Legislación
US (United States) Code. Title 11. Chapter 3: Case administration
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11 USC CHAPTER 3 - CASE ADMINISTRATION 01/06/03
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TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
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CHAPTER 3 - CASE ADMINISTRATION
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SUBCHAPTER I - COMMENCEMENT OF A CASE
Sec.
301. Voluntary cases.
302. Joint cases.
303. Involuntary cases.
304. Cases ancillary to foreign proceedings.
305. Abstention.
306. Limited appearance.
307. United States trustee.
SUBCHAPTER II - OFFICERS
321. Eligibility to serve as trustee.
322. Qualification of trustee.
323. Role and capacity of trustee.
324. Removal of trustee or examiner.
325. Effect of vacancy.
326. Limitation on compensation of trustee.
327. Employment of professional persons.
328. Limitation on compensation of professional persons.
329. Debtor's transactions with attorneys.
330. Compensation of officers.
331. Interim compensation.
SUBCHAPTER III - ADMINISTRATION
341. Meetings of creditors and equity security holders.
342. Notice.
343. Examination of the debtor.
344. Self-incrimination; immunity.
345. Money of estates.
346. Special tax provisions.
347. Unclaimed property.
348. Effect of conversion.
349. Effect of dismissal.
350. Closing and reopening cases.
SUBCHAPTER IV - ADMINISTRATIVE POWERS
361. Adequate protection.
362. Automatic stay.
363. Use, sale, or lease of property.
364. Obtaining credit.
365. Executory contracts and unexpired leases.
366. Utility service.
AMENDMENTS
1986 - Pub. L. 99-554, title II, Sec. 205(b), Oct. 27, 1986, 100
Stat. 3098, added item 307.
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CHAPTER REFERRED TO IN OTHER SECTIONS
This chapter is referred to in sections 103, 782 of this title;
title 15 section 78fff.
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11 USC SUBCHAPTER I - COMMENCEMENT OF A CASE 01/06/03
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TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
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SUBCHAPTER I - COMMENCEMENT OF A CASE
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11 USC Sec. 301 01/06/03
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TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
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Sec. 301. Voluntary cases
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A voluntary case under a chapter of this title is commenced by
the filing with the bankruptcy court of a petition under such
chapter by an entity that may be a debtor under such chapter. The
commencement of a voluntary case under a chapter of this title
constitutes an order for relief under such chapter.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2558.)
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HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Sections 301, 302, 303, and 304 are all modified in the House
amendment to adopt an idea contained in sections 301 and 303 of the
Senate amendment requiring a petition commencing a case to be filed
with the bankruptcy court. The exception contained in section 301
of the Senate bill relating to cases filed under chapter 9 is
deleted. Chapter 9 cases will be handled by a bankruptcy court as
are other title 11 cases.
SENATE REPORT NO. 95-989
Section 301 specifies the manner in which a voluntary bankruptcy
case is commenced. The debtor files a petition under this section
under the particular operative chapter of the bankruptcy code under
which he wishes to proceed. The filing of the petition constitutes
an order for relief in the case under that chapter. The section
contains no change from current law, except for the use of the
phrase ''order for relief'' instead of ''adjudication.'' The term
adjudication is replaced by a less pejorative phrase in light of
the clear power of Congress to permit voluntary bankruptcy without
the necessity for an adjudication, as under the 1898 act (former
title 11), which was adopted when voluntary bankruptcy was a
concept not thoroughly tested.
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SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 101, 362, 365, 522, 541,
901, 921 of this title.
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11 USC Sec. 302 01/06/03
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TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
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Sec. 302. Joint cases
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(a) A joint case under a chapter of this title is commenced by
the filing with the bankruptcy court of a single petition under
such chapter by an individual that may be a debtor under such
chapter and such individual's spouse. The commencement of a joint
case under a chapter of this title constitutes an order for relief
under such chapter.
(b) After the commencement of a joint case, the court shall
determine the extent, if any, to which the debtors' estates shall
be consolidated.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2558.)
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HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
A joint case is a voluntary bankruptcy case concerning a wife and
husband. Under current law, there is no explicit provision for
joint cases. Very often, however, in the consumer debtor context,
a husband and wife are jointly liable on their debts, and jointly
hold most of their property. A joint case will facilitate
consolidation of their estates, to the benefit of both the debtors
and their creditors, because the cost of administration will be
reduced, and there will be only one filing fee.
Section 302 specifies that a joint case is commenced by the
filing of a petition under an appropriate chapter by an individual
and that individual's spouse. Thus, one spouse cannot take the
other into bankruptcy without the other's knowledge or consent.
The filing of the petition constitutes an order for relief under
the chapter selected.
Subsection (b) requires the court to determine the extent, if
any, to which the estates of the two debtors will be consolidated;
that is, assets and liabilities combined in a single pool to pay
creditors. Factors that will be relevant in the court's
determination include the extent of jointly held property and the
amount of jointly-owned debts. The section, of course, is not
license to consolidate in order to avoid other provisions of the
title to the detriment of either the debtors or their creditors.
It is designed mainly for ease of administration.
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SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 101, 362, 365, 522, 541
of this title.
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11 USC Sec. 303 01/06/03
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TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
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Sec. 303. Involuntary cases
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(a) An involuntary case may be commenced only under chapter 7 or
11 of this title, and only against a person, except a farmer,
family farmer, or a corporation that is not a moneyed, business, or
commercial corporation, that may be a debtor under the chapter
under which such case is commenced.
(b) An involuntary case against a person is commenced by the
filing with the bankruptcy court of a petition under chapter 7 or
11 of this title -
(1) by three or more entities, each of which is either a holder
of a claim against such person that is not contingent as to
liability or the subject of a bona fide dispute, or an indenture
trustee representing such a holder, if such claims aggregate at
least $10,000 more than the value of any lien on property of the
debtor securing such claims held by the holders of such claims;
(2) if there are fewer than 12 such holders, excluding any
employee or insider of such person and any transferee of a
transfer that is voidable under section 544, 545, 547, 548, 549,
or 724(a) of this title, by one or more of such holders that hold
in the aggregate at least $10,000 of such claims;
(3) if such person is a partnership -
(A) by fewer than all of the general partners in such
partnership; or
(B) if relief has been ordered under this title with respect
to all of the general partners in such partnership, by a
general partner in such partnership, the trustee of such a
general partner, or a holder of a claim against such
partnership; or
(4) by a foreign representative of the estate in a foreign
proceeding concerning such person.
(c) After the filing of a petition under this section but before
the case is dismissed or relief is ordered, a creditor holding an
unsecured claim that is not contingent, other than a creditor
filing under subsection (b) of this section, may join in the
petition with the same effect as if such joining creditor were a
petitioning creditor under subsection (b) of this section.
(d) The debtor, or a general partner in a partnership debtor that
did not join in the petition, may file an answer to a petition
under this section.
(e) After notice and a hearing, and for cause, the court may
require the petitioners under this section to file a bond to
indemnify the debtor for such amounts as the court may later allow
under subsection (i) of this section.
(f) Notwithstanding section 363 of this title, except to the
extent that the court orders otherwise, and until an order for
relief in the case, any business of the debtor may continue to
operate, and the debtor may continue to use, acquire, or dispose of
property as if an involuntary case concerning the debtor had not
been commenced.
(g) At any time after the commencement of an involuntary case
under chapter 7 of this title but before an order for relief in the
case, the court, on request of a party in interest, after notice to
the debtor and a hearing, and if necessary to preserve the property
of the estate or to prevent loss to the estate, may order the
United States trustee to appoint an interim trustee under section
701 of this title to take possession of the property of the estate
and to operate any business of the debtor. Before an order for
relief, the debtor may regain possession of property in the
possession of a trustee ordered appointed under this subsection if
the debtor files such bond as the court requires, conditioned on
the debtor's accounting for and delivering to the trustee, if there
is an order for relief in the case, such property, or the value, as
of the date the debtor regains possession, of such property.
(h) If the petition is not timely controverted, the court shall
order relief against the debtor in an involuntary case under the
chapter under which the petition was filed. Otherwise, after
trial, the court shall order relief against the debtor in an
involuntary case under the chapter under which the petition was
filed, only if -
(1) the debtor is generally not paying such debtor's debts as
such debts become due unless such debts are the subject of a bona
fide dispute; or
(2) within 120 days before the date of the filing of the
petition, a custodian, other than a trustee, receiver, or agent
appointed or authorized to take charge of less than substantially
all of the property of the debtor for the purpose of enforcing a
lien against such property, was appointed or took possession.
(i) If the court dismisses a petition under this section other
than on consent of all petitioners and the debtor, and if the
debtor does not waive the right to judgment under this subsection,
the court may grant judgment -
(1) against the petitioners and in favor of the debtor for -
(A) costs; or
(B) a reasonable attorney's fee; or
(2) against any petitioner that filed the petition in bad
faith, for -
(A) any damages proximately caused by such filing; or
(B) punitive damages.
(j) Only after notice to all creditors and a hearing may the
court dismiss a petition filed under this section -
(1) on the motion of a petitioner;
(2) on consent of all petitioners and the debtor; or
(3) for want of prosecution.
(k) Notwithstanding subsection (a) of this section, an
involuntary case may be commenced against a foreign bank that is
not engaged in such business in the United States only under
chapter 7 of this title and only if a foreign proceeding concerning
such bank is pending.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2559; Pub. L. 98-353, title
III, Sec. 426, 427, July 10, 1984, 98 Stat. 369; Pub. L. 99-554,
title II, Sec. 204, 254, 283(b), Oct. 27, 1986, 100 Stat. 3097,
3105, 3116; Pub. L. 103-394, title I, Sec. 108(b), Oct. 22, 1994,
108 Stat. 4112.)
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HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 303(b)(1) is modified to make clear that unsecured claims
against the debtor must be determined by taking into account liens
securing property held by third parties.
Section 303(b)(3) adopts a provision contained in the Senate
amendment indicating that an involuntary petition may be commenced
against a partnership by fewer than all of the general partners in
such partnership. Such action may be taken by fewer than all of
the general partners notwithstanding a contrary agreement between
the partners or State or local law.
Section 303(h)(1) in the House amendment is a compromise of
standards found in H.R. 8200 as passed by the House and the Senate
amendment pertaining to the standards that must be met in order to
obtain an order for relief in an involuntary case under title 11.
The language specifies that the court will order such relief only
if the debtor is generally not paying debtor's debts as they become
due.
Section 303(h)(2) reflects a compromise pertaining to section 543
of title 11 relating to turnover of property by a custodian. It
provides an alternative test to support an order for relief in an
involuntary case. If a custodian, other than a trustee, receiver,
or agent appointed or authorized to take charge of less than
substantially all of the property of the debtor for the purpose of
enforcing a lien against such property, was appointed or took
possession within 120 days before the date of the filing of the
petition, then the court may order relief in the involuntary case.
The test under section 303(h)(2) differs from section 3a(5) of the
Bankruptcy Act (section 21(a)(5) of former title 11), which
requires an involuntary case to be commenced before the earlier of
time such custodian was appointed or took possession. The test in
section 303(h)(2) authorizes an order for relief to be entered in
an involuntary case from the later date on which the custodian was
appointed or took possession.
SENATE REPORT NO. 95-989
Section 303 governs the commencement of involuntary cases under
title 11. An involuntary case may be commenced only under chapter
7, Liquidation, or chapter 11, Reorganization. Involuntary cases
are not permitted for municipalities, because to do so may
constitute an invasion of State sovereignty contrary to the 10th
amendment, and would constitute bad policy, by permitting the fate
of a municipality, governed by officials elected by the people of
the municipality, to be determined by a small number of creditors
of the municipality. Involuntary chapter 13 cases are not
permitted either. To do so would constitute bad policy, because
chapter 13 only works when there is a willing debtor that wants to
repay his creditors. Short of involuntary servitude, it is
difficult to keep a debtor working for his creditors when he does
not want to pay them back. See chapter 3, supra.
The exceptions contained in current law that prohibit involuntary
cases against farmers, ranchers and eleemosynary institutions are
continued. Farmers and ranchers are excepted because of the
cyclical nature of their business. One drought year or one year of
low prices, as a result of which a farmer is temporarily unable to
pay his creditors, should not subject him to involuntary
bankruptcy. Eleemosynary institutions, such as churches, schools,
and charitable organizations and foundations, likewise are exempt
from involuntary bankruptcy.
The provisions for involuntary chapter 11 cases is a slight
change from present law, based on the proposed consolidation of the
reorganization chapters. Currently, involuntary cases are
permitted under chapters X and XII (chapters 10 and 12 of former
title 11) but not under chapter XI (chapter 11 of former title 11).
The consolidation requires a single rule for all kinds of
reorganization proceedings. Because the assets of an insolvent
debtor belong equitably to his creditors, the bill permits
involuntary cases in order that creditors may realize on their
assets through reorganization as well as through liquidation.
Subsection (b) of the section specifies who may file an
involuntary petition. As under current law, if the debtor has more
than 12 creditors, three creditors must join in the involuntary
petition. The dollar amount limitation is changed from current law
to $5,000. The new amount applies both to liquidation and
reorganization cases in order that there not be an artificial
difference between the two chapters that would provide an incentive
for one or the other. Subsection (b)(1) makes explicit the right
of an indenture trustee to be one of the three petitioning
creditors on behalf of the creditors the trustee represents under
the indenture. If all of the general partners in a partnership are
in bankruptcy, then the trustee of a single general partner may
file an involuntary petition against the partnership. Finally, a
foreign representative may file an involuntary case concerning the
debtor in the foreign proceeding, in order to administer assets in
this country. This subsection is not intended to overrule
Bankruptcy Rule 104(d), which places certain restrictions on the
transfer of claims for the purpose of commencing an involuntary
case. That Rule will be continued under section 405(d) of this
bill.
Subsection (c) permits creditors other than the original
petitioning creditors to join in the petition with the same effect
as if the joining creditor had been one of the original petitioning
creditors. Thus, if the claim of one of the original petitioning
creditors is disallowed, the case will not be dismissed for want of
three creditors or want of $5,000 in petitioning claims if the
joining creditor suffices to fulfill the statutory requirements.
Subsection (d) permits the debtor to file an answer to an
involuntary petition. The subsection also permits a general
partner in a partnership debtor to answer an involuntary petition
against the partnership if he did not join in the petition. Thus,
a partnership petition by less than all of the general partners is
treated as an involuntary, not a voluntary, petition.
The court may, under subsection (e), require the petitioners to
file a bond to indemnify the debtor for such amounts as the court
may later allow under subsection (i). Subsection (i) provides for
costs, attorneys fees, and damages in certain circumstances. The
bonding requirement will discourage frivolous petitions as well as
spiteful petitions based on a desire to embarrass the debtor (who
may be a competitor of a petitioning creditor) or to put the debtor
out of business without good cause. An involuntary petition may
put a debtor out of business even if it is without foundation and
is later dismissed.
Subsection (f) is both a clarification and a change from existing
law. It permits the debtor to continue to operate any business of
the debtor and to dispose of property as if the case had not been
commenced. The court is permitted, however, to control the
debtor's powers under this subsection by appropriate orders, such
as where there is a fear that the debtor may attempt to abscond
with assets, dispose of them at less than their fair value, or
dismantle his business, all to the detriment of the debtor's
creditors.
The court may also, under subsection (g), appoint an interim
trustee to take possession of the debtor's property and to operate
any business of the debtor, pending trial on the involuntary
petition. The court may make such an order only on the request of
a party in interest, and after notice to the debtor and a hearing.
There must be a showing that a trustee is necessary to preserve the
property of the estate or to prevent loss to the estate. The
debtor may regain possession by posting a sufficient bond.
Subsection (h) provides the standard for an order for relief on
an involuntary petition. If the petition is not timely
controverted (the Rules of Bankruptcy Procedure will fix time
limits), the court orders relief after a trial, only if the debtor
is generally unable to pay its debts as they mature, or if the
debtor has failed to pay a major portion of his debts as they
become due, or if a custodian was appointed during the 90-day
period preceding the filing of the petition. The first two tests
are variations of the equity insolvency test. They represent the
most significant departure from present law concerning the grounds
for involuntary bankruptcy, which requires an act of bankruptcy.
Proof of the commission of an act of bankruptcy has frequently
required a showing that the debtor was insolvent on a
''balance-sheet'' test when the act was committed. This bill
abolishes the concept of acts of bankruptcy.
The equity insolvency test has been in equity jurisprudence for
hundreds of years, and though it is new in the bankruptcy context
(except in chapter X (chapter 10 of former title 11)), the
bankruptcy courts should have no difficulty in applying it. The
third test, appointment of a custodian within ninety days before
the petition, is provided for simplicity. It is not a partial
re-enactment of acts of bankruptcy. If a custodian of all or
substantially all of the property of the debtor has been appointed,
this paragraph creates an irrebuttable presumption that the debtor
is unable to pay its debts as they mature. Moreover, once a
proceeding to liquidate assets has been commenced, the debtor's
creditors have an absolute right to have the liquidation (or
reorganization) proceed in the bankruptcy court and under the
bankruptcy laws with all of the appropriate creditor and debtor
protections that those laws provide. Ninety days gives creditors
ample time in which to seek bankruptcy liquidation after the
appointment of a custodian. If they wait beyond the ninety day
period, they are not precluded from filing an involuntary
petition. They are simply required to prove equity insolvency
rather than the more easily provable custodian test.
Subsection (i) permits the court to award costs, reasonable
attorney's fees, or damages if an involuntary petition is dismissed
other than by consent of all petitioning creditors and the debtor.
The damages that the court may award are those that may be caused
by the taking of possession of the debtor's property under
subsection (g) or section 1104 of the bankruptcy code. In
addition, if a petitioning creditor filed the petition in bad
faith, the court may award the debtor any damages proximately
caused by the filing of the petition. These damages may include
such items as loss of business during and after the pendency of the
case, and so on. ''Or'' is not exclusive in this paragraph. The
court may grant any or all of the damages provided for under the
provision. Dismissal in the best interests of credits under
section 305(a)(1) would not give rise to a damages claim.
Under subsection (j), the court may dismiss the petition by
consent only after giving notice to all creditors. The purpose of
the subsection is to prevent collusive settlements among the debtor
and the petitioning creditors while other creditors, that wish to
see relief ordered with respect to the debtor but that did not
participate in the case, are left without sufficient protection.
Subsection (k) governs involuntary cases against foreign banks
that are not engaged in business in the United States but that have
assets located here. The subsection prevents a foreign bank from
being placed into bankruptcy in this country unless a foreign
proceeding against the bank is pending. The special protection
afforded by this section is needed to prevent creditors from
effectively closing down a foreign bank by the commencement of an
involuntary bankruptcy case in this country unless that bank is
involved in a proceeding under foreign law. An involuntary case
commenced under this subsection gives the foreign representative an
alternative to commencing a case ancillary to a foreign proceeding
under section 304.
AMENDMENTS
1994 - Subsec. (b). Pub. L. 103-394 substituted ''$10,000'' for
''$5,000'' in pars. (1) and (2).
1986 - Subsec. (a). Pub. L. 99-554, Sec. 254, inserted reference
to family farmer.
Subsec. (b). Pub. L. 99-554, Sec. 283(b)(1), substituted
''subject of'' for ''subject on''.
Subsec. (g). Pub. L. 99-554, Sec. 204(1), substituted ''may order
the United States trustee to appoint'' for ''may appoint''.
Subsec. (h)(1). Pub. L. 99-554, Sec. 283(b)(2), substituted ''are
the'' for ''that are the''.
Subsec. (i)(1). Pub. L. 99-554, Sec. 204(2), inserted ''or'' at
end of subpar. (A) and struck out subpar. (C) which read as
follows: ''any damages proximately caused by the taking of
possession of the debtor's property by a trustee appointed under
subsection (g) of this section or section 1104 of this title; or''.
1984 - Subsec. (b). Pub. L. 98-353, Sec. 426(a), inserted
''against a person'' after ''involuntary case''.
Subsec. (b)(1). Pub. L. 98-353, Sec. 426(b)(1), inserted ''or the
subject on a bona fide dispute,''.
Subsec. (h)(1). Pub. L. 98-353, Sec. 426(b)(2), inserted ''unless
such debts that are the subject of a bona fide dispute''.
Subsec. (j)(2). Pub. L. 98-353, Sec. 427, substituted ''debtor''
for ''debtors''.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by section 204 of
Pub. L. 99-554 dependent upon the judicial district involved, see
section 302(d), (e) of Pub. L. 99-554, set out as a note under
section 581 of Title 28, Judiciary and Judicial Procedure.
Amendment by section 254 of Pub. L. 99-554 effective 30 days
after Oct. 27, 1986, but not applicable to cases commenced under
this title before that date, see section 302(a), (c)(1) of Pub. L.
99-554.
Amendment by section 283 of Pub. L. 99-554 effective 30 days
after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by sections 426(a) and 427 of Pub. L. 98-353 effective
with respect to cases filed 90 days after July 10, 1984, and
amendment by section 426(b) of Pub. L. 98-353 effective July 10,
1984, see section 552(a), (b) of Pub. L. 98-353, set out as a note
under section 101 of this title.
ADJUSTMENT OF DOLLAR AMOUNTS
For adjustment of dollar amounts specified in subsec. (b)(1), (2)
of this section by the Judicial Conference of the United States,
effective Apr. 1, 2001, see note set out under section 104 of this
title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 101, 104, 106, 306, 362,
503, 504, 522, 541, 549 of this title; title 28 sections 1411,
1480.
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11 USC Sec. 304 01/06/03
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TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
-HEAD-
Sec. 304. Cases ancillary to foreign proceedings
-STATUTE-
(a) A case ancillary to a foreign proceeding is commenced by the
filing with the bankruptcy court of a petition under this section
by a foreign representative.
(b) Subject to the provisions of subsection (c) of this section,
if a party in interest does not timely controvert the petition, or
after trial, the court may -
(1) enjoin the commencement or continuation of -
(A) any action against -
(i) a debtor with respect to property involved in such
foreign proceeding; or
(ii) such property; or
(B) the enforcement of any judgment against the debtor with
respect to such property, or any act or the commencement or
continuation of any judicial proceeding to create or enforce a
lien against the property of such estate;
(2) order turnover of the property of such estate, or the
proceeds of such property, to such foreign representative; or
(3) order other appropriate relief.
(c) In determining whether to grant relief under subsection (b)
of this section, the court shall be guided by what will best assure
an economical and expeditious administration of such estate,
consistent with -
(1) just treatment of all holders of claims against or
interests in such estate;
(2) protection of claim holders in the United States against
prejudice and inconvenience in the processing of claims in such
foreign proceeding;
(3) prevention of preferential or fraudulent dispositions of
property of such estate;
(4) distribution of proceeds of such estate substantially in
accordance with the order prescribed by this title;
(5) comity; and
(6) if appropriate, the provision of an opportunity for a fresh
start for the individual that such foreign proceeding concerns.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2560.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 304(b) adopts a provision contained in the Senate
amendment with modifications. The provision indicates that if a
party in interest does not timely controvert the petition in a case
ancillary to a foreign proceeding, or after trial on the merits,
the court may take various actions, including enjoining the
commencement or continuation of any action against the debtor with
respect to property involved in the proceeding, or against the
property itself; enjoining the enforcement of any judgment against
the debtor or the debtor's property; or the commencement or
continuation of any judicial proceeding to create or enforce a lien
against the property of the debtor or the estate.
Section 304(c) is modified to indicate that the court shall be
guided by considerations of comity in addition to the other factors
specified therein.
SENATE REPORT NO. 95-989
This section governs cases filed in the bankruptcy courts that
are ancillary to foreign proceedings. That is, where a foreign
bankruptcy case is pending concerning a particular debtor and that
debtor has assets in this country, the foreign representative may
file a petition under this section, which does not commence a full
bankruptcy case, in order to administer assets located in this
country, to prevent dismemberment by local creditors of assets
located here, or for other appropriate relief. The debtor is given
the opportunity to controvert the petition.
Subsection (c) requires the court to consider several factors in
determining what relief, if any, to grant. The court is to be
guided by what will best assure an economical and expeditious
administration of the estate, consistent with just treatment of all
creditors and equity security holders; protection of local
creditors and equity security holders against prejudice and
inconvenience in processing claims and interests in the foreign
proceeding; prevention of preferential or fraudulent disposition of
property of the estate; distribution of the proceeds of the estate
substantially in conformity with the distribution provisions of the
bankruptcy code; and, if the debtor is an individual, the provision
of an opportunity for a fresh start. These guidelines are designed
to give the court the maximum flexibility in handling ancillary
cases. Principles of international comity and respect for the
judgments and laws of other nations suggest that the court be
permitted to make the appropriate orders under all of the
circumstances of each case, rather than being provided with
inflexible rules.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 101, 305, 306 of this
title; title 28 section 1410.
-CITE-
11 USC Sec. 305 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
-HEAD-
Sec. 305. Abstention
-STATUTE-
(a) The court, after notice and a hearing, may dismiss a case
under this title, or may suspend all proceedings in a case under
this title, at any time if -
(1) the interests of creditors and the debtor would be better
served by such dismissal or suspension; or
(2)(A) there is pending a foreign proceeding; and
(B) the factors specified in section 304(c) of this title
warrant such dismissal or suspension.
(b) A foreign representative may seek dismissal or suspension
under subsection (a)(2) of this section.
(c) An order under subsection (a) of this section dismissing a
case or suspending all proceedings in a case, or a decision not so
to dismiss or suspend, is not reviewable by appeal or otherwise by
the court of appeals under section 158(d), 1291, or 1292 of title
28 or by the Supreme Court of the United States under section 1254
of title 28.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2561; Pub. L. 101-650,
title III, Sec. 309(a), Dec. 1, 1990, 104 Stat. 5113; Pub. L.
102-198, Sec. 5, Dec. 9, 1991, 105 Stat. 1623.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
A principle of the common law requires a court with jurisdiction
over a particular matter to take jurisdiction. This section
recognizes that there are cases in which it would be appropriate
for the court to decline jurisdiction. Abstention under this
section, however, is of jurisdiction over the entire case.
Abstention from jurisdiction over a particular proceeding in a case
is governed by proposed 28 U.S.C. 1471(c). Thus, the court is
permitted, if the interests of creditors and the debtor would be
better served by dismissal of the case or suspension of all
proceedings in the case, to so order. The court may dismiss or
suspend under the first paragraph, for example, if an arrangement
is being worked out by creditors and the debtor out of court, there
is no prejudice to the results of creditors in that arrangement,
and an involuntary case has been commenced by a few recalcitrant
creditors to provide a basis for future threats to extract full
payment. The less expensive out-of-court workout may better serve
the interests in the case. Likewise, if there is pending a foreign
proceeding concerning the debtor and the factors specified in
proposed 11 U.S.C. 304(c) warrant dismissal or suspension, the
court may so act.
Subsection (b) gives a foreign representative authority to appear
in the bankruptcy court to request dismissal or suspension.
Subsection (c) makes the dismissal or suspension order
nonreviewable by appeal or otherwise. The bankruptcy court, based
on its experience and discretion is vested with the power of
decision.
AMENDMENTS
1991 - Subsec. (c). Pub. L. 102-198 substituted ''title 28'' for
''this title'' in two places.
1990 - Subsec. (c). Pub. L. 101-650 inserted before period at end
''by the court of appeals under section 158(d), 1291, or 1292 of
this title or by the Supreme Court of the United States under
section 1254 of this title''.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 306 of this title.
-CITE-
11 USC Sec. 306 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
-HEAD-
Sec. 306. Limited appearance
-STATUTE-
An appearance in a bankruptcy court by a foreign representative
in connection with a petition or request under section 303, 304, or
305 of this title does not submit such foreign representative to
the jurisdiction of any court in the United States for any other
purpose, but the bankruptcy court may condition any order under
section 303, 304, or 305 of this title on compliance by such
foreign representative with the orders of such bankruptcy court.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2561.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
Section 306 permits a foreign representative that is seeking
dismissal or suspension under section 305 of an ancillary case or
that is appearing in connection with a petition under section 303
or 304 to appear without subjecting himself to the jurisdiction of
any other court in the United States, including State courts. The
protection is necessary to allow the foreign representative to
present his case and the case of the foreign estate, without
waiving the normal jurisdictional rules of the foreign country.
That is, creditors in this country will still have to seek redress
against the foreign estate according to the host country's
jurisdictional rules. Any other result would permit local
creditors to obtain unfair advantage by filing an involuntary case,
thus requiring the foreign representative to appear, and then
obtaining local jurisdiction over the representative in connection
with his appearance in this country. That kind of bankruptcy law
would legalize an ambush technique that has frequently been
rejected by the common law in other contexts.
However, the bankruptcy court is permitted under section 306 to
condition any relief under section 303, 304, or 305 on the
compliance by the foreign representative with the orders of the
bankruptcy court. The last provision is not carte blanche to the
bankruptcy court to require the foreign representative to submit to
jurisdiction in other courts contrary to the general policy of the
section. It is designed to enable the bankruptcy court to enforce
its own orders that are necessary to the appropriate relief granted
under section 303, 304, or 305.
-CITE-
11 USC Sec. 307 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER I - COMMENCEMENT OF A CASE
-HEAD-
Sec. 307. United States trustee
-STATUTE-
The United States trustee may raise and may appear and be heard
on any issue in any case or proceeding under this title but may not
file a plan pursuant to section 1121(c) of this title.
-SOURCE-
(Added Pub. L. 99-554, title II, Sec. 205(a), Oct. 27, 1986, 100
Stat. 3098.)
-MISC1-
EFFECTIVE DATE
Effective date and applicability of section dependent upon the
judicial district involved, see section 302(d), (e) of Pub. L.
99-554, set out as a note under section 581 of Title 28, Judiciary
and Judicial Procedure.
STANDING AND AUTHORITY OF BANKRUPTCY ADMINISTRATOR
Pub. L. 101-650, title III, Sec. 317(b), Dec. 1, 1990, 104 Stat.
5115, provided that: ''A bankruptcy administrator may raise and may
appear and be heard on any issue in any case under title 11, United
States Code, but may not file a plan pursuant to section 1121(c) of
such title.''
-CITE-
11 USC SUBCHAPTER II - OFFICERS 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
.
-HEAD-
SUBCHAPTER II - OFFICERS
-CITE-
11 USC Sec. 321 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 321. Eligibility to serve as trustee
-STATUTE-
(a) A person may serve as trustee in a case under this title only
if such person is -
(1) an individual that is competent to perform the duties of
trustee and, in a case under chapter 7, 12, or 13 of this title,
resides or has an office in the judicial district within which
the case is pending, or in any judicial district adjacent to such
district; or
(2) a corporation authorized by such corporation's charter or
bylaws to act as trustee, and, in a case under chapter 7, 12, or
13 of this title, having an office in at least one of such
districts.
