debtor under

that chapter.

AMENDMENTS

1994 - Subsec. (a). Pub. L. 103-394 substituted ''1208, or 1307''

for ''1307, or 1208''.

1986 - Subsec. (a). Pub. L. 99-554, Sec. 257(q)(1), inserted

references to chapter 12 and section 1208 of this title.

Subsec. (c). Pub. L. 99-554, Sec. 257(q)(2), inserted reference

to chapter 12.

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 348, 1146, 1208, 1231,

1307 of this title.

-CITE-

11 USC Sec. 707 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 707. Dismissal

-STATUTE-

(a) The court may dismiss a case under this chapter only after

notice and a hearing and only for cause, including -

(1) unreasonable delay by the debtor that is prejudicial to

creditors;

(2) nonpayment of any fees or charges required under chapter

123 of title 28; and

(3) failure of the debtor in a voluntary case to file, within

fifteen days or such additional time as the court may allow after

the filing of the petition commencing such case, the information

required by paragraph (1) of section 521, but only on a motion by

the United States trustee.

(b) After notice and a hearing, the court, on its own motion or

on a motion by the United States trustee, but not at the request or

suggestion of any party in interest, may dismiss a case filed by an

individual debtor under this chapter whose debts are primarily

consumer debts if it finds that the granting of relief would be a

substantial abuse of the provisions of this chapter. There shall

be a presumption in favor of granting the relief requested by the

debtor. In making a determination whether to dismiss a case under

this section, the court may not take into consideration whether a

debtor has made, or continues to make, charitable contributions

(that meet the definition of ''charitable contribution'' under

section 548(d)(3)) to any qualified religious or charitable entity

or organization (as that term is defined in section 548(d)(4)).

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606; Pub. L. 98-353, title

III, Sec. 312, 475, July 10, 1984, 98 Stat. 355, 381; Pub. L.

99-554, title II, Sec. 219, Oct. 27, 1986, 100 Stat. 3100; Pub. L.

105-183, Sec. 4(b), June 19, 1998, 112 Stat. 518.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 707 of the House amendment indicates that the court may

dismiss a case only after notice and a hearing.

SENATE REPORT NO. 95-989

This section authorizes the court to dismiss a liquidation case

only for cause, such as unreasonable delay by the debtor that is

prejudicial to creditors or nonpayment of any fees and charges

required under chapter 123 (Sec. 1911 et seq.) of title 28. These

causes are not exhaustive, but merely illustrative. The section

does not contemplate, however, that the ability of the debtor to

repay his debts in whole or in part constitutes adequate cause for

dismissal. To permit dismissal on that ground would be to enact a

non-uniform mandatory chapter 13, in lieu of the remedy of

bankruptcy.

AMENDMENTS

1998 - Subsec. (b). Pub. L. 105-183 inserted at end ''In making a

determination whether to dismiss a case under this section, the

court may not take into consideration whether a debtor has made, or

continues to make, charitable contributions (that meet the

definition of 'charitable contribution' under section 548(d)(3)) to

any qualified religious or charitable entity or organization (as

that term is defined in section 548(d)(4)).''

1986 - Subsec. (a)(3). Pub. L. 99-554, Sec. 219(a), added par.

(3).

Subsec. (b). Pub. L. 99-554, Sec. 219(b), substituted ''motion or

on a motion by the United States trustee, but'' for ''motion and''.

1984 - Pub. L. 98-353 designated existing provisions as subsec.

(a) and in pars. (1) and (2) substituted ''or'' for ''and'', and

added subsec. (b).

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-183 applicable to any case brought under

an applicable provision of this title that is pending or commenced

on or after June 19, 1998, see section 5 of Pub. L. 105-183, set

out as a note under section 544 of this title.

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.

RULES PROMULGATED BY SUPREME COURT

United States Supreme Court to prescribe general rules

implementing the practice and procedure to be followed under

subsec. (b) of this section, with section 2075 of Title 28,

Judiciary and Judicial Procedure, to apply with respect to such

general rules, see section 320 of Pub. L. 98-353, set out as a note

under section 2075 of Title 28.

-CITE-

11 USC SUBCHAPTER II - COLLECTION, LIQUIDATION, AND

DISTRIBUTION OF THE ESTATE 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE

ESTATE

.

-HEAD-

SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE

ESTATE

-SECREF-

SUBCHAPTER REFERRED TO IN OTHER SECTIONS

This subchapter is referred to in section 103 of this title;

title 15 section 78fff.

-CITE-

11 USC Sec. 721 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE

ESTATE

-HEAD-

Sec. 721. Authorization to operate business

-STATUTE-

The court may authorize the trustee to operate the business of

the debtor for a limited period, if such operation is in the best

interest of the estate and consistent with the orderly liquidation

of the estate.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

This section is derived from section 2a(5) of the Bankruptcy Act

(section 11(a)(5) of former title 11). It permits the court to

authorize the operation of any business of the debtor for a limited

period, if the operation is in the best interest of the estate and

consistent with orderly liquidation of the estate. An example is

the operation of a watch company to convert watch movements and

cases into completed watches which will bring much higher prices

than the component parts would have brought.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 327, 363, 364 of this

title.

-CITE-

11 USC Sec. 722 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE

ESTATE

-HEAD-

Sec. 722. Redemption

-STATUTE-

An individual debtor may, whether or not the debtor has waived

the right to redeem under this section, redeem tangible personal

property intended primarily for personal, family, or household use,

from a lien securing a dischargeable consumer debt, if such

property is exempted under section 522 of this title or has been

abandoned under section 554 of this title, by paying the holder of

such lien the amount of the allowed secured claim of such holder

that is secured by such lien.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 722 of the House amendment adopts the position taken in

H.R. 8200 as passed by the House and rejects the alternative

contained in section 722 of the Senate amendment.

SENATE REPORT NO. 95-989

This section is new and is broader than rights of redemption

under the Uniform Commercial Code. It authorizes an individual

debtor to redeem tangible personal property intended primarily for

personal, family, or household use, from a lien securing a

nonpurchase money dischargeable consumer debt. It applies only if

the debtor's interest in the property is exempt or has been

abandoned.

This right to redeem is a very substantial change from current

law. To prevent abuses such as may occur when the debtor

deliberately allows the property to depreciate in value, the debtor

will be required to pay the fair market value of the goods or the

amount of the claim if the claim is less. The right is personal to

the debtor and not assignable.

HOUSE REPORT NO. 95-595

This section is new and is broader than rights of redemption

under the Uniform Commercial Code. It authorizes an individual

debtor to redeem tangible personal property intended primarily for

personal, family, or household use, from a lien securing a

dischargeable consumer debt. It applies only if the debtor's

interest in the property is exempt or has been abandoned.

The right to redeem extends to the whole of the property, not

just the debtor's exempt interest in it. Thus, for example, if a

debtor owned a $2,000 car, subject to a $1,200 lien, the debtor

could exempt his $800 interest in the car. The debtor is permitted

a $1,500 exemption in a car, proposed 11 U.S.C. 522(d)(2). This

section permits him to pay the holder of the lien $1,200 and redeem

the entire car, not just the remaining $700 of his exemption. The

redemption is accomplished by paying the holder of the lien the

amount of the allowed claim secured by the lien. The provision

amounts to a right of first refusal for the debtor in consumer

goods that might otherwise be repossessed. The right of redemption

under this section is not waivable.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 106 of this title.

-CITE-

11 USC Sec. 723 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE

ESTATE

-HEAD-

Sec. 723. Rights of partnership trustee against general partners

-STATUTE-

(a) If there is a deficiency of property of the estate to pay in

full all claims which are allowed in a case under this chapter

concerning a partnership and with respect to which a general

partner of the partnership is personally liable, the trustee shall

have a claim against such general partner to the extent that under

applicable nonbankruptcy law such general partner is personally

liable for such deficiency.

(b) To the extent practicable, the trustee shall first seek

recovery of such deficiency from any general partner in such

partnership that is not a debtor in a case under this title.

Pending determination of such deficiency, the court may order any

such partner to provide the estate with indemnity for, or assurance

of payment of, any deficiency recoverable from such partner, or not

to dispose of property.

(c) Notwithstanding section 728(c) of this title, the trustee has

a claim against the estate of each general partner in such

partnership that is a debtor in a case under this title for the

full amount of all claims of creditors allowed in the case

concerning such partnership. Notwithstanding section 502 of this

title, there shall not be allowed in such partner's case a claim

against such partner on which both such partner and such

partnership are liable, except to any extent that such claim is

secured only by property of such partner and not by property of

such partnership. The claim of the trustee under this subsection

is entitled to distribution in such partner's case under section

726(a) of this title the same as any other claim of a kind

specified in such section.

(d) If the aggregate that the trustee recovers from the estates

of general partners under subsection (c) of this section is greater

than any deficiency not recovered under subsection (b) of this

section, the court, after notice and a hearing, shall determine an

equitable distribution of the surplus so recovered, and the trustee

shall distribute such surplus to the estates of the general

partners in such partnership according to such determination.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606; Pub. L. 98-353, title

III, Sec. 476, July 10, 1984, 98 Stat. 381; Pub. L. 103-394, title

II, Sec. 212, Oct. 22, 1994, 108 Stat. 4125.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 723(c) of the House amendment is a compromise between

similar provisions contained in the House bill and Senate

amendment. The section makes clear that the trustee of a

partnership has a claim against each general partner for the full

amount of all claims of creditors allowed in the case concerning

the partnership. By restricting the trustee's rights to claims of

''creditors,'' the trustee of the partnership will not have a claim

against the general partners for administrative expenses or claims

allowed in the case concerning the partnership. As under present

law, sections of the Bankruptcy Act (former title 11) applying to

codebtors and sureties apply to the relationship of a partner with

respect to a partnership debtor. See sections 501(b), 502(e),

506(d)(2), 509, 524(d), and 1301 of title 11.

SENATE REPORT NO. 95-989

This section is a significant departure from present law. It

repeals the jingle rule, which, for ease of administration, denied

partnership creditors their rights against general partners by

permitting general partners' individual creditors to share in their

estates first to the exclusion of partnership creditors. The

result under this section more closely tracks generally applicable

partnership law, without a significant administrative burden.

Subsection (a) specifies that each general partner in a

partnership debtor is liable to the partnership's trustee for any

deficiency of partnership property to pay in full all

administrative expenses and all claims against the partnership.

Subsection (b) requires the trustee to seek recovery of the

deficiency from any general partner that is not a debtor in a

bankruptcy case. The court is empowered to order that partner to

indemnify the estate or not to dispose of property pending a

determination of the deficiency. The language of the subsection is

directed to cases under the bankruptcy code. However, if, during

the early stages of the transition period, a partner in a

partnership is proceeding under the Bankruptcy Act (former title

11) while the partnership is proceeding under the bankruptcy code,

the trustee should not first seek recovery against the Bankruptcy

Act partner. Rather, the Bankruptcy Act partner should be deemed

for the purposes of this section and the rights of the trustee to

be proceeding under title 11.

Subsection (c) requires the partnership trustee to seek recovery

of the full amount of the deficiency from the estate of each

general partner that is a debtor in a bankruptcy case. The trustee

will share equally with the partners' individual creditors in the

assets of the partners' estates. Claims of partnership creditors

who may have filed against the partner will be disallowed to avoid

double counting.

Subsection (d) provides for the case where the total recovery

from all of the bankrupt general partners is greater than the

deficiency of which the trustee sought recovery. This case would

most likely occur for a partnership with a large number of general

partners. If the situation arises, the court is required to

determine an equitable redistribution of the surplus to the estate

of the general partners. The determination will be based on

factors such as the relative liability of each of the general

partners under the partnership agreement and the relative rights of

each of the general partners in the profits of the enterprise under

the partnership agreement.

AMENDMENTS

1994 - Subsec. (a). Pub. L. 103-394 substituted ''to the extent

that under applicable nonbankruptcy law such general partner is

personally liable for such deficiency'' for ''for the full amount

of the deficiency''.

1984 - Subsec. (a). Pub. L. 98-353, Sec. 476, substituted

provisions that the trustee shall have a claim for the full amount

of the deficiency against a general partner who is personally

liable with respect to claims concerning partnerships which are

allowed in a case under this chapter, for provisions that each

general partner in the partnership would be liable to the trustee

for the full amount of such deficiency.

Subsec. (c). Pub. L. 98-353, Sec. 476(b), substituted ''such

partner's case'' for ''such case'' in two places, ''by property of

such partnership'' for ''be property of such partnership'', and ''a

kind specified in such section'' for ''the kind specified in such

section''.

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 541 of this title.

-CITE-

11 USC Sec. 724 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE

ESTATE

-HEAD-

Sec. 724. Treatment of certain liens

-STATUTE-

(a) The trustee may avoid a lien that secures a claim of a kind

specified in section 726(a)(4) of this title.

(b) Property in which the estate has an interest and that is

subject to a lien that is not avoidable under this title and that

secures an allowed claim for a tax, or proceeds of such property,

shall be distributed -

(1) first, to any holder of an allowed claim secured by a lien

on such property that is not avoidable under this title and that

is senior to such tax lien;

(2) second, to any holder of a claim of a kind specified in

section 507(a)(1), 507(a)(2), 507(a)(3), 507(a)(4), 507(a)(5),

507(a)(6), or 507(a)(7) of this title, to the extent of the

amount of such allowed tax claim that is secured by such tax

lien;

(3) third, to the holder of such tax lien, to any extent that

such holder's allowed tax claim that is secured by such tax lien

exceeds any amount distributed under paragraph (2) of this

subsection;

(4) fourth, to any holder of an allowed claim secured by a lien

on such property that is not avoidable under this title and that

is junior to such tax lien;

(5) fifth, to the holder of such tax lien, to the extent that

such holder's allowed claim secured by such tax lien is not paid

under paragraph (3) of this subsection; and

(6) sixth, to the estate.

(c) If more than one holder of a claim is entitled to

distribution under a particular paragraph of subsection (b) of this

section, distribution to such holders under such paragraph shall be

in the same order as distribution to such holders would have been

other than under this section.

(d) A statutory lien the priority of which is determined in the

same manner as the priority of a tax lien under section 6323 of the

Internal Revenue Code of 1986 shall be treated under subsection (b)

of this section the same as if such lien were a tax lien.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2607; Pub. L. 98-353, title

III, Sec. 477, July 10, 1984, 98 Stat. 381; Pub. L. 99-554, title

II, Sec. 283(r), Oct. 27, 1986, 100 Stat. 3118; Pub. L. 103-394,

title III, Sec. 304(h)(4), title V, Sec. 501(d)(23), Oct. 22, 1994,

108 Stat. 4134, 4146.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 724 of the House amendment adopts the provision taken in

the House bill and rejects the provision taken in the Senate

amendment. In effect, a tax claim secured by a lien is treated as

a claim between the fifth and sixth priority in a case under

chapter 7 rather than as a secured claim.

Treatment of certain liens: The House amendment modifies present

law by requiring the subordination of tax liens on both real and

personal property to the payment of claims having a priority. This

means that assets are to be distributed from the debtor's estate to

pay higher priority claims before the tax claims are paid, even

though the tax claims are properly secured. Under present law and

the Senate amendment only tax liens on personal property, but not

on real property, are subordinated to the payment of claims having

a priority above the priority for tax claims.

SENATE REPORT NO. 95-989

Subsection (a) of section 724 permits the trustee to avoid a lien

that secures a fine, penalty, forfeiture, or multiple, punitive, or

exemplary damages claim to the extent that the claim is not

compensation for actual pecuniary loss. The subsection follows the

policy found in section 57j of the Bankruptcy Act (section 93(j) of

former title 11) of protecting unsecured creditors from the

debtor's wrongdoing, but expands the protection afforded. The lien

is made voidable rather than void in chapter 7, in order to permit

the lien to be revived if the case is converted to chapter 11 under

which penalty liens are not voidable. To make the lien void would

be to permit the filing of a chapter 7, the voiding of the lien,

and the conversion to a chapter 11, simply to avoid a penalty lien,

which should be valid in a reorganization case.

Subsection (b) governs tax liens. This provision retains the

rule of present bankruptcy law (Sec. 67(C)(3) of the Bankruptcy Act

(section 107(c)(3) of former title 11)) that a tax lien on personal

property, if not avoidable by the trustee, is subordinated in

payment to unsecured claims having a higher priority than unsecured

tax claims. Those other claims may be satisfied from the amount

that would otherwise have been applied to the tax lien, and any

excess of the amount of the lien is then applied to the tax. Any

personal property (or sale proceeds) remaining is to be used to

satisfy claims secured by liens which are junior to the tax lien.

Any proceeds remaining are next applied to pay any unpaid balance

of the tax lien.

Subsection (d) specifies that any statutory lien whose priority

is determined in the same manner as a tax lien is to be treated as

a tax lien under this section, even if the lien does not secure a

claim for taxes. An example is the ERISA (29 U.S.C. 1001 et seq.)

lien.

