H.R. 109-31 - Pages 1-10


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Union Calendar No. 14

109TH CONGRESS

1ST SESSION

HOUSE OF REPRESENTATIVES

Rept. 109-31

Part 1

BANKRUPTCY ABUSE PREVENTION AND

CONSUMER PROTECTION ACT OF 2005

R E P O R T

of the

COMMITTEE ON THE JUDICIARY

HOUSE OF REPRESENTATIVES

to accompany

S. 256

together with

DISSENTING VIEWS, ADDITIONAL DISSENTING

VIEWS, AND ADDITIONAL MINORITY VIEWS

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

House on the State of the Union and ordered to be printed

Union Calendar No. 14

109TH CONGRESS

1ST SESSION

HOUSE OF REPRESENTATIVES

Rept. 109-31

Part 1

BANKRUPTCY ABUSE PREVENTION AND

CONSUMER PROTECTION ACT OF 2005

R E P O R T

of the

COMMITTEE ON THE JUDICIARY

HOUSE OF REPRESENTATIVES

to accompany

S. 256

together with

DISSENTING VIEWS, ADDITIONAL DISSENTING

VIEWS, AND ADDITIONAL MINORITY VIEWS

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

House on the State of the Union and ordered to be printed

U.S. GOVERNMENT PRINTING OFFICE

20–436

WASHINGTON : 2005

20–436

For sale by the Superintendent of Documents,

U.S. Government Printing Office Internet: bookstore.gpo.gov

Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP,

Washington, DC 20402–0001

Union Calendar No. 14

109TH CONGRESS

1ST SESSION

}

HOUSE OF REPRESENTATIVES

{

Rept. 109-31

Part 1

BANKRUPTCY ABUSE PREVENTION AND

CONSUMER PROTECTION ACT OF 2005

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

House on the State of the Union and ordered to be printed

Mr. Sensenbrenner, from the Committee on the Judiciary,

submitted the following

R E P O R T

together with

DISSENTING VIEWS, ADDITIONAL DISSENTING

VIEWS, AND ADDITIONAL MINORITY VIEWS

[To accompany S. 256]

[Including cost estimate of the Congressional Budget Office]