(b) A person that has served as an examiner in the case may not
serve as trustee in the case.
(c) The United States trustee for the judicial district in which
the case is pending is eligible to serve as trustee in the case if
necessary.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2561; Pub. L. 98-353, title
III, Sec. 428, July 10, 1984, 98 Stat. 369; Pub. L. 99-554, title
II, Sec. 206, 257(c), Oct. 27, 1986, 100 Stat. 3098, 3114.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 321 indicates that an examiner may not serve as a trustee
in the case.
SENATE REPORT NO. 95-989
Section 321 is adapted from current Bankruptcy Act Sec. 45
(section 73 of former title 11) and Bankruptcy Rule 209. Subsection
(a) specifies that an individual may serve as trustee in a
bankruptcy case only if he is competent to perform the duties of
trustee and resides or has an office in the judicial district
within which the case is pending, or in an adjacent judicial
district. A corporation must be authorized by its charter or
bylaws to act as trustee, and, for chapter 7 or 13 cases, must have
an office in any of the above mentioned judicial districts.
AMENDMENTS
1986 - Subsec. (a). Pub. L. 99-554, Sec. 257(c), inserted
reference to chapter 12 in two places.
Subsec. (c). Pub. L. 99-554, Sec. 206, added subsec. (c).
1984 - Subsec. (b). Pub. L. 98-353 substituted ''the case'' for
''a case'' after ''an examiner in''.
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by section 206 of
Pub. L. 99-554 dependent upon the judicial district involved, see
section 302(d), (e) of Pub. L. 99-554, set out as a note under
section 581 of Title 28, Judiciary and Judicial Procedure.
Amendment by section 257 of Pub. L. 99-554 effective 30 days
after Oct. 27, 1986, but not applicable to cases commenced under
this title before that date, see section 302(a), (c)(1) of Pub. L.
99-554.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
-CITE-
11 USC Sec. 322 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 322. Qualification of trustee
-STATUTE-
(a) Except as provided in subsection (b)(1), a person selected
under section 701, 702, 703, 1104, 1163, 1202, or 1302 of this
title to serve as trustee in a case under this title qualifies if
before five days after such selection, and before beginning
official duties, such person has filed with the court a bond in
favor of the United States conditioned on the faithful performance
of such official duties.
(b)(1) The United States trustee qualifies wherever such trustee
serves as trustee in a case under this title.
(2) The United States trustee shall determine -
(A) the amount of a bond required to be filed under subsection
(a) of this section; and
(B) the sufficiency of the surety on such bond.
(c) A trustee is not liable personally or on such trustee's bond
in favor of the United States for any penalty or forfeiture
incurred by the debtor.
(d) A proceeding on a trustee's bond may not be commenced after
two years after the date on which such trustee was discharged.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562; Pub. L. 98-353, title
III, Sec. 429, July 10, 1984, 98 Stat. 369; Pub. L. 99-554, title
II, Sec. 207, 257(d), Oct. 27, 1986, 100 Stat. 3098, 3114; Pub. L.
103-394, title V, Sec. 501(d)(3), Oct. 22, 1994, 108 Stat. 4143.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 322(a) is modified to include a trustee serving in a
railroad reorganization under subchapter IV of chapter 11.
SENATE REPORT NO. 95-989
A trustee qualifies in a case by filing, within five days after
selection, a bond in favor of the United States, conditioned on the
faithful performance of his official duties. This section is
derived from the Bankruptcy Act section 50b (section 78(b) of
former title 11). The court is required to determine the amount of
the bond and the sufficiency of the surety on the bond. Subsection
(c), derived from Bankruptcy Act section 50i (section 78(i) of
former title 11), relieves the trustee from personal liability and
from liability on his bond for any penalty or forfeiture incurred
by the debtor. Subsection (d), derived from section 50m (section
78(m) of former title 11), fixes a two-year statute of limitations
on any action on a trustee's bond. Finally, subsection (e)
dispenses with the bonding requirement for the United States
trustee.
AMENDMENTS
1994 - Subsec. (a). Pub. L. 103-394 substituted ''1202, or 1302''
for ''1302, or 1202''.
1986 - Subsec. (a). Pub. L. 99-554, Sec. 257(d), inserted
reference to section 1202 of this title.
Pub. L. 99-554, Sec. 207(1), substituted ''Except as provided in
subsection (b)(1), a person'' for ''A person''.
Subsec. (b). Pub. L. 99-554, Sec. 207(2), amended subsec. (b)
generally, adding par. (1), designating existing provisions as par.
(2), substituting ''The United States trustee'' for ''The court'',
''(A) the amount'' for ''(1) the amount'', and ''(B) the
sufficiency'' for ''(2) the sufficiency''.
1984 - Subsec. (b)(1). Pub. L. 98-353 inserted ''required to
be''.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by section 207 of
Pub. L. 99-554 dependent upon the judicial district involved, see
section 302(d), (e) of Pub. L. 99-554, set out as a note under
section 581 of Title 28, Judiciary and Judicial Procedure.
Amendment by section 257 of Pub. L. 99-554 effective 30 days
after Oct. 27, 1986, but not applicable to cases commenced under
this title before that date, see section 302(a), (c)(1) of Pub. L.
99-554.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 701, 703, 746, 1101,
1104, 1202, 1302 of this title; title 15 section 78eee.
-CITE-
11 USC Sec. 323 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 323. Role and capacity of trustee
-STATUTE-
(a) The trustee in a case under this title is the representative
of the estate.
(b) The trustee in a case under this title has capacity to sue
and be sued.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
Subsection (a) of this section makes the trustee the
representative of the estate. Subsection (b) grants the trustee
the capacity to sue and to be sued. If the debtor remains in
possession in a chapter 11 case, section 1107 gives the debtor in
possession these rights of the trustee: the debtor in possession
becomes the representative of the estate, and may sue and be sued.
The same applies in a chapter 13 case.
-CITE-
11 USC Sec. 324 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 324. Removal of trustee or examiner
-STATUTE-
(a) The court, after notice and a hearing, may remove a trustee,
other than the United States trustee, or an examiner, for cause.
(b) Whenever the court removes a trustee or examiner under
subsection (a) in a case under this title, such trustee or examiner
shall thereby be removed in all other cases under this title in
which such trustee or examiner is then serving unless the court
orders otherwise.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562; Pub. L. 99-554, title
II, Sec. 208, Oct. 27, 1986, 100 Stat. 3098.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
This section permits the court, after notice and a hearing, to
remove a trustee for cause.
AMENDMENTS
1986 - Pub. L. 99-554 amended section generally, designating
existing provisions as subsec. (a), substituting ''a trustee, other
than the United States trustee, or an examiner'' for ''a trustee or
an examiner'', and adding subsec. (b).
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by Pub. L. 99-554
dependent upon the judicial district involved, see section 302(d),
(e) of Pub. L. 99-554, set out as a note under section 581 of Title
28, Judiciary and Judicial Procedure.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 703, 1104 of this title.
-CITE-
11 USC Sec. 325 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 325. Effect of vacancy
-STATUTE-
A vacancy in the office of trustee during a case does not abate
any pending action or proceeding, and the successor trustee shall
be substituted as a party in such action or proceeding.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
Section 325, derived from Bankruptcy Act section 46 (section 74
of former title 11) and Bankruptcy Rule 221(b), specifies that a
vacancy in the office of trustee during a case does not abate any
pending action or proceeding. The successor trustee, when selected
and qualified, is substituted as a party in any pending action or
proceeding.
-CITE-
11 USC Sec. 326 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 326. Limitation on compensation of trustee
-STATUTE-
(a) In a case under chapter 7 or 11, the court may allow
reasonable compensation under section 330 of this title of the
trustee for the trustee's services, payable after the trustee
renders such services, not to exceed 25 percent on the first $5,000
or less, 10 percent on any amount in excess of $5,000 but not in
excess of $50,000, 5 percent on any amount in excess of $50,000 but
not in excess of $1,000,000, and reasonable compensation not to
exceed 3 percent of such moneys in excess of $1,000,000, upon all
moneys disbursed or turned over in the case by the trustee to
parties in interest, excluding the debtor, but including holders of
secured claims.
(b) In a case under chapter 12 or 13 of this title, the court may
not allow compensation for services or reimbursement of expenses of
the United States trustee or of a standing trustee appointed under
section 586(b) of title 28, but may allow reasonable compensation
under section 330 of this title of a trustee appointed under
section 1202(a) or 1302(a) of this title for the trustee's
services, payable after the trustee renders such services, not to
exceed five percent upon all payments under the plan.
(c) If more than one person serves as trustee in the case, the
aggregate compensation of such persons for such service may not
exceed the maximum compensation prescribed for a single trustee by
subsection (a) or (b) of this section, as the case may be.
(d) The court may deny allowance of compensation for services or
reimbursement of expenses of the trustee if the trustee failed to
make diligent inquiry into facts that would permit denial of
allowance under section 328(c) of this title or, with knowledge of
such facts, employed a professional person under section 327 of
this title.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562; Pub. L. 98-353, title
III, Sec. 430(a), (b), July 10, 1984, 98 Stat. 369; Pub. L. 99-554,
title II, Sec. 209, Oct. 27, 1986, 100 Stat. 3098; Pub. L. 103-394,
title I, Sec. 107, Oct. 22, 1994, 108 Stat. 4111.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 326(a) of the House amendment modifies a provision as
contained in H.R. 8200 as passed by the House. The percentage
limitation on the fees of a trustee contained in the House bill is
retained, but no additional percentage is specified for cases in
which a trustee operates the business of the debtor. Section
326(b) of the Senate amendment is deleted as an unnecessary
restatement of the limitation contained in section 326(a) as
modified. The provision contained in section 326(a) of the Senate
amendment authorizing a trustee to receive a maximum fee of $150
regardless of the availability of assets in the estate is deleted.
It will not be necessary in view of the increase in section 326(a)
and the doubling of the minimum fee as provided in section 330(b).
Section 326(b) of the House amendment derives from section 326(c)
of H.R. 8200 as passed by the House. It is a conforming amendment
to indicate a change with respect to the selection of a trustee in
a chapter 13 case under section 1302(a) of title 11.
SENATE REPORT NO. 95-989
This section is derived in part from section 48c of the
Bankruptcy Act (section 76(c) of former title 11). It must be
emphasized that this section does not authorize compensation of
trustees. This section simply fixes the maximum compensation of a
trustee. Proposed 11 U.S.C. 330 authorizes and fixes the standard
of compensation. Under section 48c of current law, the maximum
limits have tended to become minimums in many cases. This section
is not intended to be so interpreted. The limits in this section,
together with the limitations found in section 330, are to be
applied as outer limits, and not as grants or entitlements to the
maximum fees specified.
The maximum fee schedule is derived from section 48c(1) of the
present act (section 76(c)(1) of former title 11), but with a
change relating to the bases on which the percentage maxima are
computed. The maximum fee schedule is based on decreasing
percentages of increasing amounts. The amounts are the amounts of
money distributed by the trustee to parties in interest, excluding
the debtor, but including secured creditors. These amounts were
last amended in 1952. Since then, the cost of living has
approximately doubled. Thus, the bases were doubled.
It should be noted that the bases on which the maximum fee is
computed includes moneys turned over to secured creditors, to cover
the situation where the trustee liquidates property subject to a
lien and distributes the proceeds. It does not cover cases in
which the trustee simply turns over the property to the secured
creditor, nor where the trustee abandons the property and the
secured creditor is permitted to foreclose. The provision is also
subject to the rights of the secured creditor generally under
proposed section 506, especially 506(c). The $150 discretionary fee
provision of current law is retained.
Subsection (b) of this section entitles an operating trustee to a
reasonable fee, without any limitation based on the maximum
provided for a liquidating trustee as in current law, Bankruptcy
Act Sec. 48c(2) (section 76(c)(2) of former title 11).
Subsection (c) (enacted as (b)) permits a maximum fee of five
percent on all payments to creditors under a chapter 13 plan to the
trustee appointed in the case.
Subsection (d) (enacted as (c)) provides a limitation not found
in current law. Even if more than one trustee serves in the case,
the maximum fee payable to all trustees does not change. For
example, if an interim trustee is appointed and an elected trustee
replaces him, the combined total of the fees payable to the interim
trustee and the permanent trustee may not exceed the amount
specified in this section. Under current law, very often a
receiver receives a full fee and a subsequent trustee also receives
a full fee. The resultant ''double-dipping'', especially in cases
in which the receiver and the trustee are the same individual, is
detrimental to the interests of creditors, by needlessly increasing
the cost of administering bankruptcy estates.
Subsection (e) (enacted as (d)) permits the court to deny
compensation to a trustee if the trustee has been derelict in his
duty by employing counsel, who is not disinterested.
AMENDMENTS
1994 - Subsec. (a). Pub. L. 103-394 substituted ''25 percent on
the first $5,000 or less, 10 percent on any amount in excess of
$5,000 but not in excess of $50,000, 5 percent on any amount in
excess of $50,000 but not in excess of $1,000,000, and reasonable
compensation not to exceed 3 percent of such moneys in excess of
$1,000,000'' for ''fifteen percent on the first $1,000 or less, six
percent on any amount in excess of $1,000 but not in excess of
$3,000, and three percent on any amount in excess of $3,000''.
1986 - Subsec. (b). Pub. L. 99-554 amended subsec. (b) generally,
substituting ''under chapter 12 or 13 of this title'' for ''under
chapter 13 of this title'', ''expenses of the United States trustee
or of a standing trustee appointed under section 586(b) of title
28'' for ''expenses of a standing trustee appointed under section
1302(d) of this title'', and ''under section 1202(a) or 1302(a) of
this title'' for ''under section 1302(a) of this title''.
1984 - Subsec. (a). Pub. L. 98-353, Sec. 430(a), substituted
''and three percent on any amount in excess of $3000'' for ''three
percent on any amount in excess of $3,000 but not in excess of
$20,000, two percent on any amount in excess of $20,000 but not in
excess of $50,000, and one percent on any amount in excess of
$50,000''.
Subsec. (d). Pub. L. 98-353, Sec. 430(b), amended subsec. (d)
generally. Prior to amendment, subsec. (d) read as follows: ''The
court may deny allowance of compensation for services and
reimbursement of expenses of the trustee if the trustee -
''(1) failed to make diligent inquiry into facts that would
permit denial of allowance under section 328(c) of this title; or
''(2) with knowledge of such facts, employed a professional
person under section 327 of this title.''
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by Pub. L. 99-554
dependent upon the judicial district involved, see section 302(d),
(e) of Pub. L. 99-554, set out as a note under section 581 of Title
28, Judiciary and Judicial Procedure.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
REFERENCES IN SUBSECTION (B) TEMPORARILY DEEMED TO INCLUDE
ADDITIONAL REFERENCES
Until the amendments made by subtitle A (Sec. 201 to 231) of
title II of Pub. L. 99-554 become effective in a district and apply
to a case, for purposes of such case any reference in subsec. (b)
of this section -
(1) to chapter 13 of this title is deemed to be a reference to
chapter 12 or 13 of this title,
(2) to section 1302(d) of this title is deemed to be a
reference to section 1302(d) of this title or section 586(b) of
Title 28, Judiciary and Judicial Procedure, and
(3) to section 1302(a) of this title is deemed to be a
reference to section 1202(a) or 1302(a) of this title,
see section 302(c)(3)(A), (d), (e) of Pub. L. 99-554, set out as an
Effective Date note under section 581 of Title 28.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 330, 557 of this title.
-CITE-
11 USC Sec. 327 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 327. Employment of professional persons
-STATUTE-
(a) Except as otherwise provided in this section, the trustee,
with the court's approval, may employ one or more attorneys,
accountants, appraisers, auctioneers, or other professional
persons, that do not hold or represent an interest adverse to the
estate, and that are disinterested persons, to represent or assist
the trustee in carrying out the trustee's duties under this title.
(b) If the trustee is authorized to operate the business of the
debtor under section 721, 1202, or 1108 of this title, and if the
debtor has regularly employed attorneys, accountants, or other
professional persons on salary, the trustee may retain or replace
such professional persons if necessary in the operation of such
business.
(c) In a case under chapter 7, 12, or 11 of this title, a person
is not disqualified for employment under this section solely
because of such person's employment by or representation of a
creditor, unless there is objection by another creditor or the
United States trustee, in which case the court shall disapprove
such employment if there is an actual conflict of interest.
(d) The court may authorize the trustee to act as attorney or
accountant for the estate if such authorization is in the best
interest of the estate.
(e) The trustee, with the court's approval, may employ, for a
specified special purpose, other than to represent the trustee in
conducting the case, an attorney that has represented the debtor,
if in the best interest of the estate, and if such attorney does
not represent or hold any interest adverse to the debtor or to the
estate with respect to the matter on which such attorney is to be
employed.
(f) The trustee may not employ a person that has served as an
examiner in the case.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2563; Pub. L. 98-353, title
III, Sec. 430(c), July 10, 1984, 98 Stat. 370; Pub. L. 99-554,
title II, Sec. 210, 257(e), Oct. 27, 1986, 100 Stat. 3099, 3114.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 327(a) of the House amendment contains a technical
amendment indicating that attorneys, and perhaps other officers
enumerated therein, represent, rather than assist, the trustee in
carrying out the trustee's duties.
Section 327(c) represents a compromise between H.R. 8200 as
passed by the House and the Senate amendment. The provision states
that former representation of a creditor, whether secured or
unsecured, will not automatically disqualify a person from being
employed by a trustee, but if such person is employed by the
trustee, the person may no longer represent the creditor in
connection with the case.
Section 327(f) prevents an examiner from being employed by the
trustee.
SENATE REPORT NO. 95-989
This section authorizes the trustee, subject to the court's
approval, to employ professional persons, such as attorneys,
accountants, appraisers, and auctioneers, to represent or perform
services for the estate. The trustee may employ only disinterested
persons that do not hold or represent an interest adverse to the
estate.
Subsection (b) is an exception, and authorizes the trustee to
retain or replace professional persons that the debtor has employed
if necessary in the operation of the debtor's business.
Subsection (c) provides a professional person is not disqualified
for employment solely because of the person's prior employment by
or representation of a secured or unsecured creditor.
Subsection (d) permits the court to authorize the trustee, if
qualified to act as his own counsel or accountant.
Subsection (e) permits the trustee, subject to the court's
approval, to employ for a specified special purpose an attorney
that has represented the debtor, if such employment is in the best
interest of the estate and if the attorney does not hold or
represent an interest adverse to the debtor of the estate with
respect to the matter on which he is to be employed. This
subsection does not authorize the employment of the debtor's
attorney to represent the estate generally or to represent the
trustee in the conduct of the bankruptcy case. The subsection will
most likely be used when the debtor is involved in complex
litigation, and changing attorneys in the middle of the case after
the bankruptcy case has commenced would be detrimental to the
progress of that other litigation.
HOUSE REPORT NO. 95-595
Subsection (c) is an additional exception. The trustee may
employ as his counsel a nondisinterested person if the only reason
that the attorney is not disinterested is because of his
representation of an unsecured creditor.
AMENDMENTS
1986 - Subsec. (b). Pub. L. 99-554, Sec. 257(e)(1), which
directed the insertion of '', 1202,'' after ''section 721,'' was
executed by making the insertion after ''section 721'' to reflect
the probable intent of Congress.
Subsec. (c). Pub. L. 99-554, Sec. 257(e)(2), which directed the
insertion of '', 12,'' after ''section 7,'' was executed by making
the insertion after ''chapter 7'' to reflect the probable intent of
Congress.
Pub. L. 99-554, Sec. 210, inserted ''or the United States
trustee'' after ''another creditor''.
1984 - Subsec. (c). Pub. L. 98-353 substituted ''In a case under
chapter 7 or 11 of this title, a person is not disqualified for
employment under this section solely because of such person's
employment by or representation of a creditor, unless there is
objection by another creditor, in which case the court shall
disapprove such employment if there is an actual conflict of
interest.'' for ''In a case under chapter 7 or 11 of this title, a
person is not disqualified for employment under this section solely
because of such person's employment by or representation of a
creditor, but may not, while employed by the trustee, represent, in
connection with the case, a creditor.''
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by section 210 of
Pub. L. 99-554 dependent upon the judicial district involved, see
section 302(d), (e) of Pub. L. 99-554, set out as a note under
section 581 of Title 28, Judiciary and Judicial Procedure.
Amendment by section 257 of Pub. L. 99-554 effective 30 days
after Oct. 27, 1986, but not applicable to cases commenced under
this title before that date, see section 302(a), (c)(1) of Pub. L.
99-554.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 326, 328, 330, 331, 1107
of this title; title 28 section 586.
-CITE-
11 USC Sec. 328 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 328. Limitation on compensation of professional persons
-STATUTE-
(a) The trustee, or a committee appointed under section 1102 of
this title, with the court's approval, may employ or authorize the
employment of a professional person under section 327 or 1103 of
this title, as the case may be, on any reasonable terms and
conditions of employment, including on a retainer, on an hourly
basis, or on a contingent fee basis. Notwithstanding such terms
and conditions, the court may allow compensation different from the
compensation provided under such terms and conditions after the
conclusion of such employment, if such terms and conditions prove
to have been improvident in light of developments not capable of
being anticipated at the time of the fixing of such terms and
conditions.
(b) If the court has authorized a trustee to serve as an attorney
or accountant for the estate under section 327(d) of this title,
the court may allow compensation for the trustee's services as such
attorney or accountant only to the extent that the trustee
performed services as attorney or accountant for the estate and not
for performance of any of the trustee's duties that are generally
performed by a trustee without the assistance of an attorney or
accountant for the estate.
(c) Except as provided in section 327(c), 327(e), or 1107(b) of
this title, the court may deny allowance of compensation for
services and reimbursement of expenses of a professional person
employed under section 327 or 1103 of this title if, at any time
during such professional person's employment under section 327 or
1103 of this title, such professional person is not a disinterested
person, or represents or holds an interest adverse to the interest
of the estate with respect to the matter on which such professional
person is employed.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2563; Pub. L. 98-353, title
III, Sec. 431, July 10, 1984, 98 Stat. 370.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 328(c) adopts a technical amendment contained in the
Senate amendment indicating that an attorney for the debtor in
possession is not disqualified for compensation for services and
reimbursement of expenses simply because of prior representation of
the debtor.
SENATE REPORT NO. 95-989
This section, which is parallel to section 326, fixes the maximum
compensation allowable to a professional person employed under
section 327. It authorizes the trustee, with the court's approval,
to employ professional persons on any reasonable terms, including
on a retainer, on an hourly or on a contingent fee basis.
Subsection (a) further permits the court to allow compensation
different from the compensation provided under the trustee's
agreement if the prior agreement proves to have been improvident in
light of development unanticipatable at the time of the agreement.
The court's power includes the power to increase as well as
decrease the agreed upon compensation. This provision is
permissive, not mandatory, and should not be used by the court if
to do so would violate the code of ethics of the professional
involved.
Subsection (b) limits a trustee that has been authorized to serve
as his own counsel to only one fee for each service. The purpose
of permitting the trustee to serve as his own counsel is to reduce
costs. It is not included to provide the trustee with a bonus by
permitting him to receive two fees for the same service or to avoid
the maxima fixed in section 326. Thus, this subsection requires the
court to differentiate between the trustee's services as trustee,
and his services as trustee's counsel, and to fix compensation
accordingly. Services that a trustee normally performs for an
estate without assistance of counsel are to be compensated under
the limits fixed in section 326. Only services that he performs
that are normally performed by trustee's counsel may be compensated
under the maxima imposed by this section.
Subsection (c) permits the court to deny compensation for
services and reimbursement of expenses if the professional person
is not disinterested or if he represents or holds an interest
adverse to the estate on the matter on which he is employed. The
subsection provides a penalty for conflicts of interest.
AMENDMENTS
1984 - Subsec. (a). Pub. L. 98-353 substituted ''not capable of
being anticipated'' for ''unanticipatable''.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 326, 330 of this title.
-CITE-
11 USC Sec. 329 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 329. Debtor's transactions with attorneys
-STATUTE-
(a) Any attorney representing a debtor in a case under this
title, or in connection with such a case, whether or not such
attorney applies for compensation under this title, shall file with
the court a statement of the compensation paid or agreed to be
paid, if such payment or agreement was made after one year before
the date of the filing of the petition, for services rendered or to
be rendered in contemplation of or in connection with the case by
such attorney, and the source of such compensation.
(b) If such compensation exceeds the reasonable value of any such
services, the court may cancel any such agreement, or order the
return of any such payment, to the extent excessive, to -
(1) the estate, if the property transferred -
(A) would have been property of the estate; or
(B) was to be paid by or on behalf of the debtor under a plan
under chapter 11, 12, or 13 of this title; or
(2) the entity that made such payment.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2564; Pub. L. 98-353, title
III, Sec. 432, July 10, 1984, 98 Stat. 370; Pub. L. 99-554, title
II, Sec. 257(c), Oct. 27, 1986, 100 Stat. 3114.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
This section, derived in large part from current Bankruptcy Act
section 60d (section 96(d) of former title 11), requires the
debtor's attorney to file with the court a statement of the
compensation paid or agreed to be paid to the attorney for services
in contemplation of and in connection with the case, and the source
of the compensation. Payments to a debtor's attorney provide
serious potential for evasion of creditor protection provisions of
the bankruptcy laws, and serious potential for overreaching by the
debtor's attorney, and should be subject to careful scrutiny.
Subsection (b) permits the court to deny compensation to the
attorney, to cancel an agreement to pay compensation, or to order
the return of compensation paid, if the compensation exceeds the
reasonable value of the services provided. The return of payments
already made are generally to the trustee for the benefit of the
estate. However, if the property would not have come into the
estate in any event, the court will order it returned to the entity
that made the payment.
The Bankruptcy Commission recommended a provision similar to this
that would have also permitted an examination of the debtor's
transactions with insiders. S. 236, 94th Cong., 1st sess, sec.
4-311(b) (1975). Its exclusion here is to permit it to be dealt
with by the Rules of Bankruptcy Procedure. It is not intended that
the provision be deleted entirely, only that the flexibility of the
rules is more appropriate for such evidentiary matters.
AMENDMENTS
1986 - Subsec. (b)(1)(B). Pub. L. 99-554 inserted reference to
chapter 12.
1984 - Subsec. (a). Pub. L. 98-353, Sec. 432(a), substituted
''or'' for ''and'' after ''in contemplation of''.
Subsec. (b)(1). Pub. L. 98-353, Sec. 432(b), substituted
''estate'' for ''trustee''.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-554 effective 30 days after Oct. 27,
1986, but not applicable to cases commenced under this title before
that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as
a note under section 581 of Title 28, Judiciary and Judicial
Procedure.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 330, 541 of this title.
-CITE-
11 USC Sec. 330 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 330. Compensation of officers
-STATUTE-
(a)(1) After notice to the parties in interest and the United
States Trustee and a hearing, and subject to sections 326, 328, and
329, the court may award to a trustee, an examiner, a professional
person employed under section 327 or 1103 -
(A) reasonable compensation for actual, necessary services
rendered by the trustee, examiner, professional person, or
attorney and by any paraprofessional person employed by any such
person; and
(B) reimbursement for actual, necessary expenses.
(2) The court may, on its own motion or on the motion of the
United States Trustee, the United States Trustee for the District
or Region, the trustee for the estate, or any other party in
interest, award compensation that is less than the amount of
compensation that is requested.
(3)(A) (FOOTNOTE 1) In determining the amount of reasonable
compensation to be awarded, the court shall consider the nature,
the extent, and the value of such services, taking into account all
relevant factors, including -
(FOOTNOTE 1) So in original.
(A) the time spent on such services;
(B) the rates charged for such services;
(C) whether the services were necessary to the administration
of, or beneficial at the time at which the service was rendered
toward the completion of, a case under this title;
(D) whether the services were performed within a reasonable
amount of time commensurate with the complexity, importance, and
nature of the problem, issue, or task addressed; and
(E) whether the compensation is reasonable based on the
customary compensation charged by comparably skilled
practitioners in cases other than cases under this title.
(4)(A) Except as provided in subparagraph (B), the court shall
not allow compensation for -
(i) unnecessary duplication of services; or
(ii) services that were not -
(I) reasonably likely to benefit the debtor's estate; or
(II) necessary to the administration of the case.
(B) In a chapter 12 or chapter 13 case in which the debtor is an
individual, the court may allow reasonable compensation to the
debtor's attorney for representing the interests of the debtor in
connection with the bankruptcy case based on a consideration of the
benefit and necessity of such services to the debtor and the other
factors set forth in this section.
(5) The court shall reduce the amount of compensation awarded
under this section by the amount of any interim compensation
awarded under section 331, and, if the amount of such interim
compensation exceeds the amount of compensation awarded under this
section, may order the return of the excess to the estate.
(6) Any compensation awarded for the preparation of a fee
application shall be based on the level and skill reasonably
required to prepare the application.
(b)(1) There shall be paid from the filing fee in a case under
chapter 7 of this title $45 to the trustee serving in such case,
after such trustee's services are rendered.
(2) The Judicial Conference of the United States -
(A) shall prescribe additional fees of the same kind as
prescribed under section 1914(b) of title 28; and
(B) may prescribe notice of appearance fees and fees charged
against distributions in cases under this title;
to pay $15 to trustees serving in cases after such trustees'
services are rendered. Beginning 1 year after the date of the
enactment of the Bankruptcy Reform Act of 1994, such $15 shall be
paid in addition to the amount paid under paragraph (1).
(c) Unless the court orders otherwise, in a case under chapter 12
or 13 of this title the compensation paid to the trustee serving in
the case shall not be less than $5 per month from any distribution
under the plan during the administration of the plan.
(d) In a case in which the United States trustee serves as
trustee, the compensation of the trustee under this section shall
be paid to the clerk of the bankruptcy court and deposited by the
clerk into the United States Trustee System Fund established by
section 589a of title 28.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2564; Pub. L. 98-353, title
III, Sec. 433, 434, July 10, 1984, 98 Stat. 370; Pub. L. 99-554,
title II, Sec. 211, 257(f), Oct. 27, 1986, 100 Stat. 3099, 3114;
Pub. L. 103-394, title I, Sec. 117, title II, Sec. 224(b), Oct. 22,
1994, 108 Stat. 4119, 4130.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 330(a) contains the standard of compensation adopted in
H.R. 8200 as passed by the House rather than the contrary standard
contained in the Senate amendment. Attorneys' fees in bankruptcy
cases can be quite large and should be closely examined by the
court. However bankruptcy legal services are entitled to command
the same competency of counsel as other cases. In that light, the
policy of this section is to compensate attorneys and other
professionals serving in a case under title 11 at the same rate as
the attorney or other professional would be compensated for
performing comparable services other than in a case under title 11.
Contrary language in the Senate report accompanying S. 2266 is
rejected, and Massachusetts Mutual Life Insurance Company v.
