Title I -- Consumer Bankruptcy Provisions

Subtitle A -- Needs-Based Bankruptcy

Sec. 101. Needs-Based Bankruptcy.

This section of the Bill requires those who have a current monthly total income of at least seventy-five percent (75%) of the national median family income for a family of equal size (or, in the case of a household of one person, at least seventy-five percent (75%) of the national median household income for one earner) plus a monthly net income greater than fifty dollars ($50) and the ability to pay at least twenty percent (20%) of their unsecured, non-priority debts over five (5) years to enter into a repayment plan under Chapter 13.

Sec. 102. Adequate Income Shall be Committed to a Plan that Pays Unsecured Creditors.

This section amends the Code to substitute for "disposable income" a new concept, "monthly net income," which is determined based upon expenditure levels now set by the Internal Revenue Service and used extensively throughout the country to make similar determinations. Provision is also made in a new Code section 111 for the adjustment of monthly net income in extraordinary cases, for example when the debtor experiences loss of income or when the debtor has unusual expenses.

Sec. 103. Definitions of Inappropriate Use.

The Bill amends Code section 707(b) to permit any party in interest to move to dismiss a Chapter 7 bankruptcy case on the basis that the granting of relief would be an inappropriate use of the Bankruptcy Code. A court shall find that the granting of relief would be an inappropriate use of the Bankruptcy Code. A court shall find that the granting of relief would constitute an inappropriate use where the debtor is ineligible for Chapter 7 under the needs-based provisions of the Bill or where the totality of the circumstances demonstrates inappropriate use.

Subtitle B - Adequate Protections for Consumers

Sec. 111. Notice of Alternatives.

This section assures that, before filing for bankruptcy, debtors receive information about debt counseling services and different options under bankruptcy. Specifically, this section requires that each consumer debtor receive a notice containing a brief description of services that may be available from independent non-profit debt counseling services.

Sec. 112. Debtor Financial Management Training Test Program.

This section would require the Executive Officer for U.S. Trustees (EOUST) to develop and test a financial management training curriculum and materials that can be used to educate debtors on how to better manage their finances. The EOUST would be required to select three (3) judicial districts in which to test the effectiveness of the training program.

Subtitle C -- Adequate Protections for Secured Lenders

Sec. 121. Discouraging Bad Faith Repeat Filings.

The section provides that the automatic stay will terminate in a consumer bankruptcy case on the 30th day after the filing if, in the previous year, the same debtor filed a bankruptcy case that was dismissed. The Bill provides an exception to this provision in the event the subsequent filing is made in good faith.

Sec. 122. Definition of Household Goods and Antiques.

The Bill defines "household goods" by using the definition already used in a similar context by the Federal Trade Commission in the Trade Regulation Rule on Credit Practices, 16 C.F.R. Sec. 444.1(I).

Sec. 123. Debtor Retention of Personal Property Security.

The Bill would add a new subsection to Code section 521 to provide that a Chapter 7 individual debtor may not retain possession of personal property securing an allowed claim for the purchase price unless the debtor either (a) reaffirms the debt or (b) redeems the property within thirty (30) days after the first meeting of creditors.

Sec. 124. Relief From Stay When the Debtor Does Not Complete Intended Surrender of Consumer Debt Collateral.

This section amends Code section 362 to provide that if an individual debtor does not file a timely statement of intention with respect to property securing the creditors claim or act in accordance with that statement of intention, a secured creditor may seek relief from the stay.

Sec. 125. Giving Secured Creditors Fair Treatment in Chapter 13.

The Bill amends Code section 1325(a)(5)(B)(1) to provide that the holder of an allowed secured claim shall retain the lien securing the claim until payment of the underlying debt or the debtor receives a discharge, whichever occurs earlier.

Sec. 126. Prompt Relief From Stay in Individual Cases.