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

CONTENTS	PAGE
Purpose and Summary	2
Background and Need for the Legislation	3
Factors Supporting Bankruptcy Reform	3
Prior Congressional Consideration of Bankruptcy Reform	6
Highlights of Bankruptcy Reforms	10
Consumer Creditor Bankruptcy Protections	10
Needs-Based Reforms	10
Other Reforms Dealing with Abuse	15
Protections for Creditors—In General	16
Enforcement of Family Support Obligations	16
Protections for Secured Creditors	17
Protections for Lessors	17
Consumer Debtor Bankruptcy Protections	17
Highlights of Business Bankruptcy Reforms	18
Protections Against Excessive Payments To a Debtor's Insiders and Fraud by a Debtor's Management	19
Protections for Employees	19
Small Business/Single Asset Real Estate Debtors	19
Financial Contracts	20
Family Farmers and Family Fishermen	20
Transnational Insolvencies	20
Protections for Small Business Owners	21
Health Care Providers	21
Other Provisions Having General Impact	21
Privacy Protections	21
Additional Bankruptcy Judgeships	21
Miscellaneous Provisions	22
Hearings	22
Committee Consideration	22
Votes of the Committee	22
1. Conyers — pay day loans made to servicemembers	22
2. Watt and Delahunt — disallowing certain claims	23
3. Watt — postsecondary education expenses	24
4. Nadler — extension of time to assume or reject nonresidential real property	25
5. Schiff — no 707(b)(2) dismissal for identity theft victims	26
6. Delahunt — avoidance of transfers made within 10 years of the bankruptcy filing to an asset protection trust (BC § 548)	27
7. Berman & Meehan — exemption for medically distressed debtors (BC § 522)	27
8. Nadler — nondischarge of debts related to civil rights violations (BC § 523(a) (resubmitted)	28
9. Meehan — no 707(b)(2) dismissal for certain disabled veterans	29
10. Jackson Lee — increase expense allowance for private schools	30
11. Jackson Lee — en bloc amendments - debts related to (1) sex offenses against minors; (2) tobacco claims (BC 523(a)	31
12. Motion to report S. 256 favorably	32
Committee Oversight Findings	33
New Budget Authority and Tax Expenditures	33
Congressional Budget Office Cost Estimate	33
Summary	34
Major Provisions	34
Estimated Cost to the Federal Government	35
Basis of Estimate	36
Spending Subject to Appropriation	37
Means-Testing (Section 102)	37
Studies by the U.S. Trustees, Government Accountability Office (GAO), and Small Business Administration (SBA) (Sections 103, 205, 230, and 443)	37
Debtor Financial Management Test Training Program (Section 105)	38
Credit Counseling Certification (Section 106)	38
Maintenance of Tax Returns (Section 315)	38
Changes in Bankruptcy Filing Fees (Sections 325 and 418)	38
Current Law Filing Fees	38
Distribution of Filing Fees	39
Fee Waivers	39
U.S. Trustee Site Visits in Chapter 11 Cases (Section 439)	39
Compilation and Publication of Bankruptcy Data and Statistics (Sections 601-602)	39
Audit Procedures (Section 603)	40
Additional Judgeships—Support Costs (Section 1223)	40
Federal Trade Commission Toll-Free Hotline (Section 1301)	40
Direct Spending and Revenues	40
Additional Judgeships (Section 1223)	41
Changes in Bankruptcy Filing Fees (Sections 102, 325, and 418))	41
Tax Provisions (Title VII)	42
Estimated Impact on State, Local, and Tribal Governments	42
Mandates	42
Other Impacts	42
Domestic Support Obligations	42
Exemptions	43
Time Limits on Tax Collection	43
Taxes and Administrative Expenses	43
Tax Return Filing	43
Priority of Payments	44
Municipal Bankruptcy	44
Fuel Tax Claims	44
Single Asset Cases	44
Estimated Impact on the Private Sector	44
Mandates	44
Requirements For Attorneys	45
Notice and Disclosure Requirements	45
Prohibition on Consumer Reporting Agencies	46
Requirement for Closing Credit Accounts	46
Other Impacts on the Private Sector	46
Previous CBO Estimate	46
Estimate Prepared By	47
Estimate Approved By	47
Performance Goals and Objectives	47
Constitutional Authority Statement	47
Section-by-Section Analysis and Discussion	47
101. Conversion	47
102. Dismissal or Conversion	48
103. Sense of Congress and Study	53
104. Notice of Alternatives	53
105. Debtor Financial Management Training Test Program	54
106. Credit Counseling	54
107. Schedules of Reasonable and Necessary Expenses	56
201. Promotion of Alternative Dispute Resolution	57
202. Effect of Discharge	57
203. Discouraging Abuse of Reaffirmation Agreement Practices	57
204. Preservation of Claims and Defenses Upon Sale of Predatory Loans	58
205. GAO Study and Report on Reaffirmation Agreement Process	59
211. Definition of Domestic Support Obligation	59
212. Priorities for Claims for Domestic Support Obligations	59
213. Requirements To Obtain Confirmation and Discharge in Cases Involving Domestic Support Obligations	60
214. Exceptions To Automatic Stay in Domestic Support Proceedings	61
215. Nondischargeability of Certain Debts for Alimony, Maintenance, and Support	61
216. Continued Liability of Property	61
217. Protection of Domestic Support Claims Against Preferential Transfer Motions	62
218. Disposable Income Defined	62
219. Collection of Child Support	62
220. Nondischargeability of Certain Educational Benefits and Loans	62
221. Amendments To Discourage Abusive Bankruptcy Filings	62
222. Sense of Congress	63
223. Additional Amendments to Title 11, United States Code	63
224. Protection of Retirement Savings in Bankruptcy	63
225. Protection of Education Savings in Bankruptcy	65
226. Definitions.	65
227. Restrictions on Debt Relief Agencies	66
228. Disclosures	66
229. Requirements for Debt Relief Agencies	66
230. GAO Study	67
231. Protection of Personally Identifiable Information	67
232. Consumer Privacy Ombudsman	68
233. Prohibition on Disclosure of Name of Minor Children	68
234. Protection of Personal Information	68
301. Technical Amendments	69
302. Discouraging Bad Faith Repeat Filings	69
303. Curbing Abusive Filings	70
304. Debtor Retention of Personal Property Security	70
305. Relief from the Automatic Stay When the Debtor Does Not Complete Intended Surrender of Consumer Debt Collateral	71
306. Giving Secured Creditors Fair Treatment in Chapter 13.Subsection	71
307. Domiciliary Requirements for Exemptions	72
308. Reduction of Homestead Exemption for Fraud	72
309. Protecting Secured Creditors in Chapter 13 Cases	73
310. Limitation on Luxury Goods.	74
311. Automatic Stay	74
312. Extension of Period Between Bankruptcy Discharges	76
313. Definition of Household Goods and Antiques	76
314. Debt Incurred To Pay Nondischargeable Debts	76
315. Giving Creditors Fair Notice in Chapters 7 and 13 Cases	77
316. Dismissal for Failure To Timely File Schedules or Provide Required Information	79
317.Adequate Time To Prepare for Hearing on Confirmation of the Plan	79
318. Chapter 13 Plans To Have a 5-Year Duration in Certain Cases	79
319. Sense of Congress Regarding Expansion of Rule 9011 of the Federal Rules of Bankruptcy Procedure	80
320. Prompt Relief from Stay in Individual Cases	80
321. Chapter 11 Cases Filed by Individuals	80
322. Limitations on Homestead Exemption	81
323. Excluding Employee Benefit Plan Participant Contributions and Other Property from the Estate	82
324. Exclusive Jurisdiction in Matters Involving Bankruptcy Professionals	82
325. United States Trustee Program Filing Fee Increase	82
326. Sharing of Compensation	83
327. Fair Valuation of Collateral	83
328. Defaults Based on Nonmonetary Obligations	83
329. Clarification of Postpetition Wages and Benefits	84
330. Delay of Discharge During Pendency of Certain Proceedings	84
331. Limitation on Retention Bonuses, Severance Pay, and Certain Other Payments	84
332. Fraudulent Involuntary Bankruptcy	84
401. Adequate Protection for Investors	86
402. Meetings of Creditors and Equity Security Holders	86
403. Protection of Refinance of Security Interest	86
404. Executory Contracts and Unexpired Leases	86
405. Creditors and Equity Security Holders Committees	87
406. Amendment to Section 546 of Title 11, United States Code	87
407. Amendments to Section 330(a) of Title 11, United States Code	87
408. Postpetition Disclosure and Solicitation	87