Brock, 405 F.2d 429, 432 (5th Cir. 1968) is overruled. Notions of
economy of the estate in fixing fees are outdated and have no place
in a bankruptcy code.
Section 330(a)(2) of the Senate amendment is deleted although the
Securities and Exchange Commission retains a right to file an
advisory report under section 1109.
Section 330(b) of the Senate amendment is deleted as unnecessary,
as the limitations contained therein are covered by section 328(c)
of H.R. 8200 as passed by the House and contained in the House
amendment.
Section 330(c) of the Senate amendment providing for a trustee to
receive a fee of $20 for each estate from the filing fee paid to
the clerk is retained as section 330(b) of the House amendment.
The section will encourage private trustees to serve in cases under
title 11 and in pilot districts will place less of a burden on the
U.S. trustee to serve in no-asset cases.
Section 330(b) of H.R. 8200 as passed by the House is retained by
the House amendment as section 330(c) (section 15330).
SENATE REPORT NO. 95-989
Section 330 authorizes the court to award compensation for
services and reimbursement of expenses of officers of the estate,
and other professionals. The compensation is to be reasonable, for
economy in administration is the basic objective. Compensation is
to be for actual necessary services, based on the time spent, the
nature, the extent and the value of the services rendered, and the
cost of comparable services in nonbankruptcy cases. There are the
criteria that have been applied by the courts as analytic aids in
defining ''reasonable'' compensation.
The reference to ''the cost of comparable services'' in a
nonbankruptcy case is not intended as a change of existing law. In
a bankruptcy case fees are not a matter for private agreement.
There is inherent a ''public interest'' that ''must be considered
in awarding fees,'' Massachusetts Mutual Life Insurance Co. v.
Brock, 405 F.2d 429, 432 (C.A.5, 1968), cert. denied, 395 U.S. 906
(1969). An allowance is the result of a balance struck between
moderation in the interest of the estate and its security holders
and the need to be ''generous enough to encourage'' lawyers and
others to render the necessary and exacting services that
bankruptcy cases often require. In re Yale Express System, Inc.,
366 F.Supp. 1376, 1381 (S.D.N.Y. 1973). The rates for similar kinds
of services in private employment is one element, among others, in
that balance. Compensation in private employment noted in
subsection (a) is a point of reference, not a controlling
determinant of what shall be allowed in bankruptcy cases.
One of the major reforms in 1938, especially for reorganization
cases, was centralized control over fees in the bankruptcy courts.
See Brown v. Gerdes, 321 U.S. 178, 182-184 (1944); Leiman v.
Guttman, 336 U.S. 1, 4-9 (1949). It was intended to guard against a
recurrence of ''the many sordid chapters'' in ''the history of fees
in corporate reorganizations.'' Dickinson Industrial Site, Inc. v.
Cowan, 309 U.S. 382, 388 (1940). In the years since then the
bankruptcy bar has flourished and prospered, and persons of merit
and quality have not eschewed public service in bankruptcy cases
merely because bankruptcy courts, in the interest of economy in
administration, have not allowed them compensation that may be
earned in the private economy of business or the professions.
There is no reason to believe that, in generations to come, their
successors will be less persuaded by the need to serve in the
public interest because of stronger allures of private gain
elsewhere.
Subsection (a) provides for compensation of paraprofessionals in
order to reduce the cost of administering bankruptcy cases.
Paraprofessionals can be employed to perform duties which do not
require the full range of skills of a qualified professional. Some
courts have not hesitated to recognize paraprofessional services as
compensable under existing law. An explicit provision to that
effect is useful and constructive.
The last sentence of subsection (a) provides that in the case of
a public company - defined in section 1101(3) - the court shall
refer, after a hearing, all applications to the Securities and
Exchange Commission for a report, which shall be advisory only. In
Chapter X cases in which the Commission has appeared, it generally
filed reports on fee applications. Usually, courts have accorded
the SEC's views substantial weight, as representing the opinion of
a disinterested agency skilled and experienced in reorganization
affairs. The last sentence intends for the advisory assistance of
the Commission to be sought only in case of a public company in
reorganization under chapter 11.
Subsection (b) reenacts section 249 of Chapter X of the
Bankruptcy Act ((former) 11 U.S.C. 649). It is a codification of
equitable principles designed to prevent fiduciaries in the case
from engaging in the specified transactions since they are in a
position to gain inside information or to shape or influence the
course of the reorganization. Wolf v. Weinstein, 372 U.S. 633
(1963). The statutory bar of compensation and reimbursement is
based on the principle that such transactions involve conflicts of
interest. Private gain undoubtedly prompts the purchase or sale of
claims or stock interests, while the fiduciary's obligation is to
render loyal and disinterested service which his position of trust
has imposed upon him. Subsection (b) extends to a trustee, his
attorney, committees and their attorneys, or any other persons
''acting in the case in a representative or fiduciary capacity.''
It bars compensation to any of the foregoing, who after assuming to
act in such capacity has purchased or sold, directly or indirectly,
claims against, or stock in the debtor. The bar is absolute. It
makes no difference whether the transaction brought a gain or loss,
or neither, and the court is not authorized to approve a purchase
or sale, before or after the transaction. The exception is for an
acquisition or transfer ''otherwise'' than by a voluntary purchase
or sale, such as an acquisition by bequest. See Otis & Co. v.
Insurance Bldg. Corp., 110 F.2d 333, 335 (C.A.1, 1940).
Subsection (c) (enacted as (b)) is intended for no asset
liquidation cases where minimal compensation for trustees is
needed. The sum of $20 will be allowed in each case, which is
double the amount provided under current law.
HOUSE REPORT NO. 95-595
Section 330 authorizes compensation for services and
reimbursement of expenses of officers of the estate. It also
prescribes the standards on which the amount of compensation is to
be determined. As noted above, the compensation allowable under
this section is subject to the maxima set out in sections 326, 328,
and 329. The compensation is to be reasonable, for actual necessary
services rendered, based on the time, the nature, the extent, and
the value of the services rendered, and on the cost of comparable
services other than in a case under the bankruptcy code. The
effect of the last provision is to overrule In re Beverly Crest
Convalescent Hospital, Inc., 548 F.2d 817 (9th Cir. 1976, as
amended 1977), which set an arbitrary limit on fees payable based
on the amount of a district judge's salary, and other, similar
cases that require fees to be determined based on notions of
conservation of the estate and economy of administration. If that
case were allowed to stand, attorneys that could earn much higher
incomes in other fields would leave the bankruptcy arena.
Bankruptcy specialists, who enable the system to operate smoothly,
efficiently, and expeditiously, would be driven elsewhere, and the
bankruptcy field would be occupied by those who could not find
other work and those who practice bankruptcy law only occasionally
almost as a public service. Bankruptcy fees that are lower than
fees in other areas of the legal profession may operate properly
when the attorneys appearing in bankruptcy cases do so
intermittently, because a low fee in a small segment of a practice
can be absorbed by other work. Bankruptcy specialists, however, if
required to accept fees in all of their cases that are consistently
lower than fees they could receive elsewhere, will not remain in
the bankruptcy field.
This subsection provides for reimbursement of actual, necessary
expenses. It further provides for compensation of
paraprofessionals employed by professional persons employed by the
estate of the debtor. The provision is included to reduce the cost
of administering bankruptcy cases. In nonbankruptcy areas,
attorneys are able to charge for a paraprofessional's time on an
hourly basis, and not include it in overhead. If a similar
practice does not pertain in bankruptcy cases then the attorney
will be less inclined to use paraprofessionals even where the work
involved could easily be handled by an attorney's assistant, at
much lower cost to the estate. This provision is designed to
encourage attorneys to use paraprofessional assistance where
possible, and to insure that the estate, not the attorney, will
bear the cost, to the benefit of both the estate and the attorneys
involved.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Bankruptcy Reform Act of 1994,
referred to in subsec. (b)(2), is the date of enactment of Pub. L.
103-394, which was approved Oct. 22, 1994.
-MISC2-
AMENDMENTS
1994 - Subsec. (a). Pub. L. 103-394, Sec. 224(b), amended subsec.
(a) generally. Prior to amendment, subsec. (a) read as follows:
''After notice to any parties in interest and to the United States
trustee and a hearing, and subject to sections 326, 328, and 329 of
this title, the court may award to a trustee, to an examiner, to a
professional person employed under section 327 or 1103 of this
title, or to the debtor's attorney -
''(1) reasonable compensation for actual, necessary services
rendered by such trustee, examiner, professional person, or
attorney, as the case may be, and by any paraprofessional persons
employed by such trustee, professional person, or attorney, as
the case may be, based on the nature, the extent, and the value
of such services, the time spent on such services, and the cost
of comparable services other than in a case under this title; and
''(2) reimbursement for actual, necessary expenses.''
Subsec. (b). Pub. L. 103-394, Sec. 117, designated existing
provisions as par. (1) and added par. (2).
1986 - Subsec. (a). Pub. L. 99-554, Sec. 211(1), inserted ''to
any parties in interest and to the United States trustee'' after
''notice''.
Subsec. (c). Pub. L. 99-554, Sec. 257(f), inserted reference to
chapter 12.
Subsec. (d). Pub. L. 99-554, Sec. 211(2), added subsec. (d).
1984 - Subsec. (a). Pub. L. 98-353, Sec. 433(1), struck out ''to
any parties in interest and to the United States trustee'' after
''After notice''.
Subsec. (a)(1). Pub. L. 98-353, Sec. 433(2), substituted
''nature, the extent, and the value of such services, the time
spent on such services'' for ''time, the nature, the extent, and
the value of such services''.
Subsec. (b). Pub. L. 98-353, Sec. 434(a), substituted ''$45'' for
''$20''.
Subsec. (c). Pub. L. 98-353, Sec. 434(b), added subsec. (c).
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by section 117 of Pub. L. 103-394 effective Oct. 22,
1994, and applicable with respect to cases commenced under this
title before, on, and after Oct. 22, 1994, and amendment by section
224(b) of Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by section 211 of
Pub. L. 99-554 dependent upon the judicial district involved, see
section 302(d), (e) of Pub. L. 99-554, set out as a note under
section 581 of Title 28, Judiciary and Judicial Procedure.
Amendment by section 257 of Pub. L. 99-554 effective 30 days
after Oct. 27, 1986, but not applicable to cases commenced under
this title before that date, see section 302(a), (c)(1) of Pub. L.
99-554.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 326, 331, 503, 1107, 1203
of this title; title 28 sections 586, 589a.
-CITE-
11 USC Sec. 331 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER II - OFFICERS
-HEAD-
Sec. 331. Interim compensation
-STATUTE-
A trustee, an examiner, a debtor's attorney, or any professional
person employed under section 327 or 1103 of this title may apply
to the court not more than once every 120 days after an order for
relief in a case under this title, or more often if the court
permits, for such compensation for services rendered before the
date of such an application or reimbursement for expenses incurred
before such date as is provided under section 330 of this title.
After notice and a hearing, the court may allow and disburse to
such applicant such compensation or reimbursement.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2564.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
Section 331 permits trustees and professional persons to apply to
the court not more than once every 120 days for interim
compensation and reimbursement payments. The court may permit more
frequent applications if the circumstances warrant, such as in very
large cases where the legal work is extensive and merits more
frequent payments. The court is authorized to allow and order
disbursement to the applicant of compensation and reimbursement
that is otherwise allowable under section 330. The only effect of
this section is to remove any doubt that officers of the estate may
apply for, and the court may approve, compensation and
reimbursement during the case, instead of being required to wait
until the end of the case, which in some instances, may be years.
The practice of interim compensation is followed in some courts
today, but has been subject to some question. This section
explicitly authorizes it.
This section will apply to professionals such as auctioneers and
appraisers only if they are not paid on a per job basis.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 330 of this title.
-CITE-
11 USC SUBCHAPTER III - ADMINISTRATION 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
.
-HEAD-
SUBCHAPTER III - ADMINISTRATION
-CITE-
11 USC Sec. 341 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 341. Meetings of creditors and equity security holders
-STATUTE-
(a) Within a reasonable time after the order for relief in a case
under this title, the United States trustee shall convene and
preside at a meeting of creditors.
(b) The United States trustee may convene a meeting of any equity
security holders.
(c) The court may not preside at, and may not attend, any meeting
under this section including any final meeting of creditors.
(d) Prior to the conclusion of the meeting of creditors or equity
security holders, the trustee shall orally examine the debtor to
ensure that the debtor in a case under chapter 7 of this title is
aware of -
(1) the potential consequences of seeking a discharge in
bankruptcy, including the effects on credit history;
(2) the debtor's ability to file a petition under a different
chapter of this title;
(3) the effect of receiving a discharge of debts under this
title; and
(4) the effect of reaffirming a debt, including the debtor's
knowledge of the provisions of section 524(d) of this title.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2564; Pub. L. 99-554, title
II, Sec. 212, Oct. 27, 1986, 100 Stat. 3099; Pub. L. 103-394, title
I, Sec. 115, Oct. 22, 1994, 108 Stat. 4118.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 341(c) of the Senate amendment is deleted and a contrary
provision is added indicating that the bankruptcy judge will not
preside at or attend the first meeting of creditors or equity
security holders but a discharge hearing for all individuals will
be held at which the judge will preside.
SENATE REPORT NO. 95-989
Section (Subsection) (a) of this section requires that there be a
meeting of creditors within a reasonable time after the order for
relief in the case. The Bankruptcy Act (former title 11) and the
current Rules of Bankruptcy Procedure provide for a meeting of
creditors, and specify the time and manner of the meeting, and the
business to be conducted. This bill leaves those matters to the
rules. Under section 405(d) of the bill, the present rules will
continue to govern until new rules are promulgated. Thus, pending
the adoption of different rules, the present procedure for the
meeting will continue.
Subsection (b) authorizes the court to order a meeting of equity
security holders in cases where such a meeting would be beneficial
or useful, for example, in a chapter 11 reorganization case where
it may be necessary for the equity security holders to organize in
order to be able to participate in the negotiation of a plan of
reorganization.
Subsection (c) makes clear that the bankruptcy judge is to
preside at the meeting of creditors.
AMENDMENTS
1994 - Subsec. (d). Pub. L. 103-394 added subsec. (d).
1986 - Subsec. (a). Pub. L. 99-554, Sec. 212(1), substituted
''the United States trustee shall convene and preside at a meeting
of creditors'' for ''there shall be a meeting of creditors''.
Subsec. (b). Pub. L. 99-554, Sec. 212(2), substituted ''United
States trustee may convene'' for ''court may order''.
Subsec. (c). Pub. L. 99-554, Sec. 212(3), inserted ''including
any final meeting of creditors''.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by Pub. L. 99-554
dependent upon the judicial district involved, see section 302(d),
(e) of Pub. L. 99-554, set out as a note under section 581 of Title
28, Judiciary and Judicial Procedure.
PARTICIPATION BY BANKRUPTCY ADMINISTRATOR AT MEETINGS OF CREDITORS
AND EQUITY SECURITY HOLDERS
Section 105 of Pub. L. 103-394 provided that:
''(a) Presiding Officer. - A bankruptcy administrator appointed
under section 302(d)(3)(I) of the Bankruptcy Judges, United States
Trustees, and Family Farmer Bankruptcy Act of 1986 (28 U.S.C. 581
note; Public Law 99-554; 100 Stat. 3123), as amended by section
317(a) of the Federal Courts Study Committee Implementation Act of
1990 (Public Law 101-650; 104 Stat. 5115), or the bankruptcy
administrator's designee may preside at the meeting of creditors
convened under section 341(a) of title 11, United States Code. The
bankruptcy administrator or the bankruptcy administrator's designee
may preside at any meeting of equity security holders convened
under section 341(b) of title 11, United States Code.
''(b) Examination of the Debtor. - The bankruptcy administrator
or the bankruptcy administrator's designee may examine the debtor
at the meeting of creditors and may administer the oath required
under section 343 of title 11, United States Code.''
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 343, 702, 705, 1161 of
this title.
-CITE-
11 USC Sec. 342 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 342. Notice
-STATUTE-
(a) There shall be given such notice as is appropriate, including
notice to any holder of a community claim, of an order for relief
in a case under this title.
(b) Prior to the commencement of a case under this title by an
individual whose debts are primarily consumer debts, the clerk
shall give written notice to such individual that indicates each
chapter of this title under which such individual may proceed.
(c) If notice is required to be given by the debtor to a creditor
under this title, any rule, any applicable law, or any order of the
court, such notice shall contain the name, address, and taxpayer
identification number of the debtor, but the failure of such notice
to contain such information shall not invalidate the legal effect
of such notice.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565; Pub. L. 98-353, title
III, Sec. 302, 435, July 10, 1984, 98 Stat. 352, 370; Pub. L.
103-394, title II, Sec. 225, Oct. 22, 1994, 108 Stat. 4131.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 342(b) and (c) of the Senate amendment are adopted in
principle but moved to section 549(c), in lieu of section 342(b) of
H.R. 8200 as passed by the House.
Section 342(c) of H.R. 8200 as passed by the House is deleted as
a matter to be left to the Rules of Bankruptcy Procedure.
SENATE REPORT NO. 95-989
Subsection (a) of section 342 requires the clerk of the
bankruptcy court to give notice of the order for relief. The rules
will prescribe to whom the notice should be sent and in what manner
notice will be given. The rules already prescribe such things, and
they will continue to govern unless changed as provided in section
404(a) of the bill. Due process will certainly require notice to
all creditors and equity security holders. State and Federal
governmental representatives responsible for collecting taxes will
also receive notice. In cases where the debtor is subject to
regulation, the regulatory agency with jurisdiction will receive
notice. In order to insure maximum notice to all parties in
interest, the Rules will include notice by publication in
appropriate cases and for appropriate issues. Other notices will
be given as appropriate.
Subsections (b) and (c) (enacted as section 549(c)) are derived
from section 21g of the Bankruptcy Act (section 44(g) of former
title 11). They specify that the trustee may file notice of the
commencement of the case in land recording offices in order to give
notice of the pendency of the case to potential transferees of the
debtor's real property. Such filing is unnecessary in the county
in which the bankruptcy case is commenced. If notice is properly
filed, a subsequent purchaser of the property will not be a bona
fide purchaser. Otherwise, a purchaser, including a purchaser at a
judicial sale, that has no knowledge of the case, is not prevented
from obtaining the status of a bona fide purchaser by the mere
commencement of the case. ''County'' is defined in title 1 of the
United States Code to include other political subdivisions where
counties are not used.
AMENDMENTS
1994 - Subsec. (c). Pub. L. 103-394 added subsec. (c).
1984 - Subsec. (a). Pub. L. 98-353, Sec. 435, amended subsec. (a)
generally, inserting requirement respecting notice to any holder of
a community claim.
Pub. L. 98-353, Sec. 302(1), designated existing provisions as
subsec. (a).
Subsec. (b). Pub. L. 98-353, Sec. 302(2), added subsec. (b).
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 348, 741, 743, 762, 765
of this title.
-CITE-
11 USC Sec. 343 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 343. Examination of the debtor
-STATUTE-
The debtor shall appear and submit to examination under oath at
the meeting of creditors under section 341(a) of this title.
Creditors, any indenture trustee, any trustee or examiner in the
case, or the United States trustee may examine the debtor. The
United States trustee may administer the oath required under this
section.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565; Pub. L. 98-353, title
III, Sec. 436, July 10, 1984, 98 Stat. 370; Pub. L. 99-554, title
II, Sec. 213, Oct. 27, 1986, 100 Stat. 3099.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
This section, derived from section 21a of the Bankruptcy Act
(section 44(a) of former title 11), requires the debtor to appear
at the meeting of creditors and submit to examination under oath.
The purpose of the examination is to enable creditors and the
trustee to determine if assets have improperly been disposed of or
concealed or if there are grounds for objection to discharge. The
scope of the examination under this section will be governed by the
Rules of Bankruptcy Procedure, as it is today. See rules 205(d),
10-213(c), and 11-26. It is expected that the scope prescribed by
these rules for liquidation cases, that is, ''only the debtor's
acts, conduct, or property, or any matter that may affect the
administration of the estate, or the debtor's right to discharge''
will remain substantially unchanged. In reorganization cases, the
examination would be broader, including inquiry into the
liabilities and financial condition of the debtor, the operation of
his business, and the desirability of the continuance thereof, and
other matters relevant to the case and to the formulation of the
plan. Examination of other persons in connection with the
bankruptcy case is left completely to the rules, just as
examination of witnesses in civil cases is governed by the Federal
Rules of Civil Procedure.
AMENDMENTS
1986 - Pub. L. 99-554 amended section generally. Prior to
amendment, section read as follows: ''The debtor shall appear and
submit to examination under oath at the meeting of creditors under
section 341(a) of this title. Creditors, any indenture trustee, or
any trustee or examiner in the case may examine the debtor.''
1984 - Pub. L. 98-353 substituted ''examine'' for ''examiner''.
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by Pub. L. 99-554
dependent upon the judicial district involved, see section 302(d),
(e) of Pub. L. 99-554, set out as a note under section 581 of Title
28, Judiciary and Judicial Procedure.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
PARTICIPATION BY BANKRUPTCY ADMINISTRATOR AT MEETINGS OF CREDITORS
AND EQUITY SECURITY HOLDERS
A bankruptcy administrator or the bankruptcy administrator's
designee may examine debtor at meeting of creditors and may
administer oath required by this section, see section 105 of Pub.
L. 103-394, set out as a note under section 341 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 1161 of this title.
-CITE-
11 USC Sec. 344 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 344. Self-incrimination; immunity
-STATUTE-
Immunity for persons required to submit to examination, to
testify, or to provide information in a case under this title may
be granted under part V of title 18.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
Part V (Sec. 6001 et seq.) of title 18 of the United States Code
governs the granting of immunity to witnesses before Federal
tribunals. The immunity provided under part V is only use
immunity, not transactional immunity. Part V applies to all
proceedings before Federal courts, before Federal grand juries,
before administrative agencies, and before Congressional
committees. It requires the Attorney General or the U. S. attorney
to request or to approve any grant of immunity, whether before a
court, grand jury, agency, or congressional committee.
This section carries part V over into bankruptcy cases. Thus,
for a witness to be ordered to testify before a bankruptcy court in
spite of a claim of privilege, the U. S. attorney for the district
in which the court sits would have to request from the district
court for that district the immunity order. The rule would apply
to both debtors, creditors, and any other witnesses in a bankruptcy
case. If the immunity were granted, the witness would be required
to testify. If not, he could claim the privilege against
self-incrimination.
Part V is a significant departure from current law. Under
section 7a(10) of the Bankruptcy Act (section 25(a)(10) of former
title 11), a debtor is required to testify in all circumstances,
but any testimony he gives may not be used against him in any
criminal proceeding, except testimony given in any hearing on
objections to discharge. With that exception, section 7a(10)
amounts to a blanket grant of use immunity to all debtors.
Immunity for other witnesses in bankruptcy courts today is governed
by part V of title 18.
The consequences of a claim of privileges by a debtor under
proposed law and under current law differ as well. Under section
14c(6) of current law (section 32(c)(6) of former title 11), any
refusal to answer a material question approved by the court will
result in the denial of a discharge, even if the refusal is based
on the privilege against self incrimination. Thus, the debtor is
confronted with the choice between losing his discharge and opening
himself up to possible criminal prosecution.
Under section 727(a)(6) of the proposed title 11, a debtor is
only denied a discharge if he refuses to testify after having been
granted immunity. If the debtor claims the privilege and the U. S.
attorney does not request immunity from the district courts, then
the debtor may refuse to testify and still retain his right to a
discharge. It removes the Scylla and Charibdis choice for debtors
that exists under the Bankruptcy Act (former title 11).
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 521, 901 of this title.
-CITE-
11 USC Sec. 345 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 345. Money of estates
-STATUTE-
(a) A trustee in a case under this title may make such deposit or
investment of the money of the estate for which such trustee serves
as will yield the maximum reasonable net return on such money,
taking into account the safety of such deposit or investment.
(b) Except with respect to a deposit or investment that is
insured or guaranteed by the United States or by a department,
agency, or instrumentality of the United States or backed by the
full faith and credit of the United States, the trustee shall
require from an entity with which such money is deposited or
invested -
(1) a bond -
(A) in favor of the United States;
(B) secured by the undertaking of a corporate surety approved
by the United States trustee for the district in which the case
is pending; and
(C) conditioned on -
(i) a proper accounting for all money so deposited or
invested and for any return on such money;
(ii) prompt repayment of such money and return; and
(iii) faithful performance of duties as a depository; or
(2) the deposit of securities of the kind specified in section
9303 of title 31;
unless the court for cause orders otherwise.
(c) An entity with which such moneys are deposited or invested is
authorized to deposit or invest such moneys as may be required
under this section.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565; Pub. L. 97-258, Sec.
3(c), Sept. 13, 1982, 96 Stat. 1064; Pub. L. 98-353, title III,
Sec. 437, July 10, 1984, 98 Stat. 370; Pub. L. 99-554, title II,
Sec. 214, Oct. 27, 1986, 100 Stat. 3099; Pub. L. 103-394, title II,
Sec. 210, Oct. 22, 1994, 108 Stat. 4125.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
The House amendment moves section 345(c) of the House bill to
chapter 15 as part of the pilot program for the U.S. trustees. The
bond required by section 345(b) may be a blanket bond posted by the
financial depository sufficient to cover deposits by trustees in
several cases, as is done under current law.
SENATE REPORT NO. 95-989
This section is a significant departure from section 61 of the
Bankruptcy Act (section 101 of former title 11). It permits a
trustee in a bankruptcy case to make such deposit of investment of
the money of the estate for which he serves as will yield the
maximum reasonable net return on the money, taking into account the
safety of such deposit or investment. Under current law, the
trustee is permitted to deposit money only with banking
institutions. Thus, the trustee is generally unable to secure a
high rate of return on money of estates pending distribution, to
the detriment of creditors. Under this section, the trustee may
make deposits in savings and loans, may purchase government bonds,
or make such other deposit or investment as is appropriate. Under
proposed 11 U.S.C. 541(a)(6), and except as provided in subsection
(c) of this section, any interest or gain realized on the deposit
or investment of funds under this section will become property of
the estate, and will thus enhance the recovery of creditors.
In order to protect the creditors, subsection (b) requires
certain precautions against loss of the money so deposited or
invested. The trustee must require from a person with which he
deposits or invests money of an estate a bond in favor of the
United States secured by approved corporate surety and conditioned
on a proper accounting for all money deposited or invested and for
any return on such money. Alternately, the trustee may require the
deposit of securities of the kind specified in section 15 of title
6 of the United States Code (31 U.S.C. 9303), which governs the
posting of security by banks that receive public moneys on
deposit. These bonding requirements do not apply to deposits or
investments that are insured or guaranteed the United States or a
department, agency, or instrumentality of the United States, or
that are backed by the full faith and credit of the United States.
These provisions do not address the question of aggregation of
funds by a private chapter 13 trustee and are not to be construed
as excluding such possibility. The Rules of Bankruptcy Procedure
may provide for aggregation under appropriate circumstances and
adequate safeguards in cases where there is a significant need,
such as in districts in which there is a standing chapter 13
trustee. In such case, the interest or return on the funds would
help defray the cost of administering the cases in which the
standing trustee serves.
AMENDMENTS
1994 - Subsec. (b). Pub. L. 103-394 substituted semicolon for
period at end of par. (2) and inserted concluding provisions after
par. (2).
1986 - Subsec. (b). Pub. L. 99-554 amended subsec. (b) generally,
substituting ''approved by the United States trustee for the
district'' for ''approved by the court for the district'' in par.
(1)(B).
1984 - Subsec. (c). Pub. L. 98-353 added subsec. (c).
1982 - Subsec. (b)(2). Pub. L. 97-258 substituted ''section 9303
of title 31'' for ''section 15 of title 6''.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by Pub. L. 99-554
dependent upon the judicial district involved, see section 302(d),
(e) of Pub. L. 99-554, set out as a note under section 581 of Title
28, Judiciary and Judicial Procedure.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in title 28 section 586.
-CITE-
11 USC Sec. 346 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 346. Special tax provisions
-STATUTE-
(a) Except to the extent otherwise provided in this section,
subsections (b), (c), (d), (e), (g), (h), (i), and (j) of this
section apply notwithstanding any State or local law imposing a
tax, but subject to the Internal Revenue Code of 1986.
(b)(1) In a case under chapter 7, 12, or 11 of this title
concerning an individual, any income of the estate may be taxed
under a State or local law imposing a tax on or measured by income
only to the estate, and may not be taxed to such individual.
Except as provided in section 728 of this title, if such individual
is a partner in a partnership, any gain or loss resulting from a
distribution of property from such partnership, or any distributive
share of income, gain, loss, deduction, or credit of such
individual that is distributed, or considered distributed, from
such partnership, after the commencement of the case is gain, loss,
income, deduction, or credit, as the case may be, of the estate.
(2) Except as otherwise provided in this section and in section
728 of this title, any income of the estate in such a case, and any
State or local tax on or measured by such income, shall be computed
in the same manner as the income and the tax of an estate.
(3) The estate in such a case shall use the same accounting
method as the debtor used immediately before the commencement of
the case.
(c)(1) The commencement of a case under this title concerning a
corporation or a partnership does not effect a change in the status
of such corporation or partnership for the purposes of any State or
local law imposing a tax on or measured by income. Except as
otherwise provided in this section and in section 728 of this
title, any income of the estate in such case may be taxed only as
though such case had not been commenced.
(2) In such a case, except as provided in section 728 of this
title, the trustee shall make any tax return otherwise required by
State or local law to be filed by or on behalf of such corporation
or partnership in the same manner and form as such corporation or
partnership, as the case may be, is required to make such return.
(d) In a case under chapter 13 of this title, any income of the
estate or the debtor may be taxed under a State or local law
imposing a tax on or measured by income only to the debtor, and may
not be taxed to the estate.
(e) A claim allowed under section 502(f) or 503 of this title,
other than a claim for a tax that is not otherwise deductible or a
capital expenditure that is not otherwise deductible, is deductible
by the entity to which income of the estate is taxed unless such
claim was deducted by another entity, and a deduction for such a
claim is deemed to be a deduction attributable to a business.
(f) The trustee shall withhold from any payment of claims for
wages, salaries, commissions, dividends, interest, or other
payments, or collect, any amount required to be withheld or
collected under applicable State or local tax law, and shall pay
such withheld or collected amount to the appropriate governmental
unit at the time and in the manner required by such tax law, and
with the same priority as the claim from which such amount was
withheld was paid.