HOUSE REPORT NO. 95-595

Subsection (b) governs tax liens. It is derived from section

67c(3) of the Bankruptcy Act (section 107(c)(3) of former title

11), without substantial modification in result. It subordinates

tax liens to administrative expense and wage claims, and solves

certain circuity of liens problems that arise in connection with

the subordination. The order of distribution of property subject

to a tax lien is as follows: First, to holders of liens senior to

the tax lien; second, to administrative expenses, wage claims, and

consumer creditors that are granted priority, but only to the

extent of the amount of the allowed tax claim secured by the lien.

In other words, the priority claimants step into the shoes of the

tax collector. Third, to the tax claimant, to the extent that

priority claimants did not use up his entire claim. Fourth, to

junior lien holders. Fifth, to the tax collector to the extent

that he was not paid under paragraph (3). Finally, any remaining

property goes to the estate. The result of these provisions are to

leave senior and junior lienors and holders of unsecured claims

undisturbed. If there are any liens that are equal in status to

the tax lien, they share pari passu with the tax lien under the

distribution provisions of this subsection.

-REFTEXT-

REFERENCES IN TEXT

Section 6323 of the Internal Revenue Code of 1986, referred to in

subsec. (d), is classified to section 6323 of Title 26, Internal

Revenue Code.

-MISC2-

AMENDMENTS

1994 - Subsec. (b)(2). Pub. L. 103-394, Sec. 304(h)(4),

substituted ''507(a)(6), or 507(a)(7)'' for ''or 507(a)(6)''.

Subsec. (d). Pub. L. 103-394, Sec. 501(d)(23), substituted

''Internal Revenue Code of 1986'' for ''Internal Revenue Code of

1954 (26 U.S.C. 6323)''.

1986 - Subsec. (b)(2). Pub. L. 99-554 inserted reference to

section 507(a)(6) of this title.

1984 - Subsec. (b). Pub. L. 98-353, Sec. 477(a)(1), substituted

''a tax'' for ''taxes'' in provisions preceding par. (1).

Subsec. (b)(2). Pub. L. 98-353, Sec. 477(a)(2), substituted ''any

holder of a claim of a kind specified'' for ''claims specified'',

''section 507(a)(1)'' for ''sections 507(a)(1)'', and ''or

507(a)(5) of this title'' for ''and 507(a)(5) of this title''.

Subsec. (b)(3). Pub. L. 98-353, Sec. 477(a)(3), substituted

''allowed tax claim'' for ''allowed claim''.

Subsec. (c). Pub. L. 98-353, Sec. 477(b), substituted ''holder of

a claim is entitled'' for ''creditor is entitled'' and ''holders''

for ''creditors'' in two places.

Subsec. (d). Pub. L. 98-353, Sec. 477(c), substituted ''the

priority of which'' for ''whose priority'' and ''the same as if

such lien were a tax lien'' for ''the same as a tax lien''.

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, see section 302(a) 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, 349, 502, 522,

550, 551, 764 of this title; title 26 sections 6327, 7437.

-CITE-

11 USC Sec. 725 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE

ESTATE

-HEAD-

Sec. 725. Disposition of certain property

-STATUTE-

After the commencement of a case under this chapter, but before

final distribution of property of the estate under section 726 of

this title, the trustee, after notice and a hearing, shall dispose

of any property in which an entity other than the estate has an

interest, such as a lien, and that has not been disposed of under

another section of this title.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2607; Pub. L. 98-353, title

III, Sec. 478, July 10, 1984, 98 Stat. 381.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 725 of the House amendment adopts the substance contained

in both the House bill and Senate amendment but transfers an

administrative function to the trustee in accordance with the

general thrust of this legislation to separate the administrative

and the judicial functions where appropriate.

SENATE REPORT NO. 95-989

This section requires the court to determine the appropriate

disposition of property in which the estate and an entity other

than the estate have an interest. It would apply, for example, to

property subject to a lien or property co-owned by the estate and

another entity. The court must make the determination with respect

to property that is not disposed of under another section of the

bankruptcy code, such as by abandonment under section 554, by sale

or distribution under 363, or by allowing foreclosure by a secured

creditor by lifting the stay under section 362. The purpose of the

section is to give the court appropriate authority to ensure that

collateral or its proceeds is returned to the proper secured

creditor, that consigned or bailed goods are returned to the

consignor or bailor and so on. Current law is curiously silent on

this point, though case law has grown to fill the void. The

section is in lieu of a section that would direct a certain

distribution to secured creditors. It gives the court greater

flexibility to meet the circumstances, and it is broader,

permitting disposition of property subject to a co-ownership

interest.

AMENDMENTS

1984 - Pub. L. 98-353 substituted ''distribution of property of

the estate'' for ''distribution''.

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. 726 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE

ESTATE

-HEAD-

Sec. 726. Distribution of property of the estate

-STATUTE-

(a) Except as provided in section 510 of this title, property of

the estate shall be distributed -

(1) first, in payment of claims of the kind specified in, and

in the order specified in, section 507 of this title, proof of

which is timely filed under section 501 of this title or tardily

filed before the date on which the trustee commences distribution

under this section;

(2) second, in payment of any allowed unsecured claim, other

than a claim of a kind specified in paragraph (1), (3), or (4) of

this subsection, proof of which is -

(A) timely filed under section 501(a) of this title;

(B) timely filed under section 501(b) or 501(c) of this

title; or

(C) tardily filed under section 501(a) of this title, if -

(i) the creditor that holds such claim did not have notice

or actual knowledge of the case in time for timely filing of

a proof of such claim under section 501(a) of this title; and

(ii) proof of such claim is filed in time to permit payment

of such claim;

(3) third, in payment of any allowed unsecured claim proof of

which is tardily filed under section 501(a) of this title, other

than a claim of the kind specified in paragraph (2)(C) of this

subsection;

(4) fourth, in payment of any allowed claim, whether secured or

unsecured, for any fine, penalty, or forfeiture, or for multiple,

exemplary, or punitive damages, arising before the earlier of the

order for relief or the appointment of a trustee, to the extent

that such fine, penalty, forfeiture, or damages are not

compensation for actual pecuniary loss suffered by the holder of

such claim;

(5) fifth, in payment of interest at the legal rate from the

date of the filing of the petition, on any claim paid under

paragraph (1), (2), (3), or (4) of this subsection; and

(6) sixth, to the debtor.

(b) Payment on claims of a kind specified in paragraph (1), (2),

(3), (4), (5), (6), (7), or (8) of section 507(a) of this title, or

in paragraph (2), (3), (4), or (5) of subsection (a) of this

section, shall be made pro rata among claims of the kind specified

in each such particular paragraph, except that in a case that has

been converted to this chapter under section 1009, (FOOTNOTE 1)

1112, 1208, or 1307 of this title, a claim allowed under section

503(b) of this title incurred under this chapter after such

conversion has priority over a claim allowed under section 503(b)

of this title incurred under any other chapter of this title or

under this chapter before such conversion and over any expenses of

a custodian superseded under section 543 of this title.

(FOOTNOTE 1) So in original. This title does not contain a

section 1009.

(c) Notwithstanding subsections (a) and (b) of this section, if

there is property of the kind specified in section 541(a)(2) of

this title, or proceeds of such property, in the estate, such

property or proceeds shall be segregated from other property of the

estate, and such property or proceeds and other property of the

estate shall be distributed as follows:

(1) Claims allowed under section 503 of this title shall be

paid either from property of the kind specified in section

541(a)(2) of this title, or from other property of the estate, as

the interest of justice requires.

(2) Allowed claims, other than claims allowed under section 503

of this title, shall be paid in the order specified in subsection

(a) of this section, and, with respect to claims of a kind

specified in a particular paragraph of section 507 of this title

or subsection (a) of this section, in the following order and

manner:

(A) First, community claims against the debtor or the

debtor's spouse shall be paid from property of the kind

specified in section 541(a)(2) of this title, except to the

extent that such property is solely liable for debts of the

debtor.

(B) Second, to the extent that community claims against the

debtor are not paid under subparagraph (A) of this paragraph,

such community claims shall be paid from property of the kind

specified in section 541(a)(2) of this title that is solely

liable for debts of the debtor.

(C) Third, to the extent that all claims against the debtor

including community claims against the debtor are not paid

under subparagraph (A) or (B) of this paragraph such claims

shall be paid from property of the estate other than property

of the kind specified in section 541(a)(2) of this title.

(D) Fourth, to the extent that community claims against the

debtor or the debtor's spouse are not paid under subparagraph

(A), (B), or (C) of this paragraph, such claims shall be paid

from all remaining property of the estate.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2608; Pub. L. 98-353, title

III, Sec. 479, July 10, 1984, 98 Stat. 381; Pub. L. 99-554, title

II, Sec. 257(r), 283(s), Oct. 27, 1986, 100 Stat. 3115, 3118; Pub.

L. 103-394, title II, Sec. 213(b), title III, Sec. 304(h)(5), title

V, Sec. 501(d)(24), Oct. 22, 1994, 108 Stat. 4126, 4134, 4146.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 726(a)(4) adopts a provision contained in the Senate

amendment subordinating prepetition penalties and penalties arising

in the involuntary gap period to the extent the penalties are not

compensation for actual pecuniary laws.

The House amendment deletes a provision following section

726(a)(6) of the Senate amendment providing that the term ''claim''

includes interest due owed before the date of the filing of the

petition as unnecessary since a right to payment for interest due

is a right to payment which is within the definition of ''claim''

in section 101(4) of the House amendment.

SENATE REPORT NO. 95-989

This section is the general distribution section for liquidation

cases. It dictates the order in which distribution of property of

the estate, which has usually been reduced to money by the trustee

under the requirements of section 704(1).

First, property is distributed among priority claimants, as

determined by section 507, and in the order prescribed by section

507. Second, distribution is to general unsecured creditors. This

class excludes priority creditors and the two classes of

subordinated creditors specified below. The provision is written

to permit distribution to creditors that tardily file claims if

their tardiness was due to lack of notice or knowledge of the

case. Though it is in the interest of the estate to encourage

timely filing, when tardy filing is not the result of a failure to

act by the creditor, the normal subordination penalty should not

apply. Third distribution is to general unsecured creditors who

tardily file. Fourth distribution is to holders of fine, penalty,

forfeiture, or multiple, punitive, or exemplary damage claims.

More of these claims are disallowed entirely under present law.

They are simply subordinated here.

Paragraph (4) provides that punitive penalties, including

prepetition tax penalties, are subordinated to the payment of all

other classes of claims, except claims for interest accruing during

the case. In effect, these penalties are payable out of the

estate's assets only if and to the extent that a surplus of assets

would otherwise remain at the close of the case for distribution

back to the debtor.

Paragraph (5) provides that postpetition interest on prepetition

claims is also to be paid to the creditor in a subordinated

position. Like prepetition penalties, such interest will be paid

from the estate only if and to the extent that a surplus of assets

would otherwise remain for return to the debtor at the close of the

case.

This section also specifies that interest accrued on all claims

(including priority and nonpriority tax claims) which accrued

before the date of the filing of the title 11 petition is to be

paid in the same order of distribution of the estate's assets as

the principal amount of the related claims.

Any surplus is paid to the debtor under paragraph (6).

Subsection (b) follows current law. It specifies that claims

within a particular class are to be paid pro rata. This provision

will apply, of course, only when there are inadequate funds to pay

the holders of claims of a particular class in full. The exception

found in the section, which also follows current law, specifies

that liquidation administrative expenses are to be paid ahead of

reorganization administrative expenses if the case has been

converted from a reorganization case to a liquidation case, or from

an individual repayment plan case to a liquidation case.

Subsection (c) governs distributions in cases in which there is

community property and other property of the estate. The section

requires the two kinds of property to be segregated. The

distribution is as follows: First, administrative expenses are to

be paid, as the court determines on any reasonable equitable basis,

from both kinds of property. The court will divide administrative

expenses according to such factors as the amount of each kind of

property in the estate, the cost of preservation and liquidation of

each kind of property, and whether any particular administrative

expenses are attributable to one kind of property or the other.

Second, claims are to be paid as provided under subsection (a) (the

normal liquidation case distribution rules) in the following order

and manner: First, community claims against the debtor or the

debtor's spouse are paid from community property, except such as is

liable solely for the debts of the debtor.

Second, community claims against the debtor, to the extent not

paid under the first provision, are paid from community property

that is solely liable for the debts of the debtor. Third,

community claims, to the extent they remain unpaid, and all other

claims against the debtor, are paid from noncommunity property.

Fourth, if any community claims against the debtor or the debtor's

spouse remain unpaid, they are paid from whatever property remains

in the estate. This would occur if community claims against the

debtor's spouse are large in amount and most of the estate's

property is property solely liable, under nonbankruptcy law, for

debts of the debtor.

The marshalling rules in this section apply only to property of

the estate. However, they will provide a guide to the courts in

the interpretation of proposed 11 U.S.C. 725, relating to

distribution of collateral, in cases in which there is community

property. If a secured creditor has a lien on both community and

noncommunity property, the marshalling rules here - by analogy

would dictate that the creditor be satisfied first out of community

property, and then out of separate property.

AMENDMENTS

1994 - Subsec. (a)(1). Pub. L. 103-394, Sec. 213(b), inserted

before semicolon at end '', proof of which is timely filed under

section 501 of this title or tardily filed before the date on which

the trustee commences distribution under this section''.

Subsec. (b). Pub. L. 103-394, Sec. 304(h)(5), 501(d)(24),

substituted '', (7), or (8)'' for ''or (7)'' and ''chapter under

section 1009, 1112,'' for ''chapter under section 1112''.

1986 - Subsec. (b). Pub. L. 99-554, Sec. 283(s), inserted

reference to par. (7) of section 507(a) of this title.

Pub. L. 99-554, Sec. 257(r), inserted reference to section 1208

of this title.

1984 - Subsec. (b). Pub. L. 98-353, Sec. 479(a), substituted

''each such particular paragraph'' for ''a particular paragraph'',

''a claim allowed under section 503(b) of this title'' for

''administrative expenses'' in two places, and ''has priority

over'' for ''have priority over''.

Subsec. (c)(1). Pub. L. 98-353, Sec. 479(b)(1), substituted

''Claims allowed under section 503 of this title'' for

''Administrative expenses''.

Subsec. (c)(2). Pub. L. 98-353, Sec. 479(b)(2), substituted

''Allowed claims, other than claims allowed under section 503 of

this title,'' for ''Claims other than for administrative

expenses''.

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, 347, 502, 702, 705,

723, 724, 725, 752, 766 of this title; title 15 section 78fff;

title 20 section 1087-2.

-CITE-

11 USC Sec. 727 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE

ESTATE

-HEAD-

Sec. 727. Discharge

-STATUTE-

(a) The court shall grant the debtor a discharge, unless -

(1) the debtor is not an individual;

(2) the debtor, with intent to hinder, delay, or defraud a

creditor or an officer of the estate charged with custody of

property under this title, has transferred, removed, destroyed,

mutilated, or concealed, or has permitted to be transferred,

removed, destroyed, mutilated, or concealed -

(A) property of the debtor, within one year before the date

of the filing of the petition; or

(B) property of the estate, after the date of the filing of

the petition;

(3) the debtor has concealed, destroyed, mutilated, falsified,

or failed to keep or preserve any recorded information, including

books, documents, records, and papers, from which the debtor's

financial condition or business transactions might be

ascertained, unless such act or failure to act was justified

under all of the circumstances of the case;

(4) the debtor knowingly and fraudulently, in or in connection

with the case -

(A) made a false oath or account;

(B) presented or used a false claim;

(C) gave, offered, received, or attempted to obtain money,

property, or advantage, or a promise of money, property, or

advantage, for acting or forbearing to act; or

(D) withheld from an officer of the estate entitled to

possession under this title, any recorded information,

including books, documents, records, and papers, relating to

the debtor's property or financial affairs;

(5) the debtor has failed to explain satisfactorily, before

determination of denial of discharge under this paragraph, any

loss of assets or deficiency of assets to meet the debtor's

liabilities;

(6) the debtor has refused, in the case -

(A) to obey any lawful order of the court, other than an

order to respond to a material question or to testify;

(B) on the ground of privilege against self-incrimination, to

respond to a material question approved by the court or to

testify, after the debtor has been granted immunity with

respect to the matter concerning which such privilege was

invoked; or

(C) on a ground other than the properly invoked privilege

against self-incrimination, to respond to a material question

approved by the court or to testify;

(7) the debtor has committed any act specified in paragraph

(2), (3), (4), (5), or (6) of this subsection, on or within one

year before the date of the filing of the petition, or during the

case, in connection with another case, under this title or under

the Bankruptcy Act, concerning an insider;

(8) the debtor has been granted a discharge under this section,

under section 1141 of this title, or under section 14, 371, or

476 of the Bankruptcy Act, in a case commenced within six years

before the date of the filing of the petition;

(9) the debtor has been granted a discharge under section 1228

or 1328 of this title, or under section 660 or 661 of the

Bankruptcy Act, in a case commenced within six years before the

date of the filing of the petition, unless payments under the

plan in such case totaled at least -

(A) 100 percent of the allowed unsecured claims in such case;

or

(B)(i) 70 percent of such claims; and

(ii) the plan was proposed by the debtor in good faith, and

was the debtor's best effort; or

(10) the court approves a written waiver of discharge executed

by the debtor after the order for relief under this chapter.