409. Preferences.	88
410. Venue of Certain Proceedings	88
411. Period for Filing Plan under Chapter 11	88
412. Fees Arising from Certain Ownership Interests	88
413. Creditor Representation at First Meeting of Creditors	88
414. Definition of Disinterested Person	89
415. Factors for Compensation of Professional Persons	89
416. Appointment of Elected Trustee	89
417. Utility Service. Section	89
418. Bankruptcy Fees	89
419. More Complete Information Regarding Assets of the Estate	90
431. Flexible Rules for Disclosure Statement and Plan	90
432. Definitions	90
433. Standard Form Disclosure Statement and Plan	91
434.Uniform National Reporting Requirements	91
435.Uniform Reporting Rules and Forms for Small Business Cases	91
436. Duties in Small Business Cases	91
437. Plan Filing and Confirmation Deadlines	92
438. Plan Confirmation Deadline	92
439. Duties of the United States Trustee	92
440. Scheduling Conferences	93
441. Serial Filer Provisions	93
442. Expanded Grounds for Dismissal or Conversion and Appointment of Trustee	94
443. Study of Operation of Title 11, United States Code, with Respect to Small Businesses	95
444. Payment of Interest	95
445. Priority for Administrative Expenses	96
446. Duties with Respect to a Debtor Who Is a Plan Administrator of an Employee Benefit Plan	96
447. Appointment of Committee of Retired Employees	96
501. Petition and Proceedings Related to Petition	96
502. Applicability of Other Sections to Chapter 9	96
601. Improved Bankruptcy Statistics	97
602. Uniform Rules for the Collection of Bankruptcy Data	98
603. Audit Procedures	98
604. Sense of Congress Regarding Availability of Bankruptcy Data	99
701. Treatment of Certain Tax Liens	100
702. Treatment of Fuel Tax Claims	100
703.Notice of Request for a Determination of Taxes	100
704. Rate of Interest on Tax Claims	101
705. Priority of Tax Claims	101
706. Priority Property Taxes Incurred	101
707. No Discharge of Fraudulent Taxes in Chapter 13	101
708. No Discharge of Fraudulent Taxes in Chapter 11	102
709. Stay of Tax Proceedings Limited to Prepetition Taxes	102
710. Periodic Payment of Taxes in Chapter 11 Cases	102
711. Avoidance of Statutory Liens Prohibited	102
712. Payment of Taxes in the Conduct of Business	102
713. Tardily Filed Priority Tax Claims	103
714. Income Tax Returns Prepared by Tax Authorities	103
715. Discharge of the Estate's Liability for Unpaid Taxes	103
716. Requirement to File Tax Returns to Confirm Chapter 13 Plans	104
717. Standards for Tax Disclosure	104
718. Setoff of Tax Refunds	104
719. Special Provisions Related to the Treatment of State and Local Taxes	105
720. Dismissal for Failure to Timely File Tax Returns	105
801. Amendment to add chapter 15 to title 11, United States Code	105
1501. Purpose and scope of application	106
1502. Definitions	107
1503. International obligations of the United States	107
1504. Commencement of ancillary case	107
1505. Authorization to act in a foreign country	109
1506. Public policy exception	109
1507. Additional assistance	109
1508. Interpretation	109
1509. Right of direct access	110
1510. Limited jurisdiction	111
1511. Commencement of Case Under Section 301 or 303	111
1512. Participation of a foreign representative in a case under this title	111
1513. Access of foreign creditors to a case under this title	111
1514. Notification of foreign creditors concerning a case under title 11	112
1515. Application for recognition of a foreign proceeding	112
1516. Presumptions concerning recognition	112
1517. Order granting recognition	113
1518. Subsequent information	113
1519. Relief may be granted upon petition for recognition of a foreign proceeding	114
1520. Effects of recognition of a foreign main proceeding	114
1521. Relief that may be granted upon recognition of a foreign proceeding	115
1522. Protection of creditors and other interested persons	116
1523. Actions to avoid acts detrimental to creditors	116
1524. Intervention by a foreign representative	116
1525. Cooperation and direct communication between the court and foreign courts or foreign representatives	117
1526 Cooperation and direct communication between the trustee and foreign courts or foreign representatives	117
1527. Forms of cooperation	117
1528. Commencement of a case under title 11 after recognition of a foreign main proceeding	117
1529. Coordination of a case under title 11 and a foreign proceeding	117
1530. Coordination of more than one foreign proceeding	118
1531. Presumption of insolvency based on recognition of a foreign main proceeding	118
1532. Rule of payment in concurrent proceeding	118
802. Other amendments to titles 11 and 28, United States Code	118
901. Treatment of certain agreements by conservators or receivers of insured depository institutions	119
902. Authority of the FDIC and NCUAB with respect to failed and failing institutions	123
903. Amendments relating to transfers of qualified financial contracts	123
904. Amendments relating to disreaffirmance or repudiation of qualified financial contracts	125
905. Clarifying amendment relating to master agreements	125
906. Federal Deposit Insurance Corporation Improvement Act of 1991	125
907. Bankruptcy law amendments	127
908. Recordkeeping requirements	134
909. Exemptions from contemporaneous execution requirement	134
910. Damage measure	134
911. SIPC stay	135
1001. Permanent reenactment of chapter 12	136
1002. Debt limit increase	136
1003.Certain claims owed to governmental units	136
1004. Definition of family farmer	137
1005. Elimination of requirement that family farmer and spouse receive over 50 percent of income from farming operation in year prior to bankruptcy	137
1006. Prohibition of retroactive assessment of disposable income	137
1007. Family fishermen	137
1101. Definitions	138
1102. Disposal of patient records	138
1103. Administrative expense claim for costs of closing a health care business and other administrative expenses	139
1104. Appointment of ombudsman to act as patient advocate	139
1105. Debtor in possession; duty of trustee to transfer patients	140
1106. Exclusion from program participation not subject to automatic stay	140
1201. Definitions	140
1202. Adjustment of dollar amounts	141
1203. Extension of time	142
1204. Technical amendments	142
1205. Penalty for persons who negligently or fraudulently prepare bankruptcy petitions	142
1206. Limitation on compensation of professional persons	142
1207. Effect of conversion	142
1208. Allowance of administrative expenses	142
1209. Exceptions to discharge	142
1210. Effect of discharge	143
1211. Protection against discriminatory treatment	143
1212. Property of the estate	143
1213. Preferences	143
1214. Postpetition transactions	144
1215. Disposition of Property of the Estate	144
1216. General provisions	144
1217. Abandonment of railroad line	144
1218. Contents of plan	145
1219. Bankruptcy cases and proceedings	145
1220. Knowing disregard of bankruptcy law or rule	145
1221. Transfers made by nonprofit charitable corporations	145
1222. Protection of valid purchase money security interests	145
1223. Bankruptcy Judgeship	145
1224. Compensating trustees	146
1225. Amendment to section 362 of title 11, United States Code	146
1226. Judicial education	146
1227. Reclamation	146
1228. Providing requested tax documents to the court	146
1229. Encouraging creditworthiness	147
1230. Property no longer subject to redemption	147
1231. Trustees.	147
1232. Bankruptcy forms	148
1233. Direct appeals of bankruptcy matters to courts of appeals	148
1234. Involuntary cases	149
1235. Federal election law fines and penalties as nondischargeable debt	149
1301. Enhanced disclosures under an open end credit plan	149
1302. Enhanced disclosure for credit extensions secured by a dwelling	150
1303. Disclosures related to "introductory rates"	150
1304. Internet-based credit card solicitations	152
1305. Disclosures related to late payment deadlines and penalties	152
1306. Prohibition on certain actions for failure to incur finance charges	152
1307. Dual use debit card	153
1308. Study of bankruptcy impact of credit extended to dependent students	153