(g)(1) Neither gain nor loss shall be recognized on a transfer -
(A) by operation of law, of property to the estate;
(B) other than a sale, of property from the estate to the
debtor; or
(C) in a case under chapter 11 or 12 of this title concerning a
corporation, of property from the estate to a corporation that is
an affiliate participating in a joint plan with the debtor, or
that is a successor to the debtor under the plan, except that
gain or loss may be recognized to the same extent that such
transfer results in the recognition of gain or loss under section
371 (FOOTNOTE 1) of the Internal Revenue Code of 1986.
(FOOTNOTE 1) See References in Text note below.
(2) The transferee of a transfer of a kind specified in this
subsection shall take the property transferred with the same
character, and with the transferor's basis, as adjusted under
subsection (j)(5) of this section, and holding period.
(h) Notwithstanding sections 728(a) and 1146(a) of this title,
for the purpose of determining the number of taxable periods during
which the debtor or the estate may use a loss carryover or a loss
carryback, the taxable period of the debtor during which the case
is commenced is deemed not to have been terminated by such
commencement.
(i)(1) In a case under chapter 7, 12, or 11 of this title
concerning an individual, the estate shall succeed to the debtor's
tax attributes, including -
(A) any investment credit carryover;
(B) any recovery exclusion;
(C) any loss carryover;
(D) any foreign tax credit carryover;
(E) any capital loss carryover; and
(F) any claim of right.
(2) After such a case is closed or dismissed, the debtor shall
succeed to any tax attribute to which the estate succeeded under
paragraph (1) of this subsection but that was not utilized by the
estate. The debtor may utilize such tax attributes as though any
applicable time limitations on such utilization by the debtor were
suspended during the time during which the case was pending.
(3) In such a case, the estate may carry back any loss of the
estate to a taxable period of the debtor that ended before the
order for relief under such chapter the same as the debtor could
have carried back such loss had the debtor incurred such loss and
the case under this title had not been commenced, but the debtor
may not carry back any loss of the debtor from a taxable period
that ends after such order to any taxable period of the debtor that
ended before such order until after the case is closed.
(j)(1) Except as otherwise provided in this subsection, income is
not realized by the estate, the debtor, or a successor to the
debtor by reason of forgiveness or discharge of indebtedness in a
case under this title.
(2) For the purposes of any State or local law imposing a tax on
or measured by income, a deduction with respect to a liability may
not be allowed for any taxable period during or after which such
liability is forgiven or discharged under this title. In this
paragraph, ''a deduction with respect to a liability'' includes a
capital loss incurred on the disposition of a capital asset with
respect to a liability that was incurred in connection with the
acquisition of such asset.
(3) Except as provided in paragraph (4) of this subsection, for
the purpose of any State or local law imposing a tax on or measured
by income, any net operating loss of an individual or corporate
debtor, including a net operating loss carryover to such debtor,
shall be reduced by the amount of indebtedness forgiven or
discharged in a case under this title, except to the extent that
such forgiveness or discharge resulted in a disallowance under
paragraph (2) of this subsection.
(4) A reduction of a net operating loss or a net operating loss
carryover under paragraph (3) of this subsection or of basis under
paragraph (5) of this subsection is not required to the extent that
the indebtedness of an individual or corporate debtor forgiven or
discharged -
(A) consisted of items of a deductible nature that were not
deducted by such debtor; or
(B) resulted in an expired net operating loss carryover or
other deduction that -
(i) did not offset income for any taxable period; and
(ii) did not contribute to a net operating loss in or a net
operating loss carryover to the taxable period during or after
which such indebtedness was discharged.
(5) For the purposes of a State or local law imposing a tax on or
measured by income, the basis of the debtor's property or of
property transferred to an entity required to use the debtor's
basis in whole or in part shall be reduced by the lesser of -
(A)(i) the amount by which the indebtedness of the debtor has
been forgiven or discharged in a case under this title; minus
(ii) the total amount of adjustments made under paragraphs (2)
and (3) of this subsection; and
(B) the amount by which the total basis of the debtor's assets
that were property of the estate before such forgiveness or
discharge exceeds the debtor's total liabilities that were
liabilities both before and after such forgiveness or discharge.
(6) Notwithstanding paragraph (5) of this subsection, basis is
not required to be reduced to the extent that the debtor elects to
treat as taxable income, of the taxable period in which
indebtedness is forgiven or discharged, the amount of indebtedness
forgiven or discharged that otherwise would be applied in reduction
of basis under paragraph (5) of this subsection.
(7) For the purposes of this subsection, indebtedness with
respect to which an equity security, other than an interest of a
limited partner in a limited partnership, is issued to the creditor
to whom such indebtedness was owed, or that is forgiven as a
contribution to capital by an equity security holder other than a
limited partner in the debtor, is not forgiven or discharged in a
case under this title -
(A) to any extent that such indebtedness did not consist of
items of a deductible nature; or
(B) if the issuance of such equity security has the same
consequences under a law imposing a tax on or measured by income
to such creditor as a payment in cash to such creditor in an
amount equal to the fair market value of such equity security,
then to the lesser of -
(i) the extent that such issuance has the same such
consequences; and
(ii) the extent of such fair market value.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565; Pub. L. 98-353, title
III, Sec. 438, July 10, 1984, 98 Stat. 370; Pub. L. 99-554, title
II, Sec. 257(g), 283(c), Oct. 27, 1986, 100 Stat. 3114, 3116; Pub.
L. 103-394, title V, Sec. 501(d)(4), Oct. 22, 1994, 108 Stat.
4143.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 346 of the House amendment, together with sections 728
and 1146, represent special tax provisions applicable in
bankruptcy. The policy contained in those sections reflects the
policy that should be applied in Federal, State, and local taxes in
the view of the House Committee on the Judiciary. The House Ways
and Means Committee and the Senate Finance Committee did not have
time to process a bankruptcy tax bill during the 95th Congress. It
is anticipated that early in the 96th Congress, and before the
effective date of the bankruptcy code (Oct. 1, 1979), the tax
committees of Congress will have an opportunity to consider action
with respect to amendments to the Internal Revenue Code (title 26)
and the special tax provisions in title 11. Since the special tax
provisions are likely to be amended during the first part of the
96th Congress, it is anticipated that the bench and bar will also
study and comment on these special tax provisions prior to their
revision.
Special tax provisions: State and local rules. This section
provides special tax provisions dealing with the treatment, under
State or local, but not Federal, tax law, of the method of taxing
bankruptcy estates of individuals, partnerships, and corporations;
survival and allocation of tax attributes between the bankrupt and
the estate; return filing requirements; and the tax treatment of
income from discharge of indebtedness. The Senate bill removed
these rules pending adoption of Federal rules on these issues in
the next Congress. The House amendment returns the State and local
tax rules to section 346 so that they may be studied by the
bankruptcy and tax bars who may wish to submit comments to
Congress.
Withholding rules: Both the House bill and Senate amendment
provide that the trustee is required to comply with the normal
withholding rules applicable to the payment of wages and other
payments. The House amendment retains this rule for State and
local taxes only. The treatment of withholding of Federal taxes
will be considered in the next Congress.
Section 726 of the Senate amendment provides that the rule
requiring pro rata payment of all expenses within a priority
category does not apply to the payment of amounts withheld by a
bankruptcy trustee. The purpose of this rule was to insure that
the trustee pay the full amount of the withheld taxes to the
appropriate governmental tax authority. The House amendment
deletes this rule as unnecessary because the existing practice
conforms essentially to that rule. If the trustee fails to pay
over in full amounts that he withheld, it is a violation of his
trustee's duties which would permit the taxing authority to sue the
trustee on his bond.
When taxes considered ''incurred'': The Senate amendment
contained rules of general application dealing with when a tax is
''incurred'' for purposes of the various tax collection rules
affecting the debtor and the estate. The House amendment adopts
the substance of these rules and transfers them to section 507 of
title 11.
Penalty for failure to pay tax: The Senate amendment contains a
rule which relieves the debtor and the trustee from certain tax
penalties for failure to make timely payment of a tax to the extent
that the bankruptcy rules prevent the trustee or the debtor from
paying the tax on time. Since most of these penalties relate to
Federal taxes, the House amendment deletes these rules pending
consideration of Federal tax rules affecting bankruptcy in the next
Congress.
SENATE REPORT NO. 95-989
Subsection (a) indicates that subsections (b), (c), (d), (e),
(g), (h), (i), and (j) apply notwithstanding any State or local tax
law, but are subject to Federal tax law.
Subsection (b)(1) provides that in a case concerning an
individual under chapter 7 or 11 of title 11, income of the estate
is taxable only to the estate and not to the debtor. The second
sentence of the paragraph provides that if such individual is a
partner, the tax attributes of the partnership are distributable to
the partner's estate rather than to the partner, except to the
extent that section 728 of title 11 provides otherwise.
Subsection (b)(2) states a general rule that the estate of an
individual is to be taxed as an estate. The paragraph is made
subject to the remainder of section 346 and section 728 of title
11.
Subsection (b)(3) requires the accounting method, but not
necessarily the accounting period, of the estate to be the same as
the method used by the individual debtor.
Subsection (c)(1) states a general rule that the estate of a
partnership or a corporated debtor is not a separate entity for tax
purposes. The income of the debtor is to be taxed as if the case
were not commenced, except as provided in the remainder of section
346 and section 728.
Subsection (c)(2) requires the trustee, except as provided in
section 728 of title 11, to file all tax returns on behalf of the
partnership or corporation during the case.
Subsection (d) indicates that the estate in a chapter 13 case is
not a separate taxable entity and that all income of the estate is
to be taxed to the debtor.
Subsection (e) establishes a business deduction consisting of
allowed expenses of administration except for tax or capital
expenses that are not otherwise deductible. The deduction may be
used by the estate when it is a separate taxable entity or by the
entity to which the income of the estate is taxed when it is not.
Subsection (f) imposes a duty on the trustee to comply with any
Federal, State, or local tax law requiring withholding or
collection of taxes from any payment of wages, salaries,
commissions, dividends, interest, or other payments. Any amount
withheld is to be paid to the taxing authority at the same time and
with the same priority as the claim from which such amount withheld
was paid.
Subsection (g)(1)(A) indicates that neither gain nor loss is
recognized on the transfer by law of property from the debtor or a
creditor to the estate. Subparagraph (B) provides a similar policy
if the property of the estate is returned from the estate to the
debtor other than by a sale of property to debtor. Subparagraph
(C) also provides for nonrecognition of gain or loss in a case
under chapter 11 if a corporate debtor transfers property to a
successor corporation or to an affiliate under a joint plan. An
exception is made to enable a taxing authority to cause recognition
of gain or loss to the extent provided in IRC (title 26) section
371 (as amended by section 109 of this bill).
Subsection (g)(2) provides that any of the three kinds of
transferees specified in paragraph (1) take the property with the
same character, holding period, and basis in the hands of the
transferor at the time of such transfer. The transferor's basis
may be adjusted under section 346(j)(5) even if the discharge of
indebtedness occurs after the transfer of property. Of course, no
adjustment will occur if the transfer is from the debtor to the
estate or if the transfer is from an entity that is not discharged.
Subsection (h) provides that the creation of the estate of an
individual under chapter 7 or 11 of title 11 as a separate taxable
entity does not affect the number of taxable years for purposes of
computing loss carryovers or carrybacks. The section applies with
respect to carryovers or carrybacks of the debtor transferred into
the estate under section 346(i)(1) of title 11 or back to the
debtor under section 346(i)(2) of title 11.
Subsection (i)(1) states a general rule that an estate that is a
separate taxable entity nevertheless succeeds to all tax attributes
of the debtor. The six enumerated attributes are illustrative and
not exhaustive.
Subsection (i)(2) indicates that attributes passing from the
debtor into an estate that is a separate taxable entity will return
to the debtor if unused by the estate. The debtor is permitted to
use any such attribute as though the case had not been commenced.
Subsection (i)(3) permits an estate that is a separate taxable
entity to carryback losses of the estate to a taxable period of the
debtor that ended before the case was filed. The estate is treated
as if it were the debtor with respect to time limitations and other
restrictions. The section makes clear that the debtor may not
carryback any loss of his own from a tax year during the pendency
of the case to such a period until the case is closed. No tolling
of any period of limitation is provided with respect to carrybacks
by the debtor of post-petition losses.
Subsection (j) sets forth seven special rules treating with the
tax effects of forgiveness or discharge of indebtedness. The terms
''forgiveness'' and ''discharge'' are redundant, but are used to
clarify that ''discharge'' in the context of a special tax
provision in title 11 includes forgiveness of indebtedness whether
or not such indebtedness is ''discharged'' in the bankruptcy sense.
Paragraph (1) states the general rule that forgiveness of
indebtedness is not taxable except as otherwise provided in
paragraphs (2)-(7). The paragraph is patterned after sections 268,
395, and 520 of the Bankruptcy Act (sections 668, 795, and 920 of
former title 11).
Paragraph (2) disallows deductions for liabilities of a
deductible nature in any year during or after the year of
cancellation of such liabilities. For the purposes of this
paragraph, ''a deduction with respect to a liability'' includes a
capital loss incurred on the disposition of a capital asset with
respect to a liability that was incurred in connection with the
acquisition of such asset.
Paragraph (3) causes any net operating loss of a debtor that is
an individual or corporation to be reduced by any discharge of
indebtedness except as provided in paragraphs (2) or (4). If a
deduction is disallowed under paragraph (2), then no double
counting occurs. Thus, paragraph (3) will reflect the reduction of
losses by liabilities that have been forgiven, including deductible
liabilities or nondeductible liabilities such as repayment of
principal on borrowed funds.
Paragraph (4) specifically excludes two kinds of indebtedness
from reduction of net operating losses under paragraph (3) or from
reduction of basis under paragraph (5). Subparagraph (A) excludes
items of a deductible nature that were not deducted or that could
not be deducted such as gambling losses or liabilities for interest
owed to a relative of the debtor. Subparagraph (B) excludes
indebtedness of a debtor that is an individual or corporation that
resulted in deductions which did not offset income and that did not
contribute to an unexpired net operating loss or loss carryover.
In these situations, the debtor has derived no tax benefit so there
is no need to incur an offsetting reduction.
Paragraph (5) provides a two-point test for reduction of basis.
The paragraph replaces sections 270, 396, and 522 of the Bankruptcy
Act (sections 670, 796, and 922 of former title 11). Subparagraph
(A) sets out the maximum amount by which basis may be reduced - the
total indebtedness forgiven less adjustments made under paragraphs
(2) and (3). This avoids double counting. If a deduction is
disallowed under paragraph (2) or a carryover is reduced under
paragraph (3) then the tax benefit is neutralized, and there is no
need to reduce basis. Subparagraph (B) reduces basis to the extent
the debtor's total basis of assets before the discharge exceeds
total preexisting liabilities still remaining after discharge of
indebtedness. This is a ''basis solvency'' limitation which
differs from the usual test of solvency because it measures against
the remaining liabilities the benefit aspect of assets, their
basis, rather than their value. Paragraph (5) applies so that any
transferee of the debtor's property who is required to use the
debtor's basis takes the debtor's basis reduced by the lesser of
(A) and (B). Thus, basis will be reduced, but never below a level
equal to undischarged liabilities.
Paragraph (6) specifies that basis need not be reduced under
paragraph (5) to the extent the debtor treats discharged
indebtedness as taxable income. This permits the debtor to elect
whether to recognize income, which may be advantageous if the
debtor anticipates subsequent net operating losses, rather than to
reduce basis.
Paragraph (7) establishes two rules excluding from the category
of discharged indebtedness certain indebtedness that is exchanged
for an equity security issued under a plan or that is forgiven as a
contribution to capital by an equity security holder. Subparagraph
(A) creates the first exclusion to the extent indebtedness
consisting of items not of a deductible nature is exchanged for an
equity security, other than the interests of a limited partner in a
limited partnership, issued by the debtor or is forgiven as a
contribution to capital by an equity security holder. Subparagraph
(B) excludes indebtedness consisting of items of a deductible
nature, if the exchange of stock for debts has the same effect as a
cash payment equal to the value of the equity security, in the
amount of the fair market value of the equity security or, if less,
the extent to which such exchange has such effect. The two
provisions treat the debtor as if it had originally issued stock
instead of debt. Subparagraph (B) rectifies the inequity under
current law between a cash basis and accrual basis debtor
concerning the issuance of stock in exchange for previous services
rendered that were of a greater value than the stock. Subparagraph
(B) also changes current law by taxing forgiveness of indebtedness
to the extent that stock is exchanged for the accrued interest
component of a security, because the recipient of such stock would
not be regarded as having received money under the Carman doctrine.
-REFTEXT-
REFERENCES IN TEXT
The Internal Revenue Code of 1986, referred to in subsec. (a), is
classified generally to Title 26, Internal Revenue Code.
Section 371 of the Internal Revenue Code of 1986, referred to in
subsec. (g)(1)(C), was repealed by Pub. L. 101-508, title XI, Sec.
11801(a)(19), Nov. 5, 1990, 104 Stat. 1388-521.
-MISC2-
AMENDMENTS
1994 - Subsec. (a). Pub. L. 103-394, Sec. 504(d)(4)(A),
substituted ''Internal Revenue Code of 1986'' for ''Internal
Revenue Code of 1954 (26 U.S.C. 1 et seq.)''.
Subsec. (g)(1)(C). Pub. L. 103-394, Sec. 501(d)(4)(B),
substituted ''Internal Revenue Code of 1986'' for ''Internal
Revenue Code of 1954 (26 U.S.C. 371)''.
1986 - Subsec. (b)(1). Pub. L. 99-554, Sec. 257(g)(1), inserted
reference to chapter 12.
Subsec. (g)(1)(C). Pub. L. 99-554, Sec. 257(g)(2), inserted
reference to chapter 12.
Subsec. (i)(1). Pub. L. 99-554, Sec. 257(g)(3), inserted
reference to chapter 12.
Subsec. (j)(7). Pub. L. 99-554, Sec. 283(c), substituted ''owed''
for ''owned''.
1984 - Subsec. (c)(2). Pub. L. 98-353 substituted ''corporation''
for ''operation''.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 257 of Pub. L. 99-554 effective 30 days
after Oct. 27, 1986, but not applicable to cases commenced under
this title before that date, see section 302(a), (c)(1) of Pub. L.
99-554, set out as a note under section 581 of Title 28, Judiciary
and Judicial Procedure.
Amendment by section 283 of Pub. L. 99-554 effective 30 days
after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 106, 1146, 1231 of this
title.
-CITE-
11 USC Sec. 347 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 347. Unclaimed property
-STATUTE-
(a) Ninety days after the final distribution under section 726,
1226, or 1326 of this title in a case under chapter 7, 12, or 13 of
this title, as the case may be, the trustee shall stop payment on
any check remaining unpaid, and any remaining property of the
estate shall be paid into the court and disposed of under chapter
129 of title 28.
(b) Any security, money, or other property remaining unclaimed at
the expiration of the time allowed in a case under chapter 9, 11,
or 12 of this title for the presentation of a security or the
performance of any other act as a condition to participation in the
distribution under any plan confirmed under section 943(b), 1129,
1173, or 1225 of this title, as the case may be, becomes the
property of the debtor or of the entity acquiring the assets of the
debtor under the plan, as the case may be.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2568; Pub. L. 99-554, title
II, Sec. 257(h), Oct. 27, 1986, 100 Stat. 3114.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 347(a) of the House amendment adopts a comparable
provision contained in the Senate amendment instructing the trustee
to stop payment on any check remaining unpaid more than 90 days
after the final distribution in a case under Chapter 7 or 13.
Technical changes are made in section 347(b) to cover distributions
in a railroad reorganization.
SENATE REPORT NO. 95-989
Section 347 is derived from Bankruptcy Act Sec. 66 (section 106
of former title 11). Subsection (a) requires the trustee to stop
payment on any distribution check that is unpaid 90 days after the
final distribution in a case under chapter 7 or 13. The unclaimed
funds, and any other property of the estate are paid into the court
and disposed of under chapter 129 (Sec. 2041 et seq.) of title 28,
which requires the clerk of court to hold the funds for their owner
for 5 years, after which they escheat to the Treasury.
Subsection (b) specifies that any property remaining unclaimed at
the expiration of the time allowed in a chapter 9 or 11 case for
presentation (exchange) of securities or the performance of any
other act as a condition to participation in the plan reverts to
the debtor or the entity acquiring the assets of the debtor under
the plan. Conditions to participation under a plan include such
acts as cashing a check, surrendering securities for cancellation,
and so on. Similar provisions are found in sections 96(d) and 205
of current law (sections 416(d) and 605 of former title 11).
AMENDMENTS
1986 - Subsec. (a). Pub. L. 99-554, Sec. 257(h)(1), inserted
references to section 1226 and chapter 12 of this title.
Subsec. (b). Pub. L. 99-554, Sec. 257(h)(2), inserted references
to chapter 12 and section 1225 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-554 effective 30 days after Oct. 27,
1986, but not applicable to cases commenced under this title before
that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as
a note under section 581 of Title 28, Judiciary and Judicial
Procedure.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 901 of this title.
-CITE-
11 USC Sec. 348 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 348. Effect of conversion
-STATUTE-
(a) Conversion of a case from a case under one chapter of this
title to a case under another chapter of this title constitutes an
order for relief under the chapter to which the case is converted,
but, except as provided in subsections (b) and (c) of this section,
does not effect a change in the date of the filing of the petition,
the commencement of the case, or the order for relief.
(b) Unless the court for cause orders otherwise, in sections
701(a), 727(a)(10), 727(b), 728(a), 728(b), 1102(a), 1110(a)(1),
1121(b), 1121(c), 1141(d)(4), 1146(a), 1146(b), 1201(a), 1221,
1228(a), 1301(a), and 1305(a) of this title, ''the order for relief
under this chapter'' in a chapter to which a case has been
converted under section 706, 1112, 1208, or 1307 of this title
means the conversion of such case to such chapter.
(c) Sections 342 and 365(d) of this title apply in a case that
has been converted under section 706, 1112, 1208, or 1307 of this
title, as if the conversion order were the order for relief.
(d) A claim against the estate or the debtor that arises after
the order for relief but before conversion in a case that is
converted under section 1112, 1208, or 1307 of this title, other
than a claim specified in section 503(b) of this title, shall be
treated for all purposes as if such claim had arisen immediately
before the date of the filing of the petition.
(e) Conversion of a case under section 706, 1112, 1208, or 1307
of this title terminates the service of any trustee or examiner
that is serving in the case before such conversion.
(f)(1) Except as provided in paragraph (2), when a case under
chapter 13 of this title is converted to a case under another
chapter under this title -
(A) property of the estate in the converted case shall consist
of property of the estate, as of the date of filing of the
petition, that remains in the possession of or is under the
control of the debtor on the date of conversion; and
(B) valuations of property and of allowed secured claims in the
chapter 13 case shall apply in the converted case, with allowed
secured claims reduced to the extent that they have been paid in
accordance with the chapter 13 plan.
(2) If the debtor converts a case under chapter 13 of this title
to a case under another chapter under this title in bad faith, the
property in the converted case shall consist of the property of the
estate as of the date of conversion.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2568; Pub. L. 99-554, title
II, Sec. 257(i), Oct. 27, 1986, 100 Stat. 3115; Pub. L. 103-394,
title III, Sec. 311, title V, Sec. 501(d)(5), Oct. 22, 1994, 108
Stat. 4138, 4144.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
The House amendment adopts section 348(b) of the Senate amendment
with slight modifications, as more accurately reflecting sections
to which this particular effect of conversion should apply.
Section 348(e) of the House amendment is a stylistic revision of
similar provisions contained in H.R. 8200 as passed by the House
and in the Senate amendment. Termination of services is expanded
to cover any examiner serving in the case before conversion, as
done in H.R. 8200 as passed by the House.
SENATE REPORT NO. 95-989
This section governs the effect of the conversion of a case from
one chapter of the bankruptcy code to another chapter. Subsection
(a) specifies that the date of the filing of the petition, the
commencement of the case, or the order for relief are unaffected by
conversion, with some exceptions specified in subsections (b) and
(c).
Subsection (b) lists certain sections in the operative chapters
of the bankruptcy code in which there is a reference to ''the order
for relief under this chapter.'' In those sections, the reference
is to be read as a reference to the conversion order if the case
has been converted into the particular chapter. Subsection (c)
specifies that notice is to be given of the conversion order the
same as notice was given of the order for relief, and that the time
the trustee (or debtor in possession) has for assuming or rejecting
executory contracts recommences, thus giving an opportunity for a
newly appointed trustee to familiarize himself with the case.
Subsection (d) provides for special treatment of claims that
arise during chapter 11 or 13 cases before the case is converted to
a liquidation case. With the exception of claims specified in
proposed 11 U.S.C. 503(b) (administrative expenses), preconversion
claims are treated the same as prepetition claims.
Subsection (e) provides that conversion of a case terminates the
service of any trustee serving in the case prior to conversion.
AMENDMENTS
1994 - Subsec. (b). Pub. L. 103-394, Sec. 501(d)(5), substituted
''1201(a), 1221, 1228(a), 1301(a), and 1305(a)'' for ''1301(a),
1305(a), 1201(a), 1221, and 1228(a)'' and ''1208, or 1307'' for
''1307, or 1208''.
Subsecs. (c) to (e). Pub. L. 103-394, Sec. 501(d)(5)(B),
substituted ''1208, or 1307'' for ''1307, or 1208''.
Subsec. (f). Pub. L. 103-394, Sec. 311, added subsec. (f).
1986 - Subsec. (b). Pub. L. 99-554, Sec. 257(i)(1), substituted
references to sections 1201(a), 1221, and 1228(a) of this title for
reference to section 1328(a) of this title, and inserted reference
to section 1208 of this title.
Subsecs. (c) to (e). Pub. L. 99-554, Sec. 257(i)(2), (3),
inserted reference to section 1208 of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-554 effective 30 days after Oct. 27,
1986, but not applicable to cases commenced under this title before
that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as
a note under section 581 of Title 28, Judiciary and Judicial
Procedure.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 101 of this title.
-CITE-
11 USC Sec. 349 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 349. Effect of dismissal
-STATUTE-
(a) Unless the court, for cause, orders otherwise, the dismissal
of a case under this title does not bar the discharge, in a later
case under this title, of debts that were dischargeable in the case
dismissed; nor does the dismissal of a case under this title
prejudice the debtor with regard to the filing of a subsequent
petition under this title, except as provided in section 109(g) of
this title.
(b) Unless the court, for cause, orders otherwise, a dismissal of
a case other than under section 742 of this title -
(1) reinstates -
(A) any proceeding or custodianship superseded under section
543 of this title;
(B) any transfer avoided under section 522, 544, 545, 547,
548, 549, or 724(a) of this title, or preserved under section
510(c)(2), 522(i)(2), or 551 of this title; and
(C) any lien voided under section 506(d) of this title;
(2) vacates any order, judgment, or transfer ordered, under
section 522(i)(1), 542, 550, or 553 of this title; and
(3) revests the property of the estate in the entity in which
such property was vested immediately before the commencement of
the case under this title.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2569; Pub. L. 98-353, title
III, Sec. 303, July 10, 1984, 98 Stat. 352; Pub. L. 103-394, title
V, Sec. 501(d)(6), Oct. 22, 1994, 108 Stat. 4144.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 349(b)(2) of the House amendment adds a cross reference
to section 553 to reflect the new right of recovery of setoffs
created under that section. Corresponding changes are made
throughout the House amendment.
SENATE REPORT NO. 95-989
Subsection (a) specifies that unless the court for cause orders
otherwise, the dismissal of a case is without prejudice. The
debtor is not barred from receiving a discharge in a later case of
debts that were dischargeable in the case dismissed. Of course,
this subsection refers only to pre-discharge dismissals. If the
debtor has already received a discharge and it is not revoked, then
the debtor would be barred under section 727(a) from receiving a
discharge in a subsequent liquidation case for six years.
Dismissal of an involuntary on the merits will generally not give
rise to adequate cause so as to bar the debtor from further relief.
Subsection (b) specifies that the dismissal reinstates
proceedings or custodianships that were superseded by the
bankruptcy case, reinstates avoided transfers, reinstates voided
liens, vacates any order, judgment, or transfer ordered as a result
of the avoidance of a transfer, and revests the property of the
estate in the entity in which the property was vested at the
commencement of the case. The court is permitted to order a
different result for cause. The basic purpose of the subsection is
to undo the bankruptcy case, as far as practicable, and to restore
all property rights to the position in which they were found at the
commencement of the case. This does not necessarily encompass
undoing sales of property from the estate to a good faith
purchaser. Where there is a question over the scope of the
subsection, the court will make the appropriate orders to protect
rights acquired in reliance on the bankruptcy case.
AMENDMENTS
1994 - Subsec. (a). Pub. L. 103-394 substituted ''109(g)'' for
''109(f)''.
1984 - Subsec. (a). Pub. L. 98-353 inserted ''; nor does the
dismissal of a case under this title prejudice the debtor with
regard to the filing of a subsequent petition under this title,
except as provided in section 109(f) of this title''.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 901 of this title.
-CITE-
11 USC Sec. 350 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER III - ADMINISTRATION
-HEAD-
Sec. 350. Closing and reopening cases
-STATUTE-
(a) After an estate is fully administered and the court has
discharged the trustee, the court shall close the case.
(b) A case may be reopened in the court in which such case was
closed to administer assets, to accord relief to the debtor, or for
other cause.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2569; Pub. L. 98-353, title
III, Sec. 439, July 10, 1984, 98 Stat. 370.)
-MISC1-
HISTORICAL AND REVISION NOTES
SENATE REPORT NO. 95-989
Subsection (a) requires the court to close a bankruptcy case
after the estate is fully administered and the trustee discharged.
The Rules of Bankruptcy Procedure will provide the procedure for
case closing. Subsection (b) permits reopening of the case to
administer assets, to accord relief to the debtor, or for other
cause. Though the court may permit reopening of a case so that the
trustee may exercise an avoiding power, laches may constitute a bar
to an action that has been delayed too long. The case may be
reopened in the court in which it was closed. The rules will
prescribe the procedure by which a case is reopened and how it will
be conducted after reopening.
AMENDMENTS
1984 - Subsec. (b). Pub. L. 98-353 substituted ''A'' for ''a''.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 554, 703, 901 of this
title.
-CITE-
11 USC SUBCHAPTER IV - ADMINISTRATIVE POWERS 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER IV - ADMINISTRATIVE POWERS
.