(b) Except as provided in section 523 of this title, a discharge

under subsection (a) of this section discharges the debtor from all

debts that arose before the date of the order for relief under this

chapter, and any liability on a claim that is determined under

section 502 of this title as if such claim had arisen before the

commencement of the case, whether or not a proof of claim based on

any such debt or liability is filed under section 501 of this

title, and whether or not a claim based on any such debt or

liability is allowed under section 502 of this title.

(c)(1) The trustee, a creditor, or the United States trustee may

object to the granting of a discharge under subsection (a) of this

section.

(2) On request of a party in interest, the court may order the

trustee to examine the acts and conduct of the debtor to determine

whether a ground exists for denial of discharge.

(d) On request of the trustee, a creditor, or the United States

trustee, and after notice and a hearing, the court shall revoke a

discharge granted under subsection (a) of this section if -

(1) such discharge was obtained through the fraud of the

debtor, and the requesting party did not know of such fraud until

after the granting of such discharge;

(2) the debtor acquired property that is property of the

estate, or became entitled to acquire property that would be

property of the estate, and knowingly and fraudulently failed to

report the acquisition of or entitlement to such property, or to

deliver or surrender such property to the trustee; or

(3) the debtor committed an act specified in subsection (a)(6)

of this section.

(e) The trustee, a creditor, or the United States trustee may

request a revocation of a discharge -

(1) under subsection (d)(1) of this section within one year

after such discharge is granted; or

(2) under subsection (d)(2) or (d)(3) of this section before

the later of -

(A) one year after the granting of such discharge; and

(B) the date the case is closed.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2609; Pub. L. 98-353, title

III, Sec. 480, July 10, 1984, 98 Stat. 382; Pub. L. 99-554, title

II, Sec. 220, 257(s), Oct. 27, 1986, 100 Stat. 3101, 3116.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Sections 727(a) (8) and (9) of the House amendment represent a

compromise between provisions contained in section 727(a)(8) of the

House bill and Senate amendment. Section 727(a)(8) of the House

amendment adopts section 727(a)(8) of the House bill. However,

section 727(a)(9) of the House amendment contains a compromise

based on section 727(a)(8) of the Senate amendment with respect to

the circumstances under which a plan by way of composition under

Chapter XIII of the Bankruptcy Act (chapter 13 of former title 11)

should be a bar to discharge in a subsequent proceeding under title

11. The paragraph provides that a discharge under section 660 or

661 of the Bankruptcy Act (section 1060 or 1061 of former title 11)

or section 1328 of title 11 in a case commenced within 6 years

before the date of the filing of the petition in a subsequent case,

operates as a bar to discharge unless, first, payments under the

plan totaled at least 100 percent of the allowed unsecured claims

in the case; or second, payments under the plan totaled at least 70

percent of the allowed unsecured claims in the case and the plan

was proposed by the debtor in good faith and was the debtor's best

effort.

It is expected that the Rules of Bankruptcy Procedure will

contain a provision permitting the debtor to request a

determination of whether a plan is the debtor's ''best effort''

prior to confirmation of a plan in a case under chapter 13 of title

11. In determining whether a plan is the debtor's ''best effort''

the court will evaluate several factors. Different facts and

circumstances in cases under chapter 13 operate to make any rule of

thumb of limited usefulness. The court should balance the debtor's

assets, including family income, health insurance, retirement

benefits, and other wealth, a sum which is generally determinable,

against the foreseeable necessary living expenses of the debtor and

the debtor's dependents, which unfortunately is rarely

quantifiable. In determining the expenses of the debtor and the

debtor's dependents, the court should consider the stability of the

debtor's employment, if any, the age of the debtor, the number of

the debtor's dependents and their ages, the condition of equipment

and tools necessary to the debtor's employment or to the operation

of his business, and other foreseeable expenses that the debtor

will be required to pay during the period of the plan, other than

payments to be made to creditors under the plan.

Section 727(a)(10) of the House amendment clarifies a provision

contained in section 727(a)(9) of the House bill and Senate

amendment indicating that a discharge may be barred if the court

approves a waiver of discharge executed in writing by the debtor

after the order for relief under chapter 7.

Section 727(b) of the House amendment adopts a similar provision

contained in the Senate amendment modifying the effect of

discharge. The provision makes clear that the debtor is discharged

from all debts that arose before the date of the order for relief

under chapter 7 in addition to any debt which is determined under

section 502 as if it were a prepetition claim. Thus, if a case is

converted from chapter 11 or chapter 13 to a case under chapter 7,

all debts prior to the time of conversion are discharged, in

addition to debts determined after the date of conversion of a kind

specified in section 502, that are to be determined as prepetition

claims. This modification is particularly important with respect

to an individual debtor who files a petition under chapter 11 or

chapter 13 of title 11 if the case is converted to chapter 7. The

logical result of the House amendment is to equate the result that

obtains whether the case is converted from another chapter to

chapter 7, or whether the other chapter proceeding is dismissed and

a new case is commenced by filing a petition under chapter 7.

SENATE REPORT NO. 95-989

This section is the heart of the fresh start provisions of the

bankruptcy law. Subsection (a) requires the court to grant a

debtor a discharge unless one of nine conditions is met. The first

condition is that the debtor is not an individual. This is a

change from present law, under which corporations and partnerships

may be discharged in liquidation cases, though they rarely are.

The change in policy will avoid trafficking in corporate shells and

in bankrupt partnerships. ''Individual'' includes a deceased

individual, so that if the debtor dies during the bankruptcy case,

he will nevertheless be released from his debts, and his estate

will not be liable for them. Creditors will be entitled to only

one satisfaction - from the bankruptcy estate and not from the

probate estate.

The next three grounds for denial of discharge center on the

debtor's wrongdoing in or in connection with the bankruptcy case.

They are derived from Bankruptcy Act Sec. 14c (section 32(c) of

former title 11). If the debtor, with intent to hinder, delay, or

defraud his creditors or an officer of the estate, has transferred,

removed, destroyed, mutilated, or concealed, or has permitted any

such action with respect to, property of the debtor within the year

preceding the case, or property of the estate after the

commencement of the case, then the debtor is denied discharge. The

debtor is also denied discharge if he has concealed, destroyed,

mutilated, falsified, or failed to keep or preserve any books and

records from which his financial condition might be ascertained,

unless the act or failure to act was justified under all the

circumstances of the case. The fourth ground for denial of

discharge is the commission of a bankruptcy crime, although the

standard of proof is preponderance of the evidence rather than

proof beyond a reasonable doubt. These crimes include the making

of a false oath or account, the use or presentation of a false

claim, the giving or receiving of money for acting or forbearing to

act, and the withholding from an officer of the estate entitled to

possession of books and records relating to the debtor's financial

affairs.

The fifth ground for denial of discharge is the failure of the

debtor to explain satisfactorily any loss of assets or deficiency

of assets to meet the debtor's liabilities. The sixth ground

concerns refusal to testify. It is a change from present law,

under which the debtor may be denied discharge for legitimately

exercising his right against self-incrimination. Under this

provision, the debtor may be denied discharge if he refuses to obey

any lawful order of the court, or if he refuses to testify after

having been granted immunity or after improperly invoking the

constitutional privilege against self-incrimination.

The seventh ground for denial of discharge is the commission of

an act specified in grounds two through six during the year before

the debtor's case in connection with another bankruptcy case

concerning an insider.

The eighth ground for denial of discharge is derived from Sec.

14c(5) of the Bankruptcy Act (section 32(c)(5) of former title 11).

If the debtor has been granted a discharge in a case commenced

within 6 years preceding the present bankruptcy case, he is denied

discharge. This provision, which is no change from current law

with respect to straight bankruptcy, is the 6-year bar to

discharge. Discharge under chapter 11 will bar a discharge for 6

years. As under current law, confirmation of a composition wage

earner plan under chapter 13 is a basis for invoking the 6-year

bar.

The ninth ground is approval by the court of a waiver of

discharge.

Subsection (b) specifies that the discharge granted under this

section discharges the debtor from all debts that arose before the

date of the order for relief. It is irrelevant whether or not a

proof of claim was filed with respect to the debt, and whether or

not the claim based on the debt was allowed.

Subsection (c) permits the trustee, or a creditor, to object to

discharge. It also permits the court, on request of a party in

interest, to order the trustee to examine the acts and conduct of

the debtor to determine whether a ground for denial of discharge

exists.

Subsection (d) requires the court to revoke a discharge already

granted in certain circumstances. If the debtor obtained the

discharge through fraud, if he acquired and concealed property of

the estate, or if he refused to obey a court order or to testify,

the discharge is to be revoked.

Subsection (e) permits the trustee or a creditor to request

revocation of a discharge within 1 year after the discharge is

granted, on the grounds of fraud, and within one year of discharge

or the date of the closing of the case, whichever is later, on

other grounds.

-REFTEXT-

REFERENCES IN TEXT

The Bankruptcy Act, referred to in subsec. (a)(7), is act July 1,

1898, ch. 541, 30 Stat. 544, as amended, which was classified

generally to former Title 11.

Sections 14, 371, and 476 of the Bankruptcy Act, referred to in

subsec. (a)(8), are section 14 of act July 1, 1898, ch. 541, 30

Stat. 550, section 371 of act July 1, 1898, ch. 541, as added June

22, 1938, ch. 575, Sec. 1, 52 Stat. 912, and section 476 of act

July 1, 1898, ch. 541, as added June 22, 1938, ch. 575, Sec. 1, 52

Stat. 924, which were classified to sections 32, 771, and 876 of

former Title 11.

Sections 660 and 661 of the Bankruptcy Act, referred to in

subsec. (a)(9), are sections 660 and 661 of act July 1, 1898, ch.

541, as added June 22, 1938, ch. 575, Sec. 1, 52 Stat. 935, 936,

which were classified to sections 1060 and 1061 of former Title 11.

-MISC2-

AMENDMENTS

1986 - Subsec. (a)(9). Pub. L. 99-554, Sec. 257(s), inserted

reference to section 1228 of this title.

Subsec. (c). Pub. L. 99-554, Sec. 220, amended subsec. (c)

generally, substituting ''The trustee, a creditor, or the United

States trustee may object'' for ''The trustee or a creditor may

object'' in par. (1).

Subsec. (d). Pub. L. 99-554, Sec. 220, amended subsec. (d)

generally, substituting '', a creditor, or the United States

trustee,'' for ''or a creditor,'' in provisions preceding par. (1)

and ''acquisition of or entitlement to such property'' for

''acquisition of, or entitlement to, such property'' in par. (2).

Subsec. (e). Pub. L. 99-554, Sec. 220, amended subsec. (e)

generally, substituting ''The trustee, a creditor, or the United

States trustee may'' for ''The trustee or a creditor may'' in

provisions preceding par. (1), ''section within'' for ''section,

within'' and ''discharge is granted'' for ''discharge was granted''

in par. (1), ''section before'' for ''section, before'' in

provisions of par. (2) preceding subpar. (A), and ''discharge;

and'' for ''discharge; or'' in par. (2)(A).

1984 - Subsec. (a)(6)(C). Pub. L. 98-353, Sec. 480(a)(1),

substituted ''properly'' for ''property''.

Subsec. (a)(7). Pub. L. 98-353, Sec. 480(a)(2), inserted '',

under this title or under the Bankruptcy Act,'' after ''another

case''.

Subsec. (a)(8). Pub. L. 98-353, Sec. 480(a)(3), substituted

''371,'' for ''371''.

Subsec. (c)(1). Pub. L. 98-353, Sec. 480(b), substituted ''to the

granting of a discharge'' for ''to discharge''.

Subsec. (e)(2)(A). Pub. L. 98-353, Sec. 480(c), substituted

''or'' for ''and''.

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.

Effective date and applicability of amendment by section 220 of

Pub. L. 99-554 dependent upon the judicial district involved, see

section 302(d), (e) 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 348, 523, 524, 1141 of

this title; title 12 section 1715z-1a.

-CITE-

11 USC Sec. 728 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE

ESTATE

-HEAD-

Sec. 728. Special tax provisions

-STATUTE-

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

or measured by income, the taxable period of a debtor that is an

individual shall terminate on the date of the order for relief

under this chapter, unless the case was converted under section

1112 or 1208 of this title.

(b) Notwithstanding any State or local law imposing a tax on or

measured by income, the trustee shall make tax returns of income

for the estate of an individual debtor in a case under this chapter

or for a debtor that is a corporation in a case under this chapter

only if such estate or corporation has net taxable income for the

entire period after the order for relief under this chapter during

which the case is pending. If such entity has such income, or if

the debtor is a partnership, then the trustee shall make and file a

return of income for each taxable period during which the case was

pending after the order for relief under this chapter.

(c) If there are pending a case under this chapter concerning a

partnership and a case under this chapter concerning a partner in

such partnership, a governmental unit's claim for any unpaid

liability of such partner for a State or local tax on or measured

by income, to the extent that such liability arose from the

inclusion in such partner's taxable income of earnings of such

partnership that were not withdrawn by such partner, is a claim

only against such partnership.

(d) Notwithstanding section 541 of this title, if there are

pending a case under this chapter concerning a partnership and a

case under this chapter concerning a partner in such partnership,

then any State or local tax refund or reduction of tax of such

partner that would have otherwise been property of the estate of

such partner under section 541 of this title -

(1) is property of the estate of such partnership to the extent

that such tax refund or reduction of tax is fairly apportionable

to losses sustained by such partnership and not reimbursed by

such partner; and

(2) is otherwise property of the estate of such partner.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2611; Pub. L. 98-353, title

III, Sec. 481, July 10, 1984, 98 Stat. 382; Pub. L. 99-554, title

II, Sec. 257(t), Oct. 27, 1986, 100 Stat. 3116.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 728 of the House amendment adopts a provision contained

in the House bill that was deleted by the Senate amendment.

Liquidations: The House bill contained special tax provisions

concerning the treatment of liquidations cases for State and local

tax laws. These provisions deal with the taxable years of an

individual debtor, return-filing requirements, and rules allocating

State and local tax liabilities and refunds between a bankrupt

partner and the partnership of which he is a member. The Senate

amendment deleted these rules pending consideration of the Federal

tax treatment of bankruptcy in the next Congress. The House

amendment returns these provisions to the bill in order that they

may be studied by the bankruptcy and tax bars who may wish to

submit comments to Congress in connection with its consideration of

these provisions in the next Congress.

SENATE REPORT NO. 95-989

Section 728 of title 11 applies only to state and local

taxation. This provision contains four subsections which embody

special tax provisions that apply in a case under chapter 7.

Subsection (a) terminates the taxable year of an individual debtor

on the date of the order for relief under chapter 7 of title 11.

The date of termination of the individual's taxable year is the

date on which the estate first becomes a separate taxable entity.

If the case was originally filed under chapter 11 of title 11, then

the estate would have been made a separate taxable entity on the

date of the order for relief under that chapter. In the rare case

of a multiple conversion, then the date of the order for relief

under the first chapter under which the estate was a separate

taxable entity is controlling.

Subsection (b) permits the trustee of the estate of an individual

debtor or a corporation in a case under chapter 7 of title 11 to

make a tax return only if the estate or corporation has net taxable

income for the entire case. If the estate or corporation has net

taxable income at the close of the case, then the trustee files an

income tax return for each tax year during which the case was

pending. The trustee of a partnership debtor must always file

returns for each such taxable period.

Subsection (c) sets forth a marshalling rule pertaining to tax

claims against a partner and a partnership in a case under chapter

7 of title 11. To the extent that the income tax liability arose

from the inclusion of undistributed earnings in the partner's

taxable income, the court is required to disallow the tax claim

against the partner's estate and to allow such claim against the

partnership estate. No burden is placed on the taxing authority;

the taxing authority should file a complete proof of claim in each

case and the court will execute the marshalling. If the

partnership's assets are insufficient to satisfy partnership

creditors in full, then section 723(c) of title 11 will apply,

notwithstanding this subsection, to allow any unsatisfied tax

claims to be asserted by the partnership trustee against the estate

of the partner. The marshalling rule under this subsection applies

only for purposes of allowance and distribution. Thus the tax

claim may be nondischargeable with respect to an individual

partner.

Subsection (d) requires the court to apportion any tax refund or

reduction of tax between the estate of a partner and the estate of

his partnership. The standard of apportionment entitles the

partnership estate to receive that part of the tax refund or

reduction that is attributable to losses sustained by the

partnership that were deducted by the partner but for which the

partner never reimbursed the partnership. The partner's estate

receives any part not allocated to the partnership estate. The

section applies notwithstanding section 541 of title 11, which

includes the partner's right to a tax refund or to reduction of tax

as property of the partner's estate.

AMENDMENTS

1986 - Subsec. (a). Pub. L. 99-554 inserted reference to section

1208 of this title.