1309. Clarification of clear and conspicuous	153
1401. Employee wage and benefit priorities	154
1402. Fraudulent transfers and obligations	154
1403. Payment of insurance benefits to retired employees	154
1404. Debts nondischargeable if incurred in violation of securities fraud laws	154
1405. Appointment of trustee in cases of suspected fraud	155
1406. Effective date; application of amendments	155
1501. Effective date; application of amendments	155
1502. Technical corrections	155
Changes in Existing Law Made by the Bill, as Reported	155
CHAPTER 1 — GENERAL PROVISIONS	156
§ 101 •.Definitions	156
§ 101(1) •.Accountant	156
§ 101(2) •.Affiliate	156
§ 101(3) •.Assisted person	156
§ 101(4) •.Attorney	156
§ 101(4A) •.Bankruptcy Assistance	156
§ 101(5) •.Claim	156
§ 101(6) •.Commodity Broker	156
§ 101(7) •.Community Claim	157
§ 101(7A) •.Commercial Fishing Operation	157
§ 101(7B) •.Commercial Fishing Vessel	157
§ 101(8) •.Consumer Debt	157
§ 101(9) •.Corporation	157
§ 101(10) •.Creditor	157
§ 101(10A) •.Current Monthly Income	157
§ 101(11) •.Custodian	158
§ 101(12) •.Debt	158
§ 101(12A) •.Debt for Child Support (Old)	158
§ 101(12A) •.Debt Relief Agency (New)	158
§ 101(13) •.Debtor	158
§ 101(13A) •.Debtor's Principal Residence	158
§ 101(14) •.Disinterested Person (Old)	158
§ 101(14) •.Disinterested Person (New)	159
§ 101(14A) •.Domestic Support Obligation	159
§ 101(15) •.Entity	159
§ 101(16) •.Equity Security	159
§ 101(17) •.Equity Security Holder	160
§ 101(18) •.Family Farmer	160
§ 101(19) •.Family Farmer with Regular Annual Income	161
§ 101(19A) •.Family Fisherman	161
§ 101(19B) •.Family Fisherman with Regular Annual Income	161
§ 101(20) •.Farmer	161
§ 101(21) •.Farming Operation	161
§ 101(21A) •.Farmout Agreement	161
§ 101(21B) •.Federal Depository Institutions Regulatory Agency	162
§ 101(22) •.Financial Institution (Old)	162
§ 101(23) •.Foreign Proceeding (Old)	162
§ 101(24) •.Foreign Representative (Old)	162
§ 101(22) •.Financial Institution (New)	162
§ 101(22A) •.Financial Participant	162
§ 101(23) •.Foreign Proceeding (New)	162
§ 101(24) •.Foreign Representative (New)	163
§ 101(25) •.Forward Contract	163
§ 101(26) •.Forward Contract Merchant (Old)	164
§ 101(26) •.Forward Contract Merchant (New)	164
§ 101(27) •.Governmental Unit	164
§ 101(27A) •.Health Care Business	164
§ 101(27B) •.Incidental Property	165
§ 101(28) •.Indenture	165
§ 101(29) •.Indenture Trustee	165
§ 101(30) •.Individual with Regular Income	165
§ 101(31) •.Insider	165
§ 101(32) •.Insolvent	165
§ 101(33) •.Institution-affiliated Party	165
§ 101(34) •.Insured Credit Union	165
§ 101(35) •.Insured Depository Institution	165
§ 101(35A) • Intellectual Property	165
§ 101(36) • Judicial Lien	166
§ 101(37) • Lien	166
§ 101(38) • Margin Payment	166
§ 101(38A) • Master Netting Agreement	166
§ 101(38B) • Master Netting Agreement Participant	166
§ 101(39) • Mask Work	166
§ 101(39A) • Median Family Income	166
§ 101(40) • Municipality	166
§ 101(40A) • Patient	166
§ 101(40B) • Patient Records	166
§ 101(41) • Person	167
§ 101(41A) • Personally Identifiable Information	167
§ 101(42) • Petition	167
§ 101(42A) • Production Payment	167
§ 101(43) • Purchaser	167
§ 101(44) • Railroad	167
§ 101(45) • Relative	167
§ 101(46) • Repo Participant	168
§ 101(47) • Repurchase Agreement (Old)	168
§ 101(47) • Repurchase Agreement (New)	168
§ 101(48) • Securities Clearing Agency	169
§ 101(48A) • Securities Self Regulatory Organization	169
§ 101(49) • Security	169
§ 101(50) • Security Agreement	169
§ 101(51) • Security Interest	169
§ 101(51A) • Settlement Payment	169
§ 101(51B) • Single Asset Real Estate	169
§ 101(51C) • Small Business (Old)	170
§ 101(51C) • Small Business Case (New)	170
§ 101(51D) • Small Business Debtor	170
§ 101(52) • State	170
§ 101(53) • Statutory Lien	170
§ 101(53A) • Stockbroker	170
§ 101(53B) • Swap Agreement (Old)	170
§ 101(53B) • Swap Agreement (New)	171
§ 101(53C) • Swap Participant	172
§ 101(56A) • Term Overriding Royalty	172
§ 101(53D) • Timeshare Plan	172
§ 101(54) • Transfer (Old)	172
§ 101(54) • Transfer (New)	173
§ 101(54A) • Uninsured State Member Bank	173
§ 101(55) • United States	173
§ 103. Applicability of chapters	173
§ 104. Adjustment of dollar amounts	173
§ 105. Power of court	174
§ 107. Public access to papers	174
§ 108. Extension of time	174
§ 109. Who may be a debtor	175
§ 110. Penalty for persons who negligently or fraudulently prepare bankruptcy petitions	176
§ 111. Nonprofit budget and credit counseling agencies; financial management instructional courses	180
§ 112. Prohibition on disclosure of name of minor children	183
CHAPTER 3 — CASE ADMINISTRATION	184
§ 301. Voluntary cases	184
§ 303. Involuntary cases	184
`[§ 304. Cases ancillary to foreign proceedings]`	185
§ 305. Abstention	186
§ 306. Limited appearance	186
§ 308. Debtor reporting requirements	186
§ 328. Limitation on compensation of professional persons	187
§ 330. Compensation of officers	187
§ 332. Consumer privacy ombudsman	188
§ 333. Appointment of patient care ombudsman	188
§ 341. Meetings of creditors and equity security holders	189
§ 342. Notice	189
§ 346. Special provisions related to the treatment of State and local taxes (Old)	191
§ 346. Special provisions related to the treatment of State and local taxes (New)	194
§ 348. Effect of conversion	196
§ 351. Disposal of patient records	197
§ 362. Automatic stay	198
§ 363. Use, sale, or lease of property	209
§ 365. Executory contracts and unexpired leases	210
§ 366. Utility service	213
CHAPTER 5 — CREDITORS, THE DEBTOR, AND THE ESTATE	214
§ 501. Filing of proofs of claims or interests	215
§ 502. Allowance of claims or interests	215
§ 503. Allowance of administrative expenses	216
§ 504. Sharing of compensation	219
§ 505. Determination of tax liability	219
§ 506. Determination of secured status	220
§ 507. Priorities	220
§ 508. Effect of distribution other than under this title	223
§ 511. Rate of interest on tax claims	224
§ 521. Debtor's duties	224
§ 522. Exemptions	228
§ 523. Exceptions to discharge	233
§ 524. Effect of discharge	237
§ 525. Protection against discriminatory treatment	244
§ 526. Restrictions on debt relief agencies	244
§ 527. Disclosures	246
§ 528. Requirements for debt relief agencies	248
§ 541. Property of the estate	248
§ 545. Statutory liens	251
§ 546. Limitations on avoiding powers	251
§ 547. Preferences	253
§ 548. Fraudulent transfers and obligations	254
§ 549. Postpetition transactions	256
§ 552. Postpetition effect of security interest	256
§ 553. Setoff	257
§ 555. Contractual right to liquidate, terminate, or accelerate a securities contract	257
§ 556. Contractual right to liquidate, terminate, or accelerate a commodities contract or forward contract	258
§ 559. Contractual right to liquidate, terminate, or accelerate a repurchase agreement	258
§ 560. Contractual right to liquidate, terminate, or accelerate a swap agreement	260
§ 561. Contractual right to terminate, liquidate, accelerate, or offset under a master netting agreement and across contracts; proceedings under chapter 15	260
§ 562. Timing of damage measurement in connection with swap agreements, securities contracts, forward contracts, commodity contracts, repurchase agreements, and master netting agreements	261
CHAPTER 7 — LIQUIDATION	262
§ 704. Duties of trustee	262
§ 706. Conversion	264
§ 707. Dismissal of a case or conversion to a case under chapter 11 or 13	264
§ 722. Redemption	270
§ 724. Treatment of certain liens	270
§ 726. Distribution of property of the estate	271
§ 727. Discharge	271
`[§ 728. Special tax provisions``]`	272
§ 741. Definitions for this subchapter	273
§ 752. Customer property	274
§ 753. Stockbroker liquidation and forward contract merchants, commodity brokers, stockbrokers, financial institutions, financial participants, securities clearing agencies, swap participants, repo participants, and master netting agreement participants	275
§ 761. Definitions for this subchapter	275
§ 766. Treatment of customer property	276