-HEAD-
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-CITE-
11 USC Sec. 361 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-HEAD-
Sec. 361. Adequate protection
-STATUTE-
When adequate protection is required under section 362, 363, or
364 of this title of an interest of an entity in property, such
adequate protection may be provided by -
(1) requiring the trustee to make a cash payment or periodic
cash payments to such entity, to the extent that the stay under
section 362 of this title, use, sale, or lease under section 363
of this title, or any grant of a lien under section 364 of this
title results in a decrease in the value of such entity's
interest in such property;
(2) providing to such entity an additional or replacement lien
to the extent that such stay, use, sale, lease, or grant results
in a decrease in the value of such entity's interest in such
property; or
(3) granting such other relief, other than entitling such
entity to compensation allowable under section 503(b)(1) of this
title as an administrative expense, as will result in the
realization by such entity of the indubitable equivalent of such
entity's interest in such property.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2569; Pub. L. 98-353, title
III, Sec. 440, July 10, 1984, 98 Stat. 370.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 361 of the House amendment represents a compromise
between H.R. 8200 as passed by the House and the Senate amendment
regarding the issue of ''adequate protection'' of a secured party.
The House amendment deletes the provision found in section 361(3)
of H.R. 8200 as passed by the House. It would have permitted
adequate protection to be provided by giving the secured party an
administrative expense regarding any decrease in the value of such
party's collateral. In every case there is the uncertainty that
the estate will have sufficient property to pay administrative
expenses in full.
Section 361(4) of H.R. 8200 as passed by the House is modified in
section 361(3) of the House amendment to indicate that the court
may grant other forms of adequate protection, other than an
administrative expense, which will result in the realization by the
secured creditor of the indubitable equivalent of the creditor's
interest in property. In the special instance where there is a
reserve fund maintained under the security agreement, such as in
the typical bondholder case, indubitable equivalent means that the
bondholders would be entitled to be protected as to the reserve
fund, in addition to the regular payments needed to service the
debt. Adequate protection of an interest of an entity in property
is intended to protect a creditor's allowed secured claim. To the
extent the protection proves to be inadequate after the fact, the
creditor is entitled to a first priority administrative expense
under section 503(b).
In the special case of a creditor who has elected application of
creditor making an election under section 1111(b)(2), that creditor
is entitled to adequate protection of the creditor's interest in
property to the extent of the value of the collateral not to the
extent of the creditor's allowed secured claim, which is inflated
to cover a deficiency as a result of such election.
SENATE REPORT NO. 95-989
Sections 362, 363, and 364 require, in certain circumstances,
that the court determine in noticed hearings whether the interest
of a secured creditor or co-owner of property with the debtor is
adequately protected in connection with the sale or use of
property. The interests of which the court may provide protection
in the ways described in this section include equitable as well as
legal interests. For example, a right to enforce a pledge and a
right to recover property delivered to a debtor under a consignment
agreement or an agreement of sale or return are interests that may
be entitled to protection. This section specifies means by which
adequate protection may be provided but, to avoid placing the court
in an administrative role, does not require the court to provide
it. Instead, the trustee or debtor in possession or the creditor
will provide or propose a protection method. If the party that is
affected by the proposed action objects, the court will determine
whether the protection provided is adequate. The purpose of this
section is to illustrate means by which it may be provided and to
define the limits of the concept.
The concept of adequate protection is derived from the fifth
amendment protection of property interests as enunciated by the
Supreme Court. See Wright v. Union Central Life Ins. Co., 311 U.S.
273 (1940); Louisville Joint Stock Land Bank v. Radford, 295 U.S.
555 (1935).
The automatic stay also provides creditor protection. Without
it, certain creditors would be able to pursue their own remedies
against the debtor's property. Those who acted first would obtain
payment of the claims in preference to and to the detriment of
other creditors. Bankruptcy is designed to provide an orderly
liquidation procedure under which all creditors are treated
equally. A race of diligence by creditors for the debtor's assets
prevents that.
Subsection (a) defines the scope of the automatic stay, by
listing the acts that are stayed by the commencement of the case.
The commencement or continuation, including the issuance of
process, of a judicial, administrative or other proceeding against
the debtor that was or could have been commenced before the
commencement of the bankruptcy case is stayed under paragraph (1).
The scope of this paragraph is broad. All proceedings are stayed,
including arbitration, administrative, and judicial proceedings.
Proceeding in this sense encompasses civil actions and all
proceedings even if they are not before governmental tribunals.
The stay is not permanent. There is adequate provision for
relief from the stay elsewhere in the section. However, it is
important that the trustee have an opportunity to inventory the
debtor's position before proceeding with the administration of the
case. Undoubtedly the court will lift the stay for proceedings
before specialized or nongovernmental tribunals to allow those
proceedings to come to a conclusion. Any party desiring to enforce
an order in such a proceeding would thereafter have to come before
the bankruptcy court to collect assets. Nevertheless, it will
often be more appropriate to permit proceedings to continue in
their place of origin, when no great prejudice to the bankruptcy
estate would result, in order to leave the parties to their chosen
forum and to relieve the bankruptcy court from many duties that may
be handled elsewhere.
Paragraph (2) stays the enforcement, against the debtor or
against property of the estate, of a judgment obtained before the
commencement of the bankruptcy case. Thus, execution and levy
against the debtors' prepetition property are stayed, and attempts
to collect a judgment from the debtor personally are stayed.
Paragraph (3) stays any act to obtain possession of property of
the estate (that is, property of the debtor as of the date of the
filing of the petition) or property from the estate (property over
which the estate has control or possession). The purpose of this
provision is to prevent dismemberment of the estate. Liquidation
must proceed in an orderly fashion. Any distribution of property
must be by the trustee after he has had an opportunity to
familiarize himself with the various rights and interests involved
and with the property available for distribution.
Paragraph (4) stays lien creation against property of the
estate. Thus, taking possession to perfect a lien or obtaining
court process is prohibited. To permit lien creation after
bankruptcy would give certain creditors preferential treatment by
making them secured instead of unsecured.
Paragraph (5) stays any act to create or enforce a lien against
property of the debtor, that is, most property that is acquired
after the date of the filing of the petition, property that is
exempted, or property that does not pass to the estate, to the
extent that the lien secures a prepetition claim. Again, to permit
postbankruptcy lien creation or enforcement would permit certain
creditors to receive preferential treatment. It may also
circumvent the debtors' discharge.
Paragraph (6) prevents creditors from attempting in any way to
collect a prepetition debt. Creditors in consumer cases
occasionally telephone debtors to encourage repayment in spite of
bankruptcy. Inexperienced, frightened, or ill-counseled debtors
may succumb to suggestions to repay notwithstanding their
bankruptcy. This provision prevents evasion of the purpose of the
bankruptcy laws by sophisticated creditors.
Paragraph (7) stays setoffs of mutual debts and credits between
the debtor and creditors. As with all other paragraphs of
subsection (a), this paragraph does not affect the right of
creditors. It simply stays its enforcement pending an orderly
examination of the debtor's and creditors' rights.
Subsection (b) lists seven exceptions to the automatic stay. The
effect of an exception is not to make the action immune from
injunction.
The court has ample other powers to stay actions not covered by
the automatic stay. Section 105, of proposed title 11, derived
from Bankruptcy Act Sec. 2a(15) (section 11(a)(15) of former title
11), grants the power to issue orders necessary or appropriate to
carry out the provisions of title 11. The district court and the
bankruptcy court as its adjunct have all the traditional injunctive
powers of a court of equity, 28 U.S.C. Sec. 151 and 164 as proposed
in S. 2266, Sec. 201, and 28 U.S.C. Sec. 1334, as proposed in S.
2266, Sec. 216. Stays or injunctions issued under these other
sections will not be automatic upon the commencement of the case,
but will be granted or issued under the usual rules for the
issuance of injunctions. By excepting an act or action from the
automatic stay, the bill simply requires that the trustee move the
court into action, rather than requiring the stayed party to
request relief from the stay. There are some actions, enumerated
in the exceptions, that generally should not be stayed
automatically upon the commencement of the case, for reasons of
either policy or practicality. Thus, the court will have to
determine on a case-by-case basis whether a particular action which
may be harming the estate should be stayed.
With respect to stays issued under other powers, or the
application of the automatic stay, to governmental actions, this
section and the other sections mentioned are intended to be an
express waiver of sovereign immunity of the Federal Government, and
an assertion of the bankruptcy power over State governments under
the supremacy clause notwithstanding a State's sovereign immunity.
The first exception is of criminal proceedings against the
debtor. The bankruptcy laws are not a haven for criminal
offenders, but are designed to give relief from financial
overextension. Thus, criminal actions and proceedings may proceed
in spite of bankruptcy.
Paragraph (2) excepts from the stay the collection of alimony,
maintenance or support from property that is not property of the
estate. This will include property acquired after the commencement
of the case, exempted property, and property that does not pass to
the estate. The automatic stay is one means of protecting the
debtor's discharge. Alimony, maintenance and support obligations
are excepted from discharge. Staying collection of them, when not
to the detriment of other creditors (because the collection effort
is against property that is not property of the estate) does not
further that goal. Moreover, it could lead to hardship on the part
of the protected spouse or children.
Paragraph (3) excepts any act to perfect an interest in property
to the extent that the trustee's rights and powers are limited
under section 546(a) of the bankruptcy code. That section permits
postpetition perfection of certain liens to be effective against
the trustee. If the act of perfection, such as filing, were
stayed, the section would be nullified.
Paragraph (4) excepts commencement or continuation of actions and
proceedings by governmental units to enforce police or regulatory
powers. Thus, where a governmental unit is suing a debtor to
prevent or stop violation of fraud, environmental protection,
consumer protection, safety, or similar police or regulatory laws,
or attempting to fix damages for violation of such a law, the
action or proceeding is not stayed under the automatic stay.
Paragraph (5) makes clear that the exception extends to permit an
injunction and enforcement of an injunction, and to permit the
entry of a money judgment, but does not extend to permit
enforcement of a money judgment. Since the assets of the debtor
are in the possession and control of the bankruptcy court, and
since they constitute a fund out of which all creditors are
entitled to share, enforcement by a governmental unit of a money
judgment would give it preferential treatment to the detriment of
all other creditors.
Paragraph (6) excepts the setoff of any mutual debt and claim for
commodity transactions.
Paragraph (7) excepts actions by the Secretary of Housing and
Urban Development to foreclose or take possession in a case of a
loan insured under the National Housing Act (12 U.S.C. 1701 et
seq.). A general exception for such loans is found in current
sections 263 and 517 (sections 663 and 917 of former title 11), the
exception allowed by this paragraph is much more limited.
Subsection (c) of section 362 specifies the duration of the
automatic stay. Paragraph (1) terminates a stay of an act against
property of the estate when the property ceases to be property of
the estate, such as by sale, abandonment, or exemption. It does
not terminate the stay against property of the debtor if the
property leaves the estate and goes to the debtor. Paragraph (2)
terminates the stay of any other act on the earliest of the time
the case is closed, the time the case is dismissed, or the time a
discharge is granted or denied (unless the debtor is a corporation
or partnership in a chapter 7 case).
Subsection (c) governs automatic termination of the stay.
Subsections (d) through (g) govern termination of the stay by the
court on the request of a party in interest.
Subsection (d) requires the court, upon motion of a party in
interest, to grant relief from the stay for cause, such as by
terminating, annulling, modifying, or conditioning the stay. The
lack of adequate protection of an interest in property is one cause
for relief, but is not the only cause. Other causes might include
the lack of any connection with or interference with the pending
bankruptcy case. Generally, proceedings in which the debtor is a
fiduciary, or involving postpetition activities of the debtor, need
not be stayed because they bear no relationship to the purpose of
the automatic stay, which is protection of the debtor and his
estate from his creditors.
Upon the court's finding that the debtor has no equity in the
property subject to the stay and that the property is not necessary
to an effective reorganization of the debtor, the subsection
requires the court grant relief from the stay. To aid in this
determination, guidelines are established where the property
subject to the stay is real property. An exception to ''the
necessary to an effective reorganization'' requirement is made for
real property on which no business is being conducted other than
operating the real property and activities incident thereto. The
intent of this exception is to reach the single-asset apartment
type cases which involve primarily tax-shelter investments and for
which the bankruptcy laws have provided a too facile method to
relay conditions, but not the operating shopping center and hotel
cases where attempts at reorganization should be permitted.
Property in which the debtor has equity but which is not necessary
to an effective reorganization of the debtor should be sold under
section 363. Hearings under this subsection are given calendar
priority to ensure that court congestion will not unduly prejudice
the rights of creditors who may be obviously entitled to relief
from the operation of the automatic stay.
Subsection (e) provides protection that is not always available
under present law. The subsection sets a time certain within which
the bankruptcy court must rule on the adequacy of protection
provided for the secured creditor's interest. If the court does
not rule within 30 days from a request by motion for relief from
the stay, the stay is automatically terminated with respect to the
property in question. To accommodate more complex cases, the
subsection permits the court to make a preliminary ruling after a
preliminary hearing. After a preliminary hearing, the court may
continue the stay only if there is a reasonable likelihood that the
party opposing relief from the stay will prevail at the final
hearing. Because the stay is essentially an injunction, the three
stages of the stay may be analogized to the three stages of an
injunction. The filing of the petition which gives rise to the
automatic stay is similar to a temporary restraining order. The
preliminary hearing is similar to the hearing on a preliminary
injunction, and the final hearing and order are similar to the
hearing and issuance or denial of a permanent injunction. The main
difference lies in which party must bring the issue before the
court. While in the injunction setting, the party seeking the
injunction must prosecute the action, in proceeding for relief from
the automatic stay, the enjoined party must move. The difference
does not, however, shift the burden of proof. Subsection (g)
leaves that burden on the party opposing relief from the stay (that
is, on the party seeking continuance of the injunction) on the
issue of adequate protection and existence of an equity. It is
not, however, intended to be confined strictly to the
constitutional requirement. This section and the concept of
adequate protection are based as much on policy grounds as on
constitutional grounds. Secured creditors should not be deprived
of the benefit of their bargain. There may be situations in
bankruptcy where giving a secured creditor an absolute right to his
bargain may be impossible or seriously detrimental to the policy of
the bankruptcy laws. Thus, this section recognizes the
availability of alternate means of protecting a secured creditor's
interest where such steps are a necessary part of the
rehabilitative process. Though the creditor might not be able to
retain his lien upon the specific collateral held at the time of
filing, the purpose of the section is to insure that the secured
creditor receives the value for which he bargained.
The section specifies two exclusive means of providing adequate
protection, both of which may require an approximate determination
of the value of the protected entity's interest in the property
involved. The section does not specify how value is to be
determined, nor does it specify when it is to be determined. These
matters are left to case-by-case interpretation and development.
In light of the restrictive approach of the section to the
availability of means of providing adequate protection, this
flexibility is important to permit the courts to adapt to varying
circumstances and changing modes of financing.
Neither is it expected that the courts will construe the term
value to mean, in every case, forced sale liquidation value or full
going concern value. There is wide latitude between those two
extremes although forced sale liquidation value will be a minimum.
In any particular case, especially a reorganization case, the
determination of which entity should be entitled to the difference
between the going concern value and the liquidation value must be
based on equitable considerations arising from the facts of the
case. Finally, the determination of value is binding only for the
purposes of the specific hearing and is not to have a res judicata
effect.
The first method of adequate protection outlined is the making of
cash payments to compensate for the expected decrease in value of
the opposing entity's interest. This provision is derived from In
re Bermec Corporation, 445 F.2d 367 (2d Cir. 1971), though in that
case it is not clear whether the payments offered were adequate to
compensate the secured creditors for their loss. The use of
periodic payments may be appropriate where, for example, the
property in question is depreciating at a relatively fixed rate.
The periodic payments would be to compensate for the depreciation
and might, but need not necessarily, be in the same amount as
payments due on the secured obligation.
The second method is the fixing of an additional or replacement
lien on other property of the debtor to the extent of the decrease
in value or actual consumption of the property involved. The
purpose of this method is to provide the protected entity with an
alternative means of realizing the value of the original property,
if it should decline during the case, by granting an interest in
additional property from whose value the entity may realize its
loss. This is consistent with the view expressed in Wright v.
Union Central Life Ins. Co., 311 U.S. 273 (1940), where the Court
suggested that it was the value of the secured creditor's
collateral, and not necessarily his rights in specific collateral,
that was entitled to protection.
The section makes no provision for the granting of an
administrative priority as a method of providing adequate
protection to an entity as was suggested in In re Yale Express
System, Inc., 384 F.2d 990 (2d Cir. 1967), because such protection
is too uncertain to be meaningful.
HOUSE REPORT NO. 95-595
The section specifies four means of providing adequate
protection. They are neither exclusive nor exhaustive. They all
rely, however, on the value of the protected entity's interest in
the property involved. The section does not specify how value is
to be determined, nor does it specify when it is to be determined.
These matters are left to case-by-case interpretation and
development. It is expected that the courts will apply the concept
in light of facts of each case and general equitable principles.
It is not intended that the courts will develop a hard and fast
rule that will apply in every case. The time and method of
valuation is not specified precisely, in order to avoid that
result. There are an infinite number of variations possible in
dealings between debtors and creditors, the law is continually
developing, and new ideas are continually being implemented in this
field. The flexibility is important to permit the courts to adapt
to varying circumstances and changing modes of financing.
Neither is it expected that the courts will construe the term
value to mean, in every case, forced sale liquidation value or full
going concern value. There is wide latitude between those two
extremes. In any particular case, especially a reorganization
case, the determination of which entity should be entitled to the
difference between the going concern value and the liquidation
value must be based on equitable considerations based on the facts
of the case. It will frequently be based on negotiation between
the parties. Only if they cannot agree will the court become
involved.
The first method of adequate protection specified is periodic
cash payments by the estate, to the extent of a decrease in value
of the opposing entity's interest in the property involved. This
provision is derived from In re Yale Express, Inc., 384 F.2d 990
(2d Cir. 1967) (though in that case it is not clear whether the
payments required were adequate to compensate the secured creditors
for their loss). The use of periodic payments may be appropriate,
where for example, the property in question is depreciating at a
relatively fixed rate. The periodic payments would be to
compensate for the depreciation.
The second method is the provision of an additional or
replacement lien on other property to the extent of the decrease in
value of the property involved. The purpose of this method is to
provide the protected entity with a means of realizing the value of
the original property, if it should decline during the case, by
granting an interest in additional property from whose value the
entity may realize its loss.
The third method is the granting of an administrative expense
priority to the protected entity to the extent of his loss. This
method, more than the others, requires a prediction as to whether
the unencumbered assets that will remain if the case if converted
from reorganization to liquidation will be sufficient to pay the
protected entity in full. It is clearly the most risky, from the
entity's perspective, and should be used only when there is
relative certainty that administrative expenses will be able to be
paid in full in the event of liquidation.
The fourth (enacted as third) method gives the parties and the
courts flexibility by allowing such other relief as will result in
the realization by the protected entity of the value of its
interest in the property involved. Under this provision, the
courts will be able to adapt to new methods of financing and to
formulate protection that is appropriate to the circumstances of
the case if none of the other methods would accomplish the desired
result. For example, another form of adequate protection might be
the guarantee by a third party outside the judicial process of
compensation for any loss incurred in the case. Adequate
protection might also, in some circumstances, be provided by
permitting a secured creditor to bid in his claim at the sale of
the property and to offset the claim against the price bid in.
The paragraph also defines, more clearly than the others, the
general concept of adequate protection, by requiring such relief as
will result in the realization of value. It is the general
category, and as such, is defined by the concept involved rather
than any particular method of adequate protection.
AMENDMENTS
1984 - Par. (1). Pub. L. 98-353 inserted ''a cash payment or''
after ''make''.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 901, 1205 of this title.
-CITE-
11 USC Sec. 362 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-HEAD-
Sec. 362. Automatic stay
-STATUTE-
(a) Except as provided in subsection (b) of this section, a
petition filed under section 301, 302, or 303 of this title, or an
application filed under section 5(a)(3) of the Securities Investor
Protection Act of 1970, operates as a stay, applicable to all
entities, of -
(1) the commencement or continuation, including the issuance or
employment of process, of a judicial, administrative, or other
action or proceeding against the debtor that was or could have
been commenced before the commencement of the case under this
title, or to recover a claim against the debtor that arose before
the commencement of the case under this title;
(2) the enforcement, against the debtor or against property of
the estate, of a judgment obtained before the commencement of the
case under this title;
(3) any act to obtain possession of property of the estate or
of property from the estate or to exercise control over property
of the estate;
(4) any act to create, perfect, or enforce any lien against
property of the estate;
(5) any act to create, perfect, or enforce against property of
the debtor any lien to the extent that such lien secures a claim
that arose before the commencement of the case under this title;
(6) any act to collect, assess, or recover a claim against the
debtor that arose before the commencement of the case under this
title;
(7) the setoff of any debt owing to the debtor that arose
before the commencement of the case under this title against any
claim against the debtor; and
(8) the commencement or continuation of a proceeding before the
United States Tax Court concerning the debtor.
(b) The filing of a petition under section 301, 302, or 303 of
this title, or of an application under section 5(a)(3) of the
Securities Investor Protection Act of 1970, does not operate as a
stay -
(1) under subsection (a) of this section, of the commencement
or continuation of a criminal action or proceeding against the
debtor;
(2) under subsection (a) of this section -
(A) of the commencement or continuation of an action or
proceeding for -
(i) the establishment of paternity; or
(ii) the establishment or modification of an order for
alimony, maintenance, or support; or
(B) of the collection of alimony, maintenance, or support
from property that is not property of the estate;
(3) under subsection (a) of this section, of any act to
perfect, or to maintain or continue the perfection of, an
interest in property to the extent that the trustee's rights and
powers are subject to such perfection under section 546(b) of
this title or to the extent that such act is accomplished within
the period provided under section 547(e)(2)(A) of this title;
(4) under paragraph (1), (2), (3), or (6) of subsection (a) of
this section, of the commencement or continuation of an action or
proceeding by a governmental unit or any organization exercising
authority under the Convention on the Prohibition of the
Development, Production, Stockpiling and Use of Chemical Weapons
and on Their Destruction, opened for signature on January 13,
1993, to enforce such governmental unit's or organization's
police and regulatory power, including the enforcement of a
judgment other than a money judgment, obtained in an action or
proceeding by the governmental unit to enforce such governmental
unit's or organization's police or regulatory power;
((5) Repealed. Pub. L. 105-277, div. I, title VI, Sec. 603(1),
Oct. 21, 1998, 112 Stat. 2681-866;)
(6) under subsection (a) of this section, of the setoff by a
commodity broker, forward contract merchant, stockbroker,
financial institutions, or securities clearing agency of any
mutual debt and claim under or in connection with commodity
contracts, as defined in section 761 of this title, forward
contracts, or securities contracts, as defined in section 741 of
this title, that constitutes the setoff of a claim against the
debtor for a margin payment, as defined in section 101, 741, or
761 of this title, or settlement payment, as defined in section
101 or 741 of this title, arising out of commodity contracts,
forward contracts, or securities contracts against cash,
securities, or other property held by or due from such commodity
broker, forward contract merchant, stockbroker, financial
institutions, or securities clearing agency to margin, guarantee,
secure, or settle commodity contracts, forward contracts, or
securities contracts;
(7) under subsection (a) of this section, of the setoff by a
repo participant, of any mutual debt and claim under or in
connection with repurchase agreements that constitutes the setoff
of a claim against the debtor for a margin payment, as defined in
section 741 or 761 of this title, or settlement payment, as
defined in section 741 of this title, arising out of repurchase
agreements against cash, securities, or other property held by or
due from such repo participant to margin, guarantee, secure or
settle repurchase agreements;
(8) under subsection (a) of this section, of the commencement
of any action by the Secretary of Housing and Urban Development
to foreclose a mortgage or deed of trust in any case in which the
mortgage or deed of trust held by the Secretary is insured or was
formerly insured under the National Housing Act and covers
property, or combinations of property, consisting of five or more
living units;
(9) under subsection (a), of -
(A) an audit by a governmental unit to determine tax
liability;
(B) the issuance to the debtor by a governmental unit of a
notice of tax deficiency;
(C) a demand for tax returns; or
(D) the making of an assessment for any tax and issuance of a
notice and demand for payment of such an assessment (but any
tax lien that would otherwise attach to property of the estate
by reason of such an assessment shall not take effect unless
such tax is a debt of the debtor that will not be discharged in
the case and such property or its proceeds are transferred out
of the estate to, or otherwise revested in, the debtor).
(10) under subsection (a) of this section, of any act by a
lessor to the debtor under a lease of nonresidential real
property that has terminated by the expiration of the stated term
of the lease before the commencement of or during a case under
this title to obtain possession of such property;
(11) under subsection (a) of this section, of the presentment
of a negotiable instrument and the giving of notice of and
protesting dishonor of such an instrument;
(12) under subsection (a) of this section, after the date which
is 90 days after the filing of such petition, of the commencement
or continuation, and conclusion to the entry of final judgment,
of an action which involves a debtor subject to reorganization
pursuant to chapter 11 of this title and which was brought by the
Secretary of Transportation under section 31325 of title 46
(including distribution of any proceeds of sale) to foreclose a
preferred ship or fleet mortgage, or a security interest in or
relating to a vessel or vessel under construction, held by the
Secretary of Transportation under section 207 or title XI of the
Merchant Marine Act, 1936, or under applicable State law;
(13) under subsection (a) of this section, after the date which
is 90 days after the filing of such petition, of the commencement
or continuation, and conclusion to the entry of final judgment,
of an action which involves a debtor subject to reorganization
pursuant to chapter 11 of this title and which was brought by the
Secretary of Commerce under section 31325 of title 46 (including
distribution of any proceeds of sale) to foreclose a preferred
ship or fleet mortgage in a vessel or a mortgage, deed of trust,
or other security interest in a fishing facility held by the
Secretary of Commerce under section 207 or title XI of the
Merchant Marine Act, 1936;
(14) under subsection (a) of this section, of any action by an
accrediting agency regarding the accreditation status of the
debtor as an educational institution;
(15) under subsection (a) of this section, of any action by a
State licensing body regarding the licensure of the debtor as an
educational institution;
(16) under subsection (a) of this section, of any action by a
guaranty agency, as defined in section 435(j) of the Higher
Education Act of 1965 or the Secretary of Education regarding the
eligibility of the debtor to participate in programs authorized
under such Act;
(17) under subsection (a) of this section, of the setoff by a
swap participant, of any mutual debt and claim under or in
connection with any swap agreement that constitutes the setoff of
a claim against the debtor for any payment due from the debtor
under or in connection with any swap agreement against any
payment due to the debtor from the swap participant under or in
connection with any swap agreement or against cash, securities,
or other property of the debtor held by or due from such swap
participant to guarantee, secure or settle any swap agreement; or
(18) under subsection (a) of the creation or perfection of a
statutory lien for an ad valorem property tax imposed by the
District of Columbia, or a political subdivision of a State, if
such tax comes due after the filing of the petition.
The provisions of paragraphs (12) and (13) of this subsection shall
apply with respect to any such petition filed on or before December
31, 1989.
(c) Except as provided in subsections (d), (e), and (f) of this
section -
(1) the stay of an act against property of the estate under
subsection (a) of this section continues until such property is
no longer property of the estate; and
(2) the stay of any other act under subsection (a) of this
section continues until the earliest of -
(A) the time the case is closed;
(B) the time the case is dismissed; or
(C) if the case is a case under chapter 7 of this title
concerning an individual or a case under chapter 9, 11, 12, or
13 of this title, the time a discharge is granted or denied.
(d) On request of a party in interest and after notice and a
hearing, the court shall grant relief from the stay provided under
subsection (a) of this section, such as by terminating, annulling,
modifying, or conditioning such stay -
(1) for cause, including the lack of adequate protection of an
interest in property of such party in interest;
(2) with respect to a stay of an act against property under
subsection (a) of this section, if -
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective
reorganization; or
(3) with respect to a stay of an act against single asset real
estate under subsection (a), by a creditor whose claim is secured
by an interest in such real estate, unless, not later than the
date that is 90 days after the entry of the order for relief (or
such later date as the court may determine for cause by order
entered within that 90-day period) -
(A) the debtor has filed a plan of reorganization that has a
reasonable possibility of being confirmed within a reasonable
time; or
(B) the debtor has commenced monthly payments to each
creditor whose claim is secured by such real estate (other than
a claim secured by a judgment lien or by an unmatured statutory
lien), which payments are in an amount equal to interest at a
current fair market rate on the value of the creditor's
interest in the real estate.
(e) Thirty days after a request under subsection (d) of this
section for relief from the stay of any act against property of the
estate under subsection (a) of this section, such stay is
terminated with respect to the party in interest making such
request, unless the court, after notice and a hearing, orders such
stay continued in effect pending the conclusion of, or as a result
of, a final hearing and determination under subsection (d) of this
section. A hearing under this subsection may be a preliminary
hearing, or may be consolidated with the final hearing under
subsection (d) of this section. The court shall order such stay
continued in effect pending the conclusion of the final hearing
under subsection (d) of this section if there is a reasonable
likelihood that the party opposing relief from such stay will
prevail at the conclusion of such final hearing. If the hearing
under this subsection is a preliminary hearing, then such final
hearing shall be concluded not later than thirty days after the
conclusion of such preliminary hearing, unless the 30-day period is
extended with the consent of the parties in interest or for a
specific time which the court finds is required by compelling
circumstances.
(f) Upon request of a party in interest, the court, with or
without a hearing, shall grant such relief from the stay provided
under subsection (a) of this section as is necessary to prevent
irreparable damage to the interest of an entity in property, if
such interest will suffer such damage before there is an
opportunity for notice and a hearing under subsection (d) or (e) of
this section.
(g) In any hearing under subsection (d) or (e) of this section
concerning relief from the stay of any act under subsection (a) of
this section -
(1) the party requesting such relief has the burden of proof on
the issue of the debtor's equity in property; and
(2) the party opposing such relief has the burden of proof on
all other issues.
(h) An individual injured by any willful violation of a stay
provided by this section shall recover actual damages, including
costs and attorneys' fees, and, in appropriate circumstances, may
recover punitive damages.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2570; Pub. L. 97-222, Sec.
3, July 27, 1982, 96 Stat. 235; Pub. L. 98-353, title III, Sec.
304, 363(b), 392, 441, July 10, 1984, 98 Stat. 352, 363, 365, 371;
Pub. L. 99-509, title V, Sec. 5001(a), Oct. 21, 1986, 100 Stat.
1911; Pub. L. 99-554, title II, Sec. 257(j), 283(d), Oct. 27, 1986,
100 Stat. 3115, 3116; Pub. L. 101-311, title I, Sec. 102, title II,
Sec. 202, June 25, 1990, 104 Stat. 267, 269; Pub. L. 101-508, title
III, Sec. 3007(a)(1), Nov. 5, 1990, 104 Stat. 1388-28; Pub. L.
103-394, title I, Sec. 101, 116, title II, Sec. 204(a), 218(b),
title III, Sec. 304(b), title IV, Sec. 401, title V, Sec.
501(b)(2), (d)(7), Oct. 22, 1994, 108 Stat. 4107, 4119, 4122, 4128,
4132, 4141, 4142, 4144; Pub. L. 105-277, div. I, title VI, Sec.