1984 - Subsec. (c). Pub. L. 98-353, Sec. 481(a), substituted

''taxable income'' for ''taxable income,''.

Subsec. (d)(2). Pub. L. 98-353, Sec. 481(b), substituted ''is

otherwise property of the estate of such partner'' for ''is

property of the estate of such partner otherwise''.

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, 346, 348, 723 of

this title.

-CITE-

11 USC SUBCHAPTER III - STOCKBROKER LIQUIDATION 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER III - STOCKBROKER LIQUIDATION

.

-HEAD-

SUBCHAPTER III - STOCKBROKER LIQUIDATION

-SECREF-

SUBCHAPTER REFERRED TO IN OTHER SECTIONS

This subchapter is referred to in sections 103, 783 of this

title.

-CITE-

11 USC Sec. 741 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER III - STOCKBROKER LIQUIDATION

-HEAD-

Sec. 741. Definitions for this subchapter

-STATUTE-

In this subchapter -

(1) ''Commission'' means Securities and Exchange Commission;

(2) ''customer'' includes -

(A) entity with whom a person deals as principal or agent and

that has a claim against such person on account of a security

received, acquired, or held by such person in the ordinary

course of such person's business as a stockbroker, from or for

the securities account or accounts of such entity -

(i) for safekeeping;

(ii) with a view to sale;

(iii) to cover a consummated sale;

(iv) pursuant to a purchase;

(v) as collateral under a security agreement; or

(vi) for the purpose of effecting registration of transfer;

and

(B) entity that has a claim against a person arising out of -

(i) a sale or conversion of a security received, acquired,

or held as specified in subparagraph (A) of this paragraph;

or

(ii) a deposit of cash, a security, or other property with

such person for the purpose of purchasing or selling a

security;

(3) ''customer name security'' means security -

(A) held for the account of a customer on the date of the

filing of the petition by or on behalf of the debtor;

(B) registered in such customer's name on such date or in the

process of being so registered under instructions from the

debtor; and

(C) not in a form transferable by delivery on such date;

(4) ''customer property'' means cash, security, or other

property, and proceeds of such cash, security, or property,

received, acquired, or held by or for the account of the debtor,

from or for the securities account of a customer -

(A) including -

(i) property that was unlawfully converted from and that is

the lawful property of the estate;

(ii) a security held as property of the debtor to the

extent such security is necessary to meet a net equity claim

of a customer based on a security of the same class and

series of an issuer;

(iii) resources provided through the use or realization of

a customer's debit cash balance or a debit item includible in

the Formula for Determination of Reserve Requirement for

Brokers and Dealers as promulgated by the Commission under

the Securities Exchange Act of 1934; and

(iv) other property of the debtor that any applicable law,

rule, or regulation requires to be set aside or held for the

benefit of a customer, unless including such property as

customer property would not significantly increase customer

property; but

(B) not including -

(i) a customer name security delivered to or reclaimed by a

customer under section 751 of this title; or

(ii) property to the extent that a customer does not have a

claim against the debtor based on such property;

(5) ''margin payment'' means payment or deposit of cash, a

security, or other property, that is commonly known to the

securities trade as original margin, initial margin, maintenance

margin, or variation margin, or as a mark-to-market payment, or

that secures an obligation of a participant in a securities

clearing agency;

(6) ''net equity'' means, with respect to all accounts of a

customer that such customer has in the same capacity -

(A)(i) aggregate dollar balance that would remain in such

accounts after the liquidation, by sale or purchase, at the

time of the filing of the petition, of all securities positions

in all such accounts, except any customer name securities of

such customer; minus

(ii) any claim of the debtor against such customer in such

capacity that would have been owing immediately after such

liquidation; plus

(B) any payment by such customer to the trustee, within 60

days after notice under section 342 of this title, of any

business related claim of the debtor against such customer in

such capacity;

(7) ''securities contract'' means contract for the purchase,

sale, or loan of a security, including an option for the purchase

or sale of a security, certificate of deposit, or group or index

of securities (including any interest therein or based on the

value thereof), or any option entered into on a national

securities exchange relating to foreign currencies, or the

guarantee of any settlement of cash or securities by or to a

securities clearing agency;

(8) ''settlement payment'' means a preliminary settlement

payment, a partial settlement payment, an interim settlement

payment, a settlement payment on account, a final settlement

payment, or any other similar payment commonly used in the

securities trade; and

(9) ''SIPC'' means Securities Investor Protection Corporation.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2611; Pub. L. 97-222, Sec.

8, July 27, 1982, 96 Stat. 237; Pub. L. 98-353, title III, Sec.

482, July 10, 1984, 98 Stat. 382; Pub. L. 103-394, title V, Sec.

501(d)(25), Oct. 22, 1994, 108 Stat. 4146.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 741(6) of the House bill and Senate amendment is deleted

by the House amendment since the defined term is used only in

section 741(4)(A)(iii). A corresponding change is made in that

section.

SENATE REPORT NO. 95-989

Section 741 sets forth definitions for subchapter III of chapter

7.

Paragraph (1) defines ''Commission'' to mean the Securities and

Exchange Commission.

Paragraph (2) defines ''customer'' to include anybody that

interacts with the debtor in a capacity that concerns securities

transactions. The term embraces cash or margin customers of a

broker or dealer in the broadest sense.

Paragraph (3) defines ''customer name security'' in a restrictive

fashion to include only non-transferable securities that are

registered, or in the process of being registered in a customer's

own name. The securities must not be endorsed by the customer and

the stockbroker must not be able to legally transfer the securities

by delivery, by a power of attorney, or otherwise.

Paragraph (4) defines ''customer property'' to include all

property of the debtor that has been segregated for customers or

property that should have been segregated but was unlawfully

converted. Clause (i) refers to customer property not properly

segregated by the debtor or customer property converted and then

recovered so as to become property of the estate. Unlawfully

converted property that has been transferred to a third party is

excluded until it is recovered as property of the estate by virtue

of the avoiding powers. The concept excludes customer name

securities that have been delivered to or reclaimed by a customer

and any property properly belonging to the stockholder, such as

money deposited by a customer to pay for securities that the

stockholder has distributed to such customer.

Paragraph (5) (enacted as (6)) defines ''net equity'' to

establish the extent to which a customer will be entitled to share

in the single and separate fund. Accounts of a customer are

aggregated and offset only to the extent the accounts are held by

the customer in the same capacity. Thus, a personal account is

separate from an account held as trustee. In a community property

state an account held for the community is distinct from an account

held as separate property.

The net equity is computed by liquidating all securities

positions in the accounts and crediting the account with any amount

due to the customer. Regardless of the actual dates, if any, of

liquidation, the customer is only entitled to the liquidation value

at the time of the filing of the petition. To avoid double

counting, the liquidation value of customer name securities

belonging to a customer is excluded from net equity. Thus, clause

(ii) includes claims against a customer resulting from the

liquidation of a security under clause (i). The value of a security

on which trading has been suspended at the time of the filing of

the petition will be estimated. Once the net liquidation value is

computed, any amount that the customer owes to the stockbroker is

subtracted including any amount that would be owing after the

hypothetical liquidation, such as brokerage fees. Debts owed by

the customer to the debtor, other than in a securities related

transaction, will not reduce the net equity of the customer.

Finally, net equity is increased by any payment by the customer to

the debtor actually paid within 60 days after notice. The

principal reason a customer would make such a payment is to reclaim

customer name securities under Sec. 751.

Paragraph (6) defines ''1934 Act'' to mean the Securities

Exchange Act of 1934 (15 U.S.C. 78a et seq.).

Paragraph (7) (enacted as (9)) defines ''SIPC'' to mean the

Securities Investor Protection Corporation.

-REFTEXT-

REFERENCES IN TEXT

The Securities Exchange Act of 1934, referred to in par.

(4)(A)(iii), is act June 6, 1934, ch. 404, 48 Stat. 881, as

amended, which is classified principally to chapter 2B (Sec. 78a et

seq.) of Title 15, Commerce and Trade. For complete classification

of this Act to the Code, see section 78a of Title 15 and Tables.

-MISC2-

AMENDMENTS

1994 - Par. (4)(A)(iii). Pub. L. 103-394 struck out ''(15 U.S.C.

78a et seq.)'' after ''Act of 1934''.

1984 - Par. (2)(A). Pub. L. 98-353, Sec. 482(1), substituted

''with whom a person deals'' for ''with whom the debtor deals'',

''that has a claim'' for ''that holds a claim'', ''against such

person'' for ''against the debtor'', ''held by such person'' for

''held by the debtor'', and ''such person's business as a

stockbroker,'' for ''business as a stockbroker''.

Par. (2)(B). Pub. L. 98-353, Sec. 482(2)(A), (B), substituted

''has a claim'' for ''holds a claim'' and ''against a person'' for

''against the debtor'' in provisions preceding cl. (i).

Par. (2)(B)(ii). Pub. L. 98-353, Sec. 482(2)(C), substituted

''such person'' for ''the debtor''.

Par. (4)(A)(i). Pub. L. 98-353, Sec. 482(3), substituted ''from

and that is the lawful'' for ''and that is''.

Par. (6)(A)(i). Pub. L. 98-353, Sec. 482(4), inserted a comma

after ''petition'' and ''any'' after ''except''.

Par. (7). Pub. L. 98-353, Sec. 482(5), amended par. (7)

generally, inserting provisions relating to options for the

purchase or sale of certificates of deposit, or a group or index of

securities (including any interest therein or based on the value

thereof), or any option entered into on a national securities

exchange relating to foreign currencies.

Par. (8). Pub. L. 98-353, Sec. 482(6), inserted ''a final

settlement payment,''.

1982 - Par. (4). Pub. L. 97-222, Sec. 8(1), struck out ''at any

time'' after ''security, or property,'' in provisions preceding

subpar. (A), and inserted ''of a customer'' after ''claim'' in

subpar. (A)(ii).

Par. (5). Pub. L. 97-222, Sec. 8(3), added par. (5). Former par.

(5) redesignated (6).

Par. (6). Pub. L. 97-222, Sec. 8(2), (4), redesignated former

par. (5) as (6), in provisions preceding subpar. (A), substituted

''all accounts of a customer that such customer has'' for ''the

aggregate of all of a customer's accounts that such customer

holds'', in subpar. (A)(2) inserted ''in such capacity'', and in

subpar. (B) inserted ''in such capacity''. Former par. (6)

redesignated (9).

Pars. (7), (8). Pub. L. 97-222, Sec. 8(5), added pars. (7) and

(8).

Par. (9). Pub. L. 97-222, Sec. 8(2), (6), redesignated former

par. (6) as (9) and substituted ''Securities'' for ''Security''.

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 101, 362, 546, 548, 555,

752 of this title; title 12 sections 1787, 1821.

-CITE-

11 USC Sec. 742 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER III - STOCKBROKER LIQUIDATION

-HEAD-

Sec. 742. Effect of section 362 of this title in this subchapter

-STATUTE-

Notwithstanding section 362 of this title, SIPC may file an

application for a protective decree under the Securities Investor

Protection Act of 1970. The filing of such application stays all

proceedings in the case under this title unless and until such

application is dismissed. If SIPC completes the liquidation of the

debtor, then the court shall dismiss the case.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2613; Pub. L. 97-222, Sec.

9, July 27, 1982, 96 Stat. 237; Pub. L. 103-394, title V, Sec.

501(d)(26), Oct. 22, 1994, 108 Stat. 4146.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 742 of the House amendment deletes a sentence contained

in the Senate amendment requiring the trustee in an interstate

stock-brokerage liquidation to comply with the provisions of

subchapter IV of chapter 7 if the debtor is also a commodity

broker. The House amendment expands the requirement to require the

SIPC trustee to perform such duties, if the debtor is a commodity

broker, under section 7(b) of the Securities Investor Protection

Act (15 U.S.C. 78ggg(b)). The requirement is deleted from section

742 since the trustee of an intrastate stockbroker will be bound by

the provisions of subchapter IV of chapter 7 if the debtor is also

a commodity broker by reason of section 103 of title 11.

SENATE REPORT NO. 95-989

Section 742 indicates that the automatic stay does not prevent

SIPC from filing an application for a protective decree under SIPA.

If SIPA does file such an application, then all bankruptcy

proceedings are suspended until the SIPC action is completed. If

SIPC completes liquidation of the stockbroker then the bankruptcy

case is dismissed.

-REFTEXT-

REFERENCES IN TEXT

The Securities Investor Protection Act of 1970, referred to in

text, is Pub. L. 91-598, Dec. 30, 1970, 84 Stat. 1636, as amended,

which is classified generally to chapter 2B-1 (Sec. 78aaa et seq.)

of Title 15, Commerce and Trade. For complete classification of

this Act to the Code, see section 78aaa of Title 15 and Tables.

-MISC2-

AMENDMENTS

1994 - Pub. L. 103-394 struck out ''(15 U.S.C. 78aaa et seq.)''

after ''Act of 1970''.

1982 - Pub. L. 97-222 substituted ''title'' for ''chapter'' after

''all proceedings in the case under this''.

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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 349 of this title.

-CITE-

11 USC Sec. 743 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER III - STOCKBROKER LIQUIDATION

-HEAD-

Sec. 743. Notice

-STATUTE-

The clerk shall give the notice required by section 342 of this

title to SIPC and to the Commission.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2613; Pub. L. 99-554, title

II, Sec. 283(t), Oct. 27, 1986, 100 Stat. 3118; Pub. L. 103-394,

title V, Sec. 501(d)(27), Oct. 22, 1994, 108 Stat. 4146.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

Section 743 requires that notice of the order for relief be given

to SIPC and to the SEC in every stockbroker case.

AMENDMENTS

1994 - Pub. L. 103-394 substituted ''342'' for ''342(a)''.

1986 - Pub. L. 99-554, which directed the amendment of this

section by striking ''(d)'', rather than ''(a)'', could not be

executed because ''(d)'' did not appear in text. See 1994

Amendment note above.

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, see section 302(a) of Pub. L. 99-554, set out as a note under

section 581 of Title 28, Judiciary and Judicial Procedure.

-CITE-

11 USC Sec. 744 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER III - STOCKBROKER LIQUIDATION

-HEAD-

Sec. 744. Executory contracts

-STATUTE-

Notwithstanding section 365(d)(1) of this title, the trustee

shall assume or reject, under section 365 of this title, any

executory contract of the debtor for the purchase or sale of a

security in the ordinary course of the debtor's business, within a

reasonable time after the date of the order for relief, but not to

exceed 30 days. If the trustee does not assume such a contract

within such time, such contract is rejected.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2613; Pub. L. 97-222, Sec.

10, July 27, 1982, 96 Stat. 238.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

Section 744 instructs the court to give the trustee a reasonable

time, not to exceed 30 days, to assume or reject any executory

contract of the stockbroker to buy or sell securities. Any

contract not assumed within the time fixed by the court is

considered to be rejected.

AMENDMENTS

1982 - Pub. L. 97-222 inserted ''but'' after ''relief,''.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 106 of this title.

-CITE-

11 USC Sec. 745 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER III - STOCKBROKER LIQUIDATION

-HEAD-

Sec. 745. Treatment of accounts

-STATUTE-

(a) Accounts held by the debtor for a particular customer in

separate capacities shall be treated as accounts of separate

customers.

(b) If a stockbroker or a bank holds a customer net equity claim

against the debtor that arose out of a transaction for a customer

of such stockbroker or bank, each such customer of such stockbroker

or bank shall be treated as a separate customer of the debtor.

(c) Each trustee's account specified as such on the debtor's

books, and supported by a trust deed filed with, and qualified as

such by, the Internal Revenue Service, and under the Internal

Revenue Code of 1986, shall be treated as a separate customer

account for each beneficiary under such trustee account.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2613; Pub. L. 97-222, Sec.

11, July 27, 1982, 96 Stat. 238; Pub. L. 98-353, title III, Sec.

483, July 10, 1984, 98 Stat. 383; Pub. L. 103-394, title V, Sec.

501(d)(28), Oct. 22, 1994, 108 Stat. 4146.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

Section 745(a) indicates that each account held by a customer in

a separate capacity is to be considered a separate account. This

prevents the offset of accounts held in different capacities.

Subsection (b) indicates that a bank or another stockbroker that

is a customer of a debtor is considered to hold its customers

accounts in separate capacities. Thus a bank or other stockbroker

is not treated as a mutual fund for purposes of bulk investment.

This protects unrelated customers of a bank or other stockholder

from having their accounts offset.

Subsection (c) effects the same result with respect to a trust so

that each beneficiary is treated as the customer of the debtor

rather than the trust itself. This eliminates any doubt whether a

trustee holds a personal account in a separate capacity from his

trustee's account.

-REFTEXT-

REFERENCES IN TEXT

The Internal Revenue Code of 1986, referred to in subsec. (c), is

classified generally to Title 26, Internal Revenue Code.

-MISC2-

AMENDMENTS

1994 - Subsec. (c). Pub. L. 103-394 substituted ''Internal

Revenue Code of 1986'' for ''Internal Revenue Code of 1954 (26

U.S.C. 1 et seq.)''.

