29th Mar 2016

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11 USC CHAPTER 7 – LIQUIDATION                                                                   01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION

-HEAD-
CHAPTER 7 – LIQUIDATION

-MISC1-
SUBCHAPTER I – OFFICERS AND ADMINISTRATION
Sec.
701. Interim trustee.
702. Election of trustee.
703. Successor trustee.
704. Duties of trustee.
705. Creditors’ committee.
706. Conversion.
707. Dismissal of a case or conversion to a case under
chapter 11 or 13.

SUBCHAPTER II – COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE
ESTATE
721. Authorization to operate business.
722. Redemption.
723. Rights of partnership trustee against general
partners.
724. Treatment of certain liens.
725. Disposition of certain property.
726. Distribution of property of the estate.
727. Discharge.
[728. Repealed.]

SUBCHAPTER III – STOCKBROKER LIQUIDATION
741. Definitions for this subchapter.
742. Effect of section 362 of this title in this
subchapter.
743. Notice.
744. Executory contracts.
745. Treatment of accounts.
746. Extent of customer claims.
747. Subordination of certain customer claims.
748. Reduction of securities to money.
749. Voidable transfers.
750. Distribution of securities.
751. Customer name securities.
752. Customer property.
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.

SUBCHAPTER IV – COMMODITY BROKER LIQUIDATION
761. Definitions for this subchapter.
762. Notice to the Commission and right to be heard.
763. Treatment of accounts.
764. Voidable transfers.
765. Customer instructions.
766. Treatment of customer property.
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.

SUBCHAPTER V – CLEARING BANK LIQUIDATION
781. Definitions.
782. Selection of trustee.
783. Additional powers of trustee.
784. Right to be heard.

AMENDMENTS
2005 – Pub. L. 109-8, title I, Sec. 102(k), title VII, Sec.
719(b)(2), title IX, Sec. 907(p)(2), Apr. 20, 2005, 119 Stat. 35,
133, 182, added items 753 and 767, substituted “Dismissal of a case
or conversion to a case under chapter 11 or 13″ for “Dismissal” in
item 707, and struck out item 728 “Special tax provisions”.
2000 – Pub. L. 106-554, Sec. 1(a)(5) [title I, Sec. 112(d)], Dec.
21, 2000, 114 Stat. 2763, 2763A-396, added subchapter V heading and
items 781 to 784.
1984 – Pub. L. 98-353, title III, Sec. 471, July 10, 1984, 98
Stat. 380, substituted “Successor” for “Succesor” in item 703.

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11 USC SUBCHAPTER I – OFFICERS AND ADMINISTRATION 01/07/2011

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TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER I – OFFICERS AND ADMINISTRATION

-HEAD-
SUBCHAPTER I – OFFICERS AND ADMINISTRATION

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11 USC Sec. 701 01/07/2011

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TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER I – OFFICERS AND ADMINISTRATION

-HEAD-
Sec. 701. Interim trustee

-STATUTE-
(a)(1) Promptly after the order for relief under this chapter,
the United States trustee shall appoint one disinterested person
that is a member of the panel of private trustees established under
section 586(a)(1) of title 28 or that is serving as trustee in the
case immediately before the order for relief under this chapter to
serve as interim trustee in the case.
(2) If none of the members of such panel is willing to serve as
interim trustee in the case, then the United States trustee may
serve as interim trustee in the case.
(b) The service of an interim trustee under this section
terminates when a trustee elected or designated under section 702
of this title to serve as trustee in the case qualifies under
section 322 of this title.
(c) An interim trustee serving under this section is a trustee in
a case under this title.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2604; Pub. L. 99-554, title
II, Sec. 215, Oct. 27, 1986, 100 Stat. 3100.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
The House amendment deletes section 701(d) of the Senate
amendment. It is anticipated that the Rules of Bankruptcy Procedure
will require the appointment of an interim trustee at the earliest
practical moment in commodity broker bankruptcies, but no later
than noon of the day after the date of the filing of the petition,
due to the volatility of such cases.

SENATE REPORT NO. 95-989
This section requires the court to appoint an interim trustee.
The appointment must be made from the panel of private trustees
established and maintained by the Director of the Administrative
Office under proposed 28 U.S.C. 604(e).
Subsection (a) requires the appointment of an interim trustee to
be made promptly after the order for relief, unless a trustee is
already serving in the case, such as before a conversion from a
reorganization to a liquidation case.
Subsection (b) specifies that the appointment of an interim
trustee expires when the permanent trustee is elected or designated
under section 702.
Subsection (c) makes clear that an interim trustee is a trustee
in a case under the bankruptcy code.
Subsection (d) provides that in a commodity broker case where
speed is essential the interim trustee must be appointed by noon of
the business day immediately following the order for relief.

AMENDMENTS
1986 – Subsec. (a). Pub. L. 99-554 designated existing provisions
as par. (1), substituted “the United States trustee shall appoint”
for “the court shall appoint”, “586(a)(1)” for “604(f)”, “that is
serving” for “that was serving”, and added par. (2).

EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by Pub. L. 99-554
dependent upon the judicial district involved, see section 302(d),
(e) of Pub. L. 99-554, set out as a note under section 581 of Title
28, Judiciary and Judicial Procedure.

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11 USC Sec. 702 01/07/2011

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TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER I – OFFICERS AND ADMINISTRATION

-HEAD-
Sec. 702. Election of trustee

-STATUTE-
(a) A creditor may vote for a candidate for trustee only if such
creditor –
(1) holds an allowable, undisputed, fixed, liquidated,
unsecured claim of a kind entitled to distribution under section
726(a)(2), 726(a)(3), 726(a)(4), 752(a), 766(h), or 766(i) of
this title;
(2) does not have an interest materially adverse, other than an
equity interest that is not substantial in relation to such
creditor’s interest as a creditor, to the interest of creditors
entitled to such distribution; and
(3) is not an insider.

(b) At the meeting of creditors held under section 341 of this
title, creditors may elect one person to serve as trustee in the
case if election of a trustee is requested by creditors that may
vote under subsection (a) of this section, and that hold at least
20 percent in amount of the claims specified in subsection (a)(1)
of this section that are held by creditors that may vote under
subsection (a) of this section.
(c) A candidate for trustee is elected trustee if –
(1) creditors holding at least 20 percent in amount of the
claims of a kind specified in subsection (a)(1) of this section
that are held by creditors that may vote under subsection (a) of
this section vote; and
(2) such candidate receives the votes of creditors holding a
majority in amount of claims specified in subsection (a)(1) of
this section that are held by creditors that vote for a trustee.

(d) If a trustee is not elected under this section, then the
interim trustee shall serve as trustee in the case.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2604; Pub. L. 97-222, Sec.
7, July 27, 1982, 96 Stat. 237; Pub. L. 98-353, title III, Sec.
472, July 10, 1984, 98 Stat. 380.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
The House amendment adopts section 702(a)(2) of the Senate
amendment. An insubstantial equity interest does not disqualify a
creditor from voting for a candidate for trustee.

SENATE REPORT NO. 95-989
Subsection (a) of this section specifies which creditors may vote
for a trustee. Only a creditor that holds an allowable, undisputed,
fixed, liquidated, unsecured claim that is not entitled to
priority, that does not have an interest materially adverse to the
interest of general unsecured creditors, and that is not an insider
may vote for a trustee. The phrase “materially adverse” is
currently used in the Rules of Bankruptcy Procedure, rule 207(d).
The application of the standard requires a balancing of various
factors, such as the nature of the adversity. A creditor with a
very small equity position would not be excluded from voting solely
because he holds a small equity in the debtor. The Rules of
Bankruptcy Procedure also currently provide for temporary allowance
of claims, and will continue to do so for the purposes of
determining who is eligible to vote under this provision.
Subsection (b) permits creditors at the meeting of creditors to
elect one person to serve as trustee in the case. Creditors holding
at least 20 percent in amount of the claims specified in the
preceding paragraph must request election before creditors may
elect a trustee. Subsection (c) specifies that a candidate for
trustee is elected trustee if creditors holding at least 20 percent
in amount of those claims actually vote, and if the candidate
receives a majority in amount of votes actually cast.
Subsection (d) specifies that if a trustee is not elected, then
the interim trustee becomes the permanent trustee and serves in the
case permanently.

AMENDMENTS
1984 – Subsec. (b). Pub. L. 98-353, Sec. 472(a), inserted “held”
after “meeting of creditors”.
Subsec. (c)(1). Pub. L. 98-353, Sec. 472(b)(1), inserted “of a
kind” after “claims”.
Subsec. (c)(2). Pub. L. 98-353, Sec. 472(b)(2), substituted “for
a trustee” for “for trustee”.
Subsec. (d). Pub. L. 98-353, Sec. 472(c), substituted “this
section” for “subsection (c) of this section”.
1982 – Subsec. (a)(1). Pub. L. 97-222 substituted “726(a)(4),
752(a), 766(h), or 766(i)” for “or 726(a)(4)”.

EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.

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11 USC Sec. 703 01/07/2011

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TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER I – OFFICERS AND ADMINISTRATION

-HEAD-
Sec. 703. Successor trustee

-STATUTE-
(a) If a trustee dies or resigns during a case, fails to qualify
under section 322 of this title, or is removed under section 324 of
this title, creditors may elect, in the manner specified in section
702 of this title, a person to fill the vacancy in the office of
trustee.
(b) Pending election of a trustee under subsection (a) of this
section, if necessary to preserve or prevent loss to the estate,
the United States trustee may appoint an interim trustee in the
manner specified in section 701(a).
(c) If creditors do not elect a successor trustee under
subsection (a) of this section or if a trustee is needed in a case
reopened under section 350 of this title, then the United States
trustee –
(1) shall appoint one disinterested person that is a member of
the panel of private trustees established under section 586(a)(1)
of title 28 to serve as trustee in the case; or
(2) may, if none of the disinterested members of such panel is
willing to serve as trustee, serve as trustee in the case.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2605; Pub. L. 98-353, title
III, Sec. 473, July 10, 1984, 98 Stat. 381; Pub. L. 99-554, title
II, Sec. 216, Oct. 27, 1986, 100 Stat. 3100.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
If the office of trustee becomes vacant during the case, this
section makes provision for the selection of a successor trustee.
The office might become vacant through death, resignation, removal,
failure to qualify under section 322 by posting bond, or the
reopening of a case. If it does, creditors may elect a successor in
the same manner as they may elect a trustee under the previous
section. Pending the election of a successor, the court may appoint
an interim trustee in the usual manner if necessary to preserve or
prevent loss to the estate. If creditors do not elect a successor,
or if a trustee is needed in a reopened case, then the court
appoints a disinterested member of the panel of private trustees to
serve.

AMENDMENTS
1986 – Subsec. (b). Pub. L. 99-554 amended subsec. (b) generally,
substituting “the United States trustee may appoint” for “the court
may appoint” and “manner specified in section 701(a)” for “manner
and subject to the provisions of section 701 of this title”.
Subsec. (c). Pub. L. 99-554 amended subsec. (c) generally,
substituting “this section or” for “this section, or”, “then the
United States trustee” for “then the court”, designating part of
existing provisions as par. (1), and, as so designated,
substituting “586(a)(1)” for “604(f)”, “in the case; or” for “in
the case.”, and adding par. (2).
1984 – Subsec. (b). Pub. L. 98-353 substituted “and subject to
the provisions of section 701 of this title” for “specified in
section 701(a) of this title. Sections 701(b) and 701(c) of this
title apply to such interim trustee”.

EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by Pub. L. 99-554
dependent upon the judicial district involved, see section 302(d),
(e) of Pub. L. 99-554, set out as a note under section 581 of Title
28, Judiciary and Judicial Procedure.

EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.

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11 USC Sec. 704 01/07/2011

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TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER I – OFFICERS AND ADMINISTRATION

-HEAD-
Sec. 704. Duties of trustee

-STATUTE-
(a) The trustee shall –
(1) collect and reduce to money the property of the estate for
which such trustee serves, and close such estate as expeditiously
as is compatible with the best interests of parties in interest;
(2) be accountable for all property received;
(3) ensure that the debtor shall perform his intention as
specified in section 521(a)(2)(B) of this title;
(4) investigate the financial affairs of the debtor;
(5) if a purpose would be served, examine proofs of claims and
object to the allowance of any claim that is improper;
(6) if advisable, oppose the discharge of the debtor;
(7) unless the court orders otherwise, furnish such information
concerning the estate and the estate’s administration as is
requested by a party in interest;
(8) if the business of the debtor is authorized to be operated,
file with the court, with the United States trustee, and with any
governmental unit charged with responsibility for collection or
determination of any tax arising out of such operation, periodic
reports and summaries of the operation of such business,
including a statement of receipts and disbursements, and such
other information as the United States trustee or the court
requires;
(9) make a final report and file a final account of the
administration of the estate with the court and with the United
States trustee;
(10) if with respect to the debtor there is a claim for a
domestic support obligation, provide the applicable notice
specified in subsection (c);
(11) if, at the time of the commencement of the case, the
debtor (or any entity designated by the debtor) served as the
administrator (as defined in section 3 of the Employee Retirement
Income Security Act of 1974) of an employee benefit plan,
continue to perform the obligations required of the
administrator; and
(12) use all reasonable and best efforts to transfer patients
from a health care business that is in the process of being
closed to an appropriate health care business that –
(A) is in the vicinity of the health care business that is
closing;
(B) provides the patient with services that are substantially
similar to those provided by the health care business that is
in the process of being closed; and
(C) maintains a reasonable quality of care.

(b)(1) With respect to a debtor who is an individual in a case
under this chapter –
(A) the United States trustee (or the bankruptcy administrator,
if any) shall review all materials filed by the debtor and, not
later than 10 days after the date of the first meeting of
creditors, file with the court a statement as to whether the
debtor’s case would be presumed to be an abuse under section
707(b); and
(B) not later than 7 days after receiving a statement under
subparagraph (A), the court shall provide a copy of the statement
to all creditors.

(2) The United States trustee (or bankruptcy administrator, if
any) shall, not later than 30 days after the date of filing a
statement under paragraph (1), either file a motion to dismiss or
convert under section 707(b) or file a statement setting forth the
reasons the United States trustee (or the bankruptcy administrator,
if any) does not consider such a motion to be appropriate, if the
United States trustee (or the bankruptcy administrator, if any)
determines that the debtor’s case should be presumed to be an abuse
under section 707(b) and the product of the debtor’s current
monthly income, multiplied by 12 is not less than –
(A) in the case of a debtor in a household of 1 person, the
median family income of the applicable State for 1 earner; or
(B) in the case of a debtor in a household of 2 or more
individuals, the highest median family income of the applicable
State for a family of the same number or fewer individuals.

(c)(1) In a case described in subsection (a)(10) to which
subsection (a)(10) applies, the trustee shall –
(A)(i) provide written notice to the holder of the claim
described in subsection (a)(10) of such claim and of the right of
such holder to use the services of the State child support
enforcement agency established under sections 464 and 466 of the
Social Security Act for the State in which such holder resides,
for assistance in collecting child support during and after the
case under this title;
(ii) include in the notice provided under clause (i) the
address and telephone number of such State child support
enforcement agency; and
(iii) include in the notice provided under clause (i) an
explanation of the rights of such holder to payment of such claim
under this chapter;
(B)(i) provide written notice to such State child support
enforcement agency of such claim; and
(ii) include in the notice provided under clause (i) the name,
address, and telephone number of such holder; and
(C) at such time as the debtor is granted a discharge under
section 727, provide written notice to such holder and to such
State child support enforcement agency of –
(i) the granting of the discharge;
(ii) the last recent known address of the debtor;
(iii) the last recent known name and address of the debtor’s
employer; and
(iv) the name of each creditor that holds a claim that –
(I) is not discharged under paragraph (2), (4), or (14A) of
section 523(a); or
(II) was reaffirmed by the debtor under section 524(c).

(2)(A) The holder of a claim described in subsection (a)(10) or
the State child support enforcement agency of the State in which
such holder resides may request from a creditor described in
paragraph (1)(C)(iv) the last known address of the debtor.
(B) Notwithstanding any other provision of law, a creditor that
makes a disclosure of a last known address of a debtor in
connection with a request made under subparagraph (A) shall not be
liable by reason of making such disclosure.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2605; Pub. L. 98-353, title
III, Secs. 311(a), 474, July 10, 1984, 98 Stat. 355, 381; Pub. L.
99-554, title II, Sec. 217, Oct. 27, 1986, 100 Stat. 3100; Pub. L.
109-8, title I, Sec. 102(c), title II, Sec. 219(a), title IV, Sec.
446(b), title XI, Sec. 1105(a), Apr. 20, 2005, 119 Stat. 32, 55,
118, 192; Pub. L. 111-16, Sec. 2(7), May 7, 2009, 123 Stat. 1607;
Pub. L. 111-327, Sec. 2(a)(24), Dec. 22, 2010, 124 Stat. 3560.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 704(8) of the Senate amendment is deleted in the House
amendment. Trustees should give constructive notice of the
commencement of the case in the manner specified under section
549(c) of title 11.

SENATE REPORT NO. 95-989
The essential duties of the trustee are enumerated in this
section. Others, or elaborations on these, may be prescribed by the
Rules of Bankruptcy Procedure to the extent not inconsistent with
those prescribed by this section. The duties are derived from
section 47a of the Bankruptcy Act [section 75(a) of former title
11].
The trustee’s principal duty is to collect and reduce to money
the property of the estate for which he serves, and to close up the
estate as expeditiously as is compatible with the best interests of
parties in interest. He must be accountable for all property
received, and must investigate the financial affairs of the debtor.
If a purpose would be served (such as if there are assets that will
be distributed), the trustee is required to examine proofs of
claims and object to the allowance of any claim that is improper.
If advisable, the trustee must oppose the discharge of the debtor,
which is for the benefit of general unsecured creditors whom the
trustee represents.
The trustee is responsible to furnish such information concerning
the estate and its administration as is requested by a party in
interest. If the business of the debtor is authorized to be
operated, then the trustee is required to file with governmental
units charged with the responsibility for collection or
determination of any tax arising out of the operation of the
business periodic reports and summaries of the operation, including
a statement of receipts and disbursements, and such other
information as the court requires. He is required to give
constructive notice of the commencement of the case in the manner
specified under section 342(b).

-REFTEXT-
REFERENCES IN TEXT
Section 3 of the Employee Retirement Income Security Act of 1974,
referred to in subsec. (a)(11), is classified to section 1002 of
Title 29, Labor.
Sections 464 and 466 of the Social Security Act, referred to in
subsec. (c)(1)(A)(i), are classified to sections 664 and 666,
respectively, of Title 42, The Public Health and Welfare.

-MISC2-
AMENDMENTS
2010 – Subsec. (a)(3). Pub. L. 111-327 substituted “521(a)(2)(B)”
for “521(2)(B)”.
2009 – Subsec. (b)(1)(B). Pub. L. 111-16 substituted “7 days” for
“5 days”.
2005 – Pub. L. 109-8, Sec. 102(c)(1), designated existing
provisions as subsec. (a).
Subsec. (a)(10). Pub. L. 109-8, Sec. 219(a)(1), added par. (10).
Subsec. (a)(11). Pub. L. 109-8, Sec. 446(b), added par. (11).
Subsec. (a)(12). Pub. L. 109-8, Sec. 1105(a), added par. (12).
Subsec. (b). Pub. L. 109-8, Sec. 102(c)(2), added subsec. (b).
Subsec. (c). Pub. L. 109-8, Sec. 219(a)(2), added subsec. (c).
1986 – Par. (8). Pub. L. 99-554, Sec. 217(1), inserted “, with
the United States trustee,” after “with the court” and “the United
States trustee or” after “information as”.
Par. (9). Pub. L. 99-554, Sec. 217(2), inserted “with the United
States trustee” after “court”.
1984 – Par. (1). Pub. L. 98-353, Sec. 474, substituted “close
such estate” for “close up such estate”.
Pars. (3) to (9). Pub. L. 98-353, Sec. 311(a), added par. (3) and
redesignated former pars. (3) to (8) as (4) to (9), respectively.

EFFECTIVE DATE OF 2009 AMENDMENT
Amendment by Pub. L. 111-16 effective Dec. 1, 2009, see section 7
of Pub. L. 111-16, set out as a note under section 109 of this
title.

EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, 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.

-End-

-CITE-
11 USC Sec. 705 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER I – OFFICERS AND ADMINISTRATION

-HEAD-
Sec. 705. Creditors’ committee

-STATUTE-
(a) At the meeting under section 341(a) of this title, creditors
that may vote for a trustee under section 702(a) of this title may
elect a committee of not fewer than three, and not more than
eleven, creditors, each of whom holds an allowable unsecured claim
of a kind entitled to distribution under section 726(a)(2) of this
title.
(b) A committee elected under subsection (a) of this section may
consult with the trustee or the United States trustee in connection
with the administration of the estate, make recommendations to the
trustee or the United States trustee respecting the performance of
the trustee’s duties, and submit to the court or the United States
trustee any question affecting the administration of the estate.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2605; Pub. L. 99-554, title
II, Sec. 218, Oct. 27, 1986, 100 Stat. 3100.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 705(a) of the House amendment adopts a provision
contained in the Senate amendment that limits a committee of
creditors to not more than 11; the House bill contained no maximum
limitation.

SENATE REPORT NO. 95-989
This section is derived from section 44b of the Bankruptcy Act
[section 72(b) of former title 11] without substantial change. It
permits election by general unsecured creditors of a committee of
not fewer than 3 members and not more than 11 members to consult
with the trustee in connection with the administration of the
estate, to make recommendations to the trustee respecting the
performance of his duties, and to submit to the court any question
affecting the administration of the estate. There is no provision
for compensation or reimbursement of its counsel.

AMENDMENTS
1986 – Subsec. (b). Pub. L. 99-554 inserted “or the United States
trustee” in three places.

EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by Pub. L. 99-554
dependent upon the judicial district involved, see section 302(d),
(e) of Pub. L. 99-554, set out as a note under section 581 of Title
28, Judiciary and Judicial Procedure.

-End-

-CITE-
11 USC Sec. 706 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER I – OFFICERS AND ADMINISTRATION

-HEAD-
Sec. 706. Conversion

-STATUTE-
(a) The debtor may convert a case under this chapter to a case
under chapter 11, 12, or 13 of this title at any time, if the case
has not been converted under section 1112, 1208, or 1307 of this
title. Any waiver of the right to convert a case under this
subsection is unenforceable.
(b) On request of a party in interest and after notice and a
hearing, the court may convert a case under this chapter to a case
under chapter 11 of this title at any time.
(c) The court may not convert a case under this chapter to a case
under chapter 12 or 13 of this title unless the debtor requests or
consents to such conversion.
(d) Notwithstanding any other provision of this section, a case
may not be converted to a case under another chapter of this title
unless the debtor may be a debtor under such chapter.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606; Pub. L. 99-554, title
II, Sec. 257(q), Oct. 27, 1986, 100 Stat. 3115; Pub. L. 103-394,
title V, Sec. 501(d)(22), Oct. 22, 1994, 108 Stat. 4146; Pub. L.
109-8, title I, Sec. 101, Apr. 20, 2005, 119 Stat. 27.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 706(a) of the House amendment adopts a provision
contained in the Senate amendment indicating that a waiver of the
right to convert a case under section 706(a) is unenforceable. The
explicit reference in title 11 forbidding the waiver of certain
rights is not intended to imply that other rights, such as the
right to file a voluntary bankruptcy case under section 301, may be
waived.
Section 706 of the House amendment adopts a similar provision
contained in H.R. 8200 as passed by the House. Competing proposals
contained in section 706(c) and section 706(d) of the Senate
amendment are rejected.