603, Oct. 21, 1998, 112 Stat. 2681-886.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 362(a)(1) of the House amendment adopts the provision
contained in the Senate amendment enjoining the commencement or
continuation of a judicial, administrative, or other proceeding to
recover a claim against the debtor that arose before the
commencement of the case. The provision is beneficial and
interacts with section 362(a)(6), which also covers assessment, to
prevent harassment of the debtor with respect to pre-petition
claims.
Section 362(a)(7) contains a provision contained in H.R. 8200 as
passed by the House. The differing provision in the Senate
amendment was rejected. It is not possible that a debt owing to
the debtor may be offset against an interest in the debtor.
Section 362(a)(8) is new. The provision stays the commencement
or continuation of any proceeding concerning the debtor before the
U.S. Tax Court.
Section 362(b)(4) indicates that the stay under section 362(a)(1)
does not apply to affect the commencement or continuation of an
action or proceeding by a governmental unit to enforce the
governmental unit's police or regulatory power. This section is
intended to be given a narrow construction in order to permit
governmental units to pursue actions to protect the public health
and safety and not to apply to actions by a governmental unit to
protect a pecuniary interest in property of the debtor or property
of the estate.
Section 362(b)(6) of the House amendment adopts a provision
contained in the Senate amendment restricting the exception to the
automatic stay with respect to setoffs to permit only the setoff of
mutual debts and claims. Traditionally, the right of setoff has
been limited to mutual debts and claims and the lack of the
clarifying term ''mutual'' in H.R. 8200 as passed by the House
created an unintentional ambiguity. Section 362(b)(7) of the House
amendment permits the issuance of a notice of tax deficiency. The
House amendment rejects section 362(b)(7) in the Senate amendment.
It would have permitted a particular governmental unit to obtain a
pecuniary advantage without a hearing on the merits contrary to the
exceptions contained in sections 362(b)(4) and (5).
Section 362(d) of the House amendment represents a compromise
between comparable provisions in the House bill and Senate
amendment. Under section 362(d)(1) of the House amendment, the
court may terminate, annul, modify, or condition the automatic stay
for cause, including lack of adequate protection of an interest in
property of a secured party. It is anticipated that the Rules of
Bankruptcy Procedure will provide that those hearings will receive
priority on the calendar. Under section 362(d)(2) the court may
alternatively terminate, annul, modify, or condition the automatic
stay for cause including inadequate protection for the creditor.
The court shall grant relief from the stay if there is no equity
and it is not necessary to an effective reorganization of the
debtor.
The latter requirement is contained in section 362(d)(2). This
section is intended to solve the problem of real property mortgage
foreclosures of property where the bankruptcy petition is filed on
the eve of foreclosure. The section is not intended to apply if
the business of the debtor is managing or leasing real property,
such as a hotel operation, even though the debtor has no equity if
the property is necessary to an effective reorganization of the
debtor. Similarly, if the debtor does have an equity in the
property, there is no requirement that the property be sold under
section 363 of title 11 as would have been required by the Senate
amendment.
Section 362(e) of the House amendment represents a modification
of provisions in H.R. 8200 as passed by the House and the Senate
amendment to make clear that a final hearing must be commenced
within 30 days after a preliminary hearing is held to determine
whether a creditor will be entitled to relief from the automatic
stay. In order to insure that those hearings will in fact occur
within such 30-day period, it is anticipated that the rules of
bankruptcy procedure provide that such final hearings receive
priority on the court calendar.
Section 362(g) places the burden of proof on the issue of the
debtor's equity in collateral on the party requesting relief from
the automatic stay and the burden on other issues on the debtor.
An amendment has been made to section 362(b) to permit the
Secretary of the Department of Housing and Urban Development to
commence an action to foreclose a mortgage or deed of trust. The
commencement of such an action is necessary for tax purposes. The
section is not intended to permit the continuation of such an
action after it is commenced nor is the section to be construed to
entitle the Secretary to take possession in lieu of foreclosure.
Automatic stay: Sections 362(b)(8) and (9) contained in the
Senate amendment are largely deleted in the House amendment. Those
provisions add to the list of actions not stayed (a) jeopardy
assessments, (b) other assessments, and (c) the issuance of
deficiency notices. In the House amendment, jeopardy assessments
against property which ceases to be property of the estate is
already authorized by section 362(c)(1). Other assessments are
specifically stayed under section 362(a)(6), while the issuance of
a deficiency notice is specifically permitted. Stay of the
assessment and the permission to issue a statutory notice of a tax
deficiency will permit the debtor to take his personal tax case to
the Tax Court, if the bankruptcy judge authorizes him to do so (as
explained more fully in the discussion of section 505).
SENATE REPORT NO. 95-989
The automatic stay is one of the fundamental debtor protections
provided by the bankruptcy laws. It gives the debtor a breathing
spell from his creditors. It stops all collection efforts, all
harassment, and all foreclosure actions. It permits the debtor to
attempt a repayment or reorganization plan, or simply to be
relieved of the financial pressures that drove him into bankruptcy.
The action commenced by the party seeking relief from the stay is
referred to as a motion to make it clear that at the expedited
hearing under subsection (e), and at hearings on relief from the
stay, the only issue will be the lack of adequate protection, the
debtor's equity in the property, and the necessity of the property
to an effective reorganization of the debtor, or the existence of
other cause for relief from the stay. This hearing will not be the
appropriate time at which to bring in other issues, such as
counterclaims against the creditor, which, although relevant to the
question of the amount of the debt, concern largely collateral or
unrelated matters. This approach is consistent with that taken in
cases such as In re Essex Properties, Ltd., 430 F.Supp. 1112
(N.D.Cal.1977), that an action seeking relief from the stay is not
the assertion of a claim which would give rise to the right or
obligation to assert counterclaims. Those counterclaims are not to
be handled in the summary fashion that the preliminary hearing
under this provision will be. Rather, they will be the subject of
more complete proceedings by the trustee to recover property of the
estate or to object to the allowance of a claim. However, this
would not preclude the party seeking continuance of the stay from
presenting evidence on the existence of claims which the court may
consider in exercising its discretion. What is precluded is a
determination of such collateral claims on the merits at the
hearing.
HOUSE REPORT NO. 95-595
Paragraph (7) (of subsec. (a)) stays setoffs of mutual debts and
credits between the debtor and creditors. As with all other
paragraphs of subsection (a), this paragraph does not affect the
right of creditors. It simply stays its enforcement pending an
orderly examination of the debtor's and creditors' rights.
Subsection (c) governs automatic termination of the stay.
Subsections (d) through (g) govern termination of the stay by the
court on the request of a party in interest. Subsection (d)
requires the court, on request of a party in interest, to grant
relief from the stay, such as by terminating, annulling, modifying,
or conditioning the stay, for cause. The lack of adequate
protection of an interest in property of the party requesting
relief from the stay is one cause for relief, but is not the only
cause. As noted above, a desire to permit an action to proceed to
completion in another tribunal may provide another cause. Other
causes might include the lack of any connection with or
interference with the pending bankruptcy case. For example, a
divorce or child custody proceeding involving the debtor may bear
no relation to the bankruptcy case. In that case, it should not be
stayed. A probate proceeding in which the debtor is the executor
or administrator of another's estate usually will not be related to
the bankruptcy case, and should not be stayed. Generally,
proceedings in which the debtor is a fiduciary, or involving
postpetition activities of the debtor, need not be stayed because
they bear no relationship to the purpose of the automatic stay,
which is debtor protection from his creditors. The facts of each
request will determine whether relief is appropriate under the
circumstances.
Subsection (e) provides a protection for secured creditors that
is not available under present law. The subsection sets a time
certain within which the bankruptcy court must rule on the adequacy
of protection provided of the secured creditor's interest. If the
court does not rule within 30 days from a request for relief from
the stay, the stay is automatically terminated with respect to the
property in question. In order to accommodate more complex cases,
the subsection permits the court to make a preliminary ruling after
a preliminary hearing. After a preliminary hearing, the court may
continue the stay only if there is a reasonable likelihood that the
party opposing relief from the stay will prevail at the final
hearing. Because the stay is essentially an injunction, the three
stages of the stay may be analogized to the three stages of an
injunction. The filing of the petition which gives rise to the
automatic stay is similar to a temporary restraining order. The
preliminary hearing is similar to the hearing on a preliminary
injunction, and the final hearing and order is similar to a
permanent injunction. The main difference lies in which party must
bring the issue before the court. While in the injunction setting,
the party seeking the injunction must prosecute the action, in
proceedings for relief from the automatic stay, the enjoined party
must move. The difference does not, however, shift the burden of
proof. Subsection (g) leaves that burden on the party opposing
relief from the stay (that is, on the party seeking continuance of
the injunction) on the issue of adequate protection.
At the expedited hearing under subsection (e), and at all
hearings on relief from the stay, the only issue will be the claim
of the creditor and the lack of adequate protection or existence of
other cause for relief from the stay. This hearing will not be the
appropriate time at which to bring in other issues, such as
counterclaims against the creditor on largely unrelated matters.
Those counterclaims are not to be handled in the summary fashion
that the preliminary hearing under this provision will be. Rather,
they will be the subject of more complete proceedings by the
trustees to recover property of the estate or to object to the
allowance of a claim.
-REFTEXT-
REFERENCES IN TEXT
Section 5(a)(3) of the Securities Investor Protection Act of
1970, referred to in subsecs. (a) and (b), is classified to section
78eee(a)(3) of Title 15, Commerce and Trade.
The National Housing Act, referred in subsec. (b)(8), is act June
27, 1934, ch. 847, 48 Stat. 1246, as amended, which is classified
principally to chapter 13 (Sec. 1701 et seq.) of Title 12, Banks
and Banking. For complete classification of this Act to the Code,
see section 1701 of Title 12 and Tables.
The Merchant Marine Act, 1936, referred to in subsec. (b)(12),
(13), is act June 29, 1936, ch. 858, 49 Stat. 1985, as amended.
Title XI of the Act is classified generally to subchapter XI (Sec.
1271 et seq.) of chapter 27 of Title 46, Appendix, Shipping.
Section 207 of the Act is classified to section 1117 of Title 46,
Appendix. For complete classification of this Act to the Code, see
section 1245 of Title 46, Appendix, and Tables.
The Higher Education Act of 1965, referred to in subsec. (b)(16),
is Pub. L. 89-329, Nov. 8, 1965, 79 Stat. 1219, as amended, which
is classified principally to chapter 28 (Sec. 1001 et seq.) of
Title 20, Education. Section 435(j) of the Act is classified to
section 1085(j) of Title 20. For complete classification of this
Act to the Code, see Short Title note set out under section 1001 of
Title 20 and Tables.
-MISC2-
AMENDMENTS
1998 - Subsec. (b)(4), (5). Pub. L. 105-277 added par. (4) and
struck out former pars. (4) and (5) which read as follows:
''(4) under subsection (a)(1) of this section, of the
commencement or continuation of an action or proceeding by a
governmental unit to enforce such governmental unit's police or
regulatory power;
''(5) under subsection (a)(2) of this section, of the enforcement
of a judgment, other than a money judgment, obtained in an action
or proceeding by a governmental unit to enforce such governmental
unit's police or regulatory power;''.
1994 - Subsecs. (a), (b). Pub. L. 103-394, Sec. 501(d)(7)(A),
(B)(i), struck out ''(15 U.S.C. 78eee(a)(3))'' after ''Act of
1970'' in introductory provisions.
Subsec. (b)(2). Pub. L. 103-394, Sec. 304(b), amended par. (2)
generally. Prior to amendment, par. (2) read as follows: ''under
subsection (a) of this section, of the collection of alimony,
maintenance, or support from property that is not property of the
estate;''.
Subsec. (b)(3). Pub. L. 103-394, Sec. 204(a), inserted '', or to
maintain or continue the perfection of,'' after ''to perfect''.
Subsec. (b)(6). Pub. L. 103-394, Sec. 501(b)(2)(A), substituted
''section 761'' for ''section 761(4)'', ''section 741'' for
''section 741(7)'', ''section 101, 741, or 761'' for ''section
101(34), 741(5), or 761(15)'', and ''section 101 or 741'' for
''section 101(35) or 741(8)''.
Subsec. (b)(7). Pub. L. 103-394, Sec. 501(b)(2)(B), substituted
''section 741 or 761'' for ''section 741(5) or 761(15)'' and
''section 741'' for ''section 741(8)''.
Subsec. (b)(9). Pub. L. 103-394, Sec. 116, amended par. (9)
generally. Prior to amendment, par. (9) read as follows: ''under
subsection (a) of this section, of the issuance to the debtor by a
governmental unit of a notice of tax deficiency;''.
Subsec. (b)(10). Pub. L. 103-394, Sec. 501(d)(7)(B)(ii), struck
out ''or'' at end.
Subsec. (b)(12). Pub. L. 103-394, Sec. 501(d)(7)(B)(iii),
substituted ''section 31325 of title 46'' for ''the Ship Mortgage
Act, 1920 (46 App. U.S.C. 911 et seq.)'' and struck out ''(46 App.
U.S.C. 1117 and 1271 et seq., respectively)'' after ''Act, 1936''.
Subsec. (b)(13). Pub. L. 103-394, Sec. 501(d)(7)(B)(iv),
substituted ''section 31325 of title 46'' for ''the Ship Mortgage
Act, 1920 (46 App. U.S.C. 911 et seq.)'' and struck out ''(46 App.
U.S.C. 1117 and 1271 et seq., respectively)'' after ''Act, 1936''
and ''or'' at end.
Subsec. (b)(14). Pub. L. 103-394, Sec. 501(d)(7)(B)(vii), amended
par. (14) relating to the setoff by a swap participant of any
mutual debt and claim under or in connection with a swap agreement
by substituting ''; or'' for period at end, redesignating par. (14)
as (17), and inserting it after par. (16).
Subsec. (b)(15). Pub. L. 103-394, Sec. 501(d)(7)(B)(v), struck
out ''or'' at end.
Subsec. (b)(16). Pub. L. 103-394, Sec. 501(d)(7)(B)(vi), struck
out ''(20 U.S.C. 1001 et seq.)'' after ''Act of 1965'' and
substituted semicolon for period at end.
Subsec. (b)(17). Pub. L. 103-394, Sec. 501(d)(7)(B)(vii)(II),
(III), redesignated par. (14) relating to the setoff by a swap
participant of any mutual debt and claim under or in connection
with a swap agreement as (17) and inserted it after par. (16).
Subsec. (b)(18). Pub. L. 103-394, Sec. 401, added par. (18).
Subsec. (d)(3). Pub. L. 103-394, Sec. 218(b), added par. (3).
Subsec. (e). Pub. L. 103-394, Sec. 101, in last sentence
substituted ''concluded'' for ''commenced'' and inserted before
period at end '', unless the 30-day period is extended with the
consent of the parties in interest or for a specific time which the
court finds is required by compelling circumstances''.
1990 - Subsec. (b)(6). Pub. L. 101-311, Sec. 202, inserted
reference to sections 101(34) and 101(35) of this title.
Subsec. (b)(12). Pub. L. 101-508, Sec. 3007(a)(1)(A), which
directed the striking of ''or'' after ''State law;'', could not be
executed because of a prior amendment by Pub. L. 101-311. See
below.
Pub. L. 101-311, Sec. 102(1), struck out ''or'' after ''State
law;''.
Subsec. (b)(13). Pub. L. 101-508, Sec. 3007(a)(1)(B), which
directed the substitution of a semicolon for period at end, could
not be executed because of a prior amendment by Pub. L. 101-311.
See below.
Pub. L. 101-311, Sec. 102(2), substituted ''; or'' for period at
end.
Subsec. (b)(14) to (16). Pub. L. 101-508, Sec. 3007(a)(1)(C),
added pars. (14) to (16). Notwithstanding directory language adding
pars. (14) to (16) immediately following par. (13), pars. (14) to
(16) were added after par. (14), as added by Pub. L. 101-311, to
reflect the probable intent of Congress.
Pub. L. 101-311, Sec. 102(3), added par. (14) relating to the
setoff by a swap participant of any mutual debt and claim under or
in connection with a swap agreement. Notwithstanding directory
language adding par. (14) at end of subsec. (b), par. (14) was
added after par. (13) to reflect the probable intent of Congress.
1986 - Subsec. (b). Pub. L. 99-509 inserted sentence at end.
Subsec. (b)(6). Pub. L. 99-554, Sec. 283(d)(1), substituted '',
financial institutions'' for ''financial institution,'' in two
places.
Subsec. (b)(9). Pub. L. 99-554, Sec. 283(d)(2), (3), struck out
''or'' at end of first par. (9) and redesignated as par. (10) the
second par. (9) relating to leases of nonresidential property,
which was added by section 363(b) of Pub. L. 98-353.
Subsec. (b)(10). Pub. L. 99-554, Sec. 283(d)(3), (4),
redesignated as par. (10) the second par. (9) relating to leases of
nonresidential property, added by section 363(b) of Pub. L. 99-353,
and substituted ''property; or'' for ''property.''. Former par.
(10) redesignated (11).
Subsec. (b)(11). Pub. L. 99-554, Sec. 283(d)(3), redesignated
former par. (10) as (11).
Subsec. (b)(12), (13). Pub. L. 99-509 added pars. (12) and (13).
Subsec. (c)(2)(C). Pub. L. 99-554, Sec. 257(j), inserted
reference to chapter 12 of this title.
1984 - Subsec. (a)(1). Pub. L. 98-353, Sec. 441(a)(1), inserted
''action or'' after ''other''.
Subsec. (a)(3). Pub. L. 98-353, Sec. 441(a)(2), inserted ''or to
exercise control over property of the estate''.
Subsec. (b)(3). Pub. L. 98-353, Sec. 441(b)(1), inserted ''or to
the extent that such act is accomplished within the period provided
under section 547(e)(2)(A) of this title''.
Subsec. (b)(6). Pub. L. 98-353, Sec. 441(b)(2), inserted ''or due
from'' after ''held by'' and ''financial institution,'' after
''stockbroker'' in two places, and substituted ''secure, or settle
commodity contracts'' for ''or secure commodity contracts''.
Subsec. (b)(7) to (9). Pub. L. 98-353, Sec. 441(b)(3), (4), in
par. (8) as redesignated by Pub. L. 98-353, Sec. 392, substituted
''the'' for ''said'' and struck out ''or'' the last place it
appeared which probably meant ''or'' after ''units;'' that was
struck out by Pub. L. 98-353, Sec. 363(b)(1); and, in par. (9),
relating to notices of deficiencies, as redesignated by Pub. L.
98-353, Sec. 392, substituted a semicolon for the period.
Pub. L. 98-353, Sec. 392, added par. (7) and redesignated former
pars. (7) and (8) as (8) and (9), respectively.
Pub. L. 98-353, Sec. 363(b), struck out ''or'' at end of par.
(7), substituted ''; or'' for the period at end of par. (8), and
added par. (9) relating to leases of nonresidential property.
Subsec. (b)(10). Pub. L. 98-353, Sec. 441(b)(5), added par. (10).
Subsec. (c)(2)(B). Pub. L. 98-353, Sec. 441(c), substituted
''or'' for ''and''.
Subsec. (d)(2). Pub. L. 98-353, Sec. 441(d), inserted ''under
subsection (a) of this section'' after ''property''.
Subsec. (e). Pub. L. 98-353, Sec. 441(e), inserted ''the
conclusion of'' after ''pending'' and substituted ''The court shall
order such stay continued in effect pending the conclusion of the
final hearing under subsection (d) of this section if there is a
reasonable likelihood that the party opposing relief from such stay
will prevail at the conclusion of such final hearing. If the
hearing under this subsection is a preliminary hearing, then such
final hearing shall be commenced not later than thirty days after
the conclusion of such preliminary hearing.'' for ''If the hearing
under this subsection is a preliminary hearing -
''(1) the court shall order such stay so continued if there is
a reasonable likelihood that the party opposing relief from such
stay will prevail at the final hearing under subsection (d) of
this section; and
''(2) such final hearing shall be commenced within thirty days
after such preliminary hearing.''
Subsec. (f). Pub. L. 98-353, Sec. 441(f), substituted ''Upon
request of a party in interest, the court, with or'' for ''The
court,''.
Subsec. (h). Pub. L. 98-353, Sec. 304, added subsec. (h).
1982 - Subsec. (a). Pub. L. 97-222, Sec. 3(a), inserted '', or an
application filed under section 5(a)(3) of the Securities Investor
Protection Act of 1970 (15 U.S.C. 78eee(a)(3)),'' after ''this
title'' in provisions preceding par. (1).
Subsec. (b). Pub. L. 97-222, Sec. 3(b), inserted '', or of an
application under section 5(a)(3) of the Securities Investor
Protection Act of 1970 (15 U.S.C. 78eee(a)(3)),'' after ''this
title'' in provisions preceding par. (1).
Subsec. (b)(6). Pub. L. 97-222, Sec. 3(c), substituted provisions
that the filing of a bankruptcy petition would not operate as a
stay, under subsec. (a) of this section, of the setoff by a
commodity broker, forward contract merchant, stockbroker, or
securities clearing agency of any mutual debt and claim under or in
connection with commodity, forward, or securities contracts that
constitutes the setoff of a claim against the debtor for a margin
or settlement payment arising out of commodity, forward, or
securities contracts against cash, securities, or other property
held by any of the above agents to margin, guarantee, or secure
commodity, forward, or securities contracts, for provisions that
such filing would not operate as a stay under subsection (a)(7) of
this section, of the setoff of any mutual debt and claim that are
commodity futures contracts, forward commodity contracts, leverage
transactions, options, warrants, rights to purchase or sell
commodity futures contracts or securities, or options to purchase
or sell commodities or securities.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 3007(a)(3) of Pub. L. 101-508 provided that: ''The
amendments made by this subsection (amending this section and
section 541 of this title) shall be effective upon date of
enactment of this Act (Nov. 5, 1990).''
Section 3008 of Pub. L. 101-508, provided that the amendments
made by subtitle A (Sec. 3001-3008) of title III of Pub. L.
101-508, amending this section, sections 541 and 1328 of this
title, and sections 1078, 1078-1, 1078-7, 1085, 1088, and 1091 of
Title 20, Education, and provisions set out as a note under section
1078-1 of Title 20, were to cease to be effective Oct. 1, 1996,
prior to repeal by Pub. L. 102-325, title XV, Sec. 1558, July 23,
1992, 106 Stat. 841.
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 257 of Pub. L. 99-554 effective 30 days
after Oct. 27, 1986, but not applicable to cases commenced under
this title before that date, see section 302(a), (c)(1) of Pub. L.
99-554, set out as a note under section 581 of Title 28, Judiciary
and Judicial Procedure.
Amendment by section 283 of Pub. L. 99-554 effective 30 days
after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554.
Section 5001(b) of Pub. L. 99-509 provided that: ''The amendments
made by subsection (a) of this section (amending this section)
shall apply only to petitions filed under section 362 of title 11,
United States Code, which are made after August 1, 1986.''
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
REPORT TO CONGRESSIONAL COMMITTEES
Section 5001(a) of Pub. L. 99-509 directed Secretary of
Transportation and Secretary of Commerce, before July 1, 1989, to
submit reports to Congress on the effects of amendments to 11
U.S.C. 362 by this subsection.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 106, 108, 109, 361, 363,
365, 505, 507, 542, 553, 557, 742, 901, 922, 1110, 1168, 1205 of
this title; title 26 section 7433; title 28 section 1334; title 46
section 31308.
-CITE-
11 USC Sec. 363 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-HEAD-
Sec. 363. Use, sale, or lease of property
-STATUTE-
(a) In this section, ''cash collateral'' means cash, negotiable
instruments, documents of title, securities, deposit accounts, or
other cash equivalents whenever acquired in which the estate and an
entity other than the estate have an interest and includes the
proceeds, products, offspring, rents, or profits of property and
the fees, charges, accounts or other payments for the use or
occupancy of rooms and other public facilities in hotels, motels,
or other lodging properties subject to a security interest as
provided in section 552(b) of this title, whether existing before
or after the commencement of a case under this title.
(b)(1) The trustee, after notice and a hearing, may use, sell, or
lease, other than in the ordinary course of business, property of
the estate.
(2) If notification is required under subsection (a) of section
7A of the Clayton Act in the case of a transaction under this
subsection, then -
(A) notwithstanding subsection (a) of such section, the
notification required by such subsection to be given by the
debtor shall be given by the trustee; and
(B) notwithstanding subsection (b) of such section, the
required waiting period shall end on the 15th day after the date
of the receipt, by the Federal Trade Commission and the Assistant
Attorney General in charge of the Antitrust Division of the
Department of Justice, of the notification required under such
subsection (a), unless such waiting period is extended -
(i) pursuant to subsection (e)(2) of such section, in the
same manner as such subsection (e)(2) applies to a cash tender
offer;
(ii) pursuant to subsection (g)(2) of such section; or
(iii) by the court after notice and a hearing.
(c)(1) If the business of the debtor is authorized to be operated
under section 721, 1108, 1203, 1204, or 1304 of this title and
unless the court orders otherwise, the trustee may enter into
transactions, including the sale or lease of property of the
estate, in the ordinary course of business, without notice or a
hearing, and may use property of the estate in the ordinary course
of business without notice or a hearing.
(2) The trustee may not use, sell, or lease cash collateral under
paragraph (1) of this subsection unless -
(A) each entity that has an interest in such cash collateral
consents; or
(B) the court, after notice and a hearing, authorizes such use,
sale, or lease in accordance with the provisions of this section.
(3) Any hearing under paragraph (2)(B) of this subsection may be
a preliminary hearing or may be consolidated with a hearing under
subsection (e) of this section, but shall be scheduled in
accordance with the needs of the debtor. If the hearing under
paragraph (2)(B) of this subsection is a preliminary hearing, the
court may authorize such use, sale, or lease only if there is a
reasonable likelihood that the trustee will prevail at the final
hearing under subsection (e) of this section. The court shall act
promptly on any request for authorization under paragraph (2)(B) of
this subsection.
(4) Except as provided in paragraph (2) of this subsection, the
trustee shall segregate and account for any cash collateral in the
trustee's possession, custody, or control.
(d) The trustee may use, sell, or lease property under subsection
(b) or (c) of this section only to the extent not inconsistent with
any relief granted under section 362(c), 362(d), 362(e), or 362(f)
of this title.
(e) Notwithstanding any other provision of this section, at any
time, on request of an entity that has an interest in property
used, sold, or leased, or proposed to be used, sold, or leased, by
the trustee, the court, with or without a hearing, shall prohibit
or condition such use, sale, or lease as is necessary to provide
adequate protection of such interest. This subsection also applies
to property that is subject to any unexpired lease of personal
property (to the exclusion of such property being subject to an
order to grant relief from the stay under section 362).
(f) The trustee may sell property under subsection (b) or (c) of
this section free and clear of any interest in such property of an
entity other than the estate, only if -
(1) applicable nonbankruptcy law permits sale of such property
free and clear of such interest;
(2) such entity consents;
(3) such interest is a lien and the price at which such
property is to be sold is greater than the aggregate value of all
liens on such property;
(4) such interest is in bona fide dispute; or
(5) such entity could be compelled, in a legal or equitable
proceeding, to accept a money satisfaction of such interest.
(g) Notwithstanding subsection (f) of this section, the trustee
may sell property under subsection (b) or (c) of this section free
and clear of any vested or contingent right in the nature of dower
or curtesy.
(h) Notwithstanding subsection (f) of this section, the trustee
may sell both the estate's interest, under subsection (b) or (c) of
this section, and the interest of any co-owner in property in which
the debtor had, at the time of the commencement of the case, an
undivided interest as a tenant in common, joint tenant, or tenant
by the entirety, only if -
(1) partition in kind of such property among the estate and
such co-owners is impracticable;
(2) sale of the estate's undivided interest in such property
would realize significantly less for the estate than sale of such
property free of the interests of such co-owners;
(3) the benefit to the estate of a sale of such property free
of the interests of co-owners outweighs the detriment, if any, to
such co-owners; and
(4) such property is not used in the production, transmission,
or distribution, for sale, of electric energy or of natural or
synthetic gas for heat, light, or power.
(i) Before the consummation of a sale of property to which
subsection (g) or (h) of this section applies, or of property of
the estate that was community property of the debtor and the
debtor's spouse immediately before the commencement of the case,
the debtor's spouse, or a co-owner of such property, as the case
may be, may purchase such property at the price at which such sale
is to be consummated.
(j) After a sale of property to which subsection (g) or (h) of
this section applies, the trustee shall distribute to the debtor's
spouse or the co-owners of such property, as the case may be, and
to the estate, the proceeds of such sale, less the costs and
expenses, not including any compensation of the trustee, of such
sale, according to the interests of such spouse or co-owners, and
of the estate.
(k) At a sale under subsection (b) of this section of property
that is subject to a lien that secures an allowed claim, unless the
court for cause orders otherwise the holder of such claim may bid
at such sale, and, if the holder of such claim purchases such
property, such holder may offset such claim against the purchase
price of such property.
(l) Subject to the provisions of section 365, trustee may use,
sell, or lease property under subsection (b) or (c) of this
section, or a plan under chapter 11, 12, or 13 of this title may
provide for the use, sale, or lease of property, notwithstanding
any provision in a contract, a lease, or applicable law that is
conditioned on the insolvency or financial condition of the debtor,
on the commencement of a case under this title concerning the
debtor, or on the appointment of or the taking possession by a
trustee in a case under this title or a custodian, and that
effects, or gives an option to effect, a forfeiture, modification,
or termination of the debtor's interest in such property.
(m) The reversal or modification on appeal of an authorization
under subsection (b) or (c) of this section of a sale or lease of
property does not affect the validity of a sale or lease under such
authorization to an entity that purchased or leased such property
in good faith, whether or not such entity knew of the pendency of
the appeal, unless such authorization and such sale or lease were
stayed pending appeal.
(n) The trustee may avoid a sale under this section if the sale
price was controlled by an agreement among potential bidders at
such sale, or may recover from a party to such agreement any amount
by which the value of the property sold exceeds the price at which
such sale was consummated, and may recover any costs, attorneys'
fees, or expenses incurred in avoiding such sale or recovering such
amount. In addition to any recovery under the preceding sentence,
the court may grant judgment for punitive damages in favor of the
estate and against any such party that entered into such an
agreement in willful disregard of this subsection.
(o) In any hearing under this section -
(1) the trustee has the burden of proof on the issue of
adequate protection; and
(2) the entity asserting an interest in property has the burden
of proof on the issue of the validity, priority, or extent of
such interest.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2572; Pub. L. 98-353, title
III, Sec. 442, July 10, 1984, 98 Stat. 371; Pub. L. 99-554, title
II, Sec. 257(k), Oct. 27, 1986, 100 Stat. 3115; Pub. L. 103-394,
title I, Sec. 109, title II, Sec. 214(b), 219(c), title V, Sec.