1984 - Subsec. (a). Pub. L. 98-353 inserted ''the debtor for''

after ''by''.

1982 - Subsec. (c). Pub. L. 97-222 substituted ''Each'' for

''A''.

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.

-CITE-

11 USC Sec. 746 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER III - STOCKBROKER LIQUIDATION

-HEAD-

Sec. 746. Extent of customer claims

-STATUTE-

(a) If, after the date of the filing of the petition, an entity

enters into a transaction with the debtor, in a manner that would

have made such entity a customer had such transaction occurred

before the date of the filing of the petition, and such transaction

was entered into by such entity in good faith and before the

qualification under section 322 of this title of a trustee, such

entity shall be deemed a customer, and the date of such transaction

shall be deemed to be the date of the filing of the petition for

the purpose of determining such entity's net equity.

(b) An entity does not have a claim as a customer to the extent

that such entity transferred to the debtor cash or a security that,

by contract, agreement, understanding, or operation of law, is -

(1) part of the capital of the debtor; or

(2) subordinated to the claims of any or all creditors.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2613; Pub. L. 97-222, Sec.

12, July 27, 1982, 96 Stat. 238.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

Section 746(a) protects entities who deal in good faith with the

debtor after the filing of the petition and before a trustee is

appointed by deeming such entities to be customers. The principal

application of this section will be in an involuntary case before

the order for relief, because Sec. 701(b) requires prompt

appointment of an interim trustee after the order for relief.

Subsection (b) indicates that an entity who holds securities that

are either part of the capital of the debtor or that are

subordinated to the claims of any creditor of the debtor is not a

customer with respect to those securities. This subsection will

apply when the stockbroker has sold securities in itself to the

customer or when the customer has otherwise placed such securities

in an account with the stockbroker.

AMENDMENTS

1982 - Pub. L. 97-222, Sec. 12(c), substituted ''claims'' for

''claim'' in section catchline.

Subsec. (a). Pub. L. 97-222, Sec. 12(a), substituted ''enters

into'' for ''effects, with respect to cash or a security,'', struck

out ''with respect to such cash or security'' wherever appearing,

and substituted ''the date of the filing of the petition'' for

''such date'', and ''entered into'' for ''effected''.

Subsec. (b). Pub. L. 97-222, Sec. 12(b), substituted

''transferred to the debtor'' for ''has a claim for'' in provisions

preceding par. (1), and struck out ''is'' in par. (2).

-CITE-

11 USC Sec. 747 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER III - STOCKBROKER LIQUIDATION

-HEAD-

Sec. 747. Subordination of certain customer claims

-STATUTE-

Except as provided in section 510 of this title, unless all other

customer net equity claims have been paid in full, the trustee may

not pay in full or pay in part, directly or indirectly, any net

equity claim of a customer that was, on the date the transaction

giving rise to such claim occurred -

(1) an insider;

(2) a beneficial owner of at least five percent of any class of

equity securities of the debtor, other than -

(A) nonconvertible stock having fixed preferential dividend

and liquidation rights; or

(B) interests of limited partners in a limited partnership;

(3) a limited partner with a participation of at least five

percent in the net assets or net profits of the debtor; or

(4) an entity that, directly or indirectly, through agreement

or otherwise, exercised or had the power to exercise control over

the management or policies of the debtor.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2613; Pub. L. 97-222, Sec.

13, July 27, 1982, 96 Stat. 238.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

Section 747 subordinates to other customer claims, all claims of

a customer who is an insider, a five percent owner of the debtor,

or otherwise in control of the debtor.

AMENDMENTS

1982 - Pub. L. 97-222 substituted ''the transaction giving rise

to such claim occurred'' for ''such claim arose'' in provisions

preceding par. (1).

-CITE-

11 USC Sec. 748 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER III - STOCKBROKER LIQUIDATION

-HEAD-

Sec. 748. Reduction of securities to money

-STATUTE-

As soon as practicable after the date of the order for relief,

the trustee shall reduce to money, consistent with good market

practice, all securities held as property of the estate, except for

customer name securities delivered or reclaimed under section 751

of this title.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2614.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

Section 748 requires the trustee to liquidate all securities,

except for customer name securities, of the estate in a manner

consistent with good market practice. The trustee should refrain

from flooding a thin market with a large percentage of shares in

any one issue. If the trustee holds restricted securities or

securities in which trading has been suspended, then the trustee

must arrange to liquidate such securities in accordance with the

securities laws. A private placement may be the only exemption

available with the customer of the debtor the best prospect for

such a placement. The subsection does not permit such a customer

to bid in his net equity as part of the purchase price; a contrary

result would permit a customer to receive a greater percentage on

his net equity claim than other customers.

-CITE-

11 USC Sec. 749 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER III - STOCKBROKER LIQUIDATION

-HEAD-

Sec. 749. Voidable transfers

-STATUTE-

(a) Except as otherwise provided in this section, any transfer of

property that, but for such transfer, would have been customer

property, may be avoided by the trustee, and such property shall be

treated as customer property, if and to the extent that the trustee

avoids such transfer under section 544, 545, 547, 548, or 549 of

this title. For the purpose of such sections, the property so

transferred shall be deemed to have been property of the debtor

and, if such transfer was made to a customer or for a customer's

benefit, such customer shall be deemed, for the purposes of this

section, to have been a creditor.

(b) Notwithstanding sections 544, 545, 547, 548, and 549 of this

title, the trustee may not avoid a transfer made before five days

after the order for relief if such transfer is approved by the

Commission by rule or order, either before or after such transfer,

and if such transfer is -

(1) a transfer of a securities contract entered into or carried

by or through the debtor on behalf of a customer, and of any

cash, security, or other property margining or securing such

securities contract; or

(2) the liquidation of a securities contract entered into or

carried by or through the debtor on behalf of a customer.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2614; Pub. L. 97-222, Sec.

14, July 27, 1982, 96 Stat. 238.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

Section 749 indicates that if the trustee avoids a transfer,

property recovered is customer property to any extent it would have

been customer property but for the transfer. The section clarifies

that a customer who receives a transfer of property of the debtor

is a creditor and that property in a customer's account is property

of a creditor for purposes of the avoiding powers.

AMENDMENTS

1982 - Pub. L. 97-222 substituted ''(a) Except as otherwise

provided in this section, any'' for ''Any'', and ''but'' for

''except'', inserted ''such property'', substituted ''or 549'' for

''549, or 724(a)'', and added subsec. (b).

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 106 of this title.

-CITE-

11 USC Sec. 750 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER III - STOCKBROKER LIQUIDATION

-HEAD-

Sec. 750. Distribution of securities

-STATUTE-

The trustee may not distribute a security except under section

751 of this title.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2614.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

Section 750 forbids the trustee from distributing a security

other than a customer name security. The term ''distribution''

refers to a distribution to customers in satisfaction of net equity

claims and is not intended to preclude the trustee from liquidating

securities under proposed 11 U.S.C. 748.

-CITE-

11 USC Sec. 751 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER III - STOCKBROKER LIQUIDATION

-HEAD-

Sec. 751. Customer name securities

-STATUTE-

The trustee shall deliver any customer name security to or on

behalf of the customer entitled to such security, unless such

customer has a negative net equity. With the approval of the

trustee, a customer may reclaim a customer name security after

payment to the trustee, within such period as the trustee allows,

of any claim of the debtor against such customer to the extent that

such customer will not have a negative net equity after such

payment.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2614.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

Section 751 requires the trustee to deliver a customer name

security to the customer entitled to such security unless the

customer has a negative net equity. The customer's net equity will

be negative when the amount owed by the customer to the stockbroker

exceeds the liquidation value of the non-customer name securities

in the customer's account. If the customer is a net debtor of the

stockbroker, then the trustee may permit the customer to repay

debts to the stockbroker so that the customer will no longer be in

debt to the stockbroker. If the customer refuses to pay such

amount, then the court may order the customer to endorse the

security in order that the trustee may liquidate such property.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 741, 748, 750 of this

title.

-CITE-

11 USC Sec. 752 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER III - STOCKBROKER LIQUIDATION

-HEAD-

Sec. 752. Customer property

-STATUTE-

(a) The trustee shall distribute customer property ratably to

customers on the basis and to the extent of such customers' allowed

net equity claims and in priority to all other claims, except

claims of the kind specified in section 507(a)(1) of this title

that are attributable to the administration of such customer

property.

(b)(1) The trustee shall distribute customer property in excess

of that distributed under subsection (a) of this section in

accordance with section 726 of this title.

(2) Except as provided in section 510 of this title, if a

customer is not paid the full amount of such customer's allowed net

equity claim from customer property, the unpaid portion of such

claim is a claim entitled to distribution under section 726 of this

title.

(c) Any cash or security remaining after the liquidation of a

security interest created under a security agreement made by the

debtor, excluding property excluded under section 741(4)(B) of this

title, shall be apportioned between the general estate and customer

property in the same proportion as the general estate of the debtor

and customer property were subject to such security interest.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2614; Pub. L. 97-222, Sec.

15, July 27, 1982, 96 Stat. 238; Pub. L. 98-353, title III, Sec.

484, July 10, 1984, 98 Stat. 383.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

Section 752(a) requires the trustee to distribute customer

property to customers based on the amount of their net equity

claims. Customer property is to be distributed in priority to all

claims except expenses of administration entitled to priority under

Sec. 507(1). It is anticipated that the court will apportion such

administrative claims on an equitable basis between the general

estate and the customer property of the debtor.

Subsection (b)(1) indicates that in the event customer property

exceeds customers net equity claims and administrative expenses,

the excess pours over into the general estate. This event would

occur if the value of securities increased dramatically after the

order for relief but before liquidation by the trustee. Subsection

(b)(2) indicates that the unpaid portion of a customer's net equity

claim is entitled to share in the general estate as an unsecured

claim unless subordinated by the court under proposed 11 U.S.C.

501. A net equity claim of a customer that is subordinated under

section 747 is entitled to share in distribution under section

726(a)(2) unless subordinated under section 510 independently of

the subordination under section 747.

Subsection (c) provides for apportionment between customer

property and the general estate of any equity of the debtor in

property remaining after a secured creditor liquidates a security

interest. This might occur if a stockbroker hypothecates

securities of his own and of his customers if the value of the

hypothecated securities exceeds the debt owed to the secured

party. The apportionment is to be made according to the ratio of

customer property and general property of the debtor that comprised

the collateral. The subsection refers to cash and securities of

customers to include any customer property unlawfully converted by

the stockbroker in the course of such a transaction. The

apportionment is made subject to section 741(4)(B) to insure that

property in a customer's account that is owed to the stockbroker

will not be considered customer property. This recognizes the

right of the stockbroker to withdraw money that has been

erroneously placed in a customer's account or that is otherwise

owing to the stockbroker.

AMENDMENTS

1984 - Subsec. (a). Pub. L. 98-353, Sec. 484(a), substituted

''customers' allowed'' for ''customers allowed'', ''except claims

of the kind'' for ''except claims'', and ''such customer property''

for ''customer property''.

Subsec. (b)(2). Pub. L. 98-353, Sec. 484(b), substituted

''section 726'' for ''section 726(a)''.

1982 - Subsec. (c). Pub. L. 97-222 substituted ''Any cash or

security remaining after the liquidation of a security interest

created under a security agreement made by the debtor, excluding

property excluded under section 741(4)(B) of this title, shall be

apportioned between the general estate and customer property in the

same proportion as the general estate of the debtor and customer

property were subject to such security interest'' for ''Subject to

section 741(4)(B) of this title, any cash or security remaining

after the liquidation of a security interest created under a

security agreement made by the debtor shall be apportioned between

the general estate and customer property in the proportion that the

general property of the debtor and the cash or securities of

customers were subject to such security interest''.

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 702 of this title.

-CITE-

11 USC SUBCHAPTER IV - COMMODITY BROKER LIQUIDATION 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER IV - COMMODITY BROKER LIQUIDATION

.

-HEAD-

SUBCHAPTER IV - COMMODITY BROKER LIQUIDATION

-SECREF-

SUBCHAPTER REFERRED TO IN OTHER SECTIONS

This subchapter is referred to in sections 103, 783 of this

title; title 7 section 24; title 15 section 78fff-1.

-CITE-

11 USC Sec. 761 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER IV - COMMODITY BROKER LIQUIDATION

-HEAD-

Sec. 761. Definitions for this subchapter

-STATUTE-

In this subchapter -

(1) ''Act'' means Commodity Exchange Act;

(2) ''clearing organization'' means a derivatives clearing

organization registered under the Act;

(3) ''Commission'' means Commodity Futures Trading Commission;

(4) ''commodity contract'' means -

(A) with respect to a futures commission merchant, contract

for the purchase or sale of a commodity for future delivery on,

or subject to the rules of, a contract market or board of

trade;

(B) with respect to a foreign futures commission merchant,

foreign future;

(C) with respect to a leverage transaction merchant, leverage

transaction;

(D) with respect to a clearing organization, contract for the

purchase or sale of a commodity for future delivery on, or

subject to the rules of, a contract market or board of trade

that is cleared by such clearing organization, or commodity

option traded on, or subject to the rules of, a contract market

or board of trade that is cleared by such clearing

organization;

(E) with respect to a commodity options dealer, commodity

option;

(5) ''commodity option'' means agreement or transaction subject

to regulation under section 4c(b) of the Act;

(6) ''commodity options dealer'' means person that extends

credit to, or that accepts cash, a security, or other property

from, a customer of such person for the purchase or sale of an

interest in a commodity option;

(7) ''contract market'' means a registered entity;

(8) ''contract of sale'', ''commodity'', ''derivatives clearing

organization'', ''future delivery'', ''board of trade'',

''registered entity'', and ''futures commission merchant'' have

the meanings assigned to those terms in the Act;

(9) ''customer'' means -

(A) with respect to a futures commission merchant -

(i) entity for or with whom such futures commission

merchant deals and that holds a claim against such futures

commission merchant on account of a commodity contract made,

received, acquired, or held by or through such futures

commission merchant in the ordinary course of such futures

commission merchant's business as a futures commission

merchant from or for the commodity futures account of such

entity; or

(ii) entity that holds a claim against such futures

commission merchant arising out of -

(I) the making, liquidation, or change in the value of a

commodity contract of a kind specified in clause (i) of

this subparagraph;

(II) a deposit or payment of cash, a security, or other

property with such futures commission merchant for the

purpose of making or margining such a commodity contract;

or

(III) the making or taking of delivery on such a

commodity contract;

(B) with respect to a foreign futures commission merchant -

(i) entity for or with whom such foreign futures commission

merchant deals and that holds a claim against such foreign

futures commission merchant on account of a commodity

contract made, received, acquired, or held by or through such

foreign futures commission merchant in the ordinary course of

such foreign futures commission merchant's business as a

foreign futures commission merchant from or for the foreign

futures account of such entity; or

(ii) entity that holds a claim against such foreign futures

commission merchant arising out of -

(I) the making, liquidation, or change in value of a

commodity contract of a kind specified in clause (i) of

this subparagraph;

(II) a deposit or payment of cash, a security, or other

property with such foreign futures commission merchant for

the purpose of making or margining such a commodity

contract; or

(III) the making or taking of delivery on such a

commodity contract;

(C) with respect to a leverage transaction merchant -

(i) entity for or with whom such leverage transaction

merchant deals and that holds a claim against such leverage

transaction merchant on account of a commodity contract

engaged in by or with such leverage transaction merchant in

the ordinary course of such leverage transaction merchant's

business as a leverage transaction merchant from or for the

leverage account of such entity; or

(ii) entity that holds a claim against such leverage

transaction merchant arising out of -

(I) the making, liquidation, or change in value of a

commodity contract of a kind specified in clause (i) of

this subparagraph;

(II) a deposit or payment of cash, a security, or other

property with such leverage transaction merchant for the

purpose of entering into or margining such a commodity

contract; or

(III) the making or taking of delivery on such a

commodity contract;

(D) with respect to a clearing organization, clearing member

of such clearing organization with whom such clearing

organization deals and that holds a claim against such clearing

organization on account of cash, a security, or other property

received by such clearing organization to margin, guarantee, or

secure a commodity contract in such clearing member's

proprietary account or customers' account; or

(E) with respect to a commodity options dealer -

(i) entity for or with whom such commodity options dealer

deals and that holds a claim on account of a commodity

contract made, received, acquired, or held by or through such

commodity options dealer in the ordinary course of such

commodity options dealer's business as a commodity options

dealer from or for the commodity options account of such

entity; or

(ii) entity that holds a claim against such commodity

options dealer arising out of -

(I) the making of, liquidation of, exercise of, or a

change in value of, a commodity contract of a kind

specified in clause (i) of this subparagraph; or

(II) a deposit or payment of cash, a security, or other

property with such commodity options dealer for the purpose

of making, exercising, or margining such a commodity

contract;