SENATE REPORT NO. 95-989
Subsection (a) of this section gives the debtor the one-time
absolute right of conversion of a liquidation case to a
reorganization or individual repayment plan case. If the case has
already once been converted from chapter 11 or 13 to chapter 7,
then the debtor does not have that right. The policy of the
provision is that the debtor should always be given the opportunity
to repay his debts, and a waiver of the right to convert a case is
unenforceable.
Subsection (b) permits the court, on request of a party in
interest and after notice and a hearing, to convert the case to
chapter 11 at any time. The decision whether to convert is left in
the sound discretion of the court, based on what will most inure to
the benefit of all parties in interest.
Subsection (c) is part of the prohibition against involuntary
chapter 13 cases, and prohibits the court from converting a case to
chapter 13 without the debtor’s consent.
Subsection (d) reinforces section 109 by prohibiting conversion
to a chapter unless the debtor is eligible to be a debtor under
that chapter.

AMENDMENTS
2005 – Subsec. (c). Pub. L. 109-8 inserted “or consents to” after
“requests”.
1994 – Subsec. (a). Pub. L. 103-394 substituted “1208, or 1307″
for “1307, or 1208″.
1986 – Subsec. (a). Pub. L. 99-554, Sec. 257(q)(1), inserted
references to chapter 12 and section 1208 of this title.
Subsec. (c). Pub. L. 99-554, Sec. 257(q)(2), inserted reference
to chapter 12.

EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
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.

-End-

-CITE-
11 USC Sec. 707 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER I – OFFICERS AND ADMINISTRATION

-HEAD-
Sec. 707. Dismissal of a case or conversion to a case under chapter
11 or 13

-STATUTE-
(a) The court may dismiss a case under this chapter only after
notice and a hearing and only for cause, including –
(1) unreasonable delay by the debtor that is prejudicial to
creditors;
(2) nonpayment of any fees or charges required under chapter
123 of title 28; and
(3) failure of the debtor in a voluntary case to file, within
fifteen days or such additional time as the court may allow after
the filing of the petition commencing such case, the information
required by paragraph (1) of section 521(a), but only on a motion
by the United States trustee.

(b)(1) After notice and a hearing, the court, on its own motion
or on a motion by the United States trustee, trustee (or bankruptcy
administrator, if any), or any party in interest, may dismiss a
case filed by an individual debtor under this chapter whose debts
are primarily consumer debts, or, with the debtor’s consent,
convert such a case to a case under chapter 11 or 13 of this title,
if it finds that the granting of relief would be an abuse of the
provisions of this chapter. In making a determination whether to
dismiss a case under this section, the court may not take into
consideration whether a debtor has made, or continues to make,
charitable contributions (that meet the definition of “charitable
contribution” under section 548(d)(3)) to any qualified religious
or charitable entity or organization (as that term is defined in
section 548(d)(4)).
(2)(A)(i) In considering under paragraph (1) whether the granting
of relief would be an abuse of the provisions of this chapter, the
court shall presume abuse exists if the debtor’s current monthly
income reduced by the amounts determined under clauses (ii), (iii),
and (iv), and multiplied by 60 is not less than the lesser of –
(I) 25 percent of the debtor’s nonpriority unsecured claims in
the case, or $6,000, whichever is greater; or
(II) $10,000.

(ii)(I) The debtor’s monthly expenses shall be the debtor’s
applicable monthly expense amounts specified under the National
Standards and Local Standards, and the debtor’s actual monthly
expenses for the categories specified as Other Necessary Expenses
issued by the Internal Revenue Service for the area in which the
debtor resides, as in effect on the date of the order for relief,
for the debtor, the dependents of the debtor, and the spouse of the
debtor in a joint case, if the spouse is not otherwise a dependent.
Such expenses shall include reasonably necessary health insurance,
disability insurance, and health savings account expenses for the
debtor, the spouse of the debtor, or the dependents of the debtor.
Notwithstanding any other provision of this clause, the monthly
expenses of the debtor shall not include any payments for debts. In
addition, the debtor’s monthly expenses shall include the debtor’s
reasonably necessary expenses incurred to maintain the safety of
the debtor and the family of the debtor from family violence as
identified under section 302 of the Family Violence Prevention and
Services Act, or other applicable Federal law. The expenses
included in the debtor’s monthly expenses described in the
preceding sentence shall be kept confidential by the court. In
addition, if it is demonstrated that it is reasonable and
necessary, the debtor’s monthly expenses may also include an
additional allowance for food and clothing of up to 5 percent of
the food and clothing categories as specified by the National
Standards issued by the Internal Revenue Service.
(II) In addition, the debtor’s monthly expenses may include, if
applicable, the continuation of actual expenses paid by the debtor
that are reasonable and necessary for care and support of an
elderly, chronically ill, or disabled household member or member of
the debtor’s immediate family (including parents, grandparents,
siblings, children, and grandchildren of the debtor, the dependents
of the debtor, and the spouse of the debtor in a joint case who is
not a dependent) and who is unable to pay for such reasonable and
necessary expenses.
(III) In addition, for a debtor eligible for chapter 13, the
debtor’s monthly expenses may include the actual administrative
expenses of administering a chapter 13 plan for the district in
which the debtor resides, up to an amount of 10 percent of the
projected plan payments, as determined under schedules issued by
the Executive Office for United States Trustees.
(IV) In addition, the debtor’s monthly expenses may include the
actual expenses for each dependent child less than 18 years of age,
not to exceed $1,500 per year per child, to attend a private or
public elementary or secondary school if the debtor provides
documentation of such expenses and a detailed explanation of why
such expenses are reasonable and necessary, and why such expenses
are not already accounted for in the National Standards, Local
Standards, or Other Necessary Expenses referred to in subclause
(I).
(V) In addition, the debtor’s monthly expenses may include an
allowance for housing and utilities, in excess of the allowance
specified by the Local Standards for housing and utilities issued
by the Internal Revenue Service, based on the actual expenses for
home energy costs if the debtor provides documentation of such
actual expenses and demonstrates that such actual expenses are
reasonable and necessary.
(iii) The debtor’s average monthly payments on account of secured
debts shall be calculated as the sum of –
(I) the total of all amounts scheduled as contractually due to
secured creditors in each month of the 60 months following the
date of the filing of the petition; and
(II) any additional payments to secured creditors necessary for
the debtor, in filing a plan under chapter 13 of this title, to
maintain possession of the debtor’s primary residence, motor
vehicle, or other property necessary for the support of the
debtor and the debtor’s dependents, that serves as collateral for
secured debts;

divided by 60.
(iv) The debtor’s expenses for payment of all priority claims
(including priority child support and alimony claims) shall be
calculated as the total amount of debts entitled to priority,
divided by 60.
(B)(i) In any proceeding brought under this subsection, the
presumption of abuse may only be rebutted by demonstrating special
circumstances, such as a serious medical condition or a call or
order to active duty in the Armed Forces, to the extent such
special circumstances that justify additional expenses or
adjustments of current monthly income for which there is no
reasonable alternative.
(ii) In order to establish special circumstances, the debtor
shall be required to itemize each additional expense or adjustment
of income and to provide –
(I) documentation for such expense or adjustment to income; and
(II) a detailed explanation of the special circumstances that
make such expenses or adjustment to income necessary and
reasonable.

(iii) The debtor shall attest under oath to the accuracy of any
information provided to demonstrate that additional expenses or
adjustments to income are required.
(iv) The presumption of abuse may only be rebutted if the
additional expenses or adjustments to income referred to in clause
(i) cause the product of the debtor’s current monthly income
reduced by the amounts determined under clauses (ii), (iii), and
(iv) of subparagraph (A) when multiplied by 60 to be less than the
lesser of –
(I) 25 percent of the debtor’s nonpriority unsecured claims, or
$6,000, whichever is greater; or
(II) $10,000.

(C) As part of the schedule of current income and expenditures
required under section 521, the debtor shall include a statement of
the debtor’s current monthly income, and the calculations that
determine whether a presumption arises under subparagraph (A)(i),
that show how each such amount is calculated.
(D) Subparagraphs (A) through (C) shall not apply, and the court
may not dismiss or convert a case based on any form of means
testing –
(i) if the debtor is a disabled veteran (as defined in section
3741(1) of title 38), and the indebtedness occurred primarily
during a period during which he or she was –
(I) on active duty (as defined in section 101(d)(1) of title
10); or
(II) performing a homeland defense activity (as defined in
section 901(1) of title 32); or

(ii) with respect to the debtor, while the debtor is –
(I) on, and during the 540-day period beginning immediately
after the debtor is released from, a period of active duty (as
defined in section 101(d)(1) of title 10) of not less than 90
days; or
(II) performing, and during the 540-day period beginning
immediately after the debtor is no longer performing, a
homeland defense activity (as defined in section 901(1) of
title 32) performed for a period of not less than 90 days;

if after September 11, 2001, the debtor while a member of a
reserve component of the Armed Forces or a member of the National
Guard, was called to such active duty or performed such homeland
defense activity.
(3) In considering under paragraph (1) whether the granting of
relief would be an abuse of the provisions of this chapter in a
case in which the presumption in paragraph (2)(A)(i) does not arise
or is rebutted, the court shall consider –
(A) whether the debtor filed the petition in bad faith; or
(B) the totality of the circumstances (including whether the
debtor seeks to reject a personal services contract and the
financial need for such rejection as sought by the debtor) of the
debtor’s financial situation demonstrates abuse.

(4)(A) The court, on its own initiative or on the motion of a
party in interest, in accordance with the procedures described in
rule 9011 of the Federal Rules of Bankruptcy Procedure, may order
the attorney for the debtor to reimburse the trustee for all
reasonable costs in prosecuting a motion filed under section
707(b), including reasonable attorneys’ fees, if –
(i) a trustee files a motion for dismissal or conversion under
this subsection; and
(ii) the court –
(I) grants such motion; and
(II) finds that the action of the attorney for the debtor in
filing a case under this chapter violated rule 9011 of the
Federal Rules of Bankruptcy Procedure.

(B) If the court finds that the attorney for the debtor violated
rule 9011 of the Federal Rules of Bankruptcy Procedure, the court,
on its own initiative or on the motion of a party in interest, in
accordance with such procedures, may order –
(i) the assessment of an appropriate civil penalty against the
attorney for the debtor; and
(ii) the payment of such civil penalty to the trustee, the
United States trustee (or the bankruptcy administrator, if any).

(C) The signature of an attorney on a petition, pleading, or
written motion shall constitute a certification that the attorney
has –
(i) performed a reasonable investigation into the circumstances
that gave rise to the petition, pleading, or written motion; and
(ii) determined that the petition, pleading, or written motion –

(I) is well grounded in fact; and
(II) is warranted by existing law or a good faith argument
for the extension, modification, or reversal of existing law
and does not constitute an abuse under paragraph (1).

(D) The signature of an attorney on the petition shall constitute
a certification that the attorney has no knowledge after an inquiry
that the information in the schedules filed with such petition is
incorrect.
(5)(A) Except as provided in subparagraph (B) and subject to
paragraph (6), the court, on its own initiative or on the motion of
a party in interest, in accordance with the procedures described in
rule 9011 of the Federal Rules of Bankruptcy Procedure, may award a
debtor all reasonable costs (including reasonable attorneys’ fees)
in contesting a motion filed by a party in interest (other than a
trustee or United States trustee (or bankruptcy administrator, if
any)) under this subsection if –
(i) the court does not grant the motion; and
(ii) the court finds that –
(I) the position of the party that filed the motion violated
rule 9011 of the Federal Rules of Bankruptcy Procedure; or
(II) the attorney (if any) who filed the motion did not
comply with the requirements of clauses (i) and (ii) of
paragraph (4)(C), and the motion was made solely for the
purpose of coercing a debtor into waiving a right guaranteed to
the debtor under this title.

(B) A small business that has a claim of an aggregate amount less
than $1,000 shall not be subject to subparagraph (A)(ii)(I).
(C) For purposes of this paragraph –
(i) the term “small business” means an unincorporated business,
partnership, corporation, association, or organization that –
(I) has fewer than 25 full-time employees as determined on
the date on which the motion is filed; and
(II) is engaged in commercial or business activity; and

(ii) the number of employees of a wholly owned subsidiary of a
corporation includes the employees of –
(I) a parent corporation; and
(II) any other subsidiary corporation of the parent
corporation.

(6) Only the judge or United States trustee (or bankruptcy
administrator, if any) may file a motion under section 707(b), if
the current monthly income of the debtor, or in a joint case, the
debtor and the debtor’s spouse, as of the date of the order for
relief, when multiplied by 12, is equal to or less than –
(A) in the case of a debtor in a household of 1 person, the
median family income of the applicable State for 1 earner;
(B) in the case of a debtor in a household of 2, 3, or 4
individuals, the highest median family income of the applicable
State for a family of the same number or fewer individuals; or
(C) in the case of a debtor in a household exceeding 4
individuals, the highest median family income of the applicable
State for a family of 4 or fewer individuals, plus $525 per month
for each individual in excess of 4.

(7)(A) No judge, United States trustee (or bankruptcy
administrator, if any), trustee, or other party in interest may
file a motion under paragraph (2) if the current monthly income of
the debtor, including a veteran (as that term is defined in section
101 of title 38), and the debtor’s spouse combined, as of the date
of the order for relief when multiplied by 12, is equal to or less
than –
(i) in the case of a debtor in a household of 1 person, the
median family income of the applicable State for 1 earner;
(ii) in the case of a debtor in a household of 2, 3, or 4
individuals, the highest median family income of the applicable
State for a family of the same number or fewer individuals; or
(iii) in the case of a debtor in a household exceeding 4
individuals, the highest median family income of the applicable
State for a family of 4 or fewer individuals, plus $525 per month
for each individual in excess of 4.

(B) In a case that is not a joint case, current monthly income of
the debtor’s spouse shall not be considered for purposes of
subparagraph (A) if –
(i)(I) the debtor and the debtor’s spouse are separated under
applicable nonbankruptcy law; or
(II) the debtor and the debtor’s spouse are living separate and
apart, other than for the purpose of evading subparagraph (A);
and
(ii) the debtor files a statement under penalty of perjury –
(I) specifying that the debtor meets the requirement of
subclause (I) or (II) of clause (i); and
(II) disclosing the aggregate, or best estimate of the
aggregate, amount of any cash or money payments received from
the debtor’s spouse attributed to the debtor’s current monthly
income.

(c)(1) In this subsection –
(A) the term “crime of violence” has the meaning given such
term in section 16 of title 18; and
(B) the term “drug trafficking crime” has the meaning given
such term in section 924(c)(2) of title 18.

(2) Except as provided in paragraph (3), after notice and a
hearing, the court, on a motion by the victim of a crime of
violence or a drug trafficking crime, may when it is in the best
interest of the victim dismiss a voluntary case filed under this
chapter by a debtor who is an individual if such individual was
convicted of such crime.
(3) The court may not dismiss a case under paragraph (2) if the
debtor establishes by a preponderance of the evidence that the
filing of a case under this chapter is necessary to satisfy a claim
for a domestic support obligation.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606; Pub. L. 98-353, title
III, Secs. 312, 475, July 10, 1984, 98 Stat. 355, 381; Pub. L. 99-
554, title II, Sec. 219, Oct. 27, 1986, 100 Stat. 3100; Pub. L.
105-183, Sec. 4(b), June 19, 1998, 112 Stat. 518; Pub. L. 109-8,
title I, Sec. 102(a), (f), Apr. 20, 2005, 119 Stat. 27, 33; Pub. L.
110-438, Sec. 2, Oct. 20, 2008, 122 Stat. 5000; Pub. L. 111-320,
title II, Sec. 202(a), Dec. 20, 2010, 124 Stat. 3509; Pub. L. 111-
327, Sec. 2(a)(25), Dec. 22, 2010, 124 Stat. 3560.)

-STATAMEND-
ADJUSTMENT OF DOLLAR AMOUNTS
For adjustment of certain dollar amounts specified in this
section, that is not reflected in text, see Adjustment of Dollar
Amounts note below.

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 707 of the House amendment indicates that the court may
dismiss a case only after notice and a hearing.

SENATE REPORT NO. 95-989
This section authorizes the court to dismiss a liquidation case
only for cause, such as unreasonable delay by the debtor that is
prejudicial to creditors or nonpayment of any fees and charges
required under chapter 123 [Sec. 1911 et seq.] of title 28. These
causes are not exhaustive, but merely illustrative. The section
does not contemplate, however, that the ability of the debtor to
repay his debts in whole or in part constitutes adequate cause for
dismissal. To permit dismissal on that ground would be to enact a
non-uniform mandatory chapter 13, in lieu of the remedy of
bankruptcy.

-REFTEXT-
REFERENCES IN TEXT
Section 302 of the Family Violence Prevention and Services Act,
referred to in subsec. (b)(2)(A)(ii)(I), is classified to section
10402 of Title 42, The Public Health and Welfare.
The Federal Rules of Bankruptcy Procedure, referred to in subsec.
(b)(4)(A), (B), (5)(A), are set out in the Appendix to this title.

-MISC2-
AMENDMENTS
2010 – Subsec. (a)(3). Pub. L. 111-327, Sec. 2(a)(25)(A),
substituted “521(a)” for “521”.
Subsec. (b)(2)(A)(ii)(I). Pub. L. 111-320 substituted “section
302 of the Family Violence Prevention and Services Act” for
“section 309 of the Family Violence Prevention and Services Act”.
Subsec. (b)(2)(A)(iii)(I). Pub. L. 111-327, Sec. 2(a)(25)(B)(i),
inserted “of the filing” after “date”.
Subsec. (b)(3). Pub. L. 111-327, Sec. 2(a)(25)(B)(ii),
substituted “paragraph (2)(A)(i)” for “subparagraph (A)(i) of such
paragraph” in introductory provisions.
2008 – Subsec. (b)(2)(D). Pub. L. 110-438 substituted “testing –
” for “testing,” in introductory provisions, inserted cl. (i)
designation before “if the debtor”, redesignated former cls. (i)
and (ii) as subcls. (I) and (II), respectively, of cl. (i) and
added cl. (ii).
2005 – Pub. L. 109-8, Sec. 102(a)(1), substituted “Dismissal of a
case or conversion to a case under chapter 11 or 13″ for
“Dismissal” in section catchline.
Subsec. (b). Pub. L. 109-8, Sec. 102(a)(2), designated existing
provisions as par. (1), substituted “trustee (or bankruptcy
administrator, if any), or” for “but not at the request or
suggestion of” and “an abuse” for “a substantial abuse”, inserted
“, or, with the debtor’s consent, convert such a case to a case
under chapter 11 or 13 of this title,” after “consumer debts”,
struck out “There shall be a presumption in favor of granting the
relief requested by the debtor.” before “In making”, and added
pars. (2) to (7).
Subsec. (c). Pub. L. 109-8, Sec. 102(f), added subsec. (c).
1998 – Subsec. (b). Pub. L. 105-183 inserted at end “In making a
determination whether to dismiss a case under this section, the
court may not take into consideration whether a debtor has made, or
continues to make, charitable contributions (that meet the
definition of ‘charitable contribution’ under section 548(d)(3)) to
any qualified religious or charitable entity or organization (as
that term is defined in section 548(d)(4)).”
1986 – Subsec. (a)(3). Pub. L. 99-554, Sec. 219(a), added par.
(3).
Subsec. (b). Pub. L. 99-554, Sec. 219(b), substituted “motion or
on a motion by the United States trustee, but” for “motion and”.
1984 – Pub. L. 98-353 designated existing provisions as subsec.
(a) and in pars. (1) and (2) substituted “or” for “and”, and added
subsec. (b).

EFFECTIVE DATE OF 2008 AMENDMENT
Pub. L. 110-438, Sec. 4, Oct. 20, 2008, 122 Stat. 5002, provided
that:
“(a) Effective Date. – Except as provided in subsection (b), this
Act [amending this section and enacting provisions set out as a
note under section 101 of this title] and the amendments made by
this Act shall take effect 60 days after the date of enactment of
this Act [Oct. 20, 2008].
“(b) Application of Amendments. – The amendments made by this Act
[amending this section] shall apply only with respect to cases
commenced under title 11 of the United States Code in the 3-year
period beginning on the effective date of this Act.”

EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
of this title.

EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-183 applicable to any case brought under
an applicable provision of this title that is pending or commenced
on or after June 19, 1998, see section 5 of Pub. L. 105-183, set
out as a note under section 544 of this title.

EFFECTIVE DATE OF 1986 AMENDMENT
Effective date and applicability of amendment by Pub. L. 99-554
dependent upon the judicial district involved, see section 302(d),
(e) of Pub. L. 99-554, set out as a note under section 581 of Title
28, Judiciary and Judicial Procedure.

EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.

SCHEDULES OF REASONABLE AND NECESSARY EXPENSES
Pub. L. 109-8, title I, Sec. 107, Apr. 20, 2005, 119 Stat. 42,
provided that: “For purposes of section 707(b) of title 11, United
States Code, as amended by this Act, the Director of the Executive
Office for United States Trustees shall, not later than 180 days
after the date of enactment of this Act [Apr. 20, 2005], issue
schedules of reasonable and necessary administrative expenses of
administering a chapter 13 plan for each judicial district of the
United States.”

ADJUSTMENT OF DOLLAR AMOUNTS
The dollar amounts specified in this section were adjusted by
notices of the Judicial Conference of the United States pursuant to
section 104 of this title as follows:
By notice dated Feb. 19, 2010, 75 F.R. 8747, effective Apr. 1,
2010, in subsec. (b)(2)(A)(i)(I), dollar amount “6,575” was
adjusted to “7,025”; in subsec. (b)(2)(A)(i)(II), dollar amount
“10,950” was adjusted to “11,725”; in subsec. (b)(2)(A)(ii)(IV),
dollar amount “1,650” was adjusted to “1,775”; in subsec.
(b)(2)(B)(iv)(I), dollar amount “6,575” was adjusted to “7,025”; in
subsec. (b)(2)(B)(iv)(II), dollar amount “10,950” was adjusted to
“11,725”; in subsec. (b)(5)(B), dollar amount “1,100” was adjusted
to “1,175”; in subsec. (b)(6)(C), dollar amount “575” was adjusted
to “625”; and, in subsec. (b)(7)(A)(iii), dollar amount “575” was
adjusted to “625”. See notice of the Judicial Conference of the
United States set out as a note under section 104 of this title.
By notice dated Feb. 7, 2007, 72 F.R. 7082, effective Apr. 1,
2007, in subsec. (b)(2)(A)(i)(I), dollar amount “6,000” was
adjusted to “6,575”; in subsec. (b)(2)(A)(i)(II), dollar amount
“10,000” was adjusted to “10,950”; in subsec. (b)(2)(A)(ii)(IV),
dollar amount “1,500” was adjusted to “1,650”; in subsec.
(b)(5)(B), dollar amount “1,000” was adjusted to “1,100”; in
subsec. (b)(6)(C), dollar amount “525” was adjusted to “575”; and,
in subsec. (b)(7)(A), dollar amount “525” was adjusted to “575”.

RULES PROMULGATED BY SUPREME COURT
United States Supreme Court to prescribe general rules
implementing the practice and procedure to be followed under
subsec. (b) of this section, with section 2075 of Title 28,
Judiciary and Judicial Procedure, to apply with respect to such
general rules, see section 320 of Pub. L. 98-353, set out as a note
under section 2075 of Title 28.