501(d)(8), Oct. 22, 1994, 108 Stat. 4113, 4126, 4129, 4144.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 363(a) of the House amendment defines ''cash collateral''
as defined in the Senate amendment. The broader definition of
''soft collateral'' contained in H.R. 8200 as passed by the House
is deleted to remove limitations that were placed on the use,
lease, or sale of inventory, accounts, contract rights, general
intangibles, and chattel paper by the trustee or debtor in
possession.
Section 363(c)(2) of the House amendment is derived from the
Senate amendment. Similarly, sections 363(c)(3) and (4) are
derived from comparable provisions in the Senate amendment in lieu
of the contrary procedure contained in section 363(c) as passed by
the House. The policy of the House amendment will generally require
the court to schedule a preliminary hearing in accordance with the
needs of the debtor to authorize the trustee or debtor in
possession to use, sell, or lease cash collateral. The trustee or
debtor in possession may use, sell, or lease cash collateral in the
ordinary course of business only ''after notice and a hearing.''
Section 363(f) of the House amendment adopts an identical
provision contained in the House bill, as opposed to an alternative
provision contained in the Senate amendment.
Section 363(h) of the House amendment adopts a new paragraph (4)
representing a compromise between the House bill and Senate
amendment. The provision adds a limitation indicating that a
trustee or debtor in possession sell jointly owned property only if
the property is not used in the production, transmission, or
distribution for sale, of electric energy or of natural or
synthetic gas for heat, light, or power. This limitation is
intended to protect public utilities from being deprived of power
sources because of the bankruptcy of a joint owner.
Section 363(k) of the House amendment is derived from the third
sentence of section 363(e) of the Senate amendment. The provision
indicates that a secured creditor may bid in the full amount of the
creditor's allowed claim, including the secured portion and any
unsecured portion thereof in the event the creditor is
undersecured, with respect to property that is subject to a lien
that secures the allowed claim of the sale of the property.
SENATE REPORT NO. 95-989
This section defines the right and powers of the trustee with
respect to the use, sale or lease of property and the rights of
other parties that have interests in the property involved. It
applies in both liquidation and reorganization cases.
Subsection (a) defines ''cash collateral'' as cash, negotiable
instruments, documents of title, securities, deposit accounts, or
other cash equivalents in which the estate and an entity other than
the estate have an interest, such as a lien or a co-ownership
interest. The definition is not restricted to property of the
estate that is cash collateral on the date of the filing of the
petition. Thus, if ''non-cash'' collateral is disposed of and the
proceeds come within the definition of ''cash collateral'' as set
forth in this subsection, the proceeds would be cash collateral as
long as they remain subject to the original lien on the
''non-cash'' collateral under section 552(b). To illustrate, rents
received from real property before or after the commencement of the
case would be cash collateral to the extent that they are subject
to a lien.
Subsection (b) permits the trustees to use, sell, or lease, other
than in the ordinary course of business, property of the estate
upon notice and opportunity for objections and hearing thereon.
Subsection (c) governs use, sale, or lease in the ordinary course
of business. If the business of the debtor is authorized to be
operated under Sec. 721, 1108, or 1304 of the bankruptcy code, then
the trustee may use, sell, or lease property in the ordinary course
of business or enter into ordinary course transactions without need
for notice and hearing. This power is subject to several
limitations. First, the court may restrict the trustee's powers in
the order authorizing operation of the business. Second, with
respect to cash collateral, the trustee may not use, sell, or lease
cash collateral except upon court authorization after notice and a
hearing, or with the consent of each entity that has an interest in
such cash collateral. The same preliminary hearing procedure in
the automatic stay section applies to a hearing under this
subsection. In addition, the trustee is required to segregate and
account for any cash collateral in the trustee's possession,
custody, or control.
Under subsections (d) and (e), the use, sale, or lease of
property is further limited by the concept of adequate protection.
Sale, use, or lease of property in which an entity other than the
estate has an interest may be effected only to the extent not
inconsistent with any relief from the stay granted to that
interest's holder. Moreover, the court may prohibit or condition
the use, sale, or lease as is necessary to provide adequate
protection of that interest. Again, the trustee has the burden of
proof on the issue of adequate protection. Subsection (e) also
provides that where a sale of the property is proposed, an entity
that has an interest in such property may bid at the sale thereof
and set off against the purchase price up to the amount of such
entity's claim. No prior valuation under section 506(a) would
limit this bidding right, since the bid at the sale would be
determinative of value.
Subsection (f) permits sale of property free and clear of any
interest in the property of an entity other than the estate. The
trustee may sell free and clear if applicable nonbankruptcy law
permits it, if the other entity consents, if the interest is a lien
and the sale price of the property is greater than the amount
secured by the lien, if the interest is in bona fide dispute, or if
the other entity could be compelled to accept a money satisfaction
of the interest in a legal or equitable proceeding. Sale under
this subsection is subject to the adequate protection requirement.
Most often, adequate protection in connection with a sale free and
clear of other interests will be to have those interests attach to
the proceeds of the sale.
At a sale free and clear of other interests, any holder of any
interest in the property being sold will be permitted to bid. If
that holder is the high bidder, he will be permitted to offset the
value of his interest against the purchase price of the property.
Thus, in the most common situation, a holder of a lien on property
being sold may bid at the sale and, if successful, may offset the
amount owed to him that is secured by the lien on the property (but
may not offset other amounts owed to him) against the purchase
price, and be liable to the trustee for the balance of the sale
price, if any.
Subsection (g) permits the trustee to sell free and clear of any
vested or contingent right in the nature of dower or curtesy.
Subsection (h) permits sale of a co-owner's interest in property
in which the debtor had an undivided ownership interest such as a
joint tenancy, a tenancy in common, or a tenancy by the entirety.
Such a sale is permissible only if partition is impracticable, if
sale of the estate's interest would realize significantly less for
the estate that sale of the property free of the interests of the
co-owners, and if the benefit to the estate of such a sale
outweighs any detriment to the co-owners. This subsection does not
apply to a co-owner's interest in a public utility when a
disruption of the utilities services could result.
Subsection (i) provides protections for co-owners and spouses
with dower, curtesy, or community property rights. It gives a
right of first refusal to the co-owner or spouse at the price at
which the sale is to be consummated.
Subsection (j) requires the trustee to distribute to the spouse
or co-owner the appropriate portion of the proceeds of the sale,
less certain administrative expenses.
Subsection (k) (enacted as (l)) permits the trustee to use, sell,
or lease property notwithstanding certain bankruptcy or ipso facto
clauses that terminate the debtor's interest in the property or
that work a forfeiture or modification of that interest. This
subsection is not as broad as the anti-ipso facto provision in
proposed 11 U.S.C. 541(c)(1).
Subsection (l) (enacted as (m)) protects good faith purchasers of
property sold under this section from a reversal on appeal of the
sale authorization, unless the authorization for the sale and the
sale itself were stayed pending appeal. The purchaser's knowledge
of the appeal is irrelevant to the issue of good faith.
Subsection (m) (enacted as (n)) is directed at collusive bidding
on property sold under this section. It permits the trustee to
void a sale if the price of the sale was controlled by an agreement
among potential bidders. The trustees may also recover the excess
of the value of the property over the purchase price, and may
recover any costs, attorney's fees, or expenses incurred in voiding
the sale or recovering the difference. In addition, the court is
authorized to grant judgment in favor of the estate and against the
collusive bidder if the agreement controlling the sale price was
entered into in willful disregard of this subsection. The
subsection does not specify the precise measure of damages, but
simply provides for punitive damages, to be fixed in light of the
circumstances.
-REFTEXT-
REFERENCES IN TEXT
Section 7A of the Clayton Act, referred to in subsec. (b)(2), is
classified to section 18a of Title 15, Commerce and Trade.
-MISC2-
AMENDMENTS
1994 - Subsec. (a). Pub. L. 103-394, Sec. 214(b), inserted ''and
the fees, charges, accounts or other payments for the use or
occupancy of rooms and other public facilities in hotels, motels,
or other lodging properties'' after ''property''.
Subsec. (b)(2). Pub. L. 103-394, Sec. 109, 501(d)(8)(A), struck
out ''(15 U.S.C. 18a)'' after ''Clayton Act'' and amended subpars.
(A) and (B) generally. Prior to amendment, subpars. (A) and (B)
read as follows:
''(A) notwithstanding subsection (a) of such section, such
notification shall be given by the trustee; and
''(B) notwithstanding subsection (b) of such section, the
required waiting period shall end on the tenth day after the date
of the receipt of such notification, unless the court, after notice
and hearing, orders otherwise.''
Subsec. (c)(1). Pub. L. 103-394, Sec. 501(d)(8)(B), substituted
''1203, 1204, or 1304'' for ''1304, 1203, or 1204''.
Subsec. (e). Pub. L. 103-394, Sec. 219(c), inserted at end ''This
subsection also applies to property that is subject to any
unexpired lease of personal property (to the exclusion of such
property being subject to an order to grant relief from the stay
under section 362).''
1986 - Subsec. (c)(1). Pub. L. 99-554, Sec. 257(k)(1), inserted
reference to sections 1203 and 1204 of this title.
Subsec. (l). Pub. L. 99-554, Sec. 257(k)(2), inserted reference
to chapter 12.
1984 - Subsec. (a). Pub. L. 98-353, Sec. 442(a), inserted
''whenever acquired'' after ''equivalents'' and ''and includes the
proceeds, products, offspring, rents, or profits of property
subject to a security interest as provided in section 552(b) of
this title, whether existing before or after the commencement of a
case under this title'' after ''interest''.
Subsec. (b). Pub. L. 98-353, Sec. 442(b), designated existing
provisions as par. (1) and added par. (2).
Subsec. (e). Pub. L. 98-353, Sec. 442(c), inserted '', with or
without a hearing,'' after ''court'' and struck out ''In any
hearing under this section, the trustee has the burden of proof on
the issue of adequate protection''.
Subsec. (f)(3). Pub. L. 98-353, Sec. 442(d), substituted ''all
liens on such property'' for ''such interest''.
Subsec. (h). Pub. L. 98-353, Sec. 442(e), substituted ''at the
time of'' for ''immediately before''.
Subsec. (j). Pub. L. 98-353, Sec. 442(f), substituted
''compensation'' for ''compenation''.
Subsec. (k). Pub. L. 98-353, Sec. 442(g), substituted ''unless
the court for cause orders otherwise the holder of such claim may
bid at such sale, and, if the holder'' for ''if the holder''.
Subsec. (l). Pub. L. 98-353, Sec. 442(h), substituted ''Subject
to the provisions of section 365, the trustee'' for ''The
trustee'', ''condition'' for ''conditions'', ''or the taking'' for
''a taking'', and ''interest'' for ''interests''.
Subsec. (n). Pub. L. 98-353, Sec. 442(i), substituted ''avoid''
for ''void'', ''avoiding'' for ''voiding'', and ''In addition to
any recovery under the preceding sentence, the court may grant
judgment for punitive damages in favor of the estate and against
any such party that entered into such an agreement in willful
disregard of this subsection'' for ''The court may grant judgment
in favor of the estate and against any such party that entered into
such agreement in willful disregard of this subsection for punitive
damages in addition to any recovery under the preceding sentence''.
Subsec. (o). Pub. L. 98-353, Sec. 442(j), added subsec. (o).
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-554 effective 30 days after Oct. 27,
1986, but not applicable to cases commenced under this title before
that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as
a note under section 581 of Title 28, Judiciary and Judicial
Procedure.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 106, 303, 361, 507, 541,
542, 552, 553, 557, 1111, 1129, 1205, 1206, 1303, 1304 of this
title.
-CITE-
11 USC Sec. 364 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-HEAD-
Sec. 364. Obtaining credit
-STATUTE-
(a) If the trustee is authorized to operate the business of the
debtor under section 721, 1108, 1203, 1204, or 1304 of this title,
unless the court orders otherwise, the trustee may obtain unsecured
credit and incur unsecured debt in the ordinary course of business
allowable under section 503(b)(1) of this title as an
administrative expense.
(b) The court, after notice and a hearing, may authorize the
trustee to obtain unsecured credit or to incur unsecured debt other
than under subsection (a) of this section, allowable under section
503(b)(1) of this title as an administrative expense.
(c) If the trustee is unable to obtain unsecured credit allowable
under section 503(b)(1) of this title as an administrative expense,
the court, after notice and a hearing, may authorize the obtaining
of credit or the incurring of debt -
(1) with priority over any or all administrative expenses of
the kind specified in section 503(b) or 507(b) of this title;
(2) secured by a lien on property of the estate that is not
otherwise subject to a lien; or
(3) secured by a junior lien on property of the estate that is
subject to a lien.
(d)(1) The court, after notice and a hearing, may authorize the
obtaining of credit or the incurring of debt secured by a senior or
equal lien on property of the estate that is subject to a lien only
if -
(A) the trustee is unable to obtain such credit otherwise; and
(B) there is adequate protection of the interest of the holder
of the lien on the property of the estate on which such senior or
equal lien is proposed to be granted.
(2) In any hearing under this subsection, the trustee has the
burden of proof on the issue of adequate protection.
(e) The reversal or modification on appeal of an authorization
under this section to obtain credit or incur debt, or of a grant
under this section of a priority or a lien, does not affect the
validity of any debt so incurred, or any priority or lien so
granted, to an entity that extended such credit in good faith,
whether or not such entity knew of the pendency of the appeal,
unless such authorization and the incurring of such debt, or the
granting of such priority or lien, were stayed pending appeal.
(f) Except with respect to an entity that is an underwriter as
defined in section 1145(b) of this title, section 5 of the
Securities Act of 1933, the Trust Indenture Act of 1939, and any
State or local law requiring registration for offer or sale of a
security or registration or licensing of an issuer of, underwriter
of, or broker or dealer in, a security does not apply to the offer
or sale under this section of a security that is not an equity
security.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2574; Pub. L. 99-554, title
II, Sec. 257(l), Oct. 27, 1986, 100 Stat. 3115; Pub. L. 103-394,
title V, Sec. 501(d)(9), Oct. 22, 1994, 108 Stat. 4144.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 364(f) of the House amendment is new. This provision
continues the exemption found in section 3(a)(7) of the Securities
Act of 1933 (15 U.S.C. 77c(a)(7)) for certificates of indebtedness
issued by a trustee in bankruptcy. The exemption applies to any
debt security issued under section 364 of title 11. The section
does not intend to change present law which exempts such securities
from the Trust Indenture Act, 15 U.S.C. 77aaa, et seq. (1976).
SENATE REPORT NO. 95-989
This section is derived from provisions in current law governing
certificates of indebtedness, but is much broader. It governs all
obtaining of credit and incurring of debt by the estate.
Subsection (a) authorizes the obtaining of unsecured credit and
the incurring of unsecured debt in the ordinary course of business
if the business of the debtor is authorized to be operated under
section 721, 1108, or 1304. The debts so incurred are allowable as
administrative expenses under section 503(b)(1). The court may
limit the estate's ability to incur debt under this subsection.
Subsection (b) permits the court to authorize the trustee to
obtain unsecured credit and incur unsecured debts other than in the
ordinary course of business, such as in order to wind up a
liquidation case, or to obtain a substantial loan in an operating
case. Debt incurred under this subsection is allowable as an
administrative expense under section 503(b)(1).
Subsection (c) is closer to the concept of certificates of
indebtedness in current law. It authorizes the obtaining of credit
and the incurring of debt with some special priority, if the
trustee is unable to obtain unsecured credit under subsection (a)
or (b). The various priorities are (1) with priority over any or
all administrative expenses: (2) secured by a lien on unencumbered
property of the estate; or (3) secured by a junior lien on
encumbered property. The priorities granted under this subsection
do not interfere with existing property rights.
Subsection (d) grants the court the authority to authorize the
obtaining of credit and the incurring of debt with a superiority,
that is a lien on encumbered property that is senior or equal to
the existing lien on the property. The court may authorize such a
superpriority only if the trustee is otherwise unable to obtain
credit, and if there is adequate protection of the original lien
holder's interest. Again, the trustee has the burden of proof on
the issue of adequate protection.
Subsection (e) provides the same protection for credit extenders
pending an appeal of an authorization to incur debt as is provided
under section 363(l) for purchasers: the credit is not affected on
appeal by reversal of the authorization and the incurring of the
debt were stayed pending appeal. The protection runs to a good
faith lender, whether or not he knew of the pendency of the appeal.
A claim arising as a result of lending or borrowing under this
section will be a priority claim, as defined in proposed section
507(a)(1), even if the claim is granted a super-priority over
administrative expenses and is to be paid in advance of other first
priority claims.
-REFTEXT-
REFERENCES IN TEXT
Section 5 of the Securities Act of 1933, referred to in subsec.
(f), is classified to section 77e of Title 15, Commerce and Trade.
The Trust Indenture Act of 1939, referred to in subsec. (f), is
title III of act May 27, 1933, ch. 38, as added Aug. 3, 1939, ch.
411, 53 Stat. 1149, as amended, which is classified generally to
subchapter III (Sec. 77aaa et seq.) of chapter 2A of Title 15. For
complete classification of this Act to the Code, see section 77aaa
of Title 15 and Tables.
-MISC2-
AMENDMENTS
1994 - Subsec. (a). Pub. L. 103-394, Sec. 501(d)(9)(A),
substituted ''1203, 1204, or 1304'' for ''1304, 1203, or 1204''.
Subsec. (f). Pub. L. 103-394, Sec. 501(d)(9)(B), struck out ''(15
U.S.C. 77e)'' after ''Act of 1933'' and ''(15 U.S.C. 77aaa et
seq.)'' after ''Act of 1939''.
1986 - Subsec. (a). Pub. L. 99-554 inserted reference to sections
1203 and 1204 of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-554 effective 30 days after Oct. 27,
1986, but not applicable to cases commenced under this title before
that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as
a note under section 581 of Title 28, Judiciary and Judicial
Procedure.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 106, 361, 507, 901, 921,
922, 1205, 1304 of this title.
-CITE-
11 USC Sec. 365 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-HEAD-
Sec. 365. Executory contracts and unexpired leases
-STATUTE-
(a) Except as provided in sections 765 and 766 of this title and
in subsections (b), (c), and (d) of this section, the trustee,
subject to the court's approval, may assume or reject any executory
contract or unexpired lease of the debtor.
(b)(1) If there has been a default in an executory contract or
unexpired lease of the debtor, the trustee may not assume such
contract or lease unless, at the time of assumption of such
contract or lease, the trustee -
(A) cures, or provides adequate assurance that the trustee will
promptly cure, such default;
(B) compensates, or provides adequate assurance that the
trustee will promptly compensate, a party other than the debtor
to such contract or lease, for any actual pecuniary loss to such
party resulting from such default; and
(C) provides adequate assurance of future performance under
such contract or lease.
(2) Paragraph (1) of this subsection does not apply to a default
that is a breach of a provision relating to -
(A) the insolvency or financial condition of the debtor at any
time before the closing of the case;
(B) the commencement of a case under this title;
(C) the appointment of or taking possession by a trustee in a
case under this title or a custodian before such commencement; or
(D) the satisfaction of any penalty rate or provision relating
to a default arising from any failure by the debtor to perform
nonmonetary obligations under the executory contract or unexpired
lease.
(3) For the purposes of paragraph (1) of this subsection and
paragraph (2)(B) of subsection (f), adequate assurance of future
performance of a lease of real property in a shopping center
includes adequate assurance -
(A) of the source of rent and other consideration due under
such lease, and in the case of an assignment, that the financial
condition and operating performance of the proposed assignee and
its guarantors, if any, shall be similar to the financial
condition and operating performance of the debtor and its
guarantors, if any, as of the time the debtor became the lessee
under the lease;
(B) that any percentage rent due under such lease will not
decline substantially;
(C) that assumption or assignment of such lease is subject to
all the provisions thereof, including (but not limited to)
provisions such as a radius, location, use, or exclusivity
provision, and will not breach any such provision contained in
any other lease, financing agreement, or master agreement
relating to such shopping center; and
(D) that assumption or assignment of such lease will not
disrupt any tenant mix or balance in such shopping center.
(4) Notwithstanding any other provision of this section, if there
has been a default in an unexpired lease of the debtor, other than
a default of a kind specified in paragraph (2) of this subsection,
the trustee may not require a lessor to provide services or
supplies incidental to such lease before assumption of such lease
unless the lessor is compensated under the terms of such lease for
any services and supplies provided under such lease before
assumption of such lease.
(c) The trustee may not assume or assign any executory contract
or unexpired lease of the debtor, whether or not such contract or
lease prohibits or restricts assignment of rights or delegation of
duties, if -
(1)(A) applicable law excuses a party, other than the debtor,
to such contract or lease from accepting performance from or
rendering performance to an entity other than the debtor or the
debtor in possession, whether or not such contract or lease
prohibits or restricts assignment of rights or delegation of
duties; and
(B) such party does not consent to such assumption or
assignment; or
(2) such contract is a contract to make a loan, or extend other
debt financing or financial accommodations, to or for the benefit
of the debtor, or to issue a security of the debtor;
(3) such lease is of nonresidential real property and has been
terminated under applicable nonbankruptcy law prior to the order
for relief; or
(4) such lease is of nonresidential real property under which
the debtor is the lessee of an aircraft terminal or aircraft gate
at an airport at which the debtor is the lessee under one or more
additional nonresidential leases of an aircraft terminal or
aircraft gate and the trustee, in connection with such assumption
or assignment, does not assume all such leases or does not assume
and assign all of such leases to the same person, except that the
trustee may assume or assign less than all of such leases with
the airport operator's written consent.
(d)(1) In a case under chapter 7 of this title, if the trustee
does not assume or reject an executory contract or unexpired lease
of residential real property or of personal property of the debtor
within 60 days after the order for relief, or within such
additional time as the court, for cause, within such 60-day period,
fixes, then such contract or lease is deemed rejected.
(2) In a case under chapter 9, 11, 12, or 13 of this title, the
trustee may assume or reject an executory contract or unexpired
lease of residential real property or of personal property of the
debtor at any time before the confirmation of a plan but the court,
on the request of any party to such contract or lease, may order
the trustee to determine within a specified period of time whether
to assume or reject such contract or lease.
(3) The trustee shall timely perform all the obligations of the
debtor, except those specified in section 365(b)(2), arising from
and after the order for relief under any unexpired lease of
nonresidential real property, until such lease is assumed or
rejected, notwithstanding section 503(b)(1) of this title. The
court may extend, for cause, the time for performance of any such
obligation that arises within 60 days after the date of the order
for relief, but the time for performance shall not be extended
beyond such 60-day period. This subsection shall not be deemed to
affect the trustee's obligations under the provisions of subsection
(b) or (f) of this section. Acceptance of any such performance
does not constitute waiver or relinquishment of the lessor's rights
under such lease or under this title.
(4) Notwithstanding paragraphs (1) and (2), in a case under any
chapter of this title, if the trustee does not assume or reject an
unexpired lease of nonresidential real property under which the
debtor is the lessee within 60 days after the date of the order for
relief, or within such additional time as the court, for cause,
within such 60-day period, fixes, then such lease is deemed
rejected, and the trustee shall immediately surrender such
nonresidential real property to the lessor.
(5) Notwithstanding paragraphs (1) and (4) of this subsection, in
a case under any chapter of this title, if the trustee does not
assume or reject an unexpired lease of nonresidential real property
under which the debtor is an affected air carrier that is the
lessee of an aircraft terminal or aircraft gate before the
occurrence of a termination event, then (unless the court orders
the trustee to assume such unexpired leases within 5 days after the
termination event), at the option of the airport operator, such
lease is deemed rejected 5 days after the occurrence of a
termination event and the trustee shall immediately surrender
possession of the premises to the airport operator; except that the
lease shall not be deemed to be rejected unless the airport
operator first waives the right to damages related to the
rejection. In the event that the lease is deemed to be rejected
under this paragraph, the airport operator shall provide the
affected air carrier adequate opportunity after the surrender of
the premises to remove the fixtures and equipment installed by the
affected air carrier.
(6) For the purpose of paragraph (5) of this subsection and
paragraph (f)(1) of this section, the occurrence of a termination
event means, with respect to a debtor which is an affected air
carrier that is the lessee of an aircraft terminal or aircraft gate
-
(A) the entry under section 301 or 302 of this title of an
order for relief under chapter 7 of this title;
(B) the conversion of a case under any chapter of this title to
a case under chapter 7 of this title; or
(C) the granting of relief from the stay provided under section
362(a) of this title with respect to aircraft, aircraft engines,
propellers, appliances, or spare parts, as defined in section
40102(a) of title 49, except for property of the debtor found by
the court not to be necessary to an effective reorganization.
(7) Any order entered by the court pursuant to paragraph (4)
extending the period within which the trustee of an affected air
carrier must assume or reject an unexpired lease of nonresidential
real property shall be without prejudice to -
(A) the right of the trustee to seek further extensions within
such additional time period granted by the court pursuant to
paragraph (4); and
(B) the right of any lessor or any other party in interest to
request, at any time, a shortening or termination of the period
within which the trustee must assume or reject an unexpired lease
of nonresidential real property.
(8) The burden of proof for establishing cause for an extension
by an affected air carrier under paragraph (4) or the maintenance
of a previously granted extension under paragraph (7)(A) and (B)
shall at all times remain with the trustee.
(9) For purposes of determining cause under paragraph (7) with
respect to an unexpired lease of nonresidential real property
between the debtor that is an affected air carrier and an airport
operator under which such debtor is the lessee of an airport
terminal or an airport gate, the court shall consider, among other
relevant factors, whether substantial harm will result to the
airport operator or airline passengers as a result of the extension
or the maintenance of a previously granted extension. In making
the determination of substantial harm, the court shall consider,
among other relevant factors, the level of actual use of the
terminals or gates which are the subject of the lease, the public
interest in actual use of such terminals or gates, the existence of
competing demands for the use of such terminals or gates, the
effect of the court's extension or termination of the period of
time to assume or reject the lease on such debtor's ability to
successfully reorganize under chapter 11 of this title, and whether
the trustee of the affected air carrier is capable of continuing to
comply with its obligations under section 365(d)(3) of this title.
(10) The trustee shall timely perform all of the obligations of
the debtor, except those specified in section 365(b)(2), first
arising from or after 60 days after the order for relief in a case
under chapter 11 of this title under an unexpired lease of personal
property (other than personal property leased to an individual
primarily for personal, family, or household purposes), until such
lease is assumed or rejected notwithstanding section 503(b)(1) of
this title, unless the court, after notice and a hearing and based
on the equities of the case, orders otherwise with respect to the
obligations or timely performance thereof. This subsection shall
not be deemed to affect the trustee's obligations under the
provisions of subsection (b) or (f). Acceptance of any such
performance does not constitute waiver or relinquishment of the
lessor's rights under such lease or under this title.
(e)(1) Notwithstanding a provision in an executory contract or
unexpired lease, or in applicable law, an executory contract or
unexpired lease of the debtor may not be terminated or modified,
and any right or obligation under such contract or lease may not be
terminated or modified, at any time after the commencement of the
case solely because of a provision in such contract or lease that
is conditioned on -
(A) the insolvency or financial condition of the debtor at any
time before the closing of the case;
(B) the commencement of a case under this title; or
(C) the appointment of or taking possession by a trustee in a
case under this title or a custodian before such commencement.
(2) Paragraph (1) of this subsection does not apply to an
executory contract or unexpired lease of the debtor, whether or not
such contract or lease prohibits or restricts assignment of rights
or delegation of duties, if -
(A)(i) applicable law excuses a party, other than the debtor,
to such contract or lease from accepting performance from or
rendering performance to the trustee or to an assignee of such
contract or lease, whether or not such contract or lease
prohibits or restricts assignment of rights or delegation of
duties; and
(ii) such party does not consent to such assumption or
assignment; or
(B) such contract is a contract to make a loan, or extend other
debt financing or financial accommodations, to or for the benefit
of the debtor, or to issue a security of the debtor.
(f)(1) Except as provided in subsection (c) of this section,
notwithstanding a provision in an executory contract or unexpired
lease of the debtor, or in applicable law, that prohibits,
restricts, or conditions the assignment of such contract or lease,
the trustee may assign such contract or lease under paragraph (2)
of this subsection; except that the trustee may not assign an
unexpired lease of nonresidential real property under which the
debtor is an affected air carrier that is the lessee of an aircraft
terminal or aircraft gate if there has occurred a termination
event.
(2) The trustee may assign an executory contract or unexpired
lease of the debtor only if -
(A) the trustee assumes such contract or lease in accordance
with the provisions of this section; and
(B) adequate assurance of future performance by the assignee of
such contract or lease is provided, whether or not there has been
a default in such contract or lease.
(3) Notwithstanding a provision in an executory contract or
unexpired lease of the debtor, or in applicable law that terminates
or modifies, or permits a party other than the debtor to terminate
or modify, such contract or lease or a right or obligation under
such contract or lease on account of an assignment of such contract
or lease, such contract, lease, right, or obligation may not be
terminated or modified under such provision because of the
assumption or assignment of such contract or lease by the trustee.
(g) Except as provided in subsections (h)(2) and (i)(2) of this
section, the rejection of an executory contract or unexpired lease
of the debtor constitutes a breach of such contract or lease -
(1) if such contract or lease has not been assumed under this
section or under a plan confirmed under chapter 9, 11, 12, or 13
of this title, immediately before the date of the filing of the
petition; or
(2) if such contract or lease has been assumed under this
section or under a plan confirmed under chapter 9, 11, 12, or 13
of this title -
(A) if before such rejection the case has not been converted
under section 1112, 1208, or 1307 of this title, at the time of
such rejection; or
(B) if before such rejection the case has been converted
under section 1112, 1208, or 1307 of this title -
(i) immediately before the date of such conversion, if such
contract or lease was assumed before such conversion; or
(ii) at the time of such rejection, if such contract or
lease was assumed after such conversion.
(h)(1)(A) If the trustee rejects an unexpired lease of real
property under which the debtor is the lessor and -
(i) if the rejection by the trustee amounts to such a breach as
would entitle the lessee to treat such lease as terminated by
virtue of its terms, applicable nonbankruptcy law, or any
agreement made by the lessee, then the lessee under such lease
may treat such lease as terminated by the rejection; or
(ii) if the term of such lease has commenced, the lessee may
retain its rights under such lease (including rights such as
those relating to the amount and timing of payment of rent and
other amounts payable by the lessee and any right of use,
possession, quiet enjoyment, subletting, assignment, or
hypothecation) that are in or appurtenant to the real property
for the balance of the term of such lease and for any renewal or
extension of such rights to the extent that such rights are
enforceable under applicable nonbankruptcy law.