(10) ''customer property'' means cash, a security, or other

property, or proceeds of such cash, security, or property,

received, acquired, or held by or for the account of the debtor,

from or for the account of a customer -

(A) including -

(i) property received, acquired, or held to margin,

guarantee, secure, purchase, or sell a commodity contract;

(ii) profits or contractual or other rights accruing to a

customer as a result of a commodity contract;

(iii) an open commodity contract;

(iv) specifically identifiable customer property;

(v) warehouse receipt or other document held by the debtor

evidencing ownership of or title to property to be delivered

to fulfill a commodity contract from or for the account of a

customer;

(vi) cash, a security, or other property received by the

debtor as payment for a commodity to be delivered to fulfill

a commodity contract from or for the account of a customer;

(vii) a security held as property of the debtor to the

extent such security is necessary to meet a net equity claim

based on a security of the same class and series of an

issuer;

(viii) property that was unlawfully converted from and that

is the lawful property of the estate; and

(ix) other property of the debtor that any applicable law,

rule, or regulation requires to be set aside or held for the

benefit of a customer, unless including such property as

customer property would not significantly increase customer

property; but

(B) not including property to the extent that a customer does

not have a claim against the debtor based on such property;

(11) ''foreign future'' means contract for the purchase or sale

of a commodity for future delivery on, or subject to the rules

of, a board of trade outside the United States;

(12) ''foreign futures commission merchant'' means entity

engaged in soliciting or accepting orders for the purchase or

sale of a foreign future or that, in connection with such a

solicitation or acceptance, accepts cash, a security, or other

property, or extends credit to margin, guarantee, or secure any

trade or contract that results from such a solicitation or

acceptance;

(13) ''leverage transaction'' means agreement that is subject

to regulation under section 19 of the Commodity Exchange Act, and

that is commonly known to the commodities trade as a margin

account, margin contract, leverage account, or leverage contract;

(14) ''leverage transaction merchant'' means person in the

business of engaging in leverage transactions;

(15) ''margin payment'' means payment or deposit of cash, a

security, or other property, that is commonly known to the

commodities trade as original margin, initial margin, maintenance

margin, or variation margin, including mark-to-market payments,

settlement payments, variation payments, daily settlement

payments, and final settlement payments made as adjustments to

settlement prices;

(16) ''member property'' means customer property received,

acquired, or held by or for the account of a debtor that is a

clearing organization, from or for the proprietary account of a

customer that is a clearing member of the debtor; and

(17) ''net equity'' means, subject to such rules and

regulations as the Commission promulgates under the Act, with

respect to the aggregate of all of a customer's accounts that

such customer has in the same capacity -

(A) the balance remaining in such customer's accounts

immediately after -

(i) all commodity contracts of such customer have been

transferred, liquidated, or become identified for delivery;

and

(ii) all obligations of such customer in such capacity to

the debtor have been offset; plus

(B) the value, as of the date of return under section 766 of

this title, of any specifically identifiable customer property

actually returned to such customer before the date specified in

subparagraph (A) of this paragraph; plus

(C) the value, as of the date of transfer, of -

(i) any commodity contract to which such customer is

entitled that is transferred to another person under section

766 of this title; and

(ii) any cash, security, or other property of such customer

transferred to such other person under section 766 of this

title to margin or secure such transferred commodity

contract.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2615; Pub. L. 97-222, Sec.

16, July 27, 1982, 96 Stat. 238; Pub. L. 98-353, title III, Sec.

485, July 10, 1984, 98 Stat. 383; Pub. L. 103-394, title V, Sec.

501(d)(29), Oct. 22, 1994, 108 Stat. 4146; Pub. L. 106-554, Sec.

1(a)(5) (title I, Sec. 112(c)(6)), Dec. 21, 2000, 114 Stat. 2763,

2763A-395.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Subchapter IV of chapter 7 represents a compromise between

similar chapters in the House bill and Senate amendment. Section

761(2) of the House amendment defines ''clearing organization'' to

cover an organization that clears commodity contracts on a contract

market or a board of trade; the expansion of the definition is

intended to include clearing organizations that clear commodity

options. Section 761(4) of the House amendment adopts the term

''commodity contract'' as used in section 761(5) of the Senate

amendment but with the more precise substantive definitions

contained in section 761(8) of the House bill. The definition is

modified to insert ''board of trade'' to cover commodity options.

Section 761(5) of the House amendment adopts the definition

contained in section 761(6) of the Senate amendment in preference

to the definition contained in section 761(4) of the House bill

which erroneously included onions. Section 761(9) of the House

amendment represents a compromise between similar provisions

contained in section 761(10) of the Senate amendment and section

761(9) of the House bill. The compromise adopts the substance

contained in the House bill and adopts the terminology of

''commodity contract'' in lieu of ''contractual commitment'' as

suggested in the Senate amendment. Section 761(10) of the House

amendment represents a compromise between similar sections in the

House bill and Senate amendment regarding the definition of

''customer property.'' The definition of ''distribution share''

contained in section 761(12) of the Senate amendment is deleted as

unnecessary. Section 761(12) of the House amendment adopts a

definition of ''foreign futures commission merchant'' similar to

the definition contained in section 761(14) of the Senate

amendment. The definition is modified to cover either an entity

engaged in soliciting orders or the purchase or sale of a foreign

future, or an entity that accepts cash, a security, or other

property for credit in connection with such a solicitation or

acceptance. Section 761(13) of the House amendment adopts a

definition of ''leverage transaction'' identical to the definition

contained in section 761(15) of the Senate amendment. Section

761(15) of the House amendment adopts the definition of ''margin

payment'' contained in section 761(17) of the Senate amendment.

Section 761(17) of the House amendment adopts a definition of ''net

equity'' derived from section 761(15) of the House bill.

SENATE REPORT NO. 95-989

Paragraph (1) defines ''Act'' to mean the Commodity Exchange Act

(7 U.S.C. 1 et seq.).

Paragraph (2) defines ''clearing organization'' to mean an

organization that clears (i.e., matches purchases and sales)

commodity futures contracts made on or subject to the rules of a

contract market or commodity options transactions made on or

subject to the rules of a commodity option exchange. Although

commodity option trading on exchanges is currently prohibited, it

is anticipated that CFTC may permit such trading in the future.

Paragraphs (3) and (4) define terms ''Commission'' and

''commodity futures contract''.

Paragraph (5) (enacted as (4)) defines ''commodity contract'' to

mean a commodity futures contract (Sec. 761(4)), a commodity option

(Sec. 761(6)), or a leverage contract (Sec. 761(15)).

Paragraph (b) (probably should be ''(6)'' which was enacted as

(5)) defines ''commodity option'' by reference to section 4c(b) of

the Commodity Exchange Act (7 U.S.C. 6c(b)).

Paragraphs (7), (8), and (9) (enacted as (6), (7), and (8))

define ''commodity options dealer,'' ''contract market,''

''contract of sale,'' ''commodity,'' ''future delivery,'' ''board

of trade,'' and ''futures commission merchant.''

Paragraph (10) (enacted as (9)) defines the term ''customer'' to

mean with respect to a futures commission merchant or a foreign

futures commission merchant, the entity for whom the debtor carries

a commodity futures contract or foreign future, or with whom such a

contract is carried (such as another commodity broker), or from

whom the debtor has received, acquired, or holds cash, securities,

or other property arising out of or connected with specified

transactions involving commodity futures contracts or foreign

futures. This section also defines ''customer'' in the context of

leverage transaction merchants, clearing organizations, and

commodity options dealers. Persons associated with a commodity

broker, such as its employees, officers, or partners, may be

customers under this definition.

The definition of ''customer'' serves to isolate that class of

persons entitled to the protection subchapter IV provides to

customers. In addition, section 101(5) defines ''commodity

broker'' to mean a futures commission merchant, foreign futures

commission merchant, clearing organization, leverage transaction

merchant, or commodity options dealer, with respect to which there

is a customer. Accordingly, the definition of customer also serves

to designate those entities which must utilize chapter 7 and are

precluded from reorganizing under chapter 11.

Paragraph (11) (enacted as (10)) defines ''customer property'' to

mean virtually all property or proceeds thereof, received,

acquired, or held by or for the account of the debtor for a

customer arising out of or in connection with a transaction

involving a commodity contract.

Paragraph (12) defines ''distribution share'' to mean the amount

to which a customer is entitled under section 765(a).

Paragraphs (13), (14), (15), and (16) (enacted as (11), (12),

(13), and (14)) define ''foreign future,'' ''foreign futures

commission merchant,'' ''leverage transaction,'' and ''leverage

transaction merchant.''

Paragraph (17) (enacted as (15)) defines ''margin payment'' to

mean a payment or deposit commonly known to the commodities trade

as original margin, initial margin, or variation margin.

Paragraph (18) (enacted as (16)) defines ''member property.''

Paragraph (19) (enacted as (17)) defines ''net equity'' to be the

sum of (A) the value of all customer property remaining in a

customer's account immediately after all commodity contracts of

such customer have been transferred, liquidated, or become

identified for delivery and all obligations of such customer to the

debtor have been offset (such as margin payments, whether or not

called, and brokerage commissions) plus (B) the value of

specifically identifiable customer property previously returned to

the customer by the trustee, plus (C) if the trustee has

transferred any commodity contract to which the customer is

entitled or any margin or security for such contract, the value of

such contract and margin or security. Net equity, therefore, will

be the total amount of customer property to which a customer is

entitled as of the date of the filing of the bankruptcy petition,

although valued at subsequent dates. The Commission is given

authority to promulgate rules and regulations to further refine

this definition.

HOUSE REPORT NO. 95-595

Paragraph (8) (enacted as (4)) is a dynamic definition of

''contractual commitment''. The definition will vary depending on

the character of the debtor in each case. If the debtor is a

futures commission merchant or a clearing organization, then

subparagraphs (A) and (D) indicate that the definition means a

contract of sale of a commodity for future delivery on a contract

market. If the debtor is a foreign futures commission merchant, a

leverage transaction merchant, or a commodity options dealer, then

subparagraphs (B), (C), and (E) indicate that the definition means

foreign future, leverage transaction, or commodity option,

respectively.

Paragraph (9) defines ''customer'' in a similar style. It is

anticipated that a debtor with multifaceted characteristics will

have separate estates for each different kind of customer. Thus, a

debtor that is a leverage transaction merchant and a commodity

options dealer would have separate estates for the leverage

transaction customers and for the options customers, and a general

estate for other creditors. Customers for each kind of commodity

broker, except the clearing organization, arise from either of two

relationships. In subparagraphs (A), (B), (C), and (E), clause (i)

treats with customers to the extent of contractual commitments with

the debtor in either a broker or a dealer relationship. Clause

(ii) treats with customers to the extent of proceeds from

contractual commitments or deposits for the purpose of making

contractual commitments. The customer of the clearing organization

is a member with a proprietary or customers' account.

Paragraph (10) defines ''customer property'' to include all

property in customer accounts and property that should have been in

those accounts but was diverted through conversion or mistake.

Clause (i) refers to customer property not properly segregated by

the debtor or customer property converted and then recovered so as

to become property of the estate. Clause (vii) is intended to

exclude property that would cost more to recover from a third party

than the value of the property itself. Subparagraph (B) excludes

property in a customer's account that belongs to the commodity

broker, such as a contract placed in the account by error, or cash

due the broker for a margin payment that the broker has made.

Paragraph (15) (enacted as (17)) defines ''net equity'' to

include the value of all contractual commitments at the time of

liquidation or transfer less any obligations owed by the customer

to the debtor, such as brokerage fees. In addition, the term

includes the value of any specifically identifiable property as of

the date of return to the customer and the value of any customer

property transferred to another commodity broker as of the date of

transfer. This definition places the risk of market fluctuations

on the customer until commitments leave the estate.

-REFTEXT-

REFERENCES IN TEXT

The Commodity Exchange Act, referred to in pars. (1), (2), (8),

and (17), is act Sept. 21, 1922, ch. 369, 42 Stat. 998, as amended,

which is classified generally to chapter 1 (Sec. 1 et seq.) of

Title 7, Agriculture. Sections 4c(b) and 19 of the Act are

classified to sections 6c(b) and 23, respectively, of Title 7. For

complete classification of this Act to the Code, see section 1 of

Title 7 and Tables.

-MISC2-

AMENDMENTS

2000 - Par. (2). Pub. L. 106-554, Sec. 1(a)(5) (title I, Sec.

112(c)(6)(A)), amended par. (2) generally. Prior to amendment,

par. (2) read as follows: '' 'clearing organization' means

organization that clears commodity contracts made on, or subject to

the rules of, a contract market or board of trade;''.

Par. (7). Pub. L. 106-554, Sec. 1(a)(5) (title I, Sec.

112(c)(6)(B)), amended par. (7) generally. Prior to amendment,

par. (7) read as follows: '' 'contract market' means board of trade

designated as a contract market by the Commission under the Act;''.

Par. (8). Pub. L. 106-554, Sec. 1(a)(5) (title I, Sec.

112(c)(6)(C)), amended par. (8) generally. Prior to amendment,

par. (8) read as follows: '' 'contract of sale', 'commodity',

'future delivery', 'board of trade', and 'futures commission

merchant' have the meanings assigned to those terms in the Act;''.

1994 - Par. (1). Pub. L. 103-394, Sec. 501(d)(29)(A), struck out

''(7 U.S.C. 1 et seq.)'' after ''Act''.

Par. (5). Pub. L. 103-394, Sec. 501(d)(29)(B), struck out ''(7

U.S.C. 6c(b))'' after ''Act''.

Par. (13). Pub. L. 103-394, Sec. 501(d)(29)(C), struck out ''(7

U.S.C. 23)'' after ''Act''.

1984 - Par. (10)(A)(viii). Pub. L. 98-353 substituted ''from and

that is the lawful property'' for ''and that is property''.

1982 - Par. (2). Pub. L. 97-222, Sec. 16(1), inserted ''made''

after ''commodity contracts''.

Par. (4). Pub. L. 97-222, Sec. 16(2), substituted ''with respect

to'' for ''if the debtor is'' wherever appearing, and substituted

''cleared by such clearing organization, or commodity option traded

on, or subject to the rules of, a contract market or board of trade

that is cleared by such clearing organization'' for ''cleared by

the debtor'' in subpar. (D).

Par. (9). Pub. L. 97-222, Sec. 16(3), substituted ''with respect

to'' for ''if the debtor is'' wherever appearing, in subpar. (A)

substituted ''such futures commission merchant'' for ''the debtor''

wherever appearing and ''such futures commission merchant's'' for

''the debtor's'', in subpar. (B) substituted ''such foreign futures

commission merchant'' for ''the debtor'' wherever appearing and

''such foreign futures commission merchant's'' for ''the

debtor's'', in subpar. (C) substituted ''such leverage transaction

merchant'' for ''the debtor'' wherever appearing and ''such

leverage transaction merchant's'' for ''the debtor's'', inserted

''or'' after the semicolon in cl. (i), and substituted ''holds''

for ''hold'' in cl. (ii), in subpar. (D) substituted ''such

clearing organization'' for ''the debtor'' wherever appearing, and

in subpar. (E) substituted ''such commodity options dealer'' for

''the debtor'' wherever appearing and ''such commodity options

dealer's'' for ''the debtor's''.

Par. (10). Pub. L. 97-222, Sec. 16(4), struck out ''at any time''

after ''security, or property,'' in provisions preceding subpar.

(A).

Par. (12). Pub. L. 97-222, Sec. 16(5), inserted a comma after

''property'' and struck out the comma after ''credit''.

Par. (13). Pub. L. 97-222, Sec. 16(6), substituted ''section 19

of the Commodity Exchange Act (7 U.S.C. 23)'' for ''section 217 of

the Commodity Futures Trading Commission Act of 1974 (7 U.S.C.

15a)''.

Par. (14). Pub. L. 97-222, Sec. 16(7), struck out ''that is

engaged'' after ''means person''.

Par. (15). Pub. L. 97-222, Sec. 16(8), substituted

''mark-to-market payments, settlement payments, variation payments,

daily settlement payments, and final settlement payments made as

adjustments to settlement prices'' for ''a daily variation

settlement payment''.

Par. (16). Pub. L. 97-222, Sec. 16(9), struck out ''at any time''

after ''customer property''.

Par. (17). Pub. L. 97-222, Sec. 16(10), in provisions preceding

subpar. (A) substituted ''has'' for ''holds'', in subpar. (A)

inserted ''the'' after ''(A)'' in provisions preceding cl. (i), and

''in such capacity'' after ''customer'' in cl. (ii).

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 101, 362, 546, 548, 556

of this title; title 12 section 1821.

-CITE-

11 USC Sec. 762 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER IV - COMMODITY BROKER LIQUIDATION

-HEAD-

Sec. 762. Notice to the Commission and right to be heard

-STATUTE-

(a) The clerk shall give the notice required by section 342 of

this title to the Commission.

(b) The Commission may raise and may appear and be heard on any

issue in a case under this chapter.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2618.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

Section 762 provides that the Commission shall be given such

notice as is appropriate of an order for relief in a bankruptcy

case and that the Commission may raise and may appear and may be

heard on any issue in case involving a commodity broker

liquidation.