-End-

-CITE-
11 USC SUBCHAPTER II – COLLECTION, LIQUIDATION, AND
DISTRIBUTION OF THE ESTATE 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER II – COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE
ESTATE

-HEAD-
SUBCHAPTER II – COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE
ESTATE

-End-

-CITE-
11 USC Sec. 721 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER II – COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE
ESTATE

-HEAD-
Sec. 721. Authorization to operate business

-STATUTE-
The court may authorize the trustee to operate the business of
the debtor for a limited period, if such operation is in the best
interest of the estate and consistent with the orderly liquidation
of the estate.

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

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
This section is derived from section 2a(5) of the Bankruptcy Act
[section 11(a)(5) of former title 11]. It permits the court to
authorize the operation of any business of the debtor for a limited
period, if the operation is in the best interest of the estate and
consistent with orderly liquidation of the estate. An example is
the operation of a watch company to convert watch movements and
cases into completed watches which will bring much higher prices
than the component parts would have brought.

-End-

-CITE-
11 USC Sec. 722 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER II – COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE
ESTATE

-HEAD-
Sec. 722. Redemption

-STATUTE-
An individual debtor may, whether or not the debtor has waived
the right to redeem under this section, redeem tangible personal
property intended primarily for personal, family, or household use,
from a lien securing a dischargeable consumer debt, if such
property is exempted under section 522 of this title or has been
abandoned under section 554 of this title, by paying the holder of
such lien the amount of the allowed secured claim of such holder
that is secured by such lien in full at the time of redemption.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606; Pub. L. 109-8, title
III, Sec. 304(2), Apr. 20, 2005, 119 Stat. 79.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 722 of the House amendment adopts the position taken in
H.R. 8200 as passed by the House and rejects the alternative
contained in section 722 of the Senate amendment.

SENATE REPORT NO. 95-989
This section is new and is broader than rights of redemption
under the Uniform Commercial Code. It authorizes an individual
debtor to redeem tangible personal property intended primarily for
personal, family, or household use, from a lien securing a
nonpurchase money dischargeable consumer debt. It applies only if
the debtor’s interest in the property is exempt or has been
abandoned.
This right to redeem is a very substantial change from current
law. To prevent abuses such as may occur when the debtor
deliberately allows the property to depreciate in value, the debtor
will be required to pay the fair market value of the goods or the
amount of the claim if the claim is less. The right is personal to
the debtor and not assignable.

HOUSE REPORT NO. 95-595
This section is new and is broader than rights of redemption
under the Uniform Commercial Code. It authorizes an individual
debtor to redeem tangible personal property intended primarily for
personal, family, or household use, from a lien securing a
dischargeable consumer debt. It applies only if the debtor’s
interest in the property is exempt or has been abandoned.
The right to redeem extends to the whole of the property, not
just the debtor’s exempt interest in it. Thus, for example, if a
debtor owned a $2,000 car, subject to a $1,200 lien, the debtor
could exempt his $800 interest in the car. The debtor is permitted
a $1,500 exemption in a car, proposed 11 U.S.C. 522(d)(2). This
section permits him to pay the holder of the lien $1,200 and redeem
the entire car, not just the remaining $700 of his exemption. The
redemption is accomplished by paying the holder of the lien the
amount of the allowed claim secured by the lien. The provision
amounts to a right of first refusal for the debtor in consumer
goods that might otherwise be repossessed. The right of redemption
under this section is not waivable.

AMENDMENTS
2005 – Pub. L. 109-8 inserted “in full at the time of redemption”
before period at end.

EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
of this title.

-End-

-CITE-
11 USC Sec. 723 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER II – COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE
ESTATE

-HEAD-
Sec. 723. Rights of partnership trustee against general partners

-STATUTE-
(a) If there is a deficiency of property of the estate to pay in
full all claims which are allowed in a case under this chapter
concerning a partnership and with respect to which a general
partner of the partnership is personally liable, the trustee shall
have a claim against such general partner to the extent that under
applicable nonbankruptcy law such general partner is personally
liable for such deficiency.
(b) To the extent practicable, the trustee shall first seek
recovery of such deficiency from any general partner in such
partnership that is not a debtor in a case under this title.
Pending determination of such deficiency, the court may order any
such partner to provide the estate with indemnity for, or assurance
of payment of, any deficiency recoverable from such partner, or not
to dispose of property.
(c) The trustee has a claim against the estate of each general
partner in such partnership that is a debtor in a case under this
title for the full amount of all claims of creditors allowed in the
case concerning such partnership. Notwithstanding section 502 of
this title, there shall not be allowed in such partner’s case a
claim against such partner on which both such partner and such
partnership are liable, except to any extent that such claim is
secured only by property of such partner and not by property of
such partnership. The claim of the trustee under this subsection is
entitled to distribution in such partner’s case under section
726(a) of this title the same as any other claim of a kind
specified in such section.
(d) If the aggregate that the trustee recovers from the estates
of general partners under subsection (c) of this section is greater
than any deficiency not recovered under subsection (b) of this
section, the court, after notice and a hearing, shall determine an
equitable distribution of the surplus so recovered, and the trustee
shall distribute such surplus to the estates of the general
partners in such partnership according to such determination.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606; Pub. L. 98-353, title
III, Sec. 476, July 10, 1984, 98 Stat. 381; Pub. L. 103-394, title
II, Sec. 212, Oct. 22, 1994, 108 Stat. 4125; Pub. L. 111-327, Sec.
2(a)(26), Dec. 22, 2010, 124 Stat. 3560.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 723(c) of the House amendment is a compromise between
similar provisions contained in the House bill and Senate
amendment. The section makes clear that the trustee of a
partnership has a claim against each general partner for the full
amount of all claims of creditors allowed in the case concerning
the partnership. By restricting the trustee’s rights to claims of
“creditors,” the trustee of the partnership will not have a claim
against the general partners for administrative expenses or claims
allowed in the case concerning the partnership. As under present
law, sections of the Bankruptcy Act [former title 11] applying to
codebtors and sureties apply to the relationship of a partner with
respect to a partnership debtor. See sections 501(b), 502(e),
506(d)(2), 509, 524(d), and 1301 of title 11.

SENATE REPORT NO. 95-989
This section is a significant departure from present law. It
repeals the jingle rule, which, for ease of administration, denied
partnership creditors their rights against general partners by
permitting general partners’ individual creditors to share in their
estates first to the exclusion of partnership creditors. The result
under this section more closely tracks generally applicable
partnership law, without a significant administrative burden.
Subsection (a) specifies that each general partner in a
partnership debtor is liable to the partnership’s trustee for any
deficiency of partnership property to pay in full all
administrative expenses and all claims against the partnership.
Subsection (b) requires the trustee to seek recovery of the
deficiency from any general partner that is not a debtor in a
bankruptcy case. The court is empowered to order that partner to
indemnify the estate or not to dispose of property pending a
determination of the deficiency. The language of the subsection is
directed to cases under the bankruptcy code. However, if, during
the early stages of the transition period, a partner in a
partnership is proceeding under the Bankruptcy Act [former title
11] while the partnership is proceeding under the bankruptcy code,
the trustee should not first seek recovery against the Bankruptcy
Act partner. Rather, the Bankruptcy Act partner should be deemed
for the purposes of this section and the rights of the trustee to
be proceeding under title 11.
Subsection (c) requires the partnership trustee to seek recovery
of the full amount of the deficiency from the estate of each
general partner that is a debtor in a bankruptcy case. The trustee
will share equally with the partners’ individual creditors in the
assets of the partners’ estates. Claims of partnership creditors
who may have filed against the partner will be disallowed to avoid
double counting.
Subsection (d) provides for the case where the total recovery
from all of the bankrupt general partners is greater than the
deficiency of which the trustee sought recovery. This case would
most likely occur for a partnership with a large number of general
partners. If the situation arises, the court is required to
determine an equitable redistribution of the surplus to the estate
of the general partners. The determination will be based on factors
such as the relative liability of each of the general partners
under the partnership agreement and the relative rights of each of
the general partners in the profits of the enterprise under the
partnership agreement.

AMENDMENTS
2010 – Subsec. (c). Pub. L. 111-327 substituted “The trustee has”
for “Notwithstanding section 728(c) of this title, the trustee
has”.
1994 – Subsec. (a). Pub. L. 103-394 substituted “to the extent
that under applicable nonbankruptcy law such general partner is
personally liable for such deficiency” for “for the full amount of
the deficiency”.
1984 – Subsec. (a). Pub. L. 98-353, Sec. 476, substituted
provisions that the trustee shall have a claim for the full amount
of the deficiency against a general partner who is personally
liable with respect to claims concerning partnerships which are
allowed in a case under this chapter, for provisions that each
general partner in the partnership would be liable to the trustee
for the full amount of such deficiency.
Subsec. (c). Pub. L. 98-353, Sec. 476(b), substituted “such
partner’s case” for “such case” in two places, “by property of such
partnership” for “be property of such partnership”, and “a kind
specified in such section” for “the kind specified in such
section”.

EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.

EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.

-End-

-CITE-
11 USC Sec. 724 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER II – COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE
ESTATE

-HEAD-
Sec. 724. Treatment of certain liens

-STATUTE-
(a) The trustee may avoid a lien that secures a claim of a kind
specified in section 726(a)(4) of this title.
(b) Property in which the estate has an interest and that is
subject to a lien that is not avoidable under this title (other
than to the extent that there is a properly perfected unavoidable
tax lien arising in connection with an ad valorem tax on real or
personal property of the estate) and that secures an allowed claim
for a tax, or proceeds of such property, shall be distributed –
(1) first, to any holder of an allowed claim secured by a lien
on such property that is not avoidable under this title and that
is senior to such tax lien;
(2) second, to any holder of a claim of a kind specified in
section 507(a)(1)(C) or 507(a)(2) (except that such expenses
under each such section, other than claims for wages, salaries,
or commissions that arise after the date of the filing of the
petition, shall be limited to expenses incurred under this
chapter and shall not include expenses incurred under chapter 11
of this title), 507(a)(1)(A), 507(a)(1)(B), 507(a)(3), 507(a)(4),
507(a)(5), 507(a)(6), or 507(a)(7) of this title, to the extent
of the amount of such allowed tax claim that is secured by such
tax lien;
(3) third, to the holder of such tax lien, to any extent that
such holder’s allowed tax claim that is secured by such tax lien
exceeds any amount distributed under paragraph (2) of this
subsection;
(4) fourth, to any holder of an allowed claim secured by a lien
on such property that is not avoidable under this title and that
is junior to such tax lien;
(5) fifth, to the holder of such tax lien, to the extent that
such holder’s allowed claim secured by such tax lien is not paid
under paragraph (3) of this subsection; and
(6) sixth, to the estate.

(c) If more than one holder of a claim is entitled to
distribution under a particular paragraph of subsection (b) of this
section, distribution to such holders under such paragraph shall be
in the same order as distribution to such holders would have been
other than under this section.
(d) A statutory lien the priority of which is determined in the
same manner as the priority of a tax lien under section 6323 of the
Internal Revenue Code of 1986 shall be treated under subsection (b)
of this section the same as if such lien were a tax lien.
(e) Before subordinating a tax lien on real or personal property
of the estate, the trustee shall –
(1) exhaust the unencumbered assets of the estate; and
(2) in a manner consistent with section 506(c), recover from
property securing an allowed secured claim the reasonable,
necessary costs and expenses of preserving or disposing of such
property.

(f) Notwithstanding the exclusion of ad valorem tax liens under
this section and subject to the requirements of subsection (e), the
following may be paid from property of the estate which secures a
tax lien, or the proceeds of such property:
(1) Claims for wages, salaries, and commissions that are
entitled to priority under section 507(a)(4).
(2) Claims for contributions to an employee benefit plan
entitled to priority under section 507(a)(5).

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2607; Pub. L. 98-353, title
III, Sec. 477, July 10, 1984, 98 Stat. 381; Pub. L. 99-554, title
II, Sec. 283(r), Oct. 27, 1986, 100 Stat. 3118; Pub. L. 103-394,
title III, Sec. 304(h)(4), title V, Sec. 501(d)(23), Oct. 22, 1994,
108 Stat. 4134, 4146; Pub. L. 109-8, title VII, Sec. 701(a), Apr.
20, 2005, 119 Stat. 124; Pub. L. 111-327, Sec. 2(a)(27), Dec. 22,
2010, 124 Stat. 3560.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 724 of the House amendment adopts the provision taken in
the House bill and rejects the provision taken in the Senate
amendment. In effect, a tax claim secured by a lien is treated as a
claim between the fifth and sixth priority in a case under chapter
7 rather than as a secured claim.
Treatment of certain liens: The House amendment modifies present
law by requiring the subordination of tax liens on both real and
personal property to the payment of claims having a priority. This
means that assets are to be distributed from the debtor’s estate to
pay higher priority claims before the tax claims are paid, even
though the tax claims are properly secured. Under present law and
the Senate amendment only tax liens on personal property, but not
on real property, are subordinated to the payment of claims having
a priority above the priority for tax claims.

SENATE REPORT NO. 95-989
Subsection (a) of section 724 permits the trustee to avoid a lien
that secures a fine, penalty, forfeiture, or multiple, punitive, or
exemplary damages claim to the extent that the claim is not
compensation for actual pecuniary loss. The subsection follows the
policy found in section 57j of the Bankruptcy Act [section 93(j) of
former title 11] of protecting unsecured creditors from the
debtor’s wrongdoing, but expands the protection afforded. The lien
is made voidable rather than void in chapter 7, in order to permit
the lien to be revived if the case is converted to chapter 11 under
which penalty liens are not voidable. To make the lien void would
be to permit the filing of a chapter 7, the voiding of the lien,
and the conversion to a chapter 11, simply to avoid a penalty lien,
which should be valid in a reorganization case.
Subsection (b) governs tax liens. This provision retains the rule
of present bankruptcy law (Sec. 67(C)(3) of the Bankruptcy Act
[section 107(c)(3) of former title 11]) that a tax lien on personal
property, if not avoidable by the trustee, is subordinated in
payment to unsecured claims having a higher priority than unsecured
tax claims. Those other claims may be satisfied from the amount
that would otherwise have been applied to the tax lien, and any
excess of the amount of the lien is then applied to the tax. Any
personal property (or sale proceeds) remaining is to be used to
satisfy claims secured by liens which are junior to the tax lien.
Any proceeds remaining are next applied to pay any unpaid balance
of the tax lien.
Subsection (d) specifies that any statutory lien whose priority
is determined in the same manner as a tax lien is to be treated as
a tax lien under this section, even if the lien does not secure a
claim for taxes. An example is the ERISA [29 U.S.C. 1001 et seq.]
lien.

HOUSE REPORT NO. 95-595
Subsection (b) governs tax liens. It is derived from section
67c(3) of the Bankruptcy Act [section 107(c)(3) of former title
11], without substantial modification in result. It subordinates
tax liens to administrative expense and wage claims, and solves
certain circuity of liens problems that arise in connection with
the subordination. The order of distribution of property subject to
a tax lien is as follows: First, to holders of liens senior to the
tax lien; second, to administrative expenses, wage claims, and
consumer creditors that are granted priority, but only to the
extent of the amount of the allowed tax claim secured by the lien.
In other words, the priority claimants step into the shoes of the
tax collector. Third, to the tax claimant, to the extent that
priority claimants did not use up his entire claim. Fourth, to
junior lien holders. Fifth, to the tax collector to the extent that
he was not paid under paragraph (3). Finally, any remaining
property goes to the estate. The result of these provisions are to
leave senior and junior lienors and holders of unsecured claims
undisturbed. If there are any liens that are equal in status to the
tax lien, they share pari passu with the tax lien under the
distribution provisions of this subsection.

-REFTEXT-
REFERENCES IN TEXT
Section 6323 of the Internal Revenue Code of 1986, referred to in
subsec. (d), is classified to section 6323 of Title 26, Internal
Revenue Code.

-MISC2-
AMENDMENTS
2010 – Subsec. (b)(2). Pub. L. 111-327 substituted “507(a)(1)(C)
or 507(a)(2)” for “507(a)(1)”, “this chapter” for “chapter 7 of
this title”, and “507(a)(1)(A), 507(a)(1)(B),” for “507(a)(2),” and
inserted “under each such section” after “such expenses”.
2005 – Subsec. (b). Pub. L. 109-8, Sec. 701(a)(1), inserted
“(other than to the extent that there is a properly perfected
unavoidable tax lien arising in connection with an ad valorem tax
on real or personal property of the estate)” after “under this
title” in introductory provisions.
Subsec. (b)(2). Pub. L. 109-8, Sec. 701(a)(2), inserted “(except
that such expenses, other than claims for wages, salaries, or
commissions that arise after the date of the filing of the
petition, shall be limited to expenses incurred under chapter 7 of
this title and shall not include expenses incurred under chapter 11
of this title)” after “section 507(a)(1)”.
Subsecs. (e), (f). Pub. L. 109-8, Sec. 701(a)(3), added subsecs.
(e) and (f).
1994 – Subsec. (b)(2). Pub. L. 103-394, Sec. 304(h)(4),
substituted “507(a)(6), or 507(a)(7)” for “or 507(a)(6)”.
Subsec. (d). Pub. L. 103-394, Sec. 501(d)(23), substituted
“Internal Revenue Code of 1986″ for “Internal Revenue Code of 1954
(26 U.S.C. 6323)”.
1986 – Subsec. (b)(2). Pub. L. 99-554 inserted reference to
section 507(a)(6) of this title.
1984 – Subsec. (b). Pub. L. 98-353, Sec. 477(a)(1), substituted
“a tax” for “taxes” in provisions preceding par. (1).
Subsec. (b)(2). Pub. L. 98-353, Sec. 477(a)(2), substituted “any
holder of a claim of a kind specified” for “claims specified”,
“section 507(a)(1)” for “sections 507(a)(1)”, and “or 507(a)(5) of
this title” for “and 507(a)(5) of this title”.
Subsec. (b)(3). Pub. L. 98-353, Sec. 477(a)(3), substituted
“allowed tax claim” for “allowed claim”.
Subsec. (c). Pub. L. 98-353, Sec. 477(b), substituted “holder of
a claim is entitled” for “creditor is entitled” and “holders” for
“creditors” in two places.
Subsec. (d). Pub. L. 98-353, Sec. 477(c), substituted “the
priority of which” for “whose priority” and “the same as if such
lien were a tax lien” for “the same as a tax lien”.

EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
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, see section 302(a) of Pub. L. 99-554, set out as a note under
section 581 of Title 28, Judiciary and Judicial Procedure.

EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.

-End-

-CITE-
11 USC Sec. 725 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER II – COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE
ESTATE

-HEAD-
Sec. 725. Disposition of certain property

-STATUTE-
After the commencement of a case under this chapter, but before
final distribution of property of the estate under section 726 of
this title, the trustee, after notice and a hearing, shall dispose
of any property in which an entity other than the estate has an
interest, such as a lien, and that has not been disposed of under
another section of this title.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2607; Pub. L. 98-353, title
III, Sec. 478, July 10, 1984, 98 Stat. 381.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 725 of the House amendment adopts the substance contained
in both the House bill and Senate amendment but transfers an
administrative function to the trustee in accordance with the
general thrust of this legislation to separate the administrative
and the judicial functions where appropriate.

SENATE REPORT NO. 95-989
This section requires the court to determine the appropriate
disposition of property in which the estate and an entity other
than the estate have an interest. It would apply, for example, to
property subject to a lien or property co-owned by the estate and
another entity. The court must make the determination with respect
to property that is not disposed of under another section of the
bankruptcy code, such as by abandonment under section 554, by sale
or distribution under 363, or by allowing foreclosure by a secured
creditor by lifting the stay under section 362. The purpose of the
section is to give the court appropriate authority to ensure that
collateral or its proceeds is returned to the proper secured
creditor, that consigned or bailed goods are returned to the
consignor or bailor and so on. Current law is curiously silent on
this point, though case law has grown to fill the void. The section
is in lieu of a section that would direct a certain distribution to
secured creditors. It gives the court greater flexibility to meet
the circumstances, and it is broader, permitting disposition of
property subject to a co-ownership interest.

AMENDMENTS
1984 – Pub. L. 98-353 substituted “distribution of property of
the estate” for “distribution”.

EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.

-End-

-CITE-
11 USC Sec. 726 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER II – COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE
ESTATE

-HEAD-
Sec. 726. Distribution of property of the estate

-STATUTE-
(a) Except as provided in section 510 of this title, property of
the estate shall be distributed –
(1) first, in payment of claims of the kind specified in, and
in the order specified in, section 507 of this title, proof of
which is timely filed under section 501 of this title or tardily
filed on or before the earlier of –
(A) the date that is 10 days after the mailing to creditors
of the summary of the trustee’s final report; or
(B) the date on which the trustee commences final
distribution under this section;

(2) second, in payment of any allowed unsecured claim, other
than a claim of a kind specified in paragraph (1), (3), or (4) of
this subsection, proof of which is –
(A) timely filed under section 501(a) of this title;
(B) timely filed under section 501(b) or 501(c) of this
title; or
(C) tardily filed under section 501(a) of this title, if –
(i) the creditor that holds such claim did not have notice
or actual knowledge of the case in time for timely filing of
a proof of such claim under section 501(a) of this title; and
(ii) proof of such claim is filed in time to permit payment
of such claim;

(3) third, in payment of any allowed unsecured claim proof of
which is tardily filed under section 501(a) of this title, other
than a claim of the kind specified in paragraph (2)(C) of this
subsection;
(4) fourth, in payment of any allowed claim, whether secured or
unsecured, for any fine, penalty, or forfeiture, or for multiple,
exemplary, or punitive damages, arising before the earlier of the
order for relief or the appointment of a trustee, to the extent
that such fine, penalty, forfeiture, or damages are not
compensation for actual pecuniary loss suffered by the holder of
such claim;
(5) fifth, in payment of interest at the legal rate from the
date of the filing of the petition, on any claim paid under
paragraph (1), (2), (3), or (4) of this subsection; and
(6) sixth, to the debtor.

(b) Payment on claims of a kind specified in paragraph (1), (2),
(3), (4), (5), (6), (7), (8), (9), or (10) of section 507(a) of
this title, or in paragraph (2), (3), (4), or (5) of subsection (a)
of this section, shall be made pro rata among claims of the kind
specified in each such particular paragraph, except that in a case
that has been converted to this chapter under section 1112, 1208,
or 1307 of this title, a claim allowed under section 503(b) of this
title incurred under this chapter after such conversion has
priority over a claim allowed under section 503(b) of this title
incurred under any other chapter of this title or under this
chapter before such conversion and over any expenses of a custodian
superseded under section 543 of this title.
(c) Notwithstanding subsections (a) and (b) of this section, if
there is property of the kind specified in section 541(a)(2) of
this title, or proceeds of such property, in the estate, such
property or proceeds shall be segregated from other property of the
estate, and such property or proceeds and other property of the
estate shall be distributed as follows:
(1) Claims allowed under section 503 of this title shall be
paid either from property of the kind specified in section
541(a)(2) of this title, or from other property of the estate, as
the interest of justice requires.
(2) Allowed claims, other than claims allowed under section 503
of this title, shall be paid in the order specified in subsection
(a) of this section, and, with respect to claims of a kind
specified in a particular paragraph of section 507 of this title
or subsection (a) of this section, in the following order and
manner:
(A) First, community claims against the debtor or the
debtor’s spouse shall be paid from property of the kind
specified in section 541(a)(2) of this title, except to the
extent that such property is solely liable for debts of the
debtor.
(B) Second, to the extent that community claims against the
debtor are not paid under subparagraph (A) of this paragraph,
such community claims shall be paid from property of the kind
specified in section 541(a)(2) of this title that is solely
liable for debts of the debtor.
(C) Third, to the extent that all claims against the debtor
including community claims against the debtor are not paid
under subparagraph (A) or (B) of this paragraph such claims
shall be paid from property of the estate other than property
of the kind specified in section 541(a)(2) of this title.
(D) Fourth, to the extent that community claims against the
debtor or the debtor’s spouse are not paid under subparagraph
(A), (B), or (C) of this paragraph, such claims shall be paid
from all remaining property of the estate.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2608; Pub. L. 98-353, title
III, Sec. 479, July 10, 1984, 98 Stat. 381; Pub. L. 99-554, title
II, Secs. 257(r), 283(s), Oct. 27, 1986, 100 Stat. 3115, 3118; Pub.
L. 103-394, title II, Sec. 213(b), title III, Sec. 304(h)(5), title
V, Sec. 501(d)(24), Oct. 22, 1994, 108 Stat. 4126, 4134, 4146; Pub.
L. 109-8, title VII, Sec. 713, title XII, Sec. 1215, Apr. 20, 2005,
119 Stat. 128, 195; Pub. L. 111-327, Sec. 2(a)(28), Dec. 22, 2010,
124 Stat. 3560.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 726(a)(4) adopts a provision contained in the Senate
amendment subordinating prepetition penalties and penalties arising
in the involuntary gap period to the extent the penalties are not
compensation for actual pecuniary laws.
The House amendment deletes a provision following section
726(a)(6) of the Senate amendment providing that the term “claim”
includes interest due owed before the date of the filing of the
petition as unnecessary since a right to payment for interest due
is a right to payment which is within the definition of “claim” in
section 101(4) of the House amendment.