§ 767. Commodity broker liquidation and forward contract merchants, commodity brokers, stockbrokers, financial institutions, financial participants, securities clearing agencies, swap participants, repo participants, and master netting agreement participants	276
CHAPTER 9 — ADJUSTMENT OF DEBTS OF A MUNICIPALITY	276
§ 901. Applicability of other sections of this title	277
§ 921. Petition and proceedings relating to petition	277
§ 943. Confirmation	277
CHAPTER 11 — REORGANIZATION	277
§ 1102. Creditors' and equity security holders' committees	278
§ 1104. Appointment of trustee or examiner	278
§ 1106. Duties of trustee and examiner	279
§ 1112. Conversion or dismissal	280
§ 1114. Payment of insurance benefits to retired employees	282
§ 1115. Property of the estate	283
§ 1116. Duties of trustee or debtor in possession in small business cases	283
§ 1121. Who may file a plan	284
§ 1123. Contents of plan	285
§ 1124. Impairment of claims or interests	285
§ 1125. Postpetition disclosure and solicitation	286
§ 1127. Modification of plan	287
§ 1129. Confirmation of plan	287
§ 1141. Effect of confirmation	289
§ 1146. Special tax provisions	290
§ 1170. Abandonment of railroad line	291
§ 1172. Contents of plan	291
CHAPTER 12 — ADJUSTMENT OF DEBTS OF A FAMILY FARMER OR FISHERMAN WITH REGULAR ANNUAL INCOME	291
§ 1202. Trustee	291
§ 1203. Rights and powers of debtor	292
§ 1206. Sales free of interests	292
§ 1208. Conversion or dismissal	292
§ 1222. Contents of plan	293
§ 1225. Confirmation of plan	294
§ 1226. Payments	295
§ 1228. Discharge	295
§ 1229. Modification of plan after confirmation	295
§ 1231. Special tax provisions	296
CHAPTER 13— ADJUSTMENT OF DEBTS OF AN INDIVIDUAL WITH REGULAR INCOME	296
§ 1302. Trustee	296
§ 1307. Conversion or dismissal	297
§ 1308. Filing of prepetition tax returns	298
§ 1322. Contents of plan	299
§ 1324. Confirmation hearing	300
§ 1325. Confirmation of plan	300
§ 1326. Payments	303
§ 1328. Discharge	304
§ 1329. Modification of plan after confirmation	306
CHAPTER 15 — ANCILLARY AND OTHER CROSS-BORDER CASES	306
§ 1501. Purpose and scope of application	307
§ 1502. Definitions	308
§ 1503. International obligations of the United States	309
§ 1504. Commencement of ancillary case	309
§ 1505. Authorization to act in a foreign country	309
§ 1506. Public policy exception	309
§ 1507. Additional assistance	309
§ 1508. Interpretation	309
§ 1509. Right of direct access	310
§ 1510. Limited jurisdiction	310
§ 1511. Commencement of case under section 301 or 303	310
§ 1512. Participation of a foreign representative in a case under this title	310
§ 1513. Access of foreign creditors to a case under this title	311
§ 1514. Notification to foreign creditors concerning a case under this title	311
§ 1515. Application for recognition	311
§ 1516. Presumptions concerning recognition	312
§ 1517. Order granting recognition	312
§ 1518. Subsequent information	313
§ 1519. Relief that may be granted upon filing petition for recognition	313
§ 1520. Effects of recognition of a foreign main proceeding	313
§ 1521. Relief that may be granted upon recognition	314
§ 1522. Protection of creditors and other interested persons	315
§ 1523. Actions to avoid acts detrimental to creditors	316
§ 1524. Intervention by a foreign representative	316
§ 1525. Cooperation and direct communication between the court and foreign courts or foreign representatives	316
§ 1526. Cooperation and direct communication between the trustee and foreign courts or foreign representatives	316
§ 1527. Forms of cooperation	316
§ 1528. Commencement of a case under this title after recognition of a foreign main proceeding	316
§ 1529. Coordination of a case under this title and a foreign proceeding	317
§ 1530. Coordination of more than 1 foreign proceeding	317
§ 1531. Presumption of insolvency based on recognition of a foreign main proceeding	317
§ 1532. Rule of payment in concurrent proceedings	317
TITLE 18 — CRIMES AND CRIMINAL PROCEDURE	318
§ 156. Knowing disregard of bankruptcy law or rule	318
§ 157. Bankruptcy fraud	318
§ 158. Designation of United States attorneys and agents of the Federal Bureau of Investigation to address abusive reaffirmations of debt and materially fraudulent statements in bankruptcy schedules	319
TITLE 28 — JUDICIARY AND JUDICIAL PROCEDURE	319
§ 152. Appointment of bankruptcy judges	319
§ 157. Procedures	320
§ 158. Appeals	320
§ 159. Bankruptcy statistics	321
§ 586. Duties; supervision by Attorney General	323
§ 589a. United States Trustee System Fund	325
§ 589b. Bankruptcy data	326
§ 960. Tax liability	327
§ 1334. Bankruptcy cases and proceedings	328
§ 1409. Venue of proceedings arising under title 11 or arising in or related to cases under title 11	329
§ 1410. Venue of cases ancillary to foreign proceedings (Old)	329
§ 1410. Venue of cases ancillary to foreign proceedings (New)	329
§ 1930. Bankruptcy fees	329
§ 2075. Bankruptcy rules	330
SECTION 406 OF THE JUDICIARY APPROPRIATIONS ACT, 1990	331
FEDERAL DEPOSIT INSURANCE ACT	331
FEDERAL CREDIT UNION ACT	344
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991	356
SECURITIES INVESTOR PROTECTION ACT OF 1970	360
SECTION 302 OF THE BANKRUPTCY JUDGES, UNITED STATES TRUSTEES, AND FAMILY FARMER BANKRUPTCY ACT OF 1986	361
TRUTH IN LENDING ACT	361
Committee Jurisdiction Letters	370
Markup Transcript	373
Sensenbrenner — opening remarks	373
Conyers — opening remarks	374
Conyers amendment — pay day loans made to servicemembers (roll call)	376
Watt and Delahunt amendment — prohibition against usury (roll call)	394
Watt amendment — postsecondary education expenses (roll call)	402
Bush Plan Cuts College Aid for 500,000 (article)	407
Nadler amendment — nondischarge of debts related to civil rights violations (withdrawn)	418
Nadler amendment — extension of time to assume or reject nonresidential real property (roll call)	422
Schiff amendment — no BC § 707(b)(2) dismissal for identity theft victims (roll call)	432
Delahunt amendment — avoidance of transfers made within 10 years of the bankruptcy filing to an asset protection trust (BC § 548) (roll call)	445
Berman & Meehan — exemption for medically distressed debtors (BC § 522) (roll call)	453
Prepared Statement of Zoe Lofgren	458
U.S. Attorney letter to Rep. Grassley re: U.S. Trustee data on medical debts	460
Nadler amendment — nondischarge of debts related to civil rights violations (BC § 523(a) (resubmitted) (roll call)	467
Scott amendment — no 707(b)(2) dismissal if substantial portion of debt related to illness (voice vote only)	474
Scott amendment — no 707(b)(2) dismissal if substantial portion of debt related to (1) business losses incurred by a spouse or (2) unforeseen loss of employment (voice vote only)	477
Meehan amendment — no 707(b)(2) dismissal for certain disabled veterans (roll call)	481
Schiff amendment — GAO study relating to Child Support Payments (withdrawn)	488
National Child Support Enforcement Letter: Child Centered Reforms in H.R. 333	492
Jackson Lee amendment — increase expense allowance for private schools (roll call)	493
Washington Post: A Bankruptcy Reform	496
Jackson Lee amendment — exclude funds received as a result of a natural disaster as expenses for means testing expenses (voice vote only)	500
Jackson Lee en bloc amendments — debts related to (1) sex offenses against minors; (2) tobacco claims (BC 523(a)(roll call)	502
Waters en bloc amendments — (1) no relief from stay to evict victims of domestic violence (BC § 362(b)(22); (2) exemptions for the elderly (BC § 522(r); (3) issuance of credit cards to underage consumers (15 U.S.C. § 1637(c))(voice vote only)	511
Watt en bloc amendments — (1) eliminate requirement for debtor's attorney to certify accuracy of schedules; (2) correct provisions requiring attorney to identify themselves as debt relief agencies; (3) prevent sale of personal consumer information on the eve of a corporate bankruptcy (voice vote only)	517
Prepared Statement of the Maxine Waters — 1	524
Prepared Statement of the Maxine Waters — 2	525
Prepared Statement of the Maxine Waters — 3	525
ABA letter re: attorney certification requirements	526
Motion to report S. 256 favorably	533