-CITE-

11 USC Sec. 763 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER IV - COMMODITY BROKER LIQUIDATION

-HEAD-

Sec. 763. Treatment of accounts

-STATUTE-

(a) Accounts held by the debtor for a particular customer in

separate capacities shall be treated as accounts of separate

customers.

(b) A member of a clearing organization shall be deemed to hold

such member's proprietary account in a separate capacity from such

member's customers' account.

(c) The net equity in a customer's account may not be offset

against the net equity in the account of any other customer.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2618; Pub. L. 98-353, title

III, Sec. 486, July 10, 1984, 98 Stat. 383.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

Section 763 provides for separate treatment of accounts held in

separate capacities. A deficit in one account held for a customer

may not be offset against the net equity in another account held by

the same customer in a separate capacity or held by another

customer.

AMENDMENTS

1984 - Subsec. (a). Pub. L. 98-353 substituted ''by the debtor

for'' for ''by'' and ''treated as'' for ''deemed to be''.

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. 764 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER IV - COMMODITY BROKER LIQUIDATION

-HEAD-

Sec. 764. Voidable transfers

-STATUTE-

(a) Except as otherwise provided in this section, any transfer by

the debtor of property that, but for such transfer, would have been

customer property, may be avoided by the trustee, and such property

shall be treated as customer property, if and to the extent that

the trustee avoids such transfer under section 544, 545, 547, 548,

549, or 724(a) of this title. For the purpose of such sections,

the property so transferred shall be deemed to have been property

of the debtor, and, if such transfer was made to a customer or for

a customer's benefit, such customer shall be deemed, for the

purposes of this section, to have been a creditor.

(b) Notwithstanding sections 544, 545, 547, 548, 549, and 724(a)

of this title, the trustee may not avoid a transfer made before

five days after the order for relief, if such transfer is approved

by the Commission by rule or order, either before or after such

transfer, and if such transfer is -

(1) a transfer of a commodity contract entered into or carried

by or through the debtor on behalf of a customer, and of any

cash, securities, or other property margining or securing such

commodity contract; or

(2) the liquidation of a commodity contract entered into or

carried by or through the debtor on behalf of a customer.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2618; Pub. L. 97-222, Sec.

17, July 27, 1982, 96 Stat. 240; Pub. L. 98-353, title III, Sec.

487, July 10, 1984, 98 Stat. 383.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 764 of the House amendment is derived from the House

bill.

SENATE REPORT NO. 95-989

Section 764 permits the trustee to void any transfer of property

that, except for such transfer, would have been customer property,

to the extent permitted under section 544, 545, 547, 548, 549, or

724(a).

HOUSE REPORT NO. 95-595

Section 764 indicates the extent to which the avoiding powers may

be used by the trustee under subchapter IV of chapter 7. If

property recovered would have been customer property if never

transferred, then subsection (a) indicates that it will be so

treated when recovered.

Subsection (b) prohibits avoiding any transaction that occurs

before or within five days after the petition if the transaction is

approved by the Commission and concerns an open contractual

commitment. This enables the Commission to exercise its discretion

to protect the integrity of the market by insuring that

transactions cleared with other brokers will not be undone on a

preference or a fraudulent transfer theory.

Subsection (c) insulates variation margin payments and other

deposits from the avoiding powers except to the extent of actual

fraud under section 548(a)(1). This facilitates prepetition

transfers and protects the ordinary course of business in the

market.

AMENDMENTS

1984 - Subsec. (a). Pub. L. 98-353 substituted ''any transfer by

the debtor'' for ''any transfer''.

1982 - Subsec. (a). Pub. L. 97-222, Sec. 17(a), substituted

''but'' for ''except'', inserted ''such property'' after ''trustee,

and'', and substituted ''shall be'' for ''is'' wherever appearing.

Subsec. (b). Pub. L. 97-222, Sec. 17(b), substituted ''order for

relief'' for ''date of the filing of the petition''.

Subsec. (c). Pub. L. 97-222, Sec. 17(c), struck out subsec. (c)

which provided that the trustee could not avoid a transfer that was

a margin payment to or deposit with a commodity broker or forward

contract merchant or was a settlement payment made by a clearing

organization and that occurred before the commencement of the case.

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 106 of this title.

-CITE-

11 USC Sec. 765 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER IV - COMMODITY BROKER LIQUIDATION

-HEAD-

Sec. 765. Customer instructions

-STATUTE-

(a) The notice required by section 342 of this title to customers

shall instruct each customer -

(1) to file a proof of such customer's claim promptly, and to

specify in such claim any specifically identifiable security,

property, or commodity contract; and

(2) to instruct the trustee of such customer's desired

disposition, including transfer under section 766 of this title

or liquidation, of any commodity contract specifically identified

to such customer.

(b) The trustee shall comply, to the extent practicable, with any

instruction received from a customer regarding such customer's

desired disposition of any commodity contract specifically

identified to such customer. If the trustee has transferred, under

section 766 of this title, such a commodity contract, the trustee

shall transmit any such instruction to the commodity broker to whom

such commodity contract was so transferred.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2619; Pub. L. 97-222, Sec.

18, July 27, 1982, 96 Stat. 240; Pub. L. 98-353, title III, Sec.

488, July 10, 1984, 98 Stat. 383.)

-MISC1-

HISTORICAL AND REVISION NOTES

For Historical and Revision Notes for this section, see

Historical and Revision Notes set out under section 766 of this

title.

AMENDMENTS

1984 - Subsec. (a). Pub. L. 98-353 substituted ''notice required

by'' for ''notice under''.

1982 - Subsec. (b). Pub. L. 97-222 substituted ''commodity

contract'' for ''commitment''.

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 365 of this title.

-CITE-

11 USC Sec. 766 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER IV - COMMODITY BROKER LIQUIDATION

-HEAD-

Sec. 766. Treatment of customer property

-STATUTE-

(a) The trustee shall answer all margin calls with respect to a

specifically identifiable commodity contract of a customer until

such time as the trustee returns or transfers such commodity

contract, but the trustee may not make a margin payment that has

the effect of a distribution to such customer of more than that to

which such customer is entitled under subsection (h) or (i) of this

section.

(b) The trustee shall prevent any open commodity contract from

remaining open after the last day of trading in such commodity

contract, or into the first day on which notice of intent to

deliver on such commodity contract may be tendered, whichever

occurs first. With respect to any commodity contract that has

remained open after the last day of trading in such commodity

contract or with respect to which delivery must be made or accepted

under the rules of the contract market on which such commodity

contract was made, the trustee may operate the business of the

debtor for the purpose of -

(1) accepting or making tender of notice of intent to deliver

the physical commodity underlying such commodity contract;

(2) facilitating delivery of such commodity; or

(3) disposing of such commodity if a party to such commodity

contract defaults.

(c) The trustee shall return promptly to a customer any

specifically identifiable security, property, or commodity contract

to which such customer is entitled, or shall transfer, on such

customer's behalf, such security, property, or commodity contract

to a commodity broker that is not a debtor under this title,

subject to such rules or regulations as the Commission may

prescribe, to the extent that the value of such security, property,

or commodity contract does not exceed the amount to which such

customer would be entitled under subsection (h) or (i) of this

section if such security, property, or commodity contract were not

returned or transferred under this subsection.

(d) If the value of a specifically identifiable security,

property, or commodity contract exceeds the amount to which the

customer of the debtor is entitled under subsection (h) or (i) of

this section, then such customer to whom such security, property,

or commodity contract is specifically identified may deposit cash

with the trustee equal to the difference between the value of such

security, property, or commodity contract and such amount, and the

trustee then shall -

(1) return promptly such security, property, or commodity

contract to such customer; or

(2) transfer, on such customer's behalf, such security,

property, or commodity contract to a commodity broker that is not

a debtor under this title, subject to such rules or regulations

as the Commission may prescribe.

(e) Subject to subsection (b) of this section, the trustee shall

liquidate any commodity contract that -

(1) is identified to a particular customer and with respect to

which such customer has not timely instructed the trustee as to

the desired disposition of such commodity contract;

(2) cannot be transferred under subsection (c) of this section;

or

(3) cannot be identified to a particular customer.

(f) As soon as practicable after the commencement of the case,

the trustee shall reduce to money, consistent with good market

practice, all securities and other property, other than commodity

contracts, held as property of the estate, except for specifically

identifiable securities or property distributable under subsection

(h) or (i) of this section.

(g) The trustee may not distribute a security or other property

except under subsection (h) or (i) of this section.

(h) Except as provided in subsection (b) of this section, the

trustee shall distribute customer property ratably to customers on

the basis and to the extent of such customers' allowed net equity

claims, and in priority to all other claims, except claims of a

kind specified in section 507(a)(1) of this title that are

attributable to the administration of customer property. Such

distribution shall be in the form of -

(1) cash;

(2) the return or transfer, under subsection (c) or (d) of this

section, of specifically identifiable customer securities,

property, or commodity contracts; or

(3) payment of margin calls under subsection (a) of this

section.

Notwithstanding any other provision of this subsection, a customer

net equity claim based on a proprietary account, as defined by

Commission rule, regulation, or order, may not be paid either in

whole or in part, directly or indirectly, out of customer property

unless all other customer net equity claims have been paid in full.

(i) If the debtor is a clearing organization, the trustee shall

distribute -

(1) customer property, other than member property, ratably to

customers on the basis and to the extent of such customers'

allowed net equity claims based on such customers' accounts other

than proprietary accounts, and in priority to all other claims,

except claims of a kind specified in section 507(a)(1) of this

title that are attributable to the administration of such

customer property; and

(2) member property ratably to customers on the basis and to

the extent of such customers' allowed net equity claims based on

such customers' proprietary accounts, and in priority to all

other claims, except claims of a kind specified in section

507(a)(1) of this title that are attributable to the

administration of member property or customer property.

(j)(1) The trustee shall distribute customer property in excess

of that distributed under subsection (h) or (i) of this section in

accordance with section 726 of this title.

(2) Except as provided in section 510 of this title, if a

customer is not paid the full amount of such customer's allowed net

equity claim from customer property, the unpaid portion of such

claim is a claim entitled to distribution under section 726 of this

title.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2619; Pub. L. 97-222, Sec.

19, July 27, 1982, 96 Stat. 240; Pub. L. 98-353, title III, Sec.

489, July 10, 1984, 98 Stat. 383.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Sections 765 and 766 of the House amendment represent a

consolidation and redraft of sections 765, 766, 767, and 768 of the

House bill and sections 765, 766, 767, and 768 of the Senate

amendment. In particular, section 765(a) of the House amendment is

derived from section 765(a) of the House bill and section 767(a) of

the Senate amendment. Under section 765(a) of the House amendment

customers are notified of the opportunity to immediately file

proofs of claim and to identify specifically identifiable

securities, property, or commodity contracts. The customer is also

afforded an opportunity to instruct the trustee regarding the

customer's desires concerning disposition of the customer's

commodity contracts. Section 767(b) (probably should be 765(b))

makes clear that the trustee must comply with instructions received

to the extent practicable, but in the event the trustee has

transferred commodity contracts to a commodity broker, such

instructions shall be forwarded to the broker.

Section 766(a) of the House amendment is derived from section

768(c) of the House bill and section 767(f) of the Senate

amendment. Section 766(b) of the House amendment is derived from

section 765(d) of the House bill, and section 767(g) of the Senate

amendment. Section 766(c) of the House amendment is derived from

section 768(a) of the House bill and section 767(e) of the Senate

amendment. Section 766(d) of the House amendment is derived from

section 768(b) of the House bill and the second sentence of section

767(e) of the Senate amendment.

Section 766(e) of the House amendment is derived from section

765(c) of the House bill and sections 767(c) and (d) of the Senate

amendment. The provision clarifies that the trustee may liquidate

a commodity contract only if the commodity contract cannot be

transferred to a commodity broker under section 766(c), cannot be

identified to a particular customer, or has been identified with

respect to a particular customer, but with respect to which the

customer's instructions have not been received.

Section 766(f) of the House amendment is derived from section

766(b) of the House bill and section 767(h) of the Senate

amendment. The term ''all securities and other property'' is not

intended to include a commodity contract. Section 766(g) of the

House amendment is derived from section 766(a) of the House bill.

Section 766(h) of the House amendment is derived from section

767(a) of the House bill and section 765(a) of the Senate

amendment. In order to induce private trustees to undertake the

difficult and risky job of liquidating a commodity broker, the

House amendment contains a provision insuring that a pro rata share

of administrative claims will be paid. The provision represents a

compromise between the position taken in the House bill,

subordinating customer property to all expenses of administration,

and the position taken in the Senate amendment requiring the

distribution of customer property in advance of any expenses of

administration. The position in the Senate amendment is rejected

since customers, in any event, would have to pay a brokerage

commission or fee in the ordinary course of business. The

compromise provision requires customers to pay only those

administrative expenses that are attributable to the administration

of customer property.

Section 766(i) of the House amendment is derived from section

767(b) of the House bill and contains a similar compromise with

respect to expenses of administration as the compromise detailed in

connection with section 766(h) of the House amendment. Section

766(j) of the House amendment is derived from section 767(c) of the

House bill. No counterpart is contained in the Senate amendment.

The provision takes account of the rare case where the estate has

customer property in excess of customer claims and administrative

expenses attributable to those claims. The section also specifies

that to the extent a customer is not paid in full out of customer

property, that the unpaid claim will be treated the same as any

other general unsecured creditor.

Section 768 of the Senate amendment was deleted from the House

amendment as unwise. The provision in the Senate amendment would

have permitted the trustee to distribute customer property based

upon an estimate of value of the customer's account, with no

provision for recapture of excessive disbursements. Moreover, the

section would have exonerated the trustee from any liability for

such an excessive disbursement. Furthermore, the section is

unclear with respect to the customer's rights in the event the

trustee makes a distribution less than the share to which the

customer is entitled. The provision is deleted in the House

amendment so that this difficult problem may be handled on a

case-by-case basis by the courts as the facts and circumstances of

each case require.

Section 769 of the Senate amendment is deleted in the House

amendment as unnecessary. The provision was intended to codify

Board of Trade v. Johnson, 264 U.S. 1 (1924) (Ill.1924, 44 S.Ct.

232). Board of Trade against Johnson is codified in section 363(f)

of the House amendment which indicates the only five circumstances

in which property may be sold free and clear of an interest in such

property of an entity other than the estate.

Section 770 of the Senate amendment is deleted in the House

amendment as unnecessary. That section would have permitted

commodity brokers to liquidate commodity contracts, notwithstanding

any contrary order of the court. It would require an extraordinary

circumstance, such as a threat to the national security, to enjoin

a commodity broker from liquidating a commodity contract. However,

in those circumstances, an injunction must prevail. Failure of the

House amendment to incorporate section 770 of the Senate amendment

does not imply that the automatic stay prevents liquidation of

commodity contracts by commodity brokers. To the contrary,

whenever by contract, or otherwise, a commodity broker is entitled

to liquidate a position as a result of a condition specified in a

contract, other than a condition or default of the kind specified

in section 365(b)(2) of title 11, the commodity broker may engage

in such liquidation. To this extent, the commodity broker's

contract with his customer is treated no differently than any other

contract under section 365 of title 11.

SENATE REPORT NO. 95-989

(Section 765) Subsection (a) of this section (enacted as section

766(h)) provides that with respect to liquidation of commodity

brokers which are not clearing organizations, the trustee shall

distribute customer property to customers on the basis and to the

extent of such customers' allowed net equity claims, and in

priority to all other claims. This section grants customers'

claims first priority in the distribution of the estate.

Subsection (b) (enacted as section 766(i)) grants the same priority

to member property and other customer property in the liquidation

of a clearing organization. A fundamental purpose of these

provisions is to ensure that the property entrusted by customers to

their brokers will not be subject to the risks of the broker's

business and will be available for disbursement to customers if the

broker becomes bankrupt.

As a result of section 765, a customer need not trace any funds

in order to avoid treatment as a general creditor as was required

by the Seventh Circuit in In re Rosenbaum Grain Corporation.

Section 766 lists certain transfers which are not voidable by the

trustee of a commodity broker. Subsection (a) exempts transfers

approved by the Commission by rule or order, either before or after

the transfer. It is expected that the Commission will use this

power sparingly and only when necessary to effectuate the remedial

purposes of this legislation, bearing in mind that the immediate

transfer of customer accounts from bankrupt commodity brokers to

solvent commodity brokers is one of the primary goals of this

subchapter. The committee considered and rejected a provision in

subsection (b) that would have exempted payments made to a

commodity broker. The Commission may not by rule exempt such

transfers. The Commission's prompt attention to the promulgation

of such rules and regulations is expected.