SENATE REPORT NO. 95-989
This section is the general distribution section for liquidation
cases. It dictates the order in which distribution of property of
the estate, which has usually been reduced to money by the trustee
under the requirements of section 704(1).
First, property is distributed among priority claimants, as
determined by section 507, and in the order prescribed by section
507. Second, distribution is to general unsecured creditors. This
class excludes priority creditors and the two classes of
subordinated creditors specified below. The provision is written to
permit distribution to creditors that tardily file claims if their
tardiness was due to lack of notice or knowledge of the case.
Though it is in the interest of the estate to encourage timely
filing, when tardy filing is not the result of a failure to act by
the creditor, the normal subordination penalty should not apply.
Third distribution is to general unsecured creditors who tardily
file. Fourth distribution is to holders of fine, penalty,
forfeiture, or multiple, punitive, or exemplary damage claims. More
of these claims are disallowed entirely under present law. They are
simply subordinated here.
Paragraph (4) provides that punitive penalties, including
prepetition tax penalties, are subordinated to the payment of all
other classes of claims, except claims for interest accruing during
the case. In effect, these penalties are payable out of the
estate’s assets only if and to the extent that a surplus of assets
would otherwise remain at the close of the case for distribution
back to the debtor.
Paragraph (5) provides that postpetition interest on prepetition
claims is also to be paid to the creditor in a subordinated
position. Like prepetition penalties, such interest will be paid
from the estate only if and to the extent that a surplus of assets
would otherwise remain for return to the debtor at the close of the
case.
This section also specifies that interest accrued on all claims
(including priority and nonpriority tax claims) which accrued
before the date of the filing of the title 11 petition is to be
paid in the same order of distribution of the estate’s assets as
the principal amount of the related claims.
Any surplus is paid to the debtor under paragraph (6).
Subsection (b) follows current law. It specifies that claims
within a particular class are to be paid pro rata. This provision
will apply, of course, only when there are inadequate funds to pay
the holders of claims of a particular class in full. The exception
found in the section, which also follows current law, specifies
that liquidation administrative expenses are to be paid ahead of
reorganization administrative expenses if the case has been
converted from a reorganization case to a liquidation case, or from
an individual repayment plan case to a liquidation case.
Subsection (c) governs distributions in cases in which there is
community property and other property of the estate. The section
requires the two kinds of property to be segregated. The
distribution is as follows: First, administrative expenses are to
be paid, as the court determines on any reasonable equitable basis,
from both kinds of property. The court will divide administrative
expenses according to such factors as the amount of each kind of
property in the estate, the cost of preservation and liquidation of
each kind of property, and whether any particular administrative
expenses are attributable to one kind of property or the other.
Second, claims are to be paid as provided under subsection (a) (the
normal liquidation case distribution rules) in the following order
and manner: First, community claims against the debtor or the
debtor’s spouse are paid from community property, except such as is
liable solely for the debts of the debtor.
Second, community claims against the debtor, to the extent not
paid under the first provision, are paid from community property
that is solely liable for the debts of the debtor. Third, community
claims, to the extent they remain unpaid, and all other claims
against the debtor, are paid from noncommunity property. Fourth, if
any community claims against the debtor or the debtor’s spouse
remain unpaid, they are paid from whatever property remains in the
estate. This would occur if community claims against the debtor’s
spouse are large in amount and most of the estate’s property is
property solely liable, under nonbankruptcy law, for debts of the
debtor.
The marshalling rules in this section apply only to property of
the estate. However, they will provide a guide to the courts in the
interpretation of proposed 11 U.S.C. 725, relating to distribution
of collateral, in cases in which there is community property. If a
secured creditor has a lien on both community and noncommunity
property, the marshalling rules here – by analogy would dictate
that the creditor be satisfied first out of community property, and
then out of separate property.

AMENDMENTS
2010 – Subsec. (b). Pub. L. 111-327 substituted “(8), (9), or
(10)” for “or (8)”.
2005 – Subsec. (a)(1). Pub. L. 109-8, Sec. 713, substituted “on
or before the earlier of – ” and subpars. (A) and (B) for “before
the date on which the trustee commences distribution under this
section;”.
Subsec. (b). Pub. L. 109-8, Sec. 1215, struck out “1009,” before
“1112”.
1994 – Subsec. (a)(1). Pub. L. 103-394, Sec. 213(b), inserted
before semicolon at end “, proof of which is timely filed under
section 501 of this title or tardily filed before the date on which
the trustee commences distribution under this section”.
Subsec. (b). Pub. L. 103-394, Secs. 304(h)(5), 501(d)(24),
substituted “, (7), or (8)” for “or (7)” and “chapter under section
1009, 1112,” for “chapter under section 1112″.
1986 – Subsec. (b). Pub. L. 99-554, Sec. 283(s), inserted
reference to par. (7) of section 507(a) of this title.
Pub. L. 99-554, Sec. 257(r), inserted reference to section 1208
of this title.
1984 – Subsec. (b). Pub. L. 98-353, Sec. 479(a), substituted
“each such particular paragraph” for “a particular paragraph”, “a
claim allowed under section 503(b) of this title” for
“administrative expenses” in two places, and “has priority over”
for “have priority over”.
Subsec. (c)(1). Pub. L. 98-353, Sec. 479(b)(1), substituted
“Claims allowed under section 503 of this title” for
“Administrative expenses”.
Subsec. (c)(2). Pub. L. 98-353, Sec. 479(b)(2), substituted
“Allowed claims, other than claims allowed under section 503 of
this title,” for “Claims other than for administrative expenses”.

EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
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 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.

-End-

-CITE-
11 USC Sec. 727 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER II – COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE
ESTATE

-HEAD-
Sec. 727. Discharge

-STATUTE-
(a) The court shall grant the debtor a discharge, unless –
(1) the debtor is not an individual;
(2) the debtor, with intent to hinder, delay, or defraud a
creditor or an officer of the estate charged with custody of
property under this title, has transferred, removed, destroyed,
mutilated, or concealed, or has permitted to be transferred,
removed, destroyed, mutilated, or concealed –
(A) property of the debtor, within one year before the date
of the filing of the petition; or
(B) property of the estate, after the date of the filing of
the petition;

(3) the debtor has concealed, destroyed, mutilated, falsified,
or failed to keep or preserve any recorded information, including
books, documents, records, and papers, from which the debtor’s
financial condition or business transactions might be
ascertained, unless such act or failure to act was justified
under all of the circumstances of the case;
(4) the debtor knowingly and fraudulently, in or in connection
with the case –
(A) made a false oath or account;
(B) presented or used a false claim;
(C) gave, offered, received, or attempted to obtain money,
property, or advantage, or a promise of money, property, or
advantage, for acting or forbearing to act; or
(D) withheld from an officer of the estate entitled to
possession under this title, any recorded information,
including books, documents, records, and papers, relating to
the debtor’s property or financial affairs;

(5) the debtor has failed to explain satisfactorily, before
determination of denial of discharge under this paragraph, any
loss of assets or deficiency of assets to meet the debtor’s
liabilities;
(6) the debtor has refused, in the case –
(A) to obey any lawful order of the court, other than an
order to respond to a material question or to testify;
(B) on the ground of privilege against self-incrimination, to
respond to a material question approved by the court or to
testify, after the debtor has been granted immunity with
respect to the matter concerning which such privilege was
invoked; or
(C) on a ground other than the properly invoked privilege
against self-incrimination, to respond to a material question
approved by the court or to testify;

(7) the debtor has committed any act specified in paragraph
(2), (3), (4), (5), or (6) of this subsection, on or within one
year before the date of the filing of the petition, or during the
case, in connection with another case, under this title or under
the Bankruptcy Act, concerning an insider;
(8) the debtor has been granted a discharge under this section,
under section 1141 of this title, or under section 14, 371, or
476 of the Bankruptcy Act, in a case commenced within 8 years
before the date of the filing of the petition;
(9) the debtor has been granted a discharge under section 1228
or 1328 of this title, or under section 660 or 661 of the
Bankruptcy Act, in a case commenced within six years before the
date of the filing of the petition, unless payments under the
plan in such case totaled at least –
(A) 100 percent of the allowed unsecured claims in such case;
or
(B)(i) 70 percent of such claims; and
(ii) the plan was proposed by the debtor in good faith, and
was the debtor’s best effort;

(10) the court approves a written waiver of discharge executed
by the debtor after the order for relief under this chapter;
(11) after filing the petition, the debtor failed to complete
an instructional course concerning personal financial management
described in section 111, except that this paragraph shall not
apply with respect to a debtor who is a person described in
section 109(h)(4) or who resides in a district for which the
United States trustee (or the bankruptcy administrator, if any)
determines that the approved instructional courses are not
adequate to service the additional individuals who would
otherwise be required to complete such instructional courses
under this section (The United States trustee (or the bankruptcy
administrator, if any) who makes a determination described in
this paragraph shall review such determination not later than 1
year after the date of such determination, and not less
frequently than annually thereafter.); or
(12) the court after notice and a hearing held not more than 10
days before the date of the entry of the order granting the
discharge finds that there is reasonable cause to believe that –
(A) section 522(q)(1) may be applicable to the debtor; and
(B) there is pending any proceeding in which the debtor may
be found guilty of a felony of the kind described in section
522(q)(1)(A) or liable for a debt of the kind described in
section 522(q)(1)(B).

(b) Except as provided in section 523 of this title, a discharge
under subsection (a) of this section discharges the debtor from all
debts that arose before the date of the order for relief under this
chapter, and any liability on a claim that is determined under
section 502 of this title as if such claim had arisen before the
commencement of the case, whether or not a proof of claim based on
any such debt or liability is filed under section 501 of this
title, and whether or not a claim based on any such debt or
liability is allowed under section 502 of this title.
(c)(1) The trustee, a creditor, or the United States trustee may
object to the granting of a discharge under subsection (a) of this
section.
(2) On request of a party in interest, the court may order the
trustee to examine the acts and conduct of the debtor to determine
whether a ground exists for denial of discharge.
(d) On request of the trustee, a creditor, or the United States
trustee, and after notice and a hearing, the court shall revoke a
discharge granted under subsection (a) of this section if –
(1) such discharge was obtained through the fraud of the
debtor, and the requesting party did not know of such fraud until
after the granting of such discharge;
(2) the debtor acquired property that is property of the
estate, or became entitled to acquire property that would be
property of the estate, and knowingly and fraudulently failed to
report the acquisition of or entitlement to such property, or to
deliver or surrender such property to the trustee;
(3) the debtor committed an act specified in subsection (a)(6)
of this section; or
(4) the debtor has failed to explain satisfactorily –
(A) a material misstatement in an audit referred to in
section 586(f) of title 28; or
(B) a failure to make available for inspection all necessary
accounts, papers, documents, financial records, files, and all
other papers, things, or property belonging to the debtor that
are requested for an audit referred to in section 586(f) of
title 28.

(e) The trustee, a creditor, or the United States trustee may
request a revocation of a discharge –
(1) under subsection (d)(1) of this section within one year
after such discharge is granted; or
(2) under subsection (d)(2) or (d)(3) of this section before
the later of –
(A) one year after the granting of such discharge; and
(B) the date the case is closed.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2609; Pub. L. 98-353, title
III, Sec. 480, July 10, 1984, 98 Stat. 382; Pub. L. 99-554, title
II, Secs. 220, 257(s), Oct. 27, 1986, 100 Stat. 3101, 3116; Pub. L.
109-8, title I, Sec. 106(b), title III, Secs. 312(1), 330(a), title
VI, Sec. 603(d), Apr. 20, 2005, 119 Stat. 38, 86, 101, 123.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Sections 727(a) (8) and (9) of the House amendment represent a
compromise between provisions contained in section 727(a)(8) of the
House bill and Senate amendment. Section 727(a)(8) of the House
amendment adopts section 727(a)(8) of the House bill. However,
section 727(a)(9) of the House amendment contains a compromise
based on section 727(a)(8) of the Senate amendment with respect to
the circumstances under which a plan by way of composition under
Chapter XIII of the Bankruptcy Act [chapter 13 of former title 11]
should be a bar to discharge in a subsequent proceeding under title
11. The paragraph provides that a discharge under section 660 or
661 of the Bankruptcy Act [section 1060 or 1061 of former title 11]
or section 1328 of title 11 in a case commenced within 6 years
before the date of the filing of the petition in a subsequent case,
operates as a bar to discharge unless, first, payments under the
plan totaled at least 100 percent of the allowed unsecured claims
in the case; or second, payments under the plan totaled at least 70
percent of the allowed unsecured claims in the case and the plan
was proposed by the debtor in good faith and was the debtor’s best
effort.
It is expected that the Rules of Bankruptcy Procedure will
contain a provision permitting the debtor to request a
determination of whether a plan is the debtor’s “best effort” prior
to confirmation of a plan in a case under chapter 13 of title 11.
In determining whether a plan is the debtor’s “best effort” the
court will evaluate several factors. Different facts and
circumstances in cases under chapter 13 operate to make any rule of
thumb of limited usefulness. The court should balance the debtor’s
assets, including family income, health insurance, retirement
benefits, and other wealth, a sum which is generally determinable,
against the foreseeable necessary living expenses of the debtor and
the debtor’s dependents, which unfortunately is rarely
quantifiable. In determining the expenses of the debtor and the
debtor’s dependents, the court should consider the stability of the
debtor’s employment, if any, the age of the debtor, the number of
the debtor’s dependents and their ages, the condition of equipment
and tools necessary to the debtor’s employment or to the operation
of his business, and other foreseeable expenses that the debtor
will be required to pay during the period of the plan, other than
payments to be made to creditors under the plan.
Section 727(a)(10) of the House amendment clarifies a provision
contained in section 727(a)(9) of the House bill and Senate
amendment indicating that a discharge may be barred if the court
approves a waiver of discharge executed in writing by the debtor
after the order for relief under chapter 7.
Section 727(b) of the House amendment adopts a similar provision
contained in the Senate amendment modifying the effect of
discharge. The provision makes clear that the debtor is discharged
from all debts that arose before the date of the order for relief
under chapter 7 in addition to any debt which is determined under
section 502 as if it were a prepetition claim. Thus, if a case is
converted from chapter 11 or chapter 13 to a case under chapter 7,
all debts prior to the time of conversion are discharged, in
addition to debts determined after the date of conversion of a kind
specified in section 502, that are to be determined as prepetition
claims. This modification is particularly important with respect to
an individual debtor who files a petition under chapter 11 or
chapter 13 of title 11 if the case is converted to chapter 7. The
logical result of the House amendment is to equate the result that
obtains whether the case is converted from another chapter to
chapter 7, or whether the other chapter proceeding is dismissed and
a new case is commenced by filing a petition under chapter 7.

SENATE REPORT NO. 95-989
This section is the heart of the fresh start provisions of the
bankruptcy law. Subsection (a) requires the court to grant a debtor
a discharge unless one of nine conditions is met. The first
condition is that the debtor is not an individual. This is a change
from present law, under which corporations and partnerships may be
discharged in liquidation cases, though they rarely are. The change
in policy will avoid trafficking in corporate shells and in
bankrupt partnerships. “Individual” includes a deceased individual,
so that if the debtor dies during the bankruptcy case, he will
nevertheless be released from his debts, and his estate will not be
liable for them. Creditors will be entitled to only one
satisfaction – from the bankruptcy estate and not from the probate
estate.
The next three grounds for denial of discharge center on the
debtor’s wrongdoing in or in connection with the bankruptcy case.
They are derived from Bankruptcy Act Sec. 14c [section 32(c) of
former title 11]. If the debtor, with intent to hinder, delay, or
defraud his creditors or an officer of the estate, has transferred,
removed, destroyed, mutilated, or concealed, or has permitted any
such action with respect to, property of the debtor within the year
preceding the case, or property of the estate after the
commencement of the case, then the debtor is denied discharge. The
debtor is also denied discharge if he has concealed, destroyed,
mutilated, falsified, or failed to keep or preserve any books and
records from which his financial condition might be ascertained,
unless the act or failure to act was justified under all the
circumstances of the case. The fourth ground for denial of
discharge is the commission of a bankruptcy crime, although the
standard of proof is preponderance of the evidence rather than
proof beyond a reasonable doubt. These crimes include the making of
a false oath or account, the use or presentation of a false claim,
the giving or receiving of money for acting or forbearing to act,
and the withholding from an officer of the estate entitled to
possession of books and records relating to the debtor’s financial
affairs.
The fifth ground for denial of discharge is the failure of the
debtor to explain satisfactorily any loss of assets or deficiency
of assets to meet the debtor’s liabilities. The sixth ground
concerns refusal to testify. It is a change from present law, under
which the debtor may be denied discharge for legitimately
exercising his right against self-incrimination. Under this
provision, the debtor may be denied discharge if he refuses to obey
any lawful order of the court, or if he refuses to testify after
having been granted immunity or after improperly invoking the
constitutional privilege against self-incrimination.
The seventh ground for denial of discharge is the commission of
an act specified in grounds two through six during the year before
the debtor’s case in connection with another bankruptcy case
concerning an insider.
The eighth ground for denial of discharge is derived from Sec.
14c(5) of the Bankruptcy Act [section 32(c)(5) of former title 11].
If the debtor has been granted a discharge in a case commenced
within 6 years preceding the present bankruptcy case, he is denied
discharge. This provision, which is no change from current law with
respect to straight bankruptcy, is the 6-year bar to discharge.
Discharge under chapter 11 will bar a discharge for 6 years. As
under current law, confirmation of a composition wage earner plan
under chapter 13 is a basis for invoking the 6-year bar.
The ninth ground is approval by the court of a waiver of
discharge.
Subsection (b) specifies that the discharge granted under this
section discharges the debtor from all debts that arose before the
date of the order for relief. It is irrelevant whether or not a
proof of claim was filed with respect to the debt, and whether or
not the claim based on the debt was allowed.
Subsection (c) permits the trustee, or a creditor, to object to
discharge. It also permits the court, on request of a party in
interest, to order the trustee to examine the acts and conduct of
the debtor to determine whether a ground for denial of discharge
exists.
Subsection (d) requires the court to revoke a discharge already
granted in certain circumstances. If the debtor obtained the
discharge through fraud, if he acquired and concealed property of
the estate, or if he refused to obey a court order or to testify,
the discharge is to be revoked.
Subsection (e) permits the trustee or a creditor to request
revocation of a discharge within 1 year after the discharge is
granted, on the grounds of fraud, and within one year of discharge
or the date of the closing of the case, whichever is later, on
other grounds.

-REFTEXT-
REFERENCES IN TEXT
The Bankruptcy Act, referred to in subsec. (a)(7), is act July 1,
1898, ch. 541, 30 Stat. 544, as amended, which was classified
generally to former Title 11.
Sections 14, 371, and 476 of the Bankruptcy Act, referred to in
subsec. (a)(8), are section 14 of act July 1, 1898, ch. 541, 30
Stat. 550, section 371 of act July 1, 1898, ch. 541, as added June
22, 1938, ch. 575, Sec. 1, 52 Stat. 912, and section 476 of act
July 1, 1898, ch. 541, as added June 22, 1938, ch. 575, Sec. 1, 52
Stat. 924, which were classified to sections 32, 771, and 876 of
former Title 11.
Sections 660 and 661 of the Bankruptcy Act, referred to in
subsec. (a)(9), are sections 660 and 661 of act July 1, 1898, ch.
541, as added June 22, 1938, ch. 575, Sec. 1, 52 Stat. 935, 936,
which were classified to sections 1060 and 1061 of former Title 11.

-MISC2-
AMENDMENTS
2005 – Subsec. (a)(8). Pub. L. 109-8, Sec. 312(1), substituted “8
years” for “six years”.
Subsec. (a)(11). Pub. L. 109-8, Sec. 106(b), added par. (11).
Subsec. (a)(12). Pub. L. 109-8, Sec. 330(a), added par. (12).
Subsec. (d)(4). Pub. L. 109-8, Sec. 603(d), added par. (4).
1986 – Subsec. (a)(9). Pub. L. 99-554, Sec. 257(s), inserted
reference to section 1228 of this title.
Subsec. (c). Pub. L. 99-554, Sec. 220, amended subsec. (c)
generally, substituting “The trustee, a creditor, or the United
States trustee may object” for “The trustee or a creditor may
object” in par. (1).
Subsec. (d). Pub. L. 99-554, Sec. 220, amended subsec. (d)
generally, substituting “, a creditor, or the United States
trustee,” for “or a creditor,” in provisions preceding par. (1) and
“acquisition of or entitlement to such property” for “acquisition
of, or entitlement to, such property” in par. (2).
Subsec. (e). Pub. L. 99-554, Sec. 220, amended subsec. (e)
generally, substituting “The trustee, a creditor, or the United
States trustee may” for “The trustee or a creditor may” in
provisions preceding par. (1), “section within” for “section,
within” and “discharge is granted” for “discharge was granted” in
par. (1), “section before” for “section, before” in provisions of
par. (2) preceding subpar. (A), and “discharge; and” for
“discharge; or” in par. (2)(A).
1984 – Subsec. (a)(6)(C). Pub. L. 98-353, Sec. 480(a)(1),
substituted “properly” for “property”.
Subsec. (a)(7). Pub. L. 98-353, Sec. 480(a)(2), inserted “, under
this title or under the Bankruptcy Act,” after “another case”.
Subsec. (a)(8). Pub. L. 98-353, Sec. 480(a)(3), substituted
“371,” for “371”.
Subsec. (c)(1). Pub. L. 98-353, Sec. 480(b), substituted “to the
granting of a discharge” for “to discharge”.
Subsec. (e)(2)(A). Pub. L. 98-353, Sec. 480(c), substituted “or”
for “and”.

EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by section 603(d) of Pub. L. 109-8 effective 18 months
after Apr. 20, 2005, see section 603(e) of Pub. L. 109-8, set out
as a note under section 521 of this title.
Amendments by sections 106(b), 312(1), and 330(a) of Pub. L. 109-
8 effective 180 days after Apr. 20, 2005, with amendments by
sections 106(b) and 312(1) of Pub. L. 109-8 not applicable with
respect to cases commenced under this title before such effective
date, except as otherwise provided, and amendment by section 330(a)
of Pub. L. 109-8 applicable with respect to cases commenced under
this title on or after Apr. 20, 2005, see section 1501 of Pub. L.
109-8, 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.
Effective date and applicability of amendment by section 220 of
Pub. L. 99-554 dependent upon the judicial district involved, see
section 302(d), (e) of Pub. L. 99-554.

EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.

-End-

-CITE-
11 USC Sec. 728 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER II – COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE
ESTATE

-HEAD-
Sec. 728. Repealed.

-MISC1-
[Sec. 728. Repealed. Pub. L. 109-8, title VII, Sec. 719(b)(1), Apr.
20, 2005, 119 Stat. 133].
Section, Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2611; Pub. L. 98-
353, title III, Sec. 481, July 10, 1984, 98 Stat. 382; Pub. L. 99-
554, title II, Sec. 257(t), Oct. 27, 1986, 100 Stat. 3116, related
to special tax provisions.

EFFECTIVE DATE OF REPEAL
Repeal effective 180 days after Apr. 20, 2005, and not applicable
with respect to cases commenced under this title before such
effective date, except as otherwise provided, see section 1501 of
Pub. L. 109-8, set out as an Effective Date of 2005 Amendment note
under section 101 of this title.

-End-

-CITE-
11 USC SUBCHAPTER III – STOCKBROKER LIQUIDATION 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-HEAD-
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-End-

-CITE-
11 USC Sec. 741 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-HEAD-
Sec. 741. Definitions for this subchapter

-STATUTE-
In this subchapter –
(1) “Commission” means Securities and Exchange Commission;
(2) “customer” includes –
(A) entity with whom a person deals as principal or agent and
that has a claim against such person on account of a security
received, acquired, or held by such person in the ordinary
course of such person’s business as a stockbroker, from or for
the securities account or accounts of such entity –
(i) for safekeeping;
(ii) with a view to sale;
(iii) to cover a consummated sale;
(iv) pursuant to a purchase;
(v) as collateral under a security agreement; or
(vi) for the purpose of effecting registration of transfer;
and

(B) entity that has a claim against a person arising out of –

(i) a sale or conversion of a security received, acquired,
or held as specified in subparagraph (A) of this paragraph;
or
(ii) a deposit of cash, a security, or other property with
such person for the purpose of purchasing or selling a
security;

(3) “customer name security” means security –
(A) held for the account of a customer on the date of the
filing of the petition by or on behalf of the debtor;
(B) registered in such customer’s name on such date or in the
process of being so registered under instructions from the
debtor; and
(C) not in a form transferable by delivery on such date;

(4) “customer property” means cash, security, or other
property, and proceeds of such cash, security, or property,
received, acquired, or held by or for the account of the debtor,
from or for the securities account of a customer –
(A) including –
(i) property that was unlawfully converted from and that is
the lawful property of the estate;
(ii) a security held as property of the debtor to the
extent such security is necessary to meet a net equity claim
of a customer based on a security of the same class and
series of an issuer;
(iii) resources provided through the use or realization of
a customer’s debit cash balance or a debit item includible in
the Formula for Determination of Reserve Requirement for
Brokers and Dealers as promulgated by the Commission under
the Securities Exchange Act of 1934; and
(iv) other property of the debtor that any applicable law,
rule, or regulation requires to be set aside or held for the
benefit of a customer, unless including such property as
customer property would not significantly increase customer
property; but

(B) not including –
(i) a customer name security delivered to or reclaimed by a
customer under section 751 of this title; or
(ii) property to the extent that a customer does not have a
claim against the debtor based on such property;

(5) “margin payment” means payment or deposit of cash, a
security, or other property, that is commonly known to the
securities trade as original margin, initial margin, maintenance
margin, or variation margin, or as a mark-to-market payment, or
that secures an obligation of a participant in a securities
clearing agency;
(6) “net equity” means, with respect to all accounts of a
customer that such customer has in the same capacity –
(A)(i) aggregate dollar balance that would remain in such
accounts after the liquidation, by sale or purchase, at the
time of the filing of the petition, of all securities positions
in all such accounts, except any customer name securities of
such customer; minus
(ii) any claim of the debtor against such customer in such
capacity that would have been owing immediately after such
liquidation; plus
(B) any payment by such customer to the trustee, within 60
days after notice under section 342 of this title, of any
business related claim of the debtor against such customer in
such capacity;

(7) “securities contract” –
(A) means –
(i) a contract for the purchase, sale, or loan of a
security, a certificate of deposit, a mortgage loan, any
interest in a mortgage loan, a group or index of securities,
certificates of deposit, or mortgage loans or interests
therein (including an interest therein or based on the value
thereof), or option on any of the foregoing, including an
option to purchase or sell any such security, certificate of
deposit, mortgage loan, interest, group or index, or option,
and including any repurchase or reverse repurchase
transaction on any such security, certificate of deposit,
mortgage loan, interest, group or index, or option (whether
or not such repurchase or reverse repurchase transaction is a
“repurchase agreement”, as defined in section 101);
(ii) any option entered into on a national securities
exchange relating to foreign currencies;
(iii) the guarantee (including by novation) by or to any
securities clearing agency of a settlement of cash,
securities, certificates of deposit, mortgage loans or
interests therein, group or index of securities, or mortgage
loans or interests therein (including any interest therein or
based on the value thereof), or option on any of the
foregoing, including an option to purchase or sell any such
security, certificate of deposit, mortgage loan, interest,
group or index, or option (whether or not such settlement is
in connection with any agreement or transaction referred to
in clauses (i) through (xi));
(iv) any margin loan;
(v) any extension of credit for the clearance or settlement
of securities transactions;
(vi) any loan transaction coupled with a securities collar
transaction, any prepaid forward securities transaction, or
any total return swap transaction coupled with a securities
sale transaction;
(vii) any other agreement or transaction that is similar to
an agreement or transaction referred to in this subparagraph;
(viii) any combination of the agreements or transactions
referred to in this subparagraph;
(ix) any option to enter into any agreement or transaction
referred to in this subparagraph;
(x) a master agreement that provides for an agreement or
transaction referred to in clause (i), (ii), (iii), (iv),
(v), (vi), (vii), (viii), or (ix), together with all
supplements to any such master agreement, without regard to
whether the master agreement provides for an agreement or
transaction that is not a securities contract under this
subparagraph, except that such master agreement shall be
considered to be a securities contract under this
subparagraph only with respect to each agreement or
transaction under such master agreement that is referred to
in clause (i), (ii), (iii), (iv), (v), (vi), (vii), (viii),
or (ix); or
(xi) any security agreement or arrangement or other credit
enhancement related to any agreement or transaction referred
to in this subparagraph, including any guarantee or
reimbursement obligation by or to a stockbroker, securities
clearing agency, financial institution, or financial
participant in connection with any agreement or transaction
referred to in this subparagraph, but not to exceed the
damages in connection with any such agreement or transaction,
measured in accordance with section 562; and

(B) does not include any purchase, sale, or repurchase
obligation under a participation in a commercial mortgage loan;

(8) “settlement payment” means a preliminary settlement
payment, a partial settlement payment, an interim settlement
payment, a settlement payment on account, a final settlement
payment, or any other similar payment commonly used in the
securities trade; and
(9) “SIPC” means Securities Investor Protection Corporation.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2611; Pub. L. 97-222, Sec.
8, July 27, 1982, 96 Stat. 237; Pub. L. 98-353, title III, Sec.
482, July 10, 1984, 98 Stat. 382; Pub. L. 103-394, title V, Sec.
501(d)(25), Oct. 22, 1994, 108 Stat. 4146; Pub. L. 109-8, title IX,
Sec. 907(a)(2), Apr. 20, 2005, 119 Stat. 173; Pub. L. 109-390, Sec.
5(a)(3), Dec. 12, 2006, 120 Stat. 2697.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 741(6) of the House bill and Senate amendment is deleted
by the House amendment since the defined term is used only in
section 741(4)(A)(iii). A corresponding change is made in that
section.

SENATE REPORT NO. 95-989
Section 741 sets forth definitions for subchapter III of chapter
7.
Paragraph (1) defines “Commission” to mean the Securities and
Exchange Commission.
Paragraph (2) defines “customer” to include anybody that
interacts with the debtor in a capacity that concerns securities
transactions. The term embraces cash or margin customers of a
broker or dealer in the broadest sense.
Paragraph (3) defines “customer name security” in a restrictive
fashion to include only non-transferable securities that are
registered, or in the process of being registered in a customer’s
own name. The securities must not be endorsed by the customer and
the stockbroker must not be able to legally transfer the securities
by delivery, by a power of attorney, or otherwise.
Paragraph (4) defines “customer property” to include all property
of the debtor that has been segregated for customers or property
that should have been segregated but was unlawfully converted.
Clause (i) refers to customer property not properly segregated by
the debtor or customer property converted and then recovered so as
to become property of the estate. Unlawfully converted property
that has been transferred to a third party is excluded until it is
recovered as property of the estate by virtue of the avoiding
powers. The concept excludes customer name securities that have
been delivered to or reclaimed by a customer and any property
properly belonging to the stockholder, such as money deposited by a
customer to pay for securities that the stockholder has distributed
to such customer.
Paragraph (5) [enacted as (6)] defines “net equity” to establish
the extent to which a customer will be entitled to share in the
single and separate fund. Accounts of a customer are aggregated and
offset only to the extent the accounts are held by the customer in
the same capacity. Thus, a personal account is separate from an
account held as trustee. In a community property state an account
held for the community is distinct from an account held as separate
property.
The net equity is computed by liquidating all securities
positions in the accounts and crediting the account with any amount
due to the customer. Regardless of the actual dates, if any, of
liquidation, the customer is only entitled to the liquidation value
at the time of the filing of the petition. To avoid double
counting, the liquidation value of customer name securities
belonging to a customer is excluded from net equity. Thus, clause
(ii) includes claims against a customer resulting from the
liquidation of a security under clause (i). The value of a security
on which trading has been suspended at the time of the filing of
the petition will be estimated. Once the net liquidation value is
computed, any amount that the customer owes to the stockbroker is
subtracted including any amount that would be owing after the
hypothetical liquidation, such as brokerage fees. Debts owed by the
customer to the debtor, other than in a securities related
transaction, will not reduce the net equity of the customer.
Finally, net equity is increased by any payment by the customer to
the debtor actually paid within 60 days after notice. The principal
reason a customer would make such a payment is to reclaim customer
name securities under Sec. 751.
Paragraph (6) defines “1934 Act” to mean the Securities Exchange
Act of 1934 [15 U.S.C. 78a et seq.].
Paragraph (7) [enacted as (9)] defines “SIPC” to mean the
Securities Investor Protection Corporation.

-REFTEXT-
REFERENCES IN TEXT
The Securities Exchange Act of 1934, referred to in par.
(4)(A)(iii), is act June 6, 1934, ch. 404, 48 Stat. 881, as
amended, which is classified principally to chapter 2B (Sec. 78a et
seq.) of Title 15, Commerce and Trade. For complete classification
of this Act to the Code, see section 78a of Title 15 and Tables.

-MISC2-
AMENDMENTS
2006 – Par. (7)(A)(i). Pub. L. 109-390, Sec. 5(a)(3)(A),
substituted “a mortgage loan,” for “a mortgage loan or” and
inserted “(whether or not such repurchase or reverse repurchase
transaction is a ‘repurchase agreement’, as defined in section
101)” before semicolon at end.
Par. (7)(A)(iii). Pub. L. 109-390, Sec. 5(a)(3)(B), inserted
“(including by novation)” after “the guarantee” and “(whether or
not such settlement is in connection with any agreement or
transaction referred to in clauses (i) through (xi))” before
semicolon at end.
Par. (7)(A)(v) to (vii). Pub. L. 109-390, Sec. 5(a)(3)(D), (E),
added cls. (v) and (vi) and redesignated former cl. (v) as (vii).
Former cls. (vi) and (vii) redesignated (viii) and (ix),
respectively.
Par. (7)(A)(viii). Pub. L. 109-390, Sec. 5(a)(3)(D), redesignated
cl. (vi) as (viii). Former cl. (viii) redesignated (x).
Pub. L. 109-390, Sec. 5(a)(3)(C), substituted “(vii), (viii), or
(ix)” for “or (vii)” in two places.
Par. (7)(A)(ix) to (xi). Pub. L. 109-390, Sec. 5(a)(3)(D),
redesignated cls. (vii) to (ix) as (ix) to (xi), respectively.
2005 – Par. (7). Pub. L. 109-8 added par. (7) and struck out
former par. (7) which read as follows: ” ‘securities contract’
means contract for the purchase, sale, or loan of a security,
including an option for the purchase or sale of a security,
certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any option
entered into on a national securities exchange relating to foreign
currencies, or the guarantee of any settlement of cash or
securities by or to a securities clearing agency;”.
1994 – Par. (4)(A)(iii). Pub. L. 103-394 struck out “(15 U.S.C.
78a et seq.)” after “Act of 1934″.
1984 – Par. (2)(A). Pub. L. 98-353, Sec. 482(1), substituted
“with whom a person deals” for “with whom the debtor deals”, “that
has a claim” for “that holds a claim”, “against such person” for
“against the debtor”, “held by such person” for “held by the
debtor”, and “such person’s business as a stockbroker,” for
“business as a stockbroker”.
Par. (2)(B). Pub. L. 98-353, Sec. 482(2)(A), (B), substituted
“has a claim” for “holds a claim” and “against a person” for
“against the debtor” in provisions preceding cl. (i).
Par. (2)(B)(ii). Pub. L. 98-353, Sec. 482(2)(C), substituted
“such person” for “the debtor”.
Par. (4)(A)(i). Pub. L. 98-353, Sec. 482(3), substituted “from
and that is the lawful” for “and that is”.
Par. (6)(A)(i). Pub. L. 98-353, Sec. 482(4), inserted a comma
after “petition” and “any” after “except”.
Par. (7). Pub. L. 98-353, Sec. 482(5), amended par. (7)
generally, inserting provisions relating to options for the
purchase or sale of certificates of deposit, or a group or index of
securities (including any interest therein or based on the value
thereof), or any option entered into on a national securities
exchange relating to foreign currencies.
Par. (8). Pub. L. 98-353, Sec. 482(6), inserted “a final
settlement payment,”.
1982 – Par. (4). Pub. L. 97-222, Sec. 8(1), struck out “at any
time” after “security, or property,” in provisions preceding
subpar. (A), and inserted “of a customer” after “claim” in subpar.
(A)(ii).
Par. (5). Pub. L. 97-222, Sec. 8(3), added par. (5). Former par.
(5) redesignated (6).
Par. (6). Pub. L. 97-222, Sec. 8(2), (4), redesignated former
par. (5) as (6), in provisions preceding subpar. (A), substituted
“all accounts of a customer that such customer has” for “the
aggregate of all of a customer’s accounts that such customer
holds”, in subpar. (A)(2) inserted “in such capacity”, and in
subpar. (B) inserted “in such capacity”. Former par. (6)
redesignated (9).
Pars. (7), (8). Pub. L. 97-222, Sec. 8(5), added pars. (7) and
(8).
Par. (9). Pub. L. 97-222, Sec. 8(2), (6), redesignated former
par. (6) as (9) and substituted “Securities” for “Security”.

EFFECTIVE DATE OF 2006 AMENDMENT
Amendment by Pub. L. 109-390 not applicable to any cases
commenced under this title or to appointments made under any
Federal or State law, before Dec. 12, 2006, see section 7 of Pub.
L. 109-390, set out as a note under section 101 of this title.

EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
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.

-End-

-CITE-
11 USC Sec. 742 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-HEAD-
Sec. 742. Effect of section 362 of this title in this subchapter

-STATUTE-
Notwithstanding section 362 of this title, SIPC may file an
application for a protective decree under the Securities Investor
Protection Act of 1970. The filing of such application stays all
proceedings in the case under this title unless and until such
application is dismissed. If SIPC completes the liquidation of the
debtor, then the court shall dismiss the case.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2613; Pub. L. 97-222, Sec.
9, July 27, 1982, 96 Stat. 237; Pub. L. 103-394, title V, Sec.
501(d)(26), Oct. 22, 1994, 108 Stat. 4146.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 742 of the House amendment deletes a sentence contained
in the Senate amendment requiring the trustee in an interstate
stock-brokerage liquidation to comply with the provisions of
subchapter IV of chapter 7 if the debtor is also a commodity
broker. The House amendment expands the requirement to require the
SIPC trustee to perform such duties, if the debtor is a commodity
broker, under section 7(b) of the Securities Investor Protection
Act [15 U.S.C. 78ggg(b)]. The requirement is deleted from section
742 since the trustee of an intrastate stockbroker will be bound by
the provisions of subchapter IV of chapter 7 if the debtor is also
a commodity broker by reason of section 103 of title 11.

SENATE REPORT NO. 95-989
Section 742 indicates that the automatic stay does not prevent
SIPC from filing an application for a protective decree under SIPA.
If SIPA does file such an application, then all bankruptcy
proceedings are suspended until the SIPC action is completed. If
SIPC completes liquidation of the stockbroker then the bankruptcy
case is dismissed.

-REFTEXT-
REFERENCES IN TEXT
The Securities Investor Protection Act of 1970, referred to in
text, is Pub. L. 91-598, Dec. 30, 1970, 84 Stat. 1636, as amended,
which is classified generally to chapter 2B-1 (Sec. 78aaa et seq.)
of Title 15, Commerce and Trade. For complete classification of
this Act to the Code, see section 78aaa of Title 15 and Tables.

-MISC2-
AMENDMENTS
1994 – Pub. L. 103-394 struck out “(15 U.S.C. 78aaa et seq.)”
after “Act of 1970″.
1982 – Pub. L. 97-222 substituted “title” for “chapter” after
“all proceedings in the case under this”.

EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.

-End-

-CITE-
11 USC Sec. 743 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-HEAD-
Sec. 743. Notice

-STATUTE-
The clerk shall give the notice required by section 342 of this
title to SIPC and to the Commission.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2613; Pub. L. 99-554, title
II, Sec. 283(t), Oct. 27, 1986, 100 Stat. 3118; Pub. L. 103-394,
title V, Sec. 501(d)(27), Oct. 22, 1994, 108 Stat. 4146.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
Section 743 requires that notice of the order for relief be given
to SIPC and to the SEC in every stockbroker case.

AMENDMENTS
1994 – Pub. L. 103-394 substituted “342” for “342(a)”.
1986 – Pub. L. 99-554, which directed the amendment of this
section by striking “(d)”, rather than “(a)”, could not be executed
because “(d)” did not appear in text. See 1994 Amendment note
above.

EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.

EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-554 effective 30 days after Oct. 27,
1986, see section 302(a) of Pub. L. 99-554, set out as a note under
section 581 of Title 28, Judiciary and Judicial Procedure.

-End-

-CITE-
11 USC Sec. 744 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-HEAD-
Sec. 744. Executory contracts

-STATUTE-
Notwithstanding section 365(d)(1) of this title, the trustee
shall assume or reject, under section 365 of this title, any
executory contract of the debtor for the purchase or sale of a
security in the ordinary course of the debtor’s business, within a
reasonable time after the date of the order for relief, but not to
exceed 30 days. If the trustee does not assume such a contract
within such time, such contract is rejected.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2613; Pub. L. 97-222, Sec.
10, July 27, 1982, 96 Stat. 238.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
Section 744 instructs the court to give the trustee a reasonable
time, not to exceed 30 days, to assume or reject any executory
contract of the stockbroker to buy or sell securities. Any contract
not assumed within the time fixed by the court is considered to be
rejected.

AMENDMENTS
1982 – Pub. L. 97-222 inserted “but” after “relief,”.

-End-

-CITE-
11 USC Sec. 745 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-HEAD-
Sec. 745. Treatment of accounts

-STATUTE-
(a) Accounts held by the debtor for a particular customer in
separate capacities shall be treated as accounts of separate
customers.
(b) If a stockbroker or a bank holds a customer net equity claim
against the debtor that arose out of a transaction for a customer
of such stockbroker or bank, each such customer of such stockbroker
or bank shall be treated as a separate customer of the debtor.
(c) Each trustee’s account specified as such on the debtor’s
books, and supported by a trust deed filed with, and qualified as
such by, the Internal Revenue Service, and under the Internal
Revenue Code of 1986, shall be treated as a separate customer
account for each beneficiary under such trustee account.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2613; Pub. L. 97-222, Sec.
11, July 27, 1982, 96 Stat. 238; Pub. L. 98-353, title III, Sec.
483, July 10, 1984, 98 Stat. 383; Pub. L. 103-394, title V, Sec.
501(d)(28), Oct. 22, 1994, 108 Stat. 4146.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
Section 745(a) indicates that each account held by a customer in
a separate capacity is to be considered a separate account. This
prevents the offset of accounts held in different capacities.
Subsection (b) indicates that a bank or another stockbroker that
is a customer of a debtor is considered to hold its customers
accounts in separate capacities. Thus a bank or other stockbroker
is not treated as a mutual fund for purposes of bulk investment.
This protects unrelated customers of a bank or other stockholder
from having their accounts offset.
Subsection (c) effects the same result with respect to a trust so
that each beneficiary is treated as the customer of the debtor
rather than the trust itself. This eliminates any doubt whether a
trustee holds a personal account in a separate capacity from his
trustee’s account.

-REFTEXT-
REFERENCES IN TEXT
The Internal Revenue Code of 1986, referred to in subsec. (c), is
classified generally to Title 26, Internal Revenue Code.

-MISC2-
AMENDMENTS
1994 – Subsec. (c). Pub. L. 103-394 substituted “Internal Revenue
Code of 1986″ for “Internal Revenue Code of 1954 (26 U.S.C. 1 et
seq.)”.
1984 – Subsec. (a). Pub. L. 98-353 inserted “the debtor for”
after “by”.
1982 – Subsec. (c). Pub. L. 97-222 substituted “Each” for “A”.

EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.

EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.

-End-

-CITE-
11 USC Sec. 746 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-HEAD-
Sec. 746. Extent of customer claims

-STATUTE-
(a) If, after the date of the filing of the petition, an entity
enters into a transaction with the debtor, in a manner that would
have made such entity a customer had such transaction occurred
before the date of the filing of the petition, and such transaction
was entered into by such entity in good faith and before the
qualification under section 322 of this title of a trustee, such
entity shall be deemed a customer, and the date of such transaction
shall be deemed to be the date of the filing of the petition for
the purpose of determining such entity’s net equity.
(b) An entity does not have a claim as a customer to the extent
that such entity transferred to the debtor cash or a security that,
by contract, agreement, understanding, or operation of law, is –
(1) part of the capital of the debtor; or
(2) subordinated to the claims of any or all creditors.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2613; Pub. L. 97-222, Sec.
12, July 27, 1982, 96 Stat. 238.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
Section 746(a) protects entities who deal in good faith with the
debtor after the filing of the petition and before a trustee is
appointed by deeming such entities to be customers. The principal
application of this section will be in an involuntary case before
the order for relief, because Sec. 701(b) requires prompt
appointment of an interim trustee after the order for relief.
Subsection (b) indicates that an entity who holds securities that
are either part of the capital of the debtor or that are
subordinated to the claims of any creditor of the debtor is not a
customer with respect to those securities. This subsection will
apply when the stockbroker has sold securities in itself to the
customer or when the customer has otherwise placed such securities
in an account with the stockbroker.