This section amends Code section 362(e) to provide that the stay shall automatically terminate sixty (60) days after a request for relief from it is made, unless the court decides the relief from stay request during the sixty-day period, the parties agree to take a longer time, or thecourt orders additional time.

Sec. 127. Stopping Abusive Conversions from Chapter 13.

This section provides that when a debtor converts from Chapter 13 to Chapter 7, the cram down is not retained except for the limited purpose of redemption under Code section 722.

Sec. 129. Fair Valuation of Collateral.

The Bill amends Code section 506(a) to set the value of personal property securing an individual debtor’s personal property as the replacement value of the property on the petition date (without deductions for marketing or sales costs). The provision also clarifies that "replacement value" means the price a retail merchant would charge for property of that kind, considering its age and condition.

Subtitle D -- Adequate Protection for Unsecured Lenders

Sec. 142. Credit Extensions on the Eve of a Bankruptcy Presumed Nondischargeable.

The Bill amends Bankruptcy Code section 523(a)(2)(C) to create a presumption that consumer debts incurred within ninety (90) days of bankruptcy are nondischargeable.

Sec. 144. Applying the Co-Debtor Stay Only When it Protects the Debtor.

The Bill amends section 1301 so that the co-debtor stay would continue to be available when the debtor who borrowed the money sought Chapter 13 relief, but if a guarantor or other co-debtor who did not receive the consideration for the creditor’s claim filed for relief, the debtor who borrowed the money would not be protected by a stay unless he or she also filed for bankruptcy protection.

Sec. 145. Credit Extensions Without a Reasonable Expectation of Repayment Made Nondischargeable.

This section amends the Bankruptcy Code to provide that debts incurred when the debtor had no reasonable expectation or ability to repay are nondischargeable.

Subtitle E -- Adequate Protections for Lessors

Sec. 161. Giving Debtors the Ability to Keep Leased Personal Property by Assumption.

If the debtor then notifies the lessor that the debtor wants to assume the lease, the lease remains enforceable according to its terms.

Sec. 163. Adequate Protection for Lessors.

This provision extends Code section 362(b)(10) to residential leases, clarifying that the automatic stay does not bar a property owner from recovering rental property due to the filing by a resident for bankruptcy.

Subtitle F -- Bankruptcy Relief Less Frequently Available for Repeat Filers

Sec. 171. Extend Period Between Bankruptcy Discharges.

The Bill would expand the amount of time that must pass before a debtor may receive another discharge. The time period would expand to ten (10) years for Chapter 7 individual cases and five (5) years for Chapter 13 cases.

Subtitle G -- Exemptions

Sec. 181. Exemptions.

The Bill amends section 522(b)(2)(A) of the Bankruptcy Code to require a debtor to be domiciled in a state for 365 days, or the majority of 365 days, before filing a petition in order for that state’s exemptions to apply. Currently, a debtor must be domiciled in a state only for 180 days, or the majority of 180 days, for a state’s exemptions to apply.

Title II -- Business Bankruptcy Provisions

Subtitle A -- General Provisions

Sec. 201. Limitation Relating to the Use of Fee Examiners.

This provision explicitly precludes the appointment of so-called "fee-examiners."

Sec. 203. Chapter 12 Made Permanent Law.

This provision makes Chapter 12, Adjustments of Debts of a Family Farmer With Regular Annual Income, permanent law.

Sec. 204. Meetings of Creditors and Equity Security Holders.

This section would give the court the discretion not to convene a meeting of creditors if there is a prepackaged plan of reorganization.

Sec. 205. Creditors’ and Equity Security Holders’ Committees.

The Bill gives the court the discretion to change the membership of any committee to assure that it adequately represents its constituency.

Sec. 207. Preferences.

This provision helps enable small creditors to mount effective defenses against preference actions. Proposed Code section 547(c)(9) increases the minimum aggregate transfer that must be sought in a case against a creditor to $5000. This section also clarifies the ordinary course of business exception for preferential transfers by disallowing a creditor from being sued for receipt of a preferential transfer if it has received a payment in the ordinary course of the debtor’s business or made according to ordinary business terms.