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

Dissenting Views	537
Additional Dissenting Views	591
I. The Unlimited Homestead Exemption	591
Domiciliary Requirement	593
Converting a non-exempt asset into an exempt homestead asset	594
Another domiciliary requirement and conversion of non-exempt assets limitation	594
Cap on homestead exemption for certain types of wrongdoing	594
II. The Bill Does Not Address the Asset Protection Trust Loophole	596
Additional Minority Views	597

PURPOSE AND SUMMARY S. 256, the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," is a comprehensive package of reform measures pertaining to both consumer and business bankruptcy cases. The purpose of the bill is to improve bankruptcy law and practice by restoring personal responsibility and integrity in the bankruptcy system and ensure that the system is fair for both debtors and creditors. With respect to the interests of creditors, the proposed reforms respond to many of the factors contributing to the increase in consumer bankruptcy filings, such as lack of personal financial accountability, 1 the proliferation of serial filings, and the absence of effective oversight to eliminate abuse in the system. The heart of the bill's consumer bankruptcy reforms consists of the implementation of an income/expense screening mechanism ("needs-based bankruptcy relief" or "means testing"), which is intended to ensure that debtors repay creditors the maximum they can afford. S. 256 also establishes new eligibility standards for consumer bankruptcy relief and includes provisions intended to deter serial and abusive bankruptcy filings. It substantially augments the responsibilities of those charged with administering consumer bankruptcy cases as well as those who counsel debtors with respect to obtaining such relief. In addition, the bill caps the amount of homestead equity a debtor may shield from creditors, under certain circumstances. S. 256 also includes various consumer protection reforms. The bill penalizes a creditor who unreasonably refuses to negotiate a pre-bankruptcy debt repayment plan with a debtor. It strengthens the disclosure requirements for reaffirmation agreements (agreements by which debtors obligate themselves to repay otherwise dischargeable debts) so that debtors will be better informed about their rights and responsibilities. The legislation requires certain monthly credit card billing statements to include specified explanatory statements regarding the increased amount of interest and repayment time associated with making minimum payments. The bill requires certain home equity loan and credit card solicitations to include enhanced consumer disclosures. It also prohibits a creditor from terminating an open end consumer credit plan simply because the consumer has not incurred finance charges on the account. S. 256 allows debtors to shelter from the claims of creditors certain education IRA plans and retirement pension funds. It requires debtors to receive credit counseling before they can be eligible for bankruptcy relief so that they will make an informed choice about bankruptcy, its alternatives, and consequences. The bill also re-


1. As one academic explained: [S]hoplifting is wrong; bankruptcy is also a moral act. Bankruptcy is a moral as well as an economic act. There is a conscious decision not to keep one's promises. It is a decision not to reciprocate a benefit received, a good deed done on the promise that you will reciprocate. Promise-keeping and reciprocity are the foundation of an economy and healthy civil society. Bankruptcy Reform: Joint Hearing Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary and the Subcomm. on Administrative Oversight and the Courts of the Senate Comm. on the Judiciary,106th Cong. 98 (1999) (statement of Prof. Todd Zywicki)