AMENDMENTS
1982 – Pub. L. 97-222, Sec. 12(c), substituted “claims” for
“claim” in section catchline.
Subsec. (a). Pub. L. 97-222, Sec. 12(a), substituted “enters
into” for “effects, with respect to cash or a security,”, struck
out “with respect to such cash or security” wherever appearing, and
substituted “the date of the filing of the petition” for “such
date”, and “entered into” for “effected”.
Subsec. (b). Pub. L. 97-222, Sec. 12(b), substituted “transferred
to the debtor” for “has a claim for” in provisions preceding par.
(1), and struck out “is” in par. (2).

-End-

-CITE-
11 USC Sec. 747 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-HEAD-
Sec. 747. Subordination of certain customer claims

-STATUTE-
Except as provided in section 510 of this title, unless all other
customer net equity claims have been paid in full, the trustee may
not pay in full or pay in part, directly or indirectly, any net
equity claim of a customer that was, on the date the transaction
giving rise to such claim occurred –
(1) an insider;
(2) a beneficial owner of at least five percent of any class of
equity securities of the debtor, other than –
(A) nonconvertible stock having fixed preferential dividend
and liquidation rights; or
(B) interests of limited partners in a limited partnership;

(3) a limited partner with a participation of at least five
percent in the net assets or net profits of the debtor; or
(4) an entity that, directly or indirectly, through agreement
or otherwise, exercised or had the power to exercise control over
the management or policies of the debtor.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2613; Pub. L. 97-222, Sec.
13, July 27, 1982, 96 Stat. 238.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
Section 747 subordinates to other customer claims, all claims of
a customer who is an insider, a five percent owner of the debtor,
or otherwise in control of the debtor.

AMENDMENTS
1982 – Pub. L. 97-222 substituted “the transaction giving rise to
such claim occurred” for “such claim arose” in provisions preceding
par. (1).

-End-

-CITE-
11 USC Sec. 748 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-HEAD-
Sec. 748. Reduction of securities to money

-STATUTE-
As soon as practicable after the date of the order for relief,
the trustee shall reduce to money, consistent with good market
practice, all securities held as property of the estate, except for
customer name securities delivered or reclaimed under section 751
of this title.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2614.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
Section 748 requires the trustee to liquidate all securities,
except for customer name securities, of the estate in a manner
consistent with good market practice. The trustee should refrain
from flooding a thin market with a large percentage of shares in
any one issue. If the trustee holds restricted securities or
securities in which trading has been suspended, then the trustee
must arrange to liquidate such securities in accordance with the
securities laws. A private placement may be the only exemption
available with the customer of the debtor the best prospect for
such a placement. The subsection does not permit such a customer to
bid in his net equity as part of the purchase price; a contrary
result would permit a customer to receive a greater percentage on
his net equity claim than other customers.

-End-

-CITE-
11 USC Sec. 749 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-HEAD-
Sec. 749. Voidable transfers

-STATUTE-
(a) Except as otherwise provided in this section, any transfer of
property that, but for such transfer, would have been customer
property, may be avoided by the trustee, and such property shall be
treated as customer property, if and to the extent that the trustee
avoids such transfer under section 544, 545, 547, 548, or 549 of
this title. For the purpose of such sections, the property so
transferred shall be deemed to have been property of the debtor
and, if such transfer was made to a customer or for a customer’s
benefit, such customer shall be deemed, for the purposes of this
section, to have been a creditor.
(b) Notwithstanding sections 544, 545, 547, 548, and 549 of this
title, the trustee may not avoid a transfer made before seven days
after the order for relief if such transfer is approved by the
Commission by rule or order, either before or after such transfer,
and if such transfer is –
(1) a transfer of a securities contract entered into or carried
by or through the debtor on behalf of a customer, and of any
cash, security, or other property margining or securing such
securities contract; or
(2) the liquidation of a securities contract entered into or
carried by or through the debtor on behalf of a customer.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2614; Pub. L. 97-222, Sec.
14, July 27, 1982, 96 Stat. 238; Pub. L. 111-16, Sec. 2(8), May 7,
2009, 123 Stat. 1607.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
Section 749 indicates that if the trustee avoids a transfer,
property recovered is customer property to any extent it would have
been customer property but for the transfer. The section clarifies
that a customer who receives a transfer of property of the debtor
is a creditor and that property in a customer’s account is property
of a creditor for purposes of the avoiding powers.

AMENDMENTS
2009 – Subsec. (b). Pub. L. 111-16 substituted “seven days” for
“five days” in introductory provisions.
1982 – Pub. L. 97-222 substituted “(a) Except as otherwise
provided in this section, any” for “Any”, and “but” for “except”,
inserted “such property”, substituted “or 549″ for “549, or
724(a)”, and added subsec. (b).

EFFECTIVE DATE OF 2009 AMENDMENT
Amendment by Pub. L. 111-16 effective Dec. 1, 2009, see section 7
of Pub. L. 111-16, set out as a note under section 109 of this
title.

-End-

-CITE-
11 USC Sec. 750 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-HEAD-
Sec. 750. Distribution of securities

-STATUTE-
The trustee may not distribute a security except under section
751 of this title.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2614.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
Section 750 forbids the trustee from distributing a security
other than a customer name security. The term “distribution” refers
to a distribution to customers in satisfaction of net equity claims
and is not intended to preclude the trustee from liquidating
securities under proposed 11 U.S.C. 748.

-End-

-CITE-
11 USC Sec. 751 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-HEAD-
Sec. 751. Customer name securities

-STATUTE-
The trustee shall deliver any customer name security to or on
behalf of the customer entitled to such security, unless such
customer has a negative net equity. With the approval of the
trustee, a customer may reclaim a customer name security after
payment to the trustee, within such period as the trustee allows,
of any claim of the debtor against such customer to the extent that
such customer will not have a negative net equity after such
payment.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2614.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
Section 751 requires the trustee to deliver a customer name
security to the customer entitled to such security unless the
customer has a negative net equity. The customer’s net equity will
be negative when the amount owed by the customer to the stockbroker
exceeds the liquidation value of the non-customer name securities
in the customer’s account. If the customer is a net debtor of the
stockbroker, then the trustee may permit the customer to repay
debts to the stockbroker so that the customer will no longer be in
debt to the stockbroker. If the customer refuses to pay such
amount, then the court may order the customer to endorse the
security in order that the trustee may liquidate such property.

-End-

-CITE-
11 USC Sec. 752 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-HEAD-
Sec. 752. Customer property

-STATUTE-
(a) The trustee shall distribute customer property ratably to
customers on the basis and to the extent of such customers’ allowed
net equity claims and in priority to all other claims, except
claims of the kind specified in section 507(a)(2) of this title
that are attributable to the administration of such customer
property.
(b)(1) The trustee shall distribute customer property in excess
of that distributed under subsection (a) of this section in
accordance with section 726 of this title.
(2) Except as provided in section 510 of this title, if a
customer is not paid the full amount of such customer’s allowed net
equity claim from customer property, the unpaid portion of such
claim is a claim entitled to distribution under section 726 of this
title.
(c) Any cash or security remaining after the liquidation of a
security interest created under a security agreement made by the
debtor, excluding property excluded under section 741(4)(B) of this
title, shall be apportioned between the general estate and customer
property in the same proportion as the general estate of the debtor
and customer property were subject to such security interest.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2614; Pub. L. 97-222, Sec.
15, July 27, 1982, 96 Stat. 238; Pub. L. 98-353, title III, Sec.
484, July 10, 1984, 98 Stat. 383; Pub. L. 109-8, title XV, Sec.
1502(a)(3), Apr. 20, 2005, 119 Stat. 216.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
Section 752(a) requires the trustee to distribute customer
property to customers based on the amount of their net equity
claims. Customer property is to be distributed in priority to all
claims except expenses of administration entitled to priority under
Sec. 507(1). It is anticipated that the court will apportion such
administrative claims on an equitable basis between the general
estate and the customer property of the debtor.
Subsection (b)(1) indicates that in the event customer property
exceeds customers net equity claims and administrative expenses,
the excess pours over into the general estate. This event would
occur if the value of securities increased dramatically after the
order for relief but before liquidation by the trustee. Subsection
(b)(2) indicates that the unpaid portion of a customer’s net equity
claim is entitled to share in the general estate as an unsecured
claim unless subordinated by the court under proposed 11 U.S.C.
501. A net equity claim of a customer that is subordinated under
section 747 is entitled to share in distribution under section
726(a)(2) unless subordinated under section 510 independently of
the subordination under section 747.
Subsection (c) provides for apportionment between customer
property and the general estate of any equity of the debtor in
property remaining after a secured creditor liquidates a security
interest. This might occur if a stockbroker hypothecates securities
of his own and of his customers if the value of the hypothecated
securities exceeds the debt owed to the secured party. The
apportionment is to be made according to the ratio of customer
property and general property of the debtor that comprised the
collateral. The subsection refers to cash and securities of
customers to include any customer property unlawfully converted by
the stockbroker in the course of such a transaction. The
apportionment is made subject to section 741(4)(B) to insure that
property in a customer’s account that is owed to the stockbroker
will not be considered customer property. This recognizes the right
of the stockbroker to withdraw money that has been erroneously
placed in a customer’s account or that is otherwise owing to the
stockbroker.

AMENDMENTS
2005 – Subsec. (a). Pub. L. 109-8 substituted “507(a)(2)” for
“507(a)(1)”.
1984 – Subsec. (a). Pub. L. 98-353, Sec. 484(a), substituted
“customers’ allowed” for “customers allowed”, “except claims of the
kind” for “except claims”, and “such customer property” for
“customer property”.
Subsec. (b)(2). Pub. L. 98-353, Sec. 484(b), substituted “section
726″ for “section 726(a)”.
1982 – Subsec. (c). Pub. L. 97-222 substituted “Any cash or
security remaining after the liquidation of a security interest
created under a security agreement made by the debtor, excluding
property excluded under section 741(4)(B) of this title, shall be
apportioned between the general estate and customer property in the
same proportion as the general estate of the debtor and customer
property were subject to such security interest” for “Subject to
section 741(4)(B) of this title, any cash or security remaining
after the liquidation of a security interest created under a
security agreement made by the debtor shall be apportioned between
the general estate and customer property in the proportion that the
general property of the debtor and the cash or securities of
customers were subject to such security interest”.

EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, 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.

-End-

-CITE-
11 USC Sec. 753 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER III – STOCKBROKER LIQUIDATION

-HEAD-
Sec. 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

-STATUTE-
Notwithstanding any other provision of this title, the exercise
of rights by a forward contract merchant, commodity broker,
stockbroker, financial institution, financial participant,
securities clearing agency, swap participant, repo participant, or
master netting agreement participant under this title shall not
affect the priority of any unsecured claim it may have after the
exercise of such rights.

-SOURCE-
(Added Pub. L. 109-8, title IX, Sec. 907(m), Apr. 20, 2005, 119
Stat. 181.)

-MISC1-
EFFECTIVE DATE
Section effective 180 days after Apr. 20, 2005, and not
applicable with respect to cases commenced under this title before
such effective date, except as otherwise provided, see section 1501
of Pub. L. 109-8, set out as an Effective Date of 2005 Amendment
note under section 101 of this title.

-End-

-CITE-
11 USC SUBCHAPTER IV – COMMODITY BROKER LIQUIDATION 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER IV – COMMODITY BROKER LIQUIDATION

-HEAD-
SUBCHAPTER IV – COMMODITY BROKER LIQUIDATION

-End-

-CITE-
11 USC Sec. 761 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER IV – COMMODITY BROKER LIQUIDATION

-HEAD-
Sec. 761. Definitions for this subchapter

-STATUTE-
In this subchapter –
(1) “Act” means Commodity Exchange Act;
(2) “clearing organization” means a derivatives clearing
organization registered under the Act;
(3) “Commission” means Commodity Futures Trading Commission;
(4) “commodity contract” means –
(A) with respect to a futures commission merchant, contract
for the purchase or sale of a commodity for future delivery on,
or subject to the rules of, a contract market or board of
trade;
(B) with respect to a foreign futures commission merchant,
foreign future;
(C) with respect to a leverage transaction merchant, leverage
transaction;
(D) with respect to a clearing organization, contract for the
purchase or sale of a commodity for future delivery on, or
subject to the rules of, a contract market or board of trade
that is cleared by such clearing organization, or commodity
option traded on, or subject to the rules of, a contract market
or board of trade that is cleared by such clearing
organization;
(E) with respect to a commodity options dealer, commodity
option;
(F) any other agreement or transaction that is similar to an
agreement or transaction referred to in this paragraph;
(G) any combination of the agreements or transactions
referred to in this paragraph;
(H) any option to enter into an agreement or transaction
referred to in this paragraph;
(I) a master agreement that provides for an agreement or
transaction referred to in subparagraph (A), (B), (C), (D),
(E), (F), (G), or (H), together with all supplements to such
master agreement, without regard to whether the master
agreement provides for an agreement or transaction that is not
a commodity contract under this paragraph, except that the
master agreement shall be considered to be a commodity contract
under this paragraph only with respect to each agreement or
transaction under the master agreement that is referred to in
subparagraph (A), (B), (C), (D), (E), (F), (G), or (H); or
(J) any security agreement or arrangement or other credit
enhancement related to any agreement or transaction referred to
in this paragraph, including any guarantee or reimbursement
obligation by or to a commodity broker or financial participant
in connection with any agreement or transaction referred to in
this paragraph, but not to exceed the damages in connection
with any such agreement or transaction, measured in accordance
with section 562;

(5) “commodity option” means agreement or transaction subject
to regulation under section 4c(b) of the Act;
(6) “commodity options dealer” means person that extends credit
to, or that accepts cash, a security, or other property from, a
customer of such person for the purchase or sale of an interest
in a commodity option;
(7) “contract market” means a registered entity;
(8) “contract of sale”, “commodity”, “derivatives clearing
organization”, “future delivery”, “board of trade”, “registered
entity”, and “futures commission merchant” have the meanings
assigned to those terms in the Act;
(9) “customer” means –
(A) with respect to a futures commission merchant –
(i) entity for or with whom such futures commission
merchant deals and that holds a claim against such futures
commission merchant on account of a commodity contract made,
received, acquired, or held by or through such futures
commission merchant in the ordinary course of such futures
commission merchant’s business as a futures commission
merchant from or for the commodity futures account of such
entity; or
(ii) entity that holds a claim against such futures
commission merchant arising out of –
(I) the making, liquidation, or change in the value of a
commodity contract of a kind specified in clause (i) of
this subparagraph;
(II) a deposit or payment of cash, a security, or other
property with such futures commission merchant for the
purpose of making or margining such a commodity contract;
or
(III) the making or taking of delivery on such a
commodity contract;

(B) with respect to a foreign futures commission merchant –
(i) entity for or with whom such foreign futures commission
merchant deals and that holds a claim against such foreign
futures commission merchant on account of a commodity
contract made, received, acquired, or held by or through such
foreign futures commission merchant in the ordinary course of
such foreign futures commission merchant’s business as a
foreign futures commission merchant from or for the foreign
futures account of such entity; or
(ii) entity that holds a claim against such foreign futures
commission merchant arising out of –
(I) the making, liquidation, or change in value of a
commodity contract of a kind specified in clause (i) of
this subparagraph;
(II) a deposit or payment of cash, a security, or other
property with such foreign futures commission merchant for
the purpose of making or margining such a commodity
contract; or
(III) the making or taking of delivery on such a
commodity contract;

(C) with respect to a leverage transaction merchant –
(i) entity for or with whom such leverage transaction
merchant deals and that holds a claim against such leverage
transaction merchant on account of a commodity contract
engaged in by or with such leverage transaction merchant in
the ordinary course of such leverage transaction merchant’s
business as a leverage transaction merchant from or for the
leverage account of such entity; or
(ii) entity that holds a claim against such leverage
transaction merchant arising out of –
(I) the making, liquidation, or change in value of a
commodity contract of a kind specified in clause (i) of
this subparagraph;
(II) a deposit or payment of cash, a security, or other
property with such leverage transaction merchant for the
purpose of entering into or margining such a commodity
contract; or
(III) the making or taking of delivery on such a
commodity contract;

(D) with respect to a clearing organization, clearing member
of such clearing organization with whom such clearing
organization deals and that holds a claim against such clearing
organization on account of cash, a security, or other property
received by such clearing organization to margin, guarantee, or
secure a commodity contract in such clearing member’s
proprietary account or customers’ account; or
(E) with respect to a commodity options dealer –
(i) entity for or with whom such commodity options dealer
deals and that holds a claim on account of a commodity
contract made, received, acquired, or held by or through such
commodity options dealer in the ordinary course of such
commodity options dealer’s business as a commodity options
dealer from or for the commodity options account of such
entity; or
(ii) entity that holds a claim against such commodity
options dealer arising out of –
(I) the making of, liquidation of, exercise of, or a
change in value of, a commodity contract of a kind
specified in clause (i) of this subparagraph; or
(II) a deposit or payment of cash, a security, or other
property with such commodity options dealer for the purpose
of making, exercising, or margining such a commodity
contract;

(10) “customer property” means cash, a security, or other
property, or proceeds of such cash, security, or property,
received, acquired, or held by or for the account of the debtor,
from or for the account of a customer –
(A) including –
(i) property received, acquired, or held to margin,
guarantee, secure, purchase, or sell a commodity contract;
(ii) profits or contractual or other rights accruing to a
customer as a result of a commodity contract;
(iii) an open commodity contract;
(iv) specifically identifiable customer property;
(v) warehouse receipt or other document held by the debtor
evidencing ownership of or title to property to be delivered
to fulfill a commodity contract from or for the account of a
customer;
(vi) cash, a security, or other property received by the
debtor as payment for a commodity to be delivered to fulfill
a commodity contract from or for the account of a customer;
(vii) a security held as property of the debtor to the
extent such security is necessary to meet a net equity claim
based on a security of the same class and series of an
issuer;
(viii) property that was unlawfully converted from and that
is the lawful property of the estate; and
(ix) other property of the debtor that any applicable law,
rule, or regulation requires to be set aside or held for the
benefit of a customer, unless including such property as
customer property would not significantly increase customer
property; but

(B) not including property to the extent that a customer does
not have a claim against the debtor based on such property;

(11) “foreign future” means contract for the purchase or sale
of a commodity for future delivery on, or subject to the rules
of, a board of trade outside the United States;
(12) “foreign futures commission merchant” means entity engaged
in soliciting or accepting orders for the purchase or sale of a
foreign future or that, in connection with such a solicitation or
acceptance, accepts cash, a security, or other property, or
extends credit to margin, guarantee, or secure any trade or
contract that results from such a solicitation or acceptance;
(13) “leverage transaction” means agreement that is subject to
regulation under section 19 of the Commodity Exchange Act, and
that is commonly known to the commodities trade as a margin
account, margin contract, leverage account, or leverage contract;
(14) “leverage transaction merchant” means person in the
business of engaging in leverage transactions;
(15) “margin payment” means payment or deposit of cash, a
security, or other property, that is commonly known to the
commodities trade as original margin, initial margin, maintenance
margin, or variation margin, including mark-to-market payments,
settlement payments, variation payments, daily settlement
payments, and final settlement payments made as adjustments to
settlement prices;
(16) “member property” means customer property received,
acquired, or held by or for the account of a debtor that is a
clearing organization, from or for the proprietary account of a
customer that is a clearing member of the debtor; and
(17) “net equity” means, subject to such rules and regulations
as the Commission promulgates under the Act, with respect to the
aggregate of all of a customer’s accounts that such customer has
in the same capacity –
(A) the balance remaining in such customer’s accounts
immediately after –
(i) all commodity contracts of such customer have been
transferred, liquidated, or become identified for delivery;
and
(ii) all obligations of such customer in such capacity to
the debtor have been offset; plus

(B) the value, as of the date of return under section 766 of
this title, of any specifically identifiable customer property
actually returned to such customer before the date specified in
subparagraph (A) of this paragraph; plus
(C) the value, as of the date of transfer, of –
(i) any commodity contract to which such customer is
entitled that is transferred to another person under section
766 of this title; and
(ii) any cash, security, or other property of such customer
transferred to such other person under section 766 of this
title to margin or secure such transferred commodity
contract.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2615; Pub. L. 97-222, Sec.
16, July 27, 1982, 96 Stat. 238; Pub. L. 98-353, title III, Sec.
485, July 10, 1984, 98 Stat. 383; Pub. L. 103-394, title V, Sec.
501(d)(29), Oct. 22, 1994, 108 Stat. 4146; Pub. L. 106-554, Sec.
1(a)(5) [title I, Sec. 112(c)(6)], Dec. 21, 2000, 114 Stat. 2763,
2763A-395; Pub. L. 109-8, title IX, Sec. 907(a)(3), Apr. 20, 2005,
119 Stat. 174; Pub. L. 111-203, title VII, Sec. 724(b), July 21,
2010, 124 Stat. 1684.)

-STATAMEND-
AMENDMENT OF PARAGRAPHS (4)(F) AND (9)(A)(I)
Pub. L. 111-203, title VII, Secs. 724(b), 754, July 21, 2010, 124
Stat. 1684, 1754, provided that, effective on the later of 360 days
after July 21, 2010, or, to the extent a provision of subtitle A
(Secs. 711-754) of title VII of Pub. L. 111-203 requires a
rulemaking, not less than 60 days after publication of the final
rule or regulation implementing such provision of subtitle A, this
section is amended as follows:
(1) in paragraph (4), by striking subparagraph (F) and inserting
the following:
“(F)(i) any other contract, option, agreement, or transaction
that is similar to a contract, option, agreement, or
transaction referred to in this paragraph; and
“(ii) with respect to a futures commission merchant or a
clearing organization, any other contract, option, agreement,
or transaction, in each case, that is cleared by a clearing
organization;”; and

(2) in paragraph (9)(A)(i), by striking “the commodity futures
account” and inserting “a commodity contract account”.

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Subchapter IV of chapter 7 represents a compromise between
similar chapters in the House bill and Senate amendment. Section
761(2) of the House amendment defines “clearing organization” to
cover an organization that clears commodity contracts on a contract
market or a board of trade; the expansion of the definition is
intended to include clearing organizations that clear commodity
options. Section 761(4) of the House amendment adopts the term
“commodity contract” as used in section 761(5) of the Senate
amendment but with the more precise substantive definitions
contained in section 761(8) of the House bill. The definition is
modified to insert “board of trade” to cover commodity options.
Section 761(5) of the House amendment adopts the definition
contained in section 761(6) of the Senate amendment in preference
to the definition contained in section 761(4) of the House bill
which erroneously included onions. Section 761(9) of the House
amendment represents a compromise between similar provisions
contained in section 761(10) of the Senate amendment and section
761(9) of the House bill. The compromise adopts the substance
contained in the House bill and adopts the terminology of
“commodity contract” in lieu of “contractual commitment” as
suggested in the Senate amendment. Section 761(10) of the House
amendment represents a compromise between similar sections in the
House bill and Senate amendment regarding the definition of
“customer property.” The definition of “distribution share”
contained in section 761(12) of the Senate amendment is deleted as
unnecessary. Section 761(12) of the House amendment adopts a
definition of “foreign futures commission merchant” similar to the
definition contained in section 761(14) of the Senate amendment.
The definition is modified to cover either an entity engaged in
soliciting orders or the purchase or sale of a foreign future, or
an entity that accepts cash, a security, or other property for
credit in connection with such a solicitation or acceptance.
Section 761(13) of the House amendment adopts a definition of
“leverage transaction” identical to the definition contained in
section 761(15) of the Senate amendment. Section 761(15) of the
House amendment adopts the definition of “margin payment” contained
in section 761(17) of the Senate amendment. Section 761(17) of the
House amendment adopts a definition of “net equity” derived from
section 761(15) of the House bill.