Subsection (b) (enacted as section 764(c)) provides for the

nonavoidability of margin payments made by a commodity broker,

other than a clearing organization. If such payments are made by

or to a clearing organization, they are nonavoidable pursuant to

subsection (c). All other margin payments made by a commodity

broker, other than a clearing organization, are nonavoidable if

they meet the conditions set forth in subsection (b). Subsections

(b)(1) and (b)(2) parallel the requirements for avoidance of

fraudulent transfers and obligations under section 548. Subsection

(b)(3) adds a requirement that there be collusion between the

transferee and transferor in order for such payments to be

voidable. It would be unfair to permit recovery from an innocent

commodity broker since such brokers are, for the most part, simply

conduits for margin payments and do not retain margin for use in

their operations. Subsection (b)(4) would permit recovery of a

subsequent transferee only if it had actual knowledge at the time

of that subsequent transfer of the scheme to defraud. Again it

should be noted that if the transfer is a margin payment and the

subsequent transferee is a clearing organization, the transfer is

nonavoidable under section 766(c).

Subsection (c) (enacted as section 548(d)(2)) overrules Seligson

v. New York Produce Exchange, and provides as a matter of law that

margin payments made by or to a clearing organization are not

voidable.

Section 767 sets forth the procedures to be followed by the

trustee. It should be emphasized that many of the duties imposed

on the trustee are required to be discharged by the trustee

immediately upon his appointment. The earlier these duties are

discharged the less potential market disruption can result.

The initial duty of the trustee is to endeavor to transfer to

another commodity broker or brokers all identified customer

accounts together with the customer property margining such

accounts, to the extent the trustee deems appropriate. Although it

is preferable for all such accounts to be transferred, exigencies

may dictate a partial transfer. The requirement that the value of

the accounts and property transferred not exceed the customer's

distribution share may necessitate a slight delay until the trustee

can submit to the court, for its disapproval, an estimate of each

customer's distribution share pursuant to section 768.

Subsection (c) (enacted as section 766(e)) provides that

contemporaneously with the estimate of the distribution share and

the transfer of identified customer accounts and property,

subsection (c) provides that the trustee should make arrangements

for the liquidation of all commodity contracts maintained by the

debtor that are not identifiable to specific customers. These

contracts would, of course, include all such contracts held in the

debtor's proprietory account.

At approximately the same time, the trustee should notify each

customer of the debtor's bankruptcy and instruct each customer

immediately to submit a claim including any claim to a specifically

identifiable security or other property, and advise the trustee as

to the desired disposition of commodity contracts carried by the

debtor for the customer.

This requirement is placed upon the trustee to insure that

producers who have hedged their production in the commodities

market are allowed the opportunity to preserve their positions.

The theory of the commodity market is that it exists for producers

and buyers of commodities and not for the benefit of the

speculators whose transactions now comprise the overwhelming

majority of trades. Maintenance of positions by hedges may require

them to put up additional margin payments in the hours and days

following the commodity broker bankruptcy, which they may be unable

or unwilling to do. In such cases, their positions will be quickly

liquidated by the trustee, but they must have the opportunity to

make those margin payments before they are summarily liquidated out

of the market to the detriment of their growing crop. The failure

of the customer to advise the trustee as to disposition of the

customer's commodity contract will not delay a transfer of a

contract pursuant to subsection (b) so long as the contract can

otherwise be identified to the customer. Nor will the failure of

the customer to submit a claim prevent the customer from recovering

the net equity in that customer's account, absent a claim the

customer cannot participate in the determination of the net equity

in the account.

If the customer submits instructions pursuant to subsection (a)

after the customer's commodity contracts are transferred to another

commodity broker, the trustee must transmit the instruction to the

transferee. If the customer's commodity contracts are not

transferred before the customer's instructions are received, the

trustee must attempt to comply with the instruction, subject to the

provisions of section 767(d).

Under subsection (d) (enacted as section 766(e)), the trustee has

discretion to liquidate any commodity contract carried by the

debtor at any time. This discretion must be exercised with

restraint in such cases, consistent with the purposes of this

subchapter and good business practices. The committee intends that

hedged accounts will be given special consideration before

liquidation as discussed in connection with subsection (c).

Subsection (e) (enacted as section 766(c)) instructs the trustee

as to the disposition of any security or other property, not

disposed of pursuant to subsection (b) or (d), that is specifically

identifiable to a customer and to which the customer is entitled.

Such security or other property must be returned to the customer or

promptly transferred to another commodity broker for the benefit of

the customer. If the value of the security or other property

retained or transferred, together with any other distribution made

by the trustee to or on behalf of the customer, exceeds the

customer's distribution share the customer must deposit cash with

the trustee equal to that difference before the return or transfer

of the security or other property.

Subsection (f) (enacted as section 766(a)) requires the trustee

to answer margin calls on specifically identifiable customer

commodity contracts, but only to the extent that the margin

payment, together with any other distribution made by the trustee

to or on behalf of the customer, does not exceed the customer's

distribution share.

Subsection (g) (enacted as section 766(b)) requires the trustee

to liquidate all commodity futures contracts prior to the close of

trading in that contract, or the first day on which notice of

intent to deliver on that contract may be tendered, whichever

occurs first. If the customer desires that the contract be kept

open for delivery, the contract should be transferred to another

commodity broker pursuant to subsection (b).

If for some reason the trustee is unable to transfer a contract

on which delivery must be made or accepted and is unable to close

out such contract, the trustee is authorized to operate the

business of the debtor for the purpose of accepting or making

tender of notice of intent to deliver the physical commodity

underlying the contract, facilitating delivery of the physical

commodity or disposing of the physical commodity in the event of a

default. Any property received, not previously held, by the

trustee in connection with its operation of the business of the

debtor for these purposes, is not by the terms of this subchapter

specifically included in the definition of customer property.

Finally, subsection (h) (enacted as section 766(f)) requires the

trustee to liquidate the debtor's estate as soon as practicable and

consistent with good market practice, except for specifically

identifiable securities or other property distributable under

subsection (e).

Section 768 is an integral part of the commodity broker

liquidation procedures outlined in section 767. Prompt action by

the trustee to transfer or liquidate customer commodity contracts

is necessary to protect customers, the debtor's estate, and the

marketplace generally. However, transfers of customer accounts and

property valued in excess of the customer's distribution share are

prohibited. Since a determination of the customer's distribution

share requires a determination of the customer's net equity and the

total dollar value of customer property held by or for the account

of the debtor, it is possible that the customer's distribution

share will not be determined, and thus the customer's contracts and

property will not be transferred, on a timely basis. To avoid this

problem, and to expedite transfers of customer property, section

768 permits the trustee to make distributions to customers in

accordance with a preliminary estimate of the debtor's customer

property and each customer's distribution share.

It is acknowledged that the necessity for prompt action may not

allow the trustee to assemble all relevant facts before such an

estimate is made. However, the trustee is expected to develop as

accurate an estimate as possible based on the available facts.

Further, in order to permit expeditious action, section 768 does

not require that notice be given to customers or other creditors

before the court approves or disapproves the estimate. Nor does

section 768 require that customer claims be received pursuant to

section 767(a) before the trustee may act upon and in accordance

with the estimate. If the estimate is inaccurate, the trustee is

absolved of liability for a distribution which exceeds the

customer's actual distribution share so long as the distribution

did not exceed the customer's estimated distribution share.

However, a trustee may have a claim back against a customer who

received more than its actual distribution share.

HOUSE REPORT NO. 95-595

Section 765(a) indicates that a customer must file a proof of

claim, including any claim to specifically identifiable property,

within such time as the court fixes.

Subsection (c) (of section 765 (enacted as section 766(e))) sets

forth the general rule requiring the trustee to liquidate

contractual commitments that are either not specifically

identifiable or with respect to which a customer has not instructed

the trustee during the time fixed by the court. Subsection (d)

(enacted as section 766(b)) indicates an exception to the time

limits in the rule by requiring the trustee to liquidate any open

contractual commitment before the last day of trading or the first

day during which delivery may be demanded, whichever first occurs,

if transfer cannot be effectuated.

Section 766(a) (enacted as section 766(g)) indicates that the

trustee may distribute securities or other property only under

section 768. This does not preclude a distribution of cash under

section 767(a) or distribution of any excess customer property

under section 767(c) to the general estate.

Subsection (b) (enacted as section 766(f)) indicates that the

trustee shall liquidate all securities and other property that is

not specifically identifiable property as soon as practicable after

the commencement of the case and in accordance with good market

practice. If securities are restricted or trading has been

suspended, the trustee will have to make an exempt sale or file a

registration statement. In the event of a private placement, a

customer is not entitled to ''bid in'' his net equity claim. To do

so would enable him to receive a greater percentage recovery than

other customers.

Section 767(a) (enacted as section 766(h)) provides for the

trustee to distribute customer property pro rata according to

customers' net equity claims. The court will determine an

equitable portion of customer property to pay administrative

expenses. Paragraphs (2) and (3) indicate that the return of

specifically identifiable property constitutes a distribution of

net equity.

Subsection (b) (enacted as section 766(i)) indicates that if the

debtor is a clearing organization, customer property is to be

segregated into customers' accounts and proprietary accounts and

distributed accordingly without offset. This protects a member's

customers from having their claims offset against the member's

proprietary account. Subsection (c)(1) (enacted as section

766(j)(1)) indicates that any excess customer property will pour

over into the general estate. This unlikely event would occur only

if customers fail to file proofs of claim. Subsection (c)(2)

(enacted as section 766(j)(2)) indicates that to the extent

customers are not paid in full, they are entitled to share in the

general estate as unsecured creditors, unless subordinated by the

court under proposed 11 U.S.C. 510.

Section 768(a) (enacted as section 766(c)) requires the trustee

to return specifically identifiable property to the extent that

such distribution will not exceed a customer's net equity claim.

Thus, if the customer owes money to a commodity broker, this will

be offset under section 761(15)(A)(ii). If the value of the

specifically identifiable property exceeds the net equity claim,

then the customer may deposit cash with the trustee to make up the

difference after which the trustee may return or transfer the

customer's property.

Subsection (c) (enacted as section 766(a)) permits the trustee to

answer all margin calls, to the extent of the customer's net equity

claim, with respect to any specifically identifiable open

contractual commitment. It should be noted that any payment under

subsections (a) or (c) will be considered a reduction of the net

equity claim under section 767(a). Thus the customer's net equity

claim is a dynamic amount that varies with distributions of

specifically identifiable property or margin payments on such

property. This approach differs from the priority given to

specifically identifiable property under subchapter III of chapter

7 by limiting the priority effect to a right to receive specific

property as part of, rather than in addition to, a ratable share of

customer property. This policy is designed to protect the small

customer who is unlikely to have property in specifically

identifiable form as compared with the professional trader. The

CFTC is authorized to make rules defining specifically identifiable

property under section 302 of the bill, in title III.

AMENDMENTS

1984 - Subsec. (j)(2). Pub. L. 98-353 substituted ''section 726''

for ''section 726(a)''.

1982 - Subsec. (a). Pub. L. 97-222, Sec. 19(a), inserted ''to

such customer'' after ''distribution''.

Subsec. (b). Pub. L. 97-222, Sec. 19(b), struck out ''that is

being actively traded as of the date of the filing of the

petition'' after ''any open commodity contract'' and inserted

''the'' after ''rules of''.

Subsec. (d). Pub. L. 97-222, Sec. 19(c), substituted ''the amount

to which the customer of the debtor is entitled under subsection

(h) or (i) of this section, then such'' for ''such amount, then

the'' and ''the trustee then shall'' for ''the trustee shall''.

Subsec. (h). Pub. L. 97-222, Sec. 19(d), inserted provision that

notwithstanding any other provision of this subsection, a customer

net equity claim based on a proprietary account, as defined by

Commission rule, regulation, or order, may not be paid either in

whole or in part, directly or indirectly, out of customer property

unless all other customer net equity claims have been paid in full.

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 365, 702, 761, 765 of

this title; title 7 section 24.

-CITE-

11 USC SUBCHAPTER V - CLEARING BANK LIQUIDATION 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER V - CLEARING BANK LIQUIDATION

.

-HEAD-

SUBCHAPTER V - CLEARING BANK LIQUIDATION

-SECREF-

SUBCHAPTER REFERRED TO IN OTHER SECTIONS

This subchapter is referred to in section 103 of this title.

-CITE-

11 USC Sec. 781 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER V - CLEARING BANK LIQUIDATION

-HEAD-

Sec. 781. Definitions

-STATUTE-

For purposes of this subchapter, the following definitions shall

apply:

(1) Board. - The term ''Board'' means the Board of Governors of

the Federal Reserve System.

(2) Depository institution. - The term ''depository

institution'' has the same meaning as in section 3 of the Federal

Deposit Insurance Act.

(3) Clearing bank. - The term ''clearing bank'' means an

uninsured State member bank, or a corporation organized under

section 25A of the Federal Reserve Act, which operates, or

operates as, a multilateral clearing organization pursuant to

section 409 of the Federal Deposit Insurance Corporation

Improvement Act of 1991.

-SOURCE-

(Added Pub. L. 106-554, Sec. 1(a)(5) (title I, Sec. 112(c)(5)(B)),

Dec. 21, 2000, 114 Stat. 2763, 2763A-394.)

-REFTEXT-

REFERENCES IN TEXT

Section 3 of the Federal Deposit Insurance Act, referred to in

par. (2), is classified to section 1813 of Title 12, Banks and

Banking.

Section 25A of the Federal Reserve Act, referred to in par. (3),

popularly known as the Edge Act, is classified to subchapter II

(Sec. 611 et seq.) of chapter 6 of Title 12, Banks and Banking. For

complete classification of this Act to the Code, see Short Title

note set out under section 611 of Title 12 and Tables.

Section 409 of the Federal Deposit Insurance Corporation

Improvement Act of 1991, referred to in par. (3), is classified to

section 4422 of Title 12, Banks and Banking.

-CITE-

11 USC Sec. 782 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER V - CLEARING BANK LIQUIDATION

-HEAD-

Sec. 782. Selection of trustee

-STATUTE-

(a) In General. -

(1) Appointment. - Notwithstanding any other provision of this

title, the conservator or receiver who files the petition shall

be the trustee under this chapter, unless the Board designates an

alternative trustee.

(2) Successor. - The Board may designate a successor trustee if

required.

(b) Authority of Trustee. - Whenever the Board appoints or

designates a trustee, chapter 3 and sections 704 and 705 of this

title shall apply to the Board in the same way and to the same

extent that they apply to a United States trustee.

-SOURCE-

(Added Pub. L. 106-554, Sec. 1(a)(5) (title I, Sec. 112(c)(5)(B)),

Dec. 21, 2000, 114 Stat. 2763, 2763A-394.)

-CITE-

11 USC Sec. 783 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER V - CLEARING BANK LIQUIDATION

-HEAD-

Sec. 783. Additional powers of trustee

-STATUTE-

(a) Distribution of Property Not of the Estate. - The trustee

under this subchapter has power to distribute property not of the

estate, including distributions to customers that are mandated by

subchapters III and IV of this chapter.

(b) Disposition of Institution. - The trustee under this

subchapter may, after notice and a hearing -

(1) sell the clearing bank to a depository institution or

consortium of depository institutions (which consortium may agree

on the allocation of the clearing bank among the consortium);

(2) merge the clearing bank with a depository institution;

(3) transfer contracts to the same extent as could a receiver

for a depository institution under paragraphs (9) and (10) of

section 11(e) of the Federal Deposit Insurance Act;

(4) transfer assets or liabilities to a depository institution;

and

(5) transfer assets and liabilities to a bridge bank as

provided in paragraphs (1), (3)(A), (5), and (6) of section 11(n)

of the Federal Deposit Insurance Act, paragraphs (9) through (13)

of such section, and subparagraphs (A) through (H) and

subparagraph (K) of paragraph (4) of such section 11(n), except

that -

(A) the bridge bank to which such assets or liabilities are

transferred shall be treated as a clearing bank for the purpose

of this subsection; and

(B) any references in any such provision of law to the

Federal Deposit Insurance Corporation shall be construed to be

references to the appointing agency and that references to

deposit insurance shall be omitted.

(c) Certain Transfers Included. - Any reference in this section

to transfers of liabilities includes a ratable transfer of

liabilities within a priority class.

-SOURCE-

(Added Pub. L. 106-554, Sec. 1(a)(5) (title I, Sec. 112(c)(5)(B)),

Dec. 21, 2000, 114 Stat. 2763, 2763A-395.)

-REFTEXT-

REFERENCES IN TEXT

Section 11 of the Federal Deposit Insurance Act, referred to in

subsec. (b)(3), (5), is classified to section 1821 of Title 12,

Banks and Banking.

-CITE-

11 USC Sec. 784 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 7 - LIQUIDATION

SUBCHAPTER V - CLEARING BANK LIQUIDATION

-HEAD-

Sec. 784. Right to be heard

-STATUTE-

The Board or a Federal reserve bank (in the case of a clearing

bank that is a member of that bank) may raise and may appear and be

heard on any issue in a case under this subchapter.

-SOURCE-

(Added Pub. L. 106-554, Sec. 1(a)(5) (title I, Sec. 112(c)(5)(B)),

Dec. 21, 2000, 114 Stat. 2763, 2763A-395.)

-CITE-