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

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

BACKGROUND AND NEED FOR THE LEGISLATION

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

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

FACTORS SUPPORTING BANKRUPTCY REFORM

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


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

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

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

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

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history. Over the past decade, the number of bankruptcy filings has nearly doubled to more than 1.6 million cases filed in fiscal year 2004. 6 As a result, there is a growing perception that bankruptcy relief may be too readily available and is sometimes used as a first resort, rather than a last resort. 7 Despite the view of opponents of bankruptcy reform that abuse in the system is not widespread and that most bankruptcy filings result from causes beyond debtors' control, such as family illness, job loss or disruption, or divorce, 8 the Committee concluded that reforms were nevertheless necessary. Second, there are significant losses asserted to be associated with bankruptcy filings. As one witness explained during the Senate Judiciary Committee's hearing on S. 256 earlier this year: Like all other business expenses, when creditors are unable to collect debts because of bankruptcy, some of those losses are inevitably passed on to responsible Americans who live up to their financial obligations. Every phone bill, electric bill, mortgage, furniture purchase, medical bill, and car loan contains an implicit bankruptcy "tax" that the rest of us pay to subsidize those who do not pay their bills. Exactly how much of these bankruptcy losses is passed on from lenders to consumer borrowers is unclear, but economics tells us that at least some of it is. We all pay for bankruptcy abuse in higher down payments, higher interest rates, and higher costs for goods and services. 9 According to some analyses, the increase in consumer bankruptcy filings has adverse financial consequences for our nation's economy. For instance, it was estimated that in 1997 alone more than $44 billion of debt was discharged by debtors who filed for bankruptcy relief, 10 a figure when amortized on a yearly basis amounts to a loss of at least $110 million every day. 11 These losses, according to one estimate, translate into a $400 annual "tax" on every household in our nation. 12 In 2003, the Nilson Report (a credit industry newsletter) announced that issuers of proprietary and general pur-

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

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

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

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

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

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

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

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pose credit cards "lost $18.9 billion in 2002 from consumer bankruptcy filings," an increase of 15.1 percent over the prior year. 13 The Credit Union National Association (CUNA) reported that credit unions, as of 2002, lost "nearly $3 billion from bankruptcies" since Congress began its consideration of bankruptcy reform legislation in 1998. 14 CUNA estimates that over 40% of all credit union losses in 2004 will be bankruptcy-related, and those losses will total approximately $900 million. 15 A third factor motivating comprehensive reform is that the present bankruptcy system has loopholes and incentives that allow and—sometimes—even encourage opportunistic personal filings and abuse. A civil enforcement initiative undertaken in 2002 by the United States Trustee Program (a component of the Justice Department charged with administrative oversight of bankruptcy cases) has "consistently identified" such problems as "debtor misconduct and abuse, misconduct by attorneys and other professionals, problems associated with bankruptcy petition preparers, and instances where a debtor's discharge should be challenged." 16 According to the United States Trustee Program, "Abuse of the system is more widespread than many would have estimated." 17 Such abuse ultimately hurts consumers as well as creditors. A fourth factor relates to the fact that some bankruptcy debtors are able to repay a significant portion of their debts, according to several studies. 18 Current law, however, has no clear mandate requiring these debtors to repay their debts. Accordingly, "[w]hile there is a universal agreement among the courts that an individual debtor's ability to repay his or her debts from future earnings is, at the very least, a factor in determining whether substantial abuse would occur in a chapter 7 case, there are differences among the courts as to the extent to which they rely on a debtor's ability to repay." 19


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

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

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

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

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

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

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

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PRIOR CONGRESSIONAL CONSIDERATION OF BANKRUPTCY REFORM Proposed reforms to bankruptcy law and practice have been under consideration by Congress for nearly eight years 20 and have generally enjoyed broad support from the business community, banking and financial services industries as well as other groups such as family farmers and child support enforcement agencies. In Congress, support for bankruptcy reform legislation has likewise been overwhelming, bipartisan and bicameral. Since the 105th Congress, the House has passed bankruptcy reform legislation on eight separate occasions. In the 105th Congress, for example, the House passed both H.R. 3150, the "Bankruptcy Reform Act of 1998," and the conference report on that bill by veto-proof margins. 21 In the 106th Congress, the House passed H.R. 833, the successor to H.R. 3150, by a veto-proof margin of 313 to 108 22 and agreed to the conference report 23 by voice vote. 24 Although the Senate subsequently passed this legislation by a vote of 70 to 28, 25 President Clinton pocket-vetoed it. In the 107th Congress, the House again registered its overwhelming support for bankruptcy reform on two more occasions. On March 1, 2001, the House passed H.R. 333, the "Bankruptcy Abuse Prevention and Consumer Protection Act," by a vote of 306 to 108. 26 The House thereafter passed a modified version of the conference report on H.R. 333, as previously noted. 27 In the last Congress, the House passed H.R. 975, the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2003," by a vote of 315 to 113 and S. 1920, which consisted of the text of H.R. 975, as passed by the House, by a vote of 265 to 99. 28 Likewise, the Senate has on numerous occasions expressed strong bipartisan support for bankruptcy reform legislation. In the 105th Congress, the Senate passed bankruptcy reform legislation by a vote of 97 to 1. 29 In the 106th Congress, the Senate passed similar legislation by a vote of 83 to 14 30 and a subsequent conference report by a vote of 70 to 28. 31 In the 107th Congress, the Senate passed a bankruptcy reform bill by a vote of 82 to 16. 32 Last month, the Senate passed S. 256, as amended, by a vote of 74 to 25. 33 The Committee and the Subcommittee on Commercial and Administrative Law (Subcommittee), beginning in the 105th Congress, have held a total of 18 days of hearings on the operation of the


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

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

22.145 CONG. REC. H2771 (daily ed. May 5, 1999). •

23. H.R. REP. NO. 106-970 (2000). •

24.146 CONG. REC. H9840 (daily ed. Oct. 12, 2000). •

25.146 CONG. REC. S11730 (daily ed. Dec. 7, 2000). •

26.147 CONG. REC. H600-01 (daily ed. Mar. 1, 2001). •

27. See supra note 3. •

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

29.144 CONG. REC. S10767 (daily ed. Sept. 23, 1998). •

30.146 CONG. REC. S255 (daily ed. Feb. 2, 2000). •

31.146 CONG. REC. S11730 (daily ed. Dec. 7, 2000). •

32.147 CONG. REC. S2379 (daily ed. Mar. 15, 2001). •

33.151 CONG. REC. S2474 (daily ed. Mar. 10, 2005). •

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

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

34. The dates and subject matters of these hearings are as follows: April 16, 1997: Hearing on the operation of the bankruptcy system and status report from the National Bankruptcy Review Commission. April 30, 1997: Hearing on H.R. 764, the "Bankruptcy Amendments of 1997," and H.R. 120, the "Bankruptcy Law Technical Corrections Act of 1997." October 9, 1997: Hearing on H.R. 2592, the "Private Trustee Reform Act of 1997" and review of post-confirmation fees in chapter 11 cases. November 13, 1997: Hearing on the Report of the National Bankruptcy Review Commission. February 12, 1998: Hearing on H.R. 2604, the "Religious Liberty and Charitable Donation Protection Act of 1997." March 10-11, 18-19, 1998: Hearings on H.R. 3150, the "Bankruptcy Reform Act of 1998," H.R. 3146, the "Consumer Lenders and Borrowers Bankruptcy Accountability Act of 1998," and H.R. 2500, the "Responsible Borrower Protection Bankruptcy Act." March 11-12, 18-19, 1999: Hearings on H.R. 833, the "Bankruptcy Reform Act of 1999." November 2, 1999: Joint oversight hearing on additional bankruptcy judgeship needs. April 11, 2000: Oversight hearing on the limits on regulatory powers under the Bankruptcy Code. February 7-8, 2001: Hearings on H.R. 333, the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2001." March 4, 2003: Hearing on H.R. 975, the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2003" and the need for bankruptcy reform.