SENATE REPORT NO. 95-989
Paragraph (1) defines “Act” to mean the Commodity Exchange Act [7
U.S.C. 1 et seq.].
Paragraph (2) defines “clearing organization” to mean an
organization that clears (i.e., matches purchases and sales)
commodity futures contracts made on or subject to the rules of a
contract market or commodity options transactions made on or
subject to the rules of a commodity option exchange. Although
commodity option trading on exchanges is currently prohibited, it
is anticipated that CFTC may permit such trading in the future.
Paragraphs (3) and (4) define terms “Commission” and “commodity
futures contract”.
Paragraph (5) [enacted as (4)] defines “commodity contract” to
mean a commodity futures contract (Sec. 761(4)), a commodity option
(Sec. 761(6)), or a leverage contract (Sec. 761(15)).
Paragraph (b) [probably should be “(6)” which was enacted as (5)]
defines “commodity option” by reference to section 4c(b) of the
Commodity Exchange Act [7 U.S.C. 6c(b)].
Paragraphs (7), (8), and (9) [enacted as (6), (7), and (8)]
define “commodity options dealer,” “contract market,” “contract of
sale,” “commodity,” “future delivery,” “board of trade,” and
“futures commission merchant.”
Paragraph (10) [enacted as (9)] defines the term “customer” to
mean with respect to a futures commission merchant or a foreign
futures commission merchant, the entity for whom the debtor carries
a commodity futures contract or foreign future, or with whom such a
contract is carried (such as another commodity broker), or from
whom the debtor has received, acquired, or holds cash, securities,
or other property arising out of or connected with specified
transactions involving commodity futures contracts or foreign
futures. This section also defines “customer” in the context of
leverage transaction merchants, clearing organizations, and
commodity options dealers. Persons associated with a commodity
broker, such as its employees, officers, or partners, may be
customers under this definition.
The definition of “customer” serves to isolate that class of
persons entitled to the protection subchapter IV provides to
customers. In addition, section 101(5) defines “commodity broker”
to mean a futures commission merchant, foreign futures commission
merchant, clearing organization, leverage transaction merchant, or
commodity options dealer, with respect to which there is a
customer. Accordingly, the definition of customer also serves to
designate those entities which must utilize chapter 7 and are
precluded from reorganizing under chapter 11.
Paragraph (11) [enacted as (10)] defines “customer property” to
mean virtually all property or proceeds thereof, received,
acquired, or held by or for the account of the debtor for a
customer arising out of or in connection with a transaction
involving a commodity contract.
Paragraph (12) defines “distribution share” to mean the amount to
which a customer is entitled under section 765(a).
Paragraphs (13), (14), (15), and (16) [enacted as (11), (12),
(13), and (14)] define “foreign future,” “foreign futures
commission merchant,” “leverage transaction,” and “leverage
transaction merchant.”
Paragraph (17) [enacted as (15)] defines “margin payment” to mean
a payment or deposit commonly known to the commodities trade as
original margin, initial margin, or variation margin.
Paragraph (18) [enacted as (16)] defines “member property.”
Paragraph (19) [enacted as (17)] defines “net equity” to be the
sum of (A) the value of all customer property remaining in a
customer’s account immediately after all commodity contracts of
such customer have been transferred, liquidated, or become
identified for delivery and all obligations of such customer to the
debtor have been offset (such as margin payments, whether or not
called, and brokerage commissions) plus (B) the value of
specifically identifiable customer property previously returned to
the customer by the trustee, plus (C) if the trustee has
transferred any commodity contract to which the customer is
entitled or any margin or security for such contract, the value of
such contract and margin or security. Net equity, therefore, will
be the total amount of customer property to which a customer is
entitled as of the date of the filing of the bankruptcy petition,
although valued at subsequent dates. The Commission is given
authority to promulgate rules and regulations to further refine
this definition.

HOUSE REPORT NO. 95-595
Paragraph (8) [enacted as (4)] is a dynamic definition of
“contractual commitment”. The definition will vary depending on the
character of the debtor in each case. If the debtor is a futures
commission merchant or a clearing organization, then subparagraphs
(A) and (D) indicate that the definition means a contract of sale
of a commodity for future delivery on a contract market. If the
debtor is a foreign futures commission merchant, a leverage
transaction merchant, or a commodity options dealer, then
subparagraphs (B), (C), and (E) indicate that the definition means
foreign future, leverage transaction, or commodity option,
respectively.
Paragraph (9) defines “customer” in a similar style. It is
anticipated that a debtor with multifaceted characteristics will
have separate estates for each different kind of customer. Thus, a
debtor that is a leverage transaction merchant and a commodity
options dealer would have separate estates for the leverage
transaction customers and for the options customers, and a general
estate for other creditors. Customers for each kind of commodity
broker, except the clearing organization, arise from either of two
relationships. In subparagraphs (A), (B), (C), and (E), clause (i)
treats with customers to the extent of contractual commitments with
the debtor in either a broker or a dealer relationship. Clause (ii)
treats with customers to the extent of proceeds from contractual
commitments or deposits for the purpose of making contractual
commitments. The customer of the clearing organization is a member
with a proprietary or customers’ account.
Paragraph (10) defines “customer property” to include all
property in customer accounts and property that should have been in
those accounts but was diverted through conversion or mistake.
Clause (i) refers to customer property not properly segregated by
the debtor or customer property converted and then recovered so as
to become property of the estate. Clause (vii) is intended to
exclude property that would cost more to recover from a third party
than the value of the property itself. Subparagraph (B) excludes
property in a customer’s account that belongs to the commodity
broker, such as a contract placed in the account by error, or cash
due the broker for a margin payment that the broker has made.
Paragraph (15) [enacted as (17)] defines “net equity” to include
the value of all contractual commitments at the time of liquidation
or transfer less any obligations owed by the customer to the
debtor, such as brokerage fees. In addition, the term includes the
value of any specifically identifiable property as of the date of
return to the customer and the value of any customer property
transferred to another commodity broker as of the date of transfer.
This definition places the risk of market fluctuations on the
customer until commitments leave the estate.

-REFTEXT-
REFERENCES IN TEXT
The Commodity Exchange Act, referred to in pars. (1), (2), (8),
and (17), is act Sept. 21, 1922, ch. 369, 42 Stat. 998, as amended,
which is classified generally to chapter 1 (Sec. 1 et seq.) of
Title 7, Agriculture. Sections 4c(b) and 19 of the Act are
classified to sections 6c(b) and 23, respectively, of Title 7. For
complete classification of this Act to the Code, see section 1 of
Title 7 and Tables.

-MISC2-
AMENDMENTS
2005 – Par. (4)(F) to (J). Pub. L. 109-8 added subpars. (F) to
(J).
2000 – Par. (2). Pub. L. 106-554, Sec. 1(a)(5) [title I, Sec.
112(c)(6)(A)], amended par. (2) generally. Prior to amendment, par.
(2) read as follows: ” ‘clearing organization’ means organization
that clears commodity contracts made on, or subject to the rules
of, a contract market or board of trade;”.
Par. (7). Pub. L. 106-554, Sec. 1(a)(5) [title I, Sec.
112(c)(6)(B)], amended par. (7) generally. Prior to amendment, par.
(7) read as follows: ” ‘contract market’ means board of trade
designated as a contract market by the Commission under the Act;”.
Par. (8). Pub. L. 106-554, Sec. 1(a)(5) [title I, Sec.
112(c)(6)(C)], amended par. (8) generally. Prior to amendment, par.
(8) read as follows: ” ‘contract of sale’, ‘commodity’, ‘future
delivery’, ‘board of trade’, and ‘futures commission merchant’ have
the meanings assigned to those terms in the Act;”.
1994 – Par. (1). Pub. L. 103-394, Sec. 501(d)(29)(A), struck out
“(7 U.S.C. 1 et seq.)” after “Act”.
Par. (5). Pub. L. 103-394, Sec. 501(d)(29)(B), struck out “(7
U.S.C. 6c(b))” after “Act”.
Par. (13). Pub. L. 103-394, Sec. 501(d)(29)(C), struck out “(7
U.S.C. 23)” after “Act”.
1984 – Par. (10)(A)(viii). Pub. L. 98-353 substituted “from and
that is the lawful property” for “and that is property”.
1982 – Par. (2). Pub. L. 97-222, Sec. 16(1), inserted “made”
after “commodity contracts”.
Par. (4). Pub. L. 97-222, Sec. 16(2), substituted “with respect
to” for “if the debtor is” wherever appearing, and substituted
“cleared by such clearing organization, or commodity option traded
on, or subject to the rules of, a contract market or board of trade
that is cleared by such clearing organization” for “cleared by the
debtor” in subpar. (D).
Par. (9). Pub. L. 97-222, Sec. 16(3), substituted “with respect
to” for “if the debtor is” wherever appearing, in subpar. (A)
substituted “such futures commission merchant” for “the debtor”
wherever appearing and “such futures commission merchant’s” for
“the debtor’s”, in subpar. (B) substituted “such foreign futures
commission merchant” for “the debtor” wherever appearing and “such
foreign futures commission merchant’s” for “the debtor’s”, in
subpar. (C) substituted “such leverage transaction merchant” for
“the debtor” wherever appearing and “such leverage transaction
merchant’s” for “the debtor’s”, inserted “or” after the semicolon
in cl. (i), and substituted “holds” for “hold” in cl. (ii), in
subpar. (D) substituted “such clearing organization” for “the
debtor” wherever appearing, and in subpar. (E) substituted “such
commodity options dealer” for “the debtor” wherever appearing and
“such commodity options dealer’s” for “the debtor’s”.
Par. (10). Pub. L. 97-222, Sec. 16(4), struck out “at any time”
after “security, or property,” in provisions preceding subpar. (A).
Par. (12). Pub. L. 97-222, Sec. 16(5), inserted a comma after
“property” and struck out the comma after “credit”.
Par. (13). Pub. L. 97-222, Sec. 16(6), substituted “section 19 of
the Commodity Exchange Act (7 U.S.C. 23)” for “section 217 of the
Commodity Futures Trading Commission Act of 1974 (7 U.S.C. 15a)”.
Par. (14). Pub. L. 97-222, Sec. 16(7), struck out “that is
engaged” after “means person”.
Par. (15). Pub. L. 97-222, Sec. 16(8), substituted “mark-to-
market payments, settlement payments, variation payments, daily
settlement payments, and final settlement payments made as
adjustments to settlement prices” for “a daily variation settlement
payment”.
Par. (16). Pub. L. 97-222, Sec. 16(9), struck out “at any time”
after “customer property”.
Par. (17). Pub. L. 97-222, Sec. 16(10), in provisions preceding
subpar. (A) substituted “has” for “holds”, in subpar. (A) inserted
“the” after “(A)” in provisions preceding cl. (i), and “in such
capacity” after “customer” in cl. (ii).

EFFECTIVE DATE OF 2010 AMENDMENT
Amendment by Pub. L. 111-203 effective on the later of 360 days
after July 21, 2010, or, to the extent a provision of subtitle A
(Secs. 711-754) of title VII of Pub. L. 111-203 requires a
rulemaking, not less than 60 days after publication of the final
rule or regulation implementing such provision of subtitle A, see
section 754 of Pub. L. 111-203, set out as a note under section 1a
of Title 7, Agriculture.

EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, set out as a note under section 101
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.

-End-

-CITE-
11 USC Sec. 762 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER IV – COMMODITY BROKER LIQUIDATION

-HEAD-
Sec. 762. Notice to the Commission and right to be heard

-STATUTE-
(a) The clerk shall give the notice required by section 342 of
this title to the Commission.
(b) The Commission may raise and may appear and be heard on any
issue in a case under this chapter.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2618.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
Section 762 provides that the Commission shall be given such
notice as is appropriate of an order for relief in a bankruptcy
case and that the Commission may raise and may appear and may be
heard on any issue in case involving a commodity broker
liquidation.

-End-

-CITE-
11 USC Sec. 763 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER IV – COMMODITY BROKER LIQUIDATION

-HEAD-
Sec. 763. Treatment of accounts

-STATUTE-
(a) Accounts held by the debtor for a particular customer in
separate capacities shall be treated as accounts of separate
customers.
(b) A member of a clearing organization shall be deemed to hold
such member’s proprietary account in a separate capacity from such
member’s customers’ account.
(c) The net equity in a customer’s account may not be offset
against the net equity in the account of any other customer.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2618; Pub. L. 98-353, title
III, Sec. 486, July 10, 1984, 98 Stat. 383.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
Section 763 provides for separate treatment of accounts held in
separate capacities. A deficit in one account held for a customer
may not be offset against the net equity in another account held by
the same customer in a separate capacity or held by another
customer.

AMENDMENTS
1984 – Subsec. (a). Pub. L. 98-353 substituted “by the debtor
for” for “by” and “treated as” for “deemed to be”.

EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.

-End-

-CITE-
11 USC Sec. 764 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER IV – COMMODITY BROKER LIQUIDATION

-HEAD-
Sec. 764. Voidable transfers

-STATUTE-
(a) Except as otherwise provided in this section, any transfer by
the debtor of property that, but for such transfer, would have been
customer property, may be avoided by the trustee, and such property
shall be treated as customer property, if and to the extent that
the trustee avoids such transfer under section 544, 545, 547, 548,
549, or 724(a) of this title. For the purpose of such sections, the
property so transferred shall be deemed to have been property of
the debtor, and, if such transfer was made to a customer or for a
customer’s benefit, such customer shall be deemed, for the purposes
of this section, to have been a creditor.
(b) Notwithstanding sections 544, 545, 547, 548, 549, and 724(a)
of this title, the trustee may not avoid a transfer made before
seven days after the order for relief, if such transfer is approved
by the Commission by rule or order, either before or after such
transfer, and if such transfer is –
(1) a transfer of a commodity contract entered into or carried
by or through the debtor on behalf of a customer, and of any
cash, securities, or other property margining or securing such
commodity contract; or
(2) the liquidation of a commodity contract entered into or
carried by or through the debtor on behalf of a customer.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2618; Pub. L. 97-222, Sec.
17, July 27, 1982, 96 Stat. 240; Pub. L. 98-353, title III, Sec.
487, July 10, 1984, 98 Stat. 383; Pub. L. 111-16, Sec. 2(9), May 7,
2009, 123 Stat. 1607.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 764 of the House amendment is derived from the House
bill.

SENATE REPORT NO. 95-989
Section 764 permits the trustee to void any transfer of property
that, except for such transfer, would have been customer property,
to the extent permitted under section 544, 545, 547, 548, 549, or
724(a).

HOUSE REPORT NO. 95-595
Section 764 indicates the extent to which the avoiding powers may
be used by the trustee under subchapter IV of chapter 7. If
property recovered would have been customer property if never
transferred, then subsection (a) indicates that it will be so
treated when recovered.
Subsection (b) prohibits avoiding any transaction that occurs
before or within five days after the petition if the transaction is
approved by the Commission and concerns an open contractual
commitment. This enables the Commission to exercise its discretion
to protect the integrity of the market by insuring that
transactions cleared with other brokers will not be undone on a
preference or a fraudulent transfer theory.
Subsection (c) insulates variation margin payments and other
deposits from the avoiding powers except to the extent of actual
fraud under section 548(a)(1). This facilitates prepetition
transfers and protects the ordinary course of business in the
market.

AMENDMENTS
2009 – Subsec. (b). Pub. L. 111-16 substituted “seven days” for
“five days” in introductory provisions.
1984 – Subsec. (a). Pub. L. 98-353 substituted “any transfer by
the debtor” for “any transfer”.
1982 – Subsec. (a). Pub. L. 97-222, Sec. 17(a), substituted “but”
for “except”, inserted “such property” after “trustee, and”, and
substituted “shall be” for “is” wherever appearing.
Subsec. (b). Pub. L. 97-222, Sec. 17(b), substituted “order for
relief” for “date of the filing of the petition”.
Subsec. (c). Pub. L. 97-222, Sec. 17(c), struck out subsec. (c)
which provided that the trustee could not avoid a transfer that was
a margin payment to or deposit with a commodity broker or forward
contract merchant or was a settlement payment made by a clearing
organization and that occurred before the commencement of the case.

EFFECTIVE DATE OF 2009 AMENDMENT
Amendment by Pub. L. 111-16 effective Dec. 1, 2009, see section 7
of Pub. L. 111-16, set out as a note under section 109 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.

-End-

-CITE-
11 USC Sec. 765 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER IV – COMMODITY BROKER LIQUIDATION

-HEAD-
Sec. 765. Customer instructions

-STATUTE-
(a) The notice required by section 342 of this title to customers
shall instruct each customer –
(1) to file a proof of such customer’s claim promptly, and to
specify in such claim any specifically identifiable security,
property, or commodity contract; and
(2) to instruct the trustee of such customer’s desired
disposition, including transfer under section 766 of this title
or liquidation, of any commodity contract specifically identified
to such customer.

(b) The trustee shall comply, to the extent practicable, with any
instruction received from a customer regarding such customer’s
desired disposition of any commodity contract specifically
identified to such customer. If the trustee has transferred, under
section 766 of this title, such a commodity contract, the trustee
shall transmit any such instruction to the commodity broker to whom
such commodity contract was so transferred.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2619; Pub. L. 97-222, Sec.
18, July 27, 1982, 96 Stat. 240; Pub. L. 98-353, title III, Sec.
488, July 10, 1984, 98 Stat. 383.)

-MISC1-
HISTORICAL AND REVISION NOTES
For Historical and Revision Notes for this section, see
Historical and Revision Notes set out under section 766 of this
title.

AMENDMENTS
1984 – Subsec. (a). Pub. L. 98-353 substituted “notice required
by” for “notice under”.
1982 – Subsec. (b). Pub. L. 97-222 substituted “commodity
contract” for “commitment”.

EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.

-End-

-CITE-
11 USC Sec. 766 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER IV – COMMODITY BROKER LIQUIDATION

-HEAD-
Sec. 766. Treatment of customer property

-STATUTE-
(a) The trustee shall answer all margin calls with respect to a
specifically identifiable commodity contract of a customer until
such time as the trustee returns or transfers such commodity
contract, but the trustee may not make a margin payment that has
the effect of a distribution to such customer of more than that to
which such customer is entitled under subsection (h) or (i) of this
section.
(b) The trustee shall prevent any open commodity contract from
remaining open after the last day of trading in such commodity
contract, or into the first day on which notice of intent to
deliver on such commodity contract may be tendered, whichever
occurs first. With respect to any commodity contract that has
remained open after the last day of trading in such commodity
contract or with respect to which delivery must be made or accepted
under the rules of the contract market on which such commodity
contract was made, the trustee may operate the business of the
debtor for the purpose of –
(1) accepting or making tender of notice of intent to deliver
the physical commodity underlying such commodity contract;
(2) facilitating delivery of such commodity; or
(3) disposing of such commodity if a party to such commodity
contract defaults.

(c) The trustee shall return promptly to a customer any
specifically identifiable security, property, or commodity contract
to which such customer is entitled, or shall transfer, on such
customer’s behalf, such security, property, or commodity contract
to a commodity broker that is not a debtor under this title,
subject to such rules or regulations as the Commission may
prescribe, to the extent that the value of such security, property,
or commodity contract does not exceed the amount to which such
customer would be entitled under subsection (h) or (i) of this
section if such security, property, or commodity contract were not
returned or transferred under this subsection.
(d) If the value of a specifically identifiable security,
property, or commodity contract exceeds the amount to which the
customer of the debtor is entitled under subsection (h) or (i) of
this section, then such customer to whom such security, property,
or commodity contract is specifically identified may deposit cash
with the trustee equal to the difference between the value of such
security, property, or commodity contract and such amount, and the
trustee then shall –
(1) return promptly such security, property, or commodity
contract to such customer; or
(2) transfer, on such customer’s behalf, such security,
property, or commodity contract to a commodity broker that is not
a debtor under this title, subject to such rules or regulations
as the Commission may prescribe.

(e) Subject to subsection (b) of this section, the trustee shall
liquidate any commodity contract that –
(1) is identified to a particular customer and with respect to
which such customer has not timely instructed the trustee as to
the desired disposition of such commodity contract;
(2) cannot be transferred under subsection (c) of this section;
or
(3) cannot be identified to a particular customer.

(f) As soon as practicable after the commencement of the case,
the trustee shall reduce to money, consistent with good market
practice, all securities and other property, other than commodity
contracts, held as property of the estate, except for specifically
identifiable securities or property distributable under subsection
(h) or (i) of this section.
(g) The trustee may not distribute a security or other property
except under subsection (h) or (i) of this section.
(h) Except as provided in subsection (b) of this section, the
trustee shall distribute customer property ratably to customers on
the basis and to the extent of such customers’ allowed net equity
claims, and in priority to all other claims, except claims of a
kind specified in section 507(a)(2) of this title that are
attributable to the administration of customer property. Such
distribution shall be in the form of –
(1) cash;
(2) the return or transfer, under subsection (c) or (d) of this
section, of specifically identifiable customer securities,
property, or commodity contracts; or
(3) payment of margin calls under subsection (a) of this
section.

Notwithstanding any other provision of this subsection, a customer
net equity claim based on a proprietary account, as defined by
Commission rule, regulation, or order, may not be paid either in
whole or in part, directly or indirectly, out of customer property
unless all other customer net equity claims have been paid in full.
(i) If the debtor is a clearing organization, the trustee shall
distribute –
(1) customer property, other than member property, ratably to
customers on the basis and to the extent of such customers’
allowed net equity claims based on such customers’ accounts other
than proprietary accounts, and in priority to all other claims,
except claims of a kind specified in section 507(a)(2) of this
title that are attributable to the administration of such
customer property; and
(2) member property ratably to customers on the basis and to
the extent of such customers’ allowed net equity claims based on
such customers’ proprietary accounts, and in priority to all
other claims, except claims of a kind specified in section
507(a)(2) of this title that are attributable to the
administration of member property or customer property.