(B) If the lessee retains its rights under subparagraph (A)(ii),
the lessee may offset against the rent reserved under such lease
for the balance of the term after the date of the rejection of such
lease and for the term of any renewal or extension of such lease,
the value of any damage caused by the nonperformance after the date
of such rejection, of any obligation of the debtor under such
lease, but the lessee shall not have any other right against the
estate or the debtor on account of any damage occurring after such
date caused by such nonperformance.
(C) The rejection of a lease of real property in a shopping
center with respect to which the lessee elects to retain its rights
under subparagraph (A)(ii) does not affect the enforceability under
applicable nonbankruptcy law of any provision in the lease
pertaining to radius, location, use, exclusivity, or tenant mix or
balance.
(D) In this paragraph, ''lessee'' includes any successor, assign,
or mortgagee permitted under the terms of such lease.
(2)(A) If the trustee rejects a timeshare interest under a
timeshare plan under which the debtor is the timeshare interest
seller and -
(i) if the rejection amounts to such a breach as would entitle
the timeshare interest purchaser to treat the timeshare plan as
terminated under its terms, applicable nonbankruptcy law, or any
agreement made by timeshare interest purchaser, the timeshare
interest purchaser under the timeshare plan may treat the
timeshare plan as terminated by such rejection; or
(ii) if the term of such timeshare interest has commenced, then
the timeshare interest purchaser may retain its rights in such
timeshare interest for the balance of such term and for any term
of renewal or extension of such timeshare interest to the extent
that such rights are enforceable under applicable nonbankruptcy
law.
(B) If the timeshare interest purchaser retains its rights under
subparagraph (A), such timeshare interest purchaser may offset
against the moneys due for such timeshare interest for the balance
of the term after the date of the rejection of such timeshare
interest, and the term of any renewal or extension of such
timeshare interest, the value of any damage caused by the
nonperformance after the date of such rejection, of any obligation
of the debtor under such timeshare plan, but the timeshare interest
purchaser shall not have any right against the estate or the debtor
on account of any damage occurring after such date caused by such
nonperformance.
(i)(1) If the trustee rejects an executory contract of the debtor
for the sale of real property or for the sale of a timeshare
interest under a timeshare plan, under which the purchaser is in
possession, such purchaser may treat such contract as terminated,
or, in the alternative, may remain in possession of such real
property or timeshare interest.
(2) If such purchaser remains in possession -
(A) such purchaser shall continue to make all payments due
under such contract, but may, offset against such payments any
damages occurring after the date of the rejection of such
contract caused by the nonperformance of any obligation of the
debtor after such date, but such purchaser does not have any
rights against the estate on account of any damages arising after
such date from such rejection, other than such offset; and
(B) the trustee shall deliver title to such purchaser in
accordance with the provisions of such contract, but is relieved
of all other obligations to perform under such contract.
(j) A purchaser that treats an executory contract as terminated
under subsection (i) of this section, or a party whose executory
contract to purchase real property from the debtor is rejected and
under which such party is not in possession, has a lien on the
interest of the debtor in such property for the recovery of any
portion of the purchase price that such purchaser or party has
paid.
(k) Assignment by the trustee to an entity of a contract or lease
assumed under this section relieves the trustee and the estate from
any liability for any breach of such contract or lease occurring
after such assignment.
(l) If an unexpired lease under which the debtor is the lessee is
assigned pursuant to this section, the lessor of the property may
require a deposit or other security for the performance of the
debtor's obligations under the lease substantially the same as
would have been required by the landlord upon the initial leasing
to a similar tenant.
(m) For purposes of this section 365 and sections 541(b)(2) and
362(b)(10), leases of real property shall include any rental
agreement to use real property.
(n)(1) If the trustee rejects an executory contract under which
the debtor is a licensor of a right to intellectual property, the
licensee under such contract may elect -
(A) to treat such contract as terminated by such rejection if
such rejection by the trustee amounts to such a breach as would
entitle the licensee to treat such contract as terminated by
virtue of its own terms, applicable nonbankruptcy law, or an
agreement made by the licensee with another entity; or
(B) to retain its rights (including a right to enforce any
exclusivity provision of such contract, but excluding any other
right under applicable nonbankruptcy law to specific performance
of such contract) under such contract and under any agreement
supplementary to such contract, to such intellectual property
(including any embodiment of such intellectual property to the
extent protected by applicable nonbankruptcy law), as such rights
existed immediately before the case commenced, for -
(i) the duration of such contract; and
(ii) any period for which such contract may be extended by
the licensee as of right under applicable nonbankruptcy law.
(2) If the licensee elects to retain its rights, as described in
paragraph (1)(B) of this subsection, under such contract -
(A) the trustee shall allow the licensee to exercise such
rights;
(B) the licensee shall make all royalty payments due under such
contract for the duration of such contract and for any period
described in paragraph (1)(B) of this subsection for which the
licensee extends such contract; and
(C) the licensee shall be deemed to waive -
(i) any right of setoff it may have with respect to such
contract under this title or applicable nonbankruptcy law; and
(ii) any claim allowable under section 503(b) of this title
arising from the performance of such contract.
(3) If the licensee elects to retain its rights, as described in
paragraph (1)(B) of this subsection, then on the written request of
the licensee the trustee shall -
(A) to the extent provided in such contract, or any agreement
supplementary to such contract, provide to the licensee any
intellectual property (including such embodiment) held by the
trustee; and
(B) not interfere with the rights of the licensee as provided
in such contract, or any agreement supplementary to such
contract, to such intellectual property (including such
embodiment) including any right to obtain such intellectual
property (or such embodiment) from another entity.
(4) Unless and until the trustee rejects such contract, on the
written request of the licensee the trustee shall -
(A) to the extent provided in such contract or any agreement
supplementary to such contract -
(i) perform such contract; or
(ii) provide to the licensee such intellectual property
(including any embodiment of such intellectual property to the
extent protected by applicable nonbankruptcy law) held by the
trustee; and
(B) not interfere with the rights of the licensee as provided
in such contract, or any agreement supplementary to such
contract, to such intellectual property (including such
embodiment), including any right to obtain such intellectual
property (or such embodiment) from another entity.
(o) In a case under chapter 11 of this title, the trustee shall
be deemed to have assumed (consistent with the debtor's other
obligations under section 507), and shall immediately cure any
deficit under, any commitment by the debtor to a Federal depository
institutions regulatory agency (or predecessor to such agency) to
maintain the capital of an insured depository institution, and any
claim for a subsequent breach of the obligations thereunder shall
be entitled to priority under section 507. This subsection shall
not extend any commitment that would otherwise be terminated by any
act of such an agency.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2574; Pub. L. 98-353, title
III, Sec. 362, 402-404, July 10, 1984, 98 Stat. 361, 367; Pub. L.
99-554, title II, Sec. 257(j), (m), 283(e), Oct. 27, 1986, 100
Stat. 3115, 3117; Pub. L. 100-506, Sec. 1(b), Oct. 18, 1988, 102
Stat. 2538; Pub. L. 101-647, title XXV, Sec. 2522(c), Nov. 29,
1990, 104 Stat. 4866; Pub. L. 102-365, Sec. 19(b)-(e), Sept. 3,
1992, 106 Stat. 982-984; Pub. L. 103-394, title II, Sec. 205(a),
219(a), (b), title V, Sec. 501(d)(10), Oct. 22, 1994, 108 Stat.
4122, 4128, 4145; Pub. L. 103-429, Sec. 1, Oct. 31, 1994, 108 Stat.
4377.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 365(b)(3) represents a compromise between H.R. 8200 as
passed by the House and the Senate amendment. The provision adopts
standards contained in section 365(b)(5) of the Senate amendment to
define adequate assurance of future performance of a lease of real
property in a shopping center.
Section 365(b)(4) of the House amendment indicates that after
default the trustee may not require a lessor to supply services or
materials without assumption unless the lessor is compensated as
provided in the lease.
Section 365(c)(2) and (3) likewise represent a compromise between
H.R. 8200 as passed by the House and the Senate amendment. Section
365(c)(2) is derived from section 365(b)(4) of the Senate amendment
but does not apply to a contract to deliver equipment as provided
in the Senate amendment. As contained in the House amendment, the
provision prohibits a trustee or debtor in possession from assuming
or assigning an executory contract of the debtor to make a loan, or
extend other debt financing or financial accommodations, to or for
the benefit of the debtor, or the issuance of a security of the
debtor.
Section 365(e) is a refinement of comparable provisions contained
in the House bill and Senate amendment. Sections 365(e)(1) and
(2)(A) restate section 365(e) of H.R. 8200 as passed by the House.
Sections 365(e)(2)(B) expands the section to permit termination of
an executory contract or unexpired lease of the debtor if such
contract is a contract to make a loan, or extend other debt
financing or financial accommodations, to or for the benefit of the
debtor, or for the issuance of a security of the debtor.
Characterization of contracts to make a loan, or extend other
debt financing or financial accommodations, is limited to the
extension of cash or a line of credit and is not intended to
embrace ordinary leases or contracts to provide goods or services
with payments to be made over time.
Section 365(f) is derived from H.R. 8200 as passed by the House.
Deletion of language in section 365(f)(3) of the Senate amendment
is done as a matter of style. Restrictions with respect to
assignment of an executory contract or unexpired lease are
superfluous since the debtor may assign an executory contract or
unexpired lease of the debtor only if such contract is first
assumed under section 364(f)(2)(A) of the House amendment.
Section 363(h) of the House amendment represents a modification
of section 365(h) of the Senate amendment. The House amendment
makes clear that in the case of a bankrupt lessor, a lessee may
remain in possession for the balance of the term of a lease and any
renewal or extension of the term only to the extent that such
renewal or extension may be obtained by the lessee without the
permission of the landlord or some third party under applicable
non-bankruptcy law.
SENATE REPORT NO. 95-989
Subsection (a) of this section authorizes the trustee, subject to
the court's approval, to assume or reject an executory contract or
unexpired lease. Though there is no precise definition of what
contracts are executory, it generally includes contracts on which
performance remains due to some extent on both sides. A note is
not usually an executory contract if the only performance that
remains is repayment. Performance on one side of the contract
would have been completed and the contract is no longer executory.
Because of the volatile nature of the commodities markets and the
special provisions governing commodity broker liquidations in
subchapter IV of chapter 7, the provisions governing distribution
in section 765(a) will govern if any conflict between those
provisions and the provisions of this section arise.
Subsections (b), (c), and (d) provide limitations on the
trustee's powers. Subsection (b) requires the trustee to cure any
default in the contract or lease and to provide adequate assurance
of future performance if there has been a default, before he may
assume. This provision does not apply to defaults under ipso facto
or bankruptcy clauses, which is a significant departure from
present law.
Subsection (b)(3) permits termination of leases entered into
prior to the effective date of this title in liquidation cases if
certain other conditions are met.
Subsection (b)(4) (enacted as (c)(2)) prohibits the trustee's
assumption of an executory contract requiring the other party to
make a loan or deliver equipment to or to issue a security of the
debtor. The purpose of this subsection is to make it clear that a
party to a transaction which is based upon the financial strength
of a debtor should not be required to extend new credit to the
debtor whether in the form of loans, lease financing, or the
purchase or discount of notes.
Subsection (b)(5) provides that in lease situations common to
shopping centers, protections must be provided for the lessor if
the trustee assumes the lease, including protection against decline
in percentage rents, breach of agreements with other tenants, and
preservation of the tenant mix. Protection for tenant mix will not
be required in the office building situation.
Subsection (c) prohibits the trustee from assuming or assigning a
contract or lease if applicable nonbankruptcy law excuses the other
party from performance to someone other than the debtor, unless the
other party consents. This prohibition applies only in the
situation in which applicable law excuses the other party from
performance independent of any restrictive language in the contract
or lease itself.
Subsection (d) places time limits on assumption and rejection.
In a liquidation case, the trustee must assume within 60 days (or
within an additional 60 days, if the court, for cause, extends the
time). If not assumed, the contract or lease is deemed rejected.
In a rehabilitation case, the time limit is not fixed in the bill.
However, if the other party to the contract or lease requests the
court to fix a time, the court may specify a time within which the
trustee must act. This provision will prevent parties in
contractual or lease relationships with the debtor from being left
in doubt concerning their status vis-a-vis the estate.
Subsection (e) invalidates ipso facto or bankruptcy clauses.
These clauses, protected under present law, automatically terminate
the contract or lease, or permit the other contracting party to
terminate the contract or lease, in the event of bankruptcy. This
frequently hampers rehabilitation efforts. If the trustee may
assume or assign the contract under the limitations imposed by the
remainder of the section, the contract or lease may be utilized to
assist in the debtor's rehabilitation or liquidation.
The unenforcibility (sic) of ipso facto or bankruptcy clauses
proposed under this section will require the courts to be sensitive
to the rights of the nondebtor party to executory contracts and
unexpired leases. If the trustee is to assume a contract or lease,
the court will have to insure that the trustee's performance under
the contract or lease gives the other contracting party the full
benefit of his bargain.
This subsection does not limit the application of an ipso facto
or bankruptcy clause if a new insolvency or receivership occurs
after the bankruptcy case is closed. That is, the clause is not
invalidated in toto, but merely made inapplicable during the case
for the purposes of disposition of the executory contract or
unexpired lease.
Subsection (f) partially invalidates restrictions on assignment
of contracts or leases by the trustee to a third party. The
subsection imposes two restrictions on the trustee: he must first
assume the contract or lease, subject to all the restrictions on
assumption found in the section, and adequate assurance of future
performance must be provided to the other contracting party.
Paragraph (3) of the subsection invalidates contractual provisions
that permit termination or modification in the event of an
assignment, as contrary to the policy of this subsection.
Subsection (g) defines the time as of which a rejection of an
executory contract or unexpired lease constitutes a breach of the
contract or lease. Generally, the breach is as of the date
immediately preceding the date of the petition. The purpose is to
treat rejection claims as prepetition claims. The remainder of the
subsection specifies different times for cases that are converted
from one chapter to another. The provisions of this subsection are
not a substantive authorization to breach or reject an assumed
contract. Rather, they prescribe the rules for the allowance of
claims in case an assumed contract is breached, or if a case under
chapter 11 in which a contract has been assumed is converted to a
case under chapter 7 in which the contract is rejected.
Subsection (h) protects real property lessees of the debtor if
the trustee rejects an unexpired lease under which the debtor is
the lessor (or sublessor). The subsection permits the lessee to
remain in possession of the leased property or to treat the lease
as terminated by the rejection. The balance of the term of the
lease referred to in paragraph (1) will include any renewal terms
that are enforceable by the tenant, but not renewal terms if the
landlord had an option to terminate. Thus, the tenant will not be
deprived of his estate for the term for which he bargained. If the
lessee remains in possession, he may offset the rent reserved under
the lease against damages caused by the rejection, but does not
have any affirmative rights against the estate for any damages
after the rejection that result from the rejection.
Subsection (i) gives a purchaser of real property under a land
installment sales contract similar protection. The purchaser, if
the contract is rejected, may remain in possession or may treat the
contract as terminated. If the purchaser remains in possession, he
is required to continue to make the payments due, but may offset
damages that occur after rejection. The trustee is required to
deliver title, but is relieved of all other obligations to perform.
A purchaser that treats the contract as terminated is granted a
lien on the property to the extent of the purchase price paid. A
party with a contract to purchase land from the debtor has a lien
on the property to secure the price already paid, if the contract
is rejected and the purchaser is not yet in possession.
Subsection (k) relieves the trustee and the estate of liability
for a breach of an assigned contract or lease that occurs after the
assignment.
HOUSE REPORT NO. 95-595
Subsection (c) prohibits the trustee from assuming or assigning a
contract or lease if applicable nonbankruptcy law excuses the other
party from performance to someone other than the debtor, unless the
other party consents. This prohibition applies only in the
situation in which applicable law excuses the other party from
performance independent of any restrictive language in the contract
or lease itself. The purpose of this subsection, at least in part,
is to prevent the trustee from requiring new advances of money or
other property. The section permits the trustee to continue to use
and pay for property already advanced, but is not designed to
permit the trustee to demand new loans or additional transfers of
property under lease commitments.
Thus, under this provision, contracts such as loan commitments
and letters of credit are nonassignable, and may not be assumed by
the trustee.
Subsection (e) invalidates ipso facto or bankruptcy clauses.
These clauses, protected under present law, automatically terminate
the contract or lease, or permit the other contracting party to
terminate the contract or lease, in the event of bankruptcy. This
frequently hampers rehabilitation efforts. If the trustee may
assume or assign the contract under the limitations imposed by the
remainder of the section, then the contract or lease may be
utilized to assist in the debtor's rehabilitation or liquidation.
The unenforceability of ipso facto or bankruptcy clauses proposed
under this section will require the courts to be sensitive to the
rights of the nondebtor party to executory contracts and unexpired
leases. If the trustee is to assume a contract or lease, the
courts will have to insure that the trustee's performance under the
contract or lease gives the other contracting party the full
benefit of his bargain. An example of the complexity that may
arise in these situations and the need for a determination of all
aspects of a particular executory contract or unexpired lease is
the shopping center lease under which the debtor is a tenant in a
shopping center.
A shopping center is often a carefully planned enterprise, and
though it consists of numerous individual tenants, the center is
planned as a single unit, often subject to a master lease or
financing agreement. Under these agreements, the tenant mix in a
shopping center may be as important to the lessor as the actual
promised rental payments, because certain mixes will attract higher
patronage of the stores in the center, and thus a higher rental for
the landlord from those stores that are subject to a percentage of
gross receipts rental agreement. Thus, in order to assure a
landlord of his bargained for exchange, the court would have to
consider such factors as the nature of the business to be conducted
by the trustee or his assignee, whether that business complies with
the requirements of any master agreement, whether the kind of
business proposed will generate gross sales in an amount such that
the percentage rent specified in the lease is substantially the
same as what would have been provided by the debtor, and whether
the business proposed to be conducted would result in a breach of
other clauses in master agreements relating, for example, to tenant
mix and location.
This subsection does not limit the application of an ipso facto
or bankruptcy clause to a new insolvency or receivership after the
bankruptcy case is closed. That is, the clause is not invalidated
in toto, but merely made inapplicable during the case for the
purpose of disposition of the executory contract or unexpired
lease.
AMENDMENTS
1994 - Subsec. (b)(2)(D). Pub. L. 103-394, Sec. 219(a), added
subpar. (D).
Subsec. (d)(6)(C). Pub. L. 103-429, Sec. 1(1), substituted
''section 40102(a) of title 49'' for ''section 101 of the Federal
Aviation Act of 1958 (49 App. U.S.C. 1301)''.
Pub. L. 103-394, Sec. 501(d)(10)(A), which directed the
substitution of ''section 40102 of title 49'' for ''the Federal
Aviation Act of 1958 (49 U.S.C. 1301)'', could not be executed
because the phrase ''(49 U.S.C. 1301)'' did not appear in text.
Subsec. (d)(10). Pub. L. 103-394, Sec. 219(b), added par. (10).
Subsec. (g)(2)(A), (B). Pub. L. 103-394, Sec. 501(d)(10)(B),
substituted ''1208, or 1307'' for ''1307, or 1208''.
Subsec. (h). Pub. L. 103-394, Sec. 205(a), amended subsec. (h)
generally. Prior to amendment, subsec. (h) read as follows:
''(h)(1) If the trustee rejects an unexpired lease of real
property of the debtor under which the debtor is the lessor, or a
timeshare interest under a timeshare plan under which the debtor is
the timeshare interest seller, the lessee or timeshare interest
purchaser under such lease or timeshare plan may treat such lease
or timeshare plan as terminated by such rejection, where the
disaffirmance by the trustee amounts to such a breach as would
entitle the lessee or timeshare interest purchaser to treat such
lease or timeshare plan as terminated by virtue of its own terms,
applicable nonbankruptcy law, or other agreements the lessee or
timeshare interest purchaser has made with other parties; or, in
the alternative, the lessee or timeshare interest purchaser may
remain in possession of the leasehold or timeshare interest under
any lease or timeshare plan the term of which has commenced for the
balance of such term and for any renewal or extension of such term
that is enforceable by such lessee or timeshare interest purchaser
under applicable nonbankruptcy law.
''(2) If such lessee or timeshare interest purchaser remains in
possession as provided in paragraph (1) of this subsection, such
lessee or timeshare interest purchaser may offset against the rent
reserved under such lease or moneys due for such timeshare interest
for the balance of the term after the date of the rejection of such
lease or timeshare interest, and any such renewal or extension
thereof, any damages occurring after such date caused by the
nonperformance of any obligation of the debtor under such lease or
timeshare plan after such date, but such lessee or timeshare
interest purchaser does not have any rights against the estate on
account of any damages arising after such date from such rejection,
other than such offset.''
Subsec. (n)(1)(B). Pub. L. 103-394, Sec. 501(d)(10)(C),
substituted ''a right to'' for ''a right to to''.
Subsec. (o). Pub. L. 103-394, Sec. 501(d)(10)(D), substituted ''a
Federal depository institutions regulatory agency (or predecessor
to such agency)'' for ''the Federal Deposit Insurance Corporation,
the Resolution Trust Corporation, the Director of the Office of
Thrift Supervision, the Comptroller of the Currency, or the Board
of Governors of the Federal Reserve System, or its predecessors or
successors,''.
Subsec. (p). Pub. L. 103-429, Sec. 1(2), which directed the
amendment of subsec. (p) by substituting ''section 40102(a) of
title 49'' for ''section 101(3) of the Federal Aviation Act of
1958'', could not be executed because subsec. (p) was repealed by
Pub. L. 103-394, Sec. 501(d)(10)(E). See below.
Pub. L. 103-394, Sec. 501(d)(10)(E), struck out subsec. (p),
which read as follows: ''In this section, 'affected air carrier'
means an air carrier, as defined in section 101(3) of the Federal
Aviation Act of 1958, that holds 65 percent or more in number of
the aircraft gates at an airport -
''(1) which is a Large Air Traffic Hub as defined by the
Federal Aviation Administration in Report FAA-AP 92-1, February
1992; and
''(2) all of whose remaining aircraft gates are leased or under
contract on the date of enactment of this subsection.''
1992 - Subsec. (c)(4). Pub. L. 102-365, Sec. 19(c), added par.
(4).
Subsec. (d)(5) to (9). Pub. L. 102-365, Sec. 19(b), added pars.
(5) to (9).
Subsec. (f)(1). Pub. L. 102-365, Sec. 19(d), substituted for
period at end ''; except that the trustee may not assign an
unexpired lease of nonresidential real property under which the
debtor is an affected air carrier that is the lessee of an aircraft
terminal or aircraft gate if there has occurred a termination
event.''
Subsec. (p). Pub. L. 102-365, Sec. 19(e), added subsec. (p).
1990 - Subsec. (o). Pub. L. 101-647 added subsec. (o).
1988 - Subsec. (n). Pub. L. 100-506 added subsec. (n).
1986 - Subsec. (c)(1)(A). Pub. L. 99-554, Sec. 283(e)(1), struck
out ''or an assignee of such contract or lease'' after ''debtor in
possession''.
Subsec. (c)(3). Pub. L. 99-554, Sec. 283(e)(2), inserted ''is''
after ''lease'' and ''and'' after ''property''.
Subsecs. (d)(2), (g)(1). Pub. L. 99-554, Sec. 257(j), (m)(1),
inserted reference to chapter 12.
Subsec. (g)(2). Pub. L. 99-554, Sec. 257(m)(2), inserted
references to chapter 12 and section 1208 of this title.
Subsec. (h)(1). Pub. L. 99-554, Sec. 283(e)(2), inserted ''or
timeshare plan'' after ''to treat such lease''.
Subsec. (m). Pub. L. 99-554, Sec. 283(e)(3), substituted
''362(b)(10)'' for ''362(b)(9)''.
1984 - Subsec. (a). Pub. L. 98-353, Sec. 362(a), amended subsec.
(a) generally, making minor changes.
Subsec. (b). Pub. L. 98-353, Sec. 362(a), amended subsec. (b)
generally, inserting in par. (3) reference to par. (2)(B) of
subsec. (f) of this section, in par. (3)(A) inserting provisions
relating to financial condition and operating performance in the
case of an assignment, and in par. (3)(C) substituting ''that
assumption or assignment of such lease is subject to all the
provisions thereof, including (but not limited to) provisions such
as a radius, location, use, or exclusivity provision, and will not
breach any such provision contained in any other lease, financing
agreement, or master agreement relating to such shopping center''
for ''that assumption or assignment of such lease will not breach
substantially any provision, such as a radius, location, use, or
exclusivity provision, in any other lease, financing agreement, or
master agreement relating to such shopping center''.
Subsec. (c). Pub. L. 98-353, Sec. 362(a), amended subsec. (c)
generally, substituting in par. (1)(A) ''applicable law excuses a
party, other than the debtor, to such contract or lease from
accepting performance from or rendering performance to an entity
other than the debtor or the debtor in possession or an assignee of
such contract or lease, whether or not such contract or lease
prohibits or restricts assignment of rights or delegation of
duties'' for ''applicable law excuses a party, other than the
debtor, to such contract or lease from accepting performance from
or rendering performance to the trustee or an assignee of such
contract or lease, whether or not such contract or lease prohibits
or restricts assignment of rights or delegation of duties'' and
adding par. (3).
Subsec. (d). Pub. L. 98-353, Sec. 362(a), amended subsec. (d)
generally, inserting in par. (1) reference to residential real
property or personal property of the debtor, inserting in par. (2)
reference to residential real property or personal property of the
debtor, and adding pars. (3) and (4).
Subsec. (h)(1). Pub. L. 98-353, Sec. 402, amended par. (1)
generally. Prior to amendment, par. (1) read as follows: ''If the
trustee rejects an unexpired lease of real property of the debtor
under which the debtor is the lessor, the lessee under such lease
may treat the lease as terminated by such rejection, or, in the
alternative, may remain in possession for the balance of the term
of such lease and any renewal or extension of such term that is
enforceable by such lessee under applicable nonbankruptcy law.''
Subsec. (h)(2). Pub. L. 98-353, Sec. 403, amended par. (2)
generally. Prior to amendment, par. (2) read as follows: ''If such
lessee remains in possession, such lessee may offset against the
rent reserved under such lease for the balance of the term after
the date of the rejection of such lease, and any such renewal or
extension, any damages occurring after such date caused by the
nonperformance of any obligation of the debtor after such date, but
such lessee does not have any rights against the estate on account
of any damages arising after such date from such rejection, other
than such offset.''
Subsec. (i)(1). Pub. L. 98-353, Sec. 404, amended par. (1)
generally, inserting provisions relating to timeshare interests
under timeshare plans.
Subsecs. (l), (m). Pub. L. 98-353, Sec. 362(b), added subsecs.
(l) and (m).
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Section 19(f) of Pub. L. 102-365 provided that: ''The amendments
made by this section (amending this section) shall be in effect for
the 12-month period that begins on the date of enactment of this
Act (Sept. 3, 1992) and shall apply in all proceedings involving an
affected air carrier (as defined in section 365(p) of title 11,
United States Code, as amended by this section) that are pending
during such 12-month period. Not later than 9 months after the
date of enactment, the Administrator of the Federal Aviation
Administration shall report to the Committee on Commerce, Science,
and Transportation and Committee on the Judiciary of the Senate and
the Committee on the Judiciary and Committee on Public Works and
Transportation of the House of Representatives on whether this
section shall apply to proceedings that are commenced after such
12-month period.''
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-506 effective Oct. 18, 1988, but not
applicable to any case commenced under this title before such date,
see section 2 of Pub. L. 100-506, set out as a note under section
101 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 257 of Pub. L. 99-554 effective 30 days
after Oct. 27, 1986, but not applicable to cases commenced under
this title before that date, see section 302(a), (c)(1) of Pub. L.
99-554, set out as a note under section 581 of Title 28, Judiciary
and Judicial Procedure.
Amendment by section 283 of Pub. L. 99-554 effective 30 days
after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
AIRPORT LEASES
Section 19(a) of Pub. L. 102-365 provided that: ''Congress finds
that -
''(1) there are major airports served by an air carrier that
has leased a substantial majority of the airport's gates;
''(2) the commerce in the region served by such a major airport
can be disrupted if the air carrier that leases most of its gates
enters bankruptcy and either discontinues or materially reduces
service; and
''(3) it is important that such airports be empowered to
continue service in the event of such a disruption.''
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 106, 348, 363, 502, 541,
553, 555, 556, 557, 559, 560, 744, 901, 929, 1110, 1123, 1124,
1167, 1168, 1169, 1222, 1322 of this title.
-CITE-
11 USC Sec. 366 01/06/03
-EXPCITE-
TITLE 11 - BANKRUPTCY
CHAPTER 3 - CASE ADMINISTRATION
SUBCHAPTER IV - ADMINISTRATIVE POWERS
-HEAD-
Sec. 366. Utility service
-STATUTE-
(a) Except as provided in subsection (b) of this section, a
utility may not alter, refuse, or discontinue service to, or
discriminate against, the trustee or the debtor solely on the basis
of the commencement of a case under this title or that a debt owed
by the debtor to such utility for service rendered before the order
for relief was not paid when due.
(b) Such utility may alter, refuse, or discontinue service if
neither the trustee nor the debtor, within 20 days after the date
of the order for relief, furnishes adequate assurance of payment,
in the form of a deposit or other security, for service after such
date. On request of a party in interest and after notice and a
hearing, the court may order reasonable modification of the amount
of the deposit or other security necessary to provide adequate
assurance of payment.
-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2578; Pub. L. 98-353, title
III, Sec. 443, July 10, 1984, 98 Stat. 373.)
-MISC1-
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 366 of the House amendment represents a compromise
between comparable provisions contained in H.R. 8200 as passed by
the House and the Senate amendment. Subsection (a) is modified so
that the applicable date is the date of the order for relief rather
than the date of the filing of the petition. Subsection (b)
contains a similar change but is otherwise derived from section
366(b) of the Senate amendment, with the exception that a time
period for continued service of 20 days rather than 10 days is
adopted.
SENATE REPORT NO. 95-989
This section gives debtors protection from a cut-off of service
by a utility because of the filing of a bankruptcy case. This
section is intended to cover utilities that have some special
position with respect to the debtor, such as an electric company,
gas supplier, or telephone company that is a monopoly in the area
so that the debtor cannot easily obtain comparable service from
another utility. The utility may not alter, refuse, or discontinue
service because of the nonpayment of a bill that would be
discharged in the bankruptcy case. Subsection (b) protects the
utility company by requiring the trustee or the debtor to provide,
within ten days, adequate assurance of payment for service provided
after the date of the petition.
AMENDMENTS
1984 - Subsec. (a). Pub. L. 98-353 inserted ''of the commencement
of a case under this title or'' after ''basis''.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 106, 901 of this title.
-CITE-
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| Enviado por: | El remitente no desea revelar su nombre |
| Idioma: | inglés |
| País: | Estados Unidos |
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