Sec. 208. Venue of Certain Proceedings.

This provision mandates that a preference recovery action against a noninsider seeking less than $10,000 must be brought in the bankruptcy court in the district where the creditor resides.

Sec. 209. Setting a Date Certain for Trustees to Accept or Reject Unexpired Leases on Nonresidential Property.

The Bill amends Code section 365(d)(4) to eliminate the current 60-day period for assumption or rejection of a lease of nonresidential real property and replaces it with a 120-day initial time period following the date of the order for relief.

Subtitle B -- Specific Provisions

Chapter 1 -- Small Business Bankruptcy

Sec. 231. Definition.

The section establishes a "bright line" definition to identify those cases that merit special rules which enhance the efficient use of judicial resources and which streamline the reorganization process for debtors with meritorious cases by fixing the threshold at the $5,000,000 debt level.

Sec. 234 & 235. Uniform National Reporting Requirements.

This section amends the Bankruptcy Code and Rules to expressly require the periodic filing of financial and other reports, such as monthly operating reports, and the filing of schedules and statements within thirty days postpetition.

Sec. 236. Debtor’s Duties in Small Business Cases.

This section requires all small business debtors to establish segregated bank accounts for timely deposit of tax funds withheld or collected from third parties after the commencement of the case to stop the abusive practice of debtors, suffering from cash shortages, using government money for unauthorized business loans by financing their day-to-day operations with cash withheld from employee paychecks or sales-tax revenues, or other like "trust fund" taxes.

Sec. 237, 238 & 239. Plan Filing and Confirmation Deadlines.

This section addresses the need to move small business Chapter 11 cases at a pace appropriate for those cases by (1) establishing presumptive plan-filing and plan-confirmation deadlines specially tailored to fit small business cases and, (2) directing bankruptcy judges to use modern case-management techniques in all small business cases to further reduce cost and delay.

Sec. 240. Duties of the United States Trustee.

This section directs the U.S. Trustee to play a more active role throughout the Chapter 11 proceeding and provides the necessary tools to effectively manage Chapter 11 cases, including the ability to recommend conversion or dismissal in appropriate cases.

Sec. 241. Scheduling Conferences.

To quicken the pace for disposition of a Chapter 11 plan, the Bill requires that judges promptly hold at least one on-the-record status conference, unless the debtor and U.S. Trustee file an agreed scheduling order with the court prior to the judicial scheduling conference.

Sec. 243. Expanded Grounds for Dismissal or Conversion and Appointment of Trustee.

To maintain the legitimacy and continued public acceptance of Chapter 11 by limiting its exceptional protections to those cases in which the public derives a benefit therefrom, this section establishes statutory indicia of cases which are likely to fail, those cases in which there is no real likelihood of rehabilitation, and provides a mechanism for moving such cases expeditiously through Chapter 11.

Chapter 2 -- Single Asset Real Estate

Sec. 251. Single Asset Real Estate Defined.

This section eliminates the dollar cap from the definition of a "single asset real estate" (SARE) debtor and defines the SARE debtor to include real estate investors and to exclude debtors who use real estate in an active business, viewed in terms of economic substance rather than the form of ownership, and eliminates several ambiguities found in the current definition.

Sec. 252. Plan Confirmation.

This section establishes a clear, objective standard for new-value plans in SARE cases -the exception would be satisfied only if the secured portion of the loan was paid down to 80 percent of the value of the property, permitting the debtor to "strip off" liens to the extent that they exceed the current value of the property, while providing the secured creditors conventional terms on the remaining portion of the lien. This section allows the debtor to reorganize overencumbered property in Chapter 11, over the objection of its secured creditor, by reducing the mortgage debt to the current value of the property and retaining the property through a new-value contribution.

Sec. 253. Payment of Interest.