35. The Subcommittee on Administrative Oversight and the Courts of the Senate Committee on the Judiciary conducted the following hearings: April 11, 1997: Hearing on the increase in personal bankruptcies and the crisis in consumer credit. August 1, 1997: Hearing to review the negative impact of bankruptcy on educational funding. August 8, 1997: Hearing regarding bankruptcy laws for family farmers. September 22, 1997: Hearing on the Bankruptcy Code's effect on religious freedom and a review of the need for additional bankruptcy judgeships. October 21, 1997: Hearing to review the recommendations of the National Bankruptcy Review Commission. December 7, 1997: Hearing regarding international bankruptcy laws. March 11, 1998: Hearing on S. 1301, "The Consumer Bankruptcy Reform Act: Seeking Fair and Practical Solutions to the Consumer Bankruptcy Crisis." May 19, 1998: Hearing to review business bankruptcy issues. March 11, 1999: Hearing on H.R. 833, the "Bankruptcy Reform Act of 1999," held jointly with the Subcommittee on Commercial and Administrative Law of the House Committee on the Judiciary. November 2, 1999: Oversight hearing on additional bankruptcy judgeship needs held jointly with the Subcommittee on Commercial and Administrative Law of the House Committee on the Judiciary. February 10, 2005: Hearing on S. 256, the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005." 8

833 during the 106th Congress was held jointly by the Subcommittee together with the Senate Subcommittee on Administrative Oversight and the Courts on March 11, 1999, 36 marking the first time in more than 60 years that a bicameral hearing was held on the subject of bankruptcy reform. 37 It is also important to note that bankruptcy reform legislation is the product of extensive bipartisan and bicameral negotiation and compromise. For example, conferees during the 106th Congress spent nearly seven months engaged in an informal conference to reconcile differences between the House and Senate passed versions of bankruptcy reform legislation. In the 107th Congress, conferees formally met on three occasions and 38 ultimately agreed—after an 11-month period of negotiations—to a bipartisan conference report. On February 10, 2005, the Senate Committee on the Judiciary held a hearing on S. 256 that provided an opportunity to review the reasons why the current bankruptcy system needs reform and how this legislation would implement those reforms. 39 Testimony was received from eight witnesses, including: Kenneth Beine on behalf of CUNA; Maria Vullo, a partner with the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP; Malcom Bennett on behalf of the National Multi Housing Council/National Apartment Association; Philip Strauss on behalf of the National Child Support Enforcement Association; Dave McCall on behalf of the United Steel Workers of America, AFL-CIO; R. Michael Stewart Menzies, Sr. on behalf of the Independent Community Bankers of America; Prof. Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School; and Prof. Todd J. Zywicki, Visiting Professor of Law at Georgetown University Law Center. Among the matters considered at the hearing were: (1) the adequacy of the current bankruptcy system with respect to the detection of fraud and abuse; (2) how abuse and fraud in the current bankruptcy system impact on American businesses and our nation's citizens generally; (3) whether the legislation adversely impacts individuals deserving of bankruptcy relief; (4) whether the

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

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

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

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

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proposed reforms would assist those who are charged with administrative oversight of bankruptcy cases and law enforcement matters; and (5) whether, given current economic circumstances, the need for comprehensive bankruptcy reform still exists. On February 17, 2005, the Senate Judiciary Committee marked up S. 256 and ordered the bill, as amended, to be favorably reported by a vote of 12 to 5. Over the course of the markup, five amendments were passed. These amendments consisted of the following: 1. an amendment by Senator Edward Kennedy (D-MA) clarifying that a debtor's reasonably necessary expenses for health insurance, disability insurance, and health savings accounts for the debtor and for the debtor's spouse and dependents are allowed expenses under the bill's needs-based test; 2. an amendment by Senator Kennedy limiting retention bonuses, severance pay, and other payments to insiders of the debtor, under certain circumstances; 3. an amendment by Senator Russell Feingold (D-WI) increasing the monetary threshold with respect to the venue of a proceeding to recover a consumer debt; 4. an amendment by Senator Patrick Leahy (D-VT) clarifying that a debt based on a Federal or state securities law violation is nondischargeable; and 5. an amendment by Senator Kennedy requiring the United States trustee to apply to the court for the appointment of a chapter 11 trustee if there are reasonable grounds to suspect fraud, under certain circumstances. On March 10, 2005, the Senate passed S. 256, as amended, by a vote of 74 to 25. Nearly 130 amendments were filed. Of the amendments that were offered, 24 failed, 24 were withdrawn, eight were passed either by vote or unanimous consent. The amendments that were accepted consisted of the following: 1. an amendment by Senator Jeff Sessions (R-AL) clarifying that the special circumstances exception to the bill's needs-based test includes a debtor with a serious medical condition or a debtor on active duty in the military to the extent these factors justify adjustment to income or expenses as well as clarifying the safe harbor from the needs-based test with respect to veterans; 2. an amendment by Senator Leahy restricting public access to certain personal information regarding an individual contained in bankruptcy case files to the extent the court finds that disclosure of such information would create undue risk of identity theft or other unlawful injury to such individual or the individual's property; 3. an amendment by Senator Arlen Specter (R-PA) increasing the filing fees for chapter 7 and chapter 11 bankruptcy cases, reducing the filing fees for chapter 13, and adjusting the allocation of such fees among various governmental entities; 10

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

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

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

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

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

HIGHLIGHTS OF BANKRUPTCY REFORMS

Consumer Creditor Bankruptcy Protections.

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

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

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


PRIOR FRAME	MAIN INDEX	HR 109-31 INDEX	NEXT FRAME

PURPOSE AND SUMMARY

BACKGROUND AND NEED FOR THE LEGISLATION

FACTORS SUPPORTING BANKRUPTCY REFORM

PRIOR CONGRESSIONAL CONSIDERATION OF BANKRUPTCY REFORM

HIGHLIGHTS OF BANKRUPTCY REFORMS