Section 362(d)(3), which prescribes the conditions required to impose the stay in SARE cases, requires the SARE debtor, within 90 days after the order for relief, to: (1) file a confirmable plan; (2) commence postpetition mortgage payments; or (3) obtain an extension of the 90-day plan-or-payment deadline. If the SARE debtor fails to perform any of these three options, secured creditors are entitled to relief from the automatic stay.

Title IV -- Bankruptcy Administration

Subtitle A -- General Provisions

Sec. 402. Creditor Representation at First Meeting of Creditors.

This sections amends Code section 341(c) to provide that non-attorney representatives can attend and participate in the first meeting of creditors.

Sec. 404. Audit Procedures.

This section amends title 28 to delegate to the Attorney General the responsibility for establishing random audits of the accuracy and completeness of information filed in individual bankruptcy cases under title 11.

Sec. 405 Giving Creditors Fair Notice in Chapter 7 and 13 Cases.

This section provides that the debtor include in any notice to the creditor the debtor’s account number if it is reasonably available, and to send any notices to an address which the creditor has previously specified.

Sec. 410. Chapter 13 Plans to Have a 5-Year Duration in Certain Cases.

The Bill would amend Code sections 1322(d) and 1329(c) to allow confirmation of plans with a life span of five (5) years if the debtor’s current monthly income is at least seventy-five percent (75%) of the national median family income for a family of equal size (or at least seventy-five percent (75%) of the national median household income for one earner) or more on the date of confirmation. In such cases, it would also permit the court to approve a plan longer than five (5) years up to a maximum of seven (7) years.

Sec. 412. Jurisdiction of Appeals Relating to Bankruptcy.

This proposal would streamline and expedite the appeals process by eliminating the first step and allowing appeals to be taken directly to the U.S. Court of Appeals.

Subtitle B -- Data Provisions

Sec. 441. Improved Bankruptcy Statistics.

The Bill would create a new 28 U.S.C. Sec. 159 that would require the EOUST to compile statistics on bankruptcy cases involving individual debtors, and report these statistics annually to Congress.

Sec. 442. Bankruptcy Data.

This provision requires the Attorney General to establish uniform national reporting forms for final reports in Chapter 7, 11 and 13 cases.

Sec. 443. Sense of the Congress Regarding Availability of Bankruptcy Data.

This provision expresses the Sense of the Congress that all non-confidential data held in electronic form by clerks of bankruptcy courts should be released to the public on the Internet on demand.

Title V -- Tax Provisions

Sec. 501. Treatment of Certain Liens.

This section provides that ad valorem taxes protected by liens are paid ahead of other expenses, except wage claims and claims for contributions to employee benefit plans, increasing the likelihood that local jurisdictions receive revenues which they would have received absent the operation of the Code.

Sec. 508. Chapter 13 Discharge of Fraudulent and Other Taxes.

This section provides that tax obligations arising from fraudulent returns, willful attempts to evade, and late and unfiled returns shall be nondischargeable in Chapter 13 cases.

Sec. 517. Requirement to File Tax Returns to Confirm Chapter 13 Plans.

In a Chapter 13 plan, the debtor is required to provide for the full payment of all claims entitled to priority, including taxes which have not been assessed but are still assessable.

Sec. 519. Setoff of Tax Refunds.

After a consumer files a petition in bankruptcy, a taxing authority is required to seek relief from the automatic stay on a case-by-case basis if it wants to offset a refund of prepetition taxes against a claim for prepetition taxes, even if the claim is not disputed. The cost to the government of prosecuting often uncontested and routine motions as a prerequisite to enforcing an undisputed, mutual obligation is substantial. Thus this section grants taxing authorities theability to set off an income tax refund that arose prepetition against an undisputed income tax liability which similarly arose prepetition.

Sec. 602. Effective Date; Application of Amendments.

This section ensures that nothing in this Act will not have an effect on pending bankruptcy cases.