(j)(1) The trustee shall distribute customer property in excess
of that distributed under subsection (h) or (i) of this section in
accordance with section 726 of this title.
(2) Except as provided in section 510 of this title, if a
customer is not paid the full amount of such customer’s allowed net
equity claim from customer property, the unpaid portion of such
claim is a claim entitled to distribution under section 726 of this
title.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2619; Pub. L. 97-222, Sec.
19, July 27, 1982, 96 Stat. 240; Pub. L. 98-353, title III, Sec.
489, July 10, 1984, 98 Stat. 383; Pub. L. 109-8, title XV, Sec.
1502(a)(4), Apr. 20, 2005, 119 Stat. 216.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Sections 765 and 766 of the House amendment represent a
consolidation and redraft of sections 765, 766, 767, and 768 of the
House bill and sections 765, 766, 767, and 768 of the Senate
amendment. In particular, section 765(a) of the House amendment is
derived from section 765(a) of the House bill and section 767(a) of
the Senate amendment. Under section 765(a) of the House amendment
customers are notified of the opportunity to immediately file
proofs of claim and to identify specifically identifiable
securities, property, or commodity contracts. The customer is also
afforded an opportunity to instruct the trustee regarding the
customer’s desires concerning disposition of the customer’s
commodity contracts. Section 767(b) [probably should be 765(b)]
makes clear that the trustee must comply with instructions received
to the extent practicable, but in the event the trustee has
transferred commodity contracts to a commodity broker, such
instructions shall be forwarded to the broker.
Section 766(a) of the House amendment is derived from section
768(c) of the House bill and section 767(f) of the Senate
amendment. Section 766(b) of the House amendment is derived from
section 765(d) of the House bill, and section 767(g) of the Senate
amendment. Section 766(c) of the House amendment is derived from
section 768(a) of the House bill and section 767(e) of the Senate
amendment. Section 766(d) of the House amendment is derived from
section 768(b) of the House bill and the second sentence of section
767(e) of the Senate amendment.
Section 766(e) of the House amendment is derived from section
765(c) of the House bill and sections 767(c) and (d) of the Senate
amendment. The provision clarifies that the trustee may liquidate a
commodity contract only if the commodity contract cannot be
transferred to a commodity broker under section 766(c), cannot be
identified to a particular customer, or has been identified with
respect to a particular customer, but with respect to which the
customer’s instructions have not been received.
Section 766(f) of the House amendment is derived from section
766(b) of the House bill and section 767(h) of the Senate
amendment. The term “all securities and other property” is not
intended to include a commodity contract. Section 766(g) of the
House amendment is derived from section 766(a) of the House bill.
Section 766(h) of the House amendment is derived from section
767(a) of the House bill and section 765(a) of the Senate
amendment. In order to induce private trustees to undertake the
difficult and risky job of liquidating a commodity broker, the
House amendment contains a provision insuring that a pro rata share
of administrative claims will be paid. The provision represents a
compromise between the position taken in the House bill,
subordinating customer property to all expenses of administration,
and the position taken in the Senate amendment requiring the
distribution of customer property in advance of any expenses of
administration. The position in the Senate amendment is rejected
since customers, in any event, would have to pay a brokerage
commission or fee in the ordinary course of business. The
compromise provision requires customers to pay only those
administrative expenses that are attributable to the administration
of customer property.
Section 766(i) of the House amendment is derived from section
767(b) of the House bill and contains a similar compromise with
respect to expenses of administration as the compromise detailed in
connection with section 766(h) of the House amendment. Section
766(j) of the House amendment is derived from section 767(c) of the
House bill. No counterpart is contained in the Senate amendment.
The provision takes account of the rare case where the estate has
customer property in excess of customer claims and administrative
expenses attributable to those claims. The section also specifies
that to the extent a customer is not paid in full out of customer
property, that the unpaid claim will be treated the same as any
other general unsecured creditor.
Section 768 of the Senate amendment was deleted from the House
amendment as unwise. The provision in the Senate amendment would
have permitted the trustee to distribute customer property based
upon an estimate of value of the customer’s account, with no
provision for recapture of excessive disbursements. Moreover, the
section would have exonerated the trustee from any liability for
such an excessive disbursement. Furthermore, the section is unclear
with respect to the customer’s rights in the event the trustee
makes a distribution less than the share to which the customer is
entitled. The provision is deleted in the House amendment so that
this difficult problem may be handled on a case-by-case basis by
the courts as the facts and circumstances of each case require.
Section 769 of the Senate amendment is deleted in the House
amendment as unnecessary. The provision was intended to codify
Board of Trade v. Johnson, 264 U.S. 1 (1924) [Ill.1924, 44 S.Ct.
232]. Board of Trade against Johnson is codified in section 363(f)
of the House amendment which indicates the only five circumstances
in which property may be sold free and clear of an interest in such
property of an entity other than the estate.
Section 770 of the Senate amendment is deleted in the House
amendment as unnecessary. That section would have permitted
commodity brokers to liquidate commodity contracts, notwithstanding
any contrary order of the court. It would require an extraordinary
circumstance, such as a threat to the national security, to enjoin
a commodity broker from liquidating a commodity contract. However,
in those circumstances, an injunction must prevail. Failure of the
House amendment to incorporate section 770 of the Senate amendment
does not imply that the automatic stay prevents liquidation of
commodity contracts by commodity brokers. To the contrary, whenever
by contract, or otherwise, a commodity broker is entitled to
liquidate a position as a result of a condition specified in a
contract, other than a condition or default of the kind specified
in section 365(b)(2) of title 11, the commodity broker may engage
in such liquidation. To this extent, the commodity broker’s
contract with his customer is treated no differently than any other
contract under section 365 of title 11.

SENATE REPORT NO. 95-989
[Section 765] Subsection (a) of this section [enacted as section
766(h)] provides that with respect to liquidation of commodity
brokers which are not clearing organizations, the trustee shall
distribute customer property to customers on the basis and to the
extent of such customers’ allowed net equity claims, and in
priority to all other claims. This section grants customers’ claims
first priority in the distribution of the estate. Subsection (b)
[enacted as section 766(i)] grants the same priority to member
property and other customer property in the liquidation of a
clearing organization. A fundamental purpose of these provisions is
to ensure that the property entrusted by customers to their brokers
will not be subject to the risks of the broker’s business and will
be available for disbursement to customers if the broker becomes
bankrupt.
As a result of section 765, a customer need not trace any funds
in order to avoid treatment as a general creditor as was required
by the Seventh Circuit in In re Rosenbaum Grain Corporation.
Section 766 lists certain transfers which are not voidable by the
trustee of a commodity broker. Subsection (a) exempts transfers
approved by the Commission by rule or order, either before or after
the transfer. It is expected that the Commission will use this
power sparingly and only when necessary to effectuate the remedial
purposes of this legislation, bearing in mind that the immediate
transfer of customer accounts from bankrupt commodity brokers to
solvent commodity brokers is one of the primary goals of this
subchapter. The committee considered and rejected a provision in
subsection (b) that would have exempted payments made to a
commodity broker. The Commission may not by rule exempt such
transfers. The Commission’s prompt attention to the promulgation of
such rules and regulations is expected.
Subsection (b) [enacted as section 764(c)] provides for the
nonavoidability of margin payments made by a commodity broker,
other than a clearing organization. If such payments are made by or
to a clearing organization, they are nonavoidable pursuant to
subsection (c). All other margin payments made by a commodity
broker, other than a clearing organization, are nonavoidable if
they meet the conditions set forth in subsection (b). Subsections
(b)(1) and (b)(2) parallel the requirements for avoidance of
fraudulent transfers and obligations under section 548. Subsection
(b)(3) adds a requirement that there be collusion between the
transferee and transferor in order for such payments to be
voidable. It would be unfair to permit recovery from an innocent
commodity broker since such brokers are, for the most part, simply
conduits for margin payments and do not retain margin for use in
their operations. Subsection (b)(4) would permit recovery of a
subsequent transferee only if it had actual knowledge at the time
of that subsequent transfer of the scheme to defraud. Again it
should be noted that if the transfer is a margin payment and the
subsequent transferee is a clearing organization, the transfer is
nonavoidable under section 766(c).
Subsection (c) [enacted as section 548(d)(2)] overrules Seligson
v. New York Produce Exchange, and provides as a matter of law that
margin payments made by or to a clearing organization are not
voidable.
Section 767 sets forth the procedures to be followed by the
trustee. It should be emphasized that many of the duties imposed on
the trustee are required to be discharged by the trustee
immediately upon his appointment. The earlier these duties are
discharged the less potential market disruption can result.
The initial duty of the trustee is to endeavor to transfer to
another commodity broker or brokers all identified customer
accounts together with the customer property margining such
accounts, to the extent the trustee deems appropriate. Although it
is preferable for all such accounts to be transferred, exigencies
may dictate a partial transfer. The requirement that the value of
the accounts and property transferred not exceed the customer’s
distribution share may necessitate a slight delay until the trustee
can submit to the court, for its disapproval, an estimate of each
customer’s distribution share pursuant to section 768.
Subsection (c) [enacted as section 766(e)] provides that
contemporaneously with the estimate of the distribution share and
the transfer of identified customer accounts and property,
subsection (c) provides that the trustee should make arrangements
for the liquidation of all commodity contracts maintained by the
debtor that are not identifiable to specific customers. These
contracts would, of course, include all such contracts held in the
debtor’s proprietory [sic] account.
At approximately the same time, the trustee should notify each
customer of the debtor’s bankruptcy and instruct each customer
immediately to submit a claim including any claim to a specifically
identifiable security or other property, and advise the trustee as
to the desired disposition of commodity contracts carried by the
debtor for the customer.
This requirement is placed upon the trustee to insure that
producers who have hedged their production in the commodities
market are allowed the opportunity to preserve their positions. The
theory of the commodity market is that it exists for producers and
buyers of commodities and not for the benefit of the speculators
whose transactions now comprise the overwhelming majority of
trades. Maintenance of positions by hedges may require them to put
up additional margin payments in the hours and days following the
commodity broker bankruptcy, which they may be unable or unwilling
to do. In such cases, their positions will be quickly liquidated by
the trustee, but they must have the opportunity to make those
margin payments before they are summarily liquidated out of the
market to the detriment of their growing crop. The failure of the
customer to advise the trustee as to disposition of the customer’s
commodity contract will not delay a transfer of a contract pursuant
to subsection (b) so long as the contract can otherwise be
identified to the customer. Nor will the failure of the customer to
submit a claim prevent the customer from recovering the net equity
in that customer’s account, absent a claim the customer cannot
participate in the determination of the net equity in the account.
If the customer submits instructions pursuant to subsection (a)
after the customer’s commodity contracts are transferred to another
commodity broker, the trustee must transmit the instruction to the
transferee. If the customer’s commodity contracts are not
transferred before the customer’s instructions are received, the
trustee must attempt to comply with the instruction, subject to the
provisions of section 767(d).
Under subsection (d) [enacted as section 766(e)], the trustee has
discretion to liquidate any commodity contract carried by the
debtor at any time. This discretion must be exercised with
restraint in such cases, consistent with the purposes of this
subchapter and good business practices. The committee intends that
hedged accounts will be given special consideration before
liquidation as discussed in connection with subsection (c).
Subsection (e) [enacted as section 766(c)] instructs the trustee
as to the disposition of any security or other property, not
disposed of pursuant to subsection (b) or (d), that is specifically
identifiable to a customer and to which the customer is entitled.
Such security or other property must be returned to the customer or
promptly transferred to another commodity broker for the benefit of
the customer. If the value of the security or other property
retained or transferred, together with any other distribution made
by the trustee to or on behalf of the customer, exceeds the
customer’s distribution share the customer must deposit cash with
the trustee equal to that difference before the return or transfer
of the security or other property.
Subsection (f) [enacted as section 766(a)] requires the trustee
to answer margin calls on specifically identifiable customer
commodity contracts, but only to the extent that the margin
payment, together with any other distribution made by the trustee
to or on behalf of the customer, does not exceed the customer’s
distribution share.
Subsection (g) [enacted as section 766(b)] requires the trustee
to liquidate all commodity futures contracts prior to the close of
trading in that contract, or the first day on which notice of
intent to deliver on that contract may be tendered, whichever
occurs first. If the customer desires that the contract be kept
open for delivery, the contract should be transferred to another
commodity broker pursuant to subsection (b).
If for some reason the trustee is unable to transfer a contract
on which delivery must be made or accepted and is unable to close
out such contract, the trustee is authorized to operate the
business of the debtor for the purpose of accepting or making
tender of notice of intent to deliver the physical commodity
underlying the contract, facilitating delivery of the physical
commodity or disposing of the physical commodity in the event of a
default. Any property received, not previously held, by the trustee
in connection with its operation of the business of the debtor for
these purposes, is not by the terms of this subchapter specifically
included in the definition of customer property.
Finally, subsection (h) [enacted as section 766(f)] requires the
trustee to liquidate the debtor’s estate as soon as practicable and
consistent with good market practice, except for specifically
identifiable securities or other property distributable under
subsection (e).
Section 768 is an integral part of the commodity broker
liquidation procedures outlined in section 767. Prompt action by
the trustee to transfer or liquidate customer commodity contracts
is necessary to protect customers, the debtor’s estate, and the
marketplace generally. However, transfers of customer accounts and
property valued in excess of the customer’s distribution share are
prohibited. Since a determination of the customer’s distribution
share requires a determination of the customer’s net equity and the
total dollar value of customer property held by or for the account
of the debtor, it is possible that the customer’s distribution
share will not be determined, and thus the customer’s contracts and
property will not be transferred, on a timely basis. To avoid this
problem, and to expedite transfers of customer property, section
768 permits the trustee to make distributions to customers in
accordance with a preliminary estimate of the debtor’s customer
property and each customer’s distribution share.
It is acknowledged that the necessity for prompt action may not
allow the trustee to assemble all relevant facts before such an
estimate is made. However, the trustee is expected to develop as
accurate an estimate as possible based on the available facts.
Further, in order to permit expeditious action, section 768 does
not require that notice be given to customers or other creditors
before the court approves or disapproves the estimate. Nor does
section 768 require that customer claims be received pursuant to
section 767(a) before the trustee may act upon and in accordance
with the estimate. If the estimate is inaccurate, the trustee is
absolved of liability for a distribution which exceeds the
customer’s actual distribution share so long as the distribution
did not exceed the customer’s estimated distribution share.
However, a trustee may have a claim back against a customer who
received more than its actual distribution share.

HOUSE REPORT NO. 95-595
Section 765(a) indicates that a customer must file a proof of
claim, including any claim to specifically identifiable property,
within such time as the court fixes.
Subsection (c) [of section 765 (enacted as section 766(e))] sets
forth the general rule requiring the trustee to liquidate
contractual commitments that are either not specifically
identifiable or with respect to which a customer has not instructed
the trustee during the time fixed by the court. Subsection (d)
[enacted as section 766(b)] indicates an exception to the time
limits in the rule by requiring the trustee to liquidate any open
contractual commitment before the last day of trading or the first
day during which delivery may be demanded, whichever first occurs,
if transfer cannot be effectuated.
Section 766(a) [enacted as section 766(g)] indicates that the
trustee may distribute securities or other property only under
section 768. This does not preclude a distribution of cash under
section 767(a) or distribution of any excess customer property
under section 767(c) to the general estate.
Subsection (b) [enacted as section 766(f)] indicates that the
trustee shall liquidate all securities and other property that is
not specifically identifiable property as soon as practicable after
the commencement of the case and in accordance with good market
practice. If securities are restricted or trading has been
suspended, the trustee will have to make an exempt sale or file a
registration statement. In the event of a private placement, a
customer is not entitled to “bid in” his net equity claim. To do so
would enable him to receive a greater percentage recovery than
other customers.
Section 767(a) [enacted as section 766(h)] provides for the
trustee to distribute customer property pro rata according to
customers’ net equity claims. The court will determine an equitable
portion of customer property to pay administrative expenses.
Paragraphs (2) and (3) indicate that the return of specifically
identifiable property constitutes a distribution of net equity.
Subsection (b) [enacted as section 766(i)] indicates that if the
debtor is a clearing organization, customer property is to be
segregated into customers’ accounts and proprietary accounts and
distributed accordingly without offset. This protects a member’s
customers from having their claims offset against the member’s
proprietary account. Subsection (c)(1) [enacted as section
766(j)(1)] indicates that any excess customer property will pour
over into the general estate. This unlikely event would occur only
if customers fail to file proofs of claim. Subsection (c)(2)
[enacted as section 766(j)(2)] indicates that to the extent
customers are not paid in full, they are entitled to share in the
general estate as unsecured creditors, unless subordinated by the
court under proposed 11 U.S.C. 510.
Section 768(a) [enacted as section 766(c)] requires the trustee
to return specifically identifiable property to the extent that
such distribution will not exceed a customer’s net equity claim.
Thus, if the customer owes money to a commodity broker, this will
be offset under section 761(15)(A)(ii). If the value of the
specifically identifiable property exceeds the net equity claim,
then the customer may deposit cash with the trustee to make up the
difference after which the trustee may return or transfer the
customer’s property.
Subsection (c) [enacted as section 766(a)] permits the trustee to
answer all margin calls, to the extent of the customer’s net equity
claim, with respect to any specifically identifiable open
contractual commitment. It should be noted that any payment under
subsections (a) or (c) will be considered a reduction of the net
equity claim under section 767(a). Thus the customer’s net equity
claim is a dynamic amount that varies with distributions of
specifically identifiable property or margin payments on such
property. This approach differs from the priority given to
specifically identifiable property under subchapter III of chapter
7 by limiting the priority effect to a right to receive specific
property as part of, rather than in addition to, a ratable share of
customer property. This policy is designed to protect the small
customer who is unlikely to have property in specifically
identifiable form as compared with the professional trader. The
CFTC is authorized to make rules defining specifically identifiable
property under section 302 of the bill, in title III.

AMENDMENTS
2005 – Subsec. (h). Pub. L. 109-8, Sec. 1502(a)(4)(A),
substituted “507(a)(2)” for “507(a)(1)” in introductory provisions.
Subsec. (i). Pub. L. 109-8, Sec. 1502(a)(4)(B), substituted
“507(a)(2)” for “507(a)(1)” in pars. (1) and (2).
1984 – Subsec. (j)(2). Pub. L. 98-353 substituted “section 726″
for “section 726(a)”.
1982 – Subsec. (a). Pub. L. 97-222, Sec. 19(a), inserted “to such
customer” after “distribution”.
Subsec. (b). Pub. L. 97-222, Sec. 19(b), struck out “that is
being actively traded as of the date of the filing of the petition”
after “any open commodity contract” and inserted “the” after “rules
of”.
Subsec. (d). Pub. L. 97-222, Sec. 19(c), substituted “the amount
to which the customer of the debtor is entitled under subsection
(h) or (i) of this section, then such” for “such amount, then the”
and “the trustee then shall” for “the trustee shall”.
Subsec. (h). Pub. L. 97-222, Sec. 19(d), inserted provision that
notwithstanding any other provision of this subsection, a customer
net equity claim based on a proprietary account, as defined by
Commission rule, regulation, or order, may not be paid either in
whole or in part, directly or indirectly, out of customer property
unless all other customer net equity claims have been paid in full.

EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, and not applicable with respect to cases commenced under this
title before such effective date, except as otherwise provided, see
section 1501 of Pub. L. 109-8, 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.

-End-

-CITE-
11 USC Sec. 767 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER IV – COMMODITY BROKER LIQUIDATION

-HEAD-
Sec. 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

-STATUTE-
Notwithstanding any other provision of this title, the exercise
of rights by a forward contract merchant, commodity broker,
stockbroker, financial institution, financial participant,
securities clearing agency, swap participant, repo participant, or
master netting agreement participant under this title shall not
affect the priority of any unsecured claim it may have after the
exercise of such rights.

-SOURCE-
(Added Pub. L. 109-8, title IX, Sec. 907(l), Apr. 20, 2005, 119
Stat. 181.)

-MISC1-
EFFECTIVE DATE
Section effective 180 days after Apr. 20, 2005, and not
applicable with respect to cases commenced under this title before
such effective date, except as otherwise provided, see section 1501
of Pub. L. 109-8, set out as an Effective Date of 2005 Amendment
note under section 101 of this title.

-End-

-CITE-
11 USC SUBCHAPTER V – CLEARING BANK LIQUIDATION 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER V – CLEARING BANK LIQUIDATION

-HEAD-
SUBCHAPTER V – CLEARING BANK LIQUIDATION

-End-

-CITE-
11 USC Sec. 781 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER V – CLEARING BANK LIQUIDATION

-HEAD-
Sec. 781. Definitions

-STATUTE-
For purposes of this subchapter, the following definitions shall
apply:
(1) Board. – The term “Board” means the Board of Governors of
the Federal Reserve System.
(2) Depository institution. – The term “depository institution”
has the same meaning as in section 3 of the Federal Deposit
Insurance Act.
(3) Clearing bank. – The term “clearing bank” means an
uninsured State member bank, or a corporation organized under
section 25A of the Federal Reserve Act, which operates, or
operates as, a multilateral clearing organization pursuant to
section 409 of the Federal Deposit Insurance Corporation
Improvement Act of 1991.

-SOURCE-
(Added Pub. L. 106-554, Sec. 1(a)(5) [title I, Sec. 112(c)(5)(B)],
Dec. 21, 2000, 114 Stat. 2763, 2763A-394.)

-REFTEXT-
REFERENCES IN TEXT
Section 3 of the Federal Deposit Insurance Act, referred to in
par. (2), is classified to section 1813 of Title 12, Banks and
Banking.
Section 25A of the Federal Reserve Act, referred to in par. (3),
popularly known as the Edge Act, is classified to subchapter II
(Sec. 611 et seq.) of chapter 6 of Title 12, Banks and Banking. For
complete classification of this Act to the Code, see Short Title
note set out under section 611 of Title 12 and Tables.
Section 409 of the Federal Deposit Insurance Corporation
Improvement Act of 1991, referred to in par. (3), is classified to
section 4422 of Title 12, Banks and Banking.

-End-

-CITE-
11 USC Sec. 782 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER V – CLEARING BANK LIQUIDATION

-HEAD-
Sec. 782. Selection of trustee

-STATUTE-
(a) In General. –
(1) Appointment. – Notwithstanding any other provision of this
title, the conservator or receiver who files the petition shall
be the trustee under this chapter, unless the Board designates an
alternative trustee.
(2) Successor. – The Board may designate a successor trustee if
required.

(b) Authority of Trustee. – Whenever the Board appoints or
designates a trustee, chapter 3 and sections 704 and 705 of this
title shall apply to the Board in the same way and to the same
extent that they apply to a United States trustee.

-SOURCE-
(Added Pub. L. 106-554, Sec. 1(a)(5) [title I, Sec. 112(c)(5)(B)],
Dec. 21, 2000, 114 Stat. 2763, 2763A-394.)

-End-

-CITE-
11 USC Sec. 783 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER V – CLEARING BANK LIQUIDATION

-HEAD-
Sec. 783. Additional powers of trustee

-STATUTE-
(a) Distribution of Property Not of the Estate. – The trustee
under this subchapter has power to distribute property not of the
estate, including distributions to customers that are mandated by
subchapters III and IV of this chapter.
(b) Disposition of Institution. – The trustee under this
subchapter may, after notice and a hearing –
(1) sell the clearing bank to a depository institution or
consortium of depository institutions (which consortium may agree
on the allocation of the clearing bank among the consortium);
(2) merge the clearing bank with a depository institution;
(3) transfer contracts to the same extent as could a receiver
for a depository institution under paragraphs (9) and (10) of
section 11(e) of the Federal Deposit Insurance Act;
(4) transfer assets or liabilities to a depository institution;
and
(5) transfer assets and liabilities to a bridge depository
institution as provided in paragraphs (1), (3)(A), (5), and (6)
of section 11(n) of the Federal Deposit Insurance Act, paragraphs
(9) through (13) of such section, and subparagraphs (A) through
(H) and subparagraph (K) of paragraph (4) of such section 11(n),
except that –
(A) the bridge depository institution to which such assets or
liabilities are transferred shall be treated as a clearing bank
for the purpose of this subsection; and
(B) any references in any such provision of law to the
Federal Deposit Insurance Corporation shall be construed to be
references to the appointing agency and that references to
deposit insurance shall be omitted.

(c) Certain Transfers Included. – Any reference in this section
to transfers of liabilities includes a ratable transfer of
liabilities within a priority class.

-SOURCE-
(Added Pub. L. 106-554, Sec. 1(a)(5) [title I, Sec. 112(c)(5)(B)],
Dec. 21, 2000, 114 Stat. 2763, 2763A-395; amended Pub. L. 110-289,
div. A, title VI, Sec. 1604(b)(3), July 30, 2008, 122 Stat. 2829.)

-REFTEXT-
REFERENCES IN TEXT
Section 11 of the Federal Deposit Insurance Act, referred to in
subsec. (b)(3), (5), is classified to section 1821 of Title 12,
Banks and Banking.

-MISC1-
AMENDMENTS
2008 – Subsec. (b)(5). Pub. L. 110-289, which directed amendment
of this section by substituting “bridge depository institution” for
“bridge bank”, was executed by making the substitution in
introductory provisions and subpar. (A) of subsec. (b)(5), to
reflect the probable intent of Congress.

-End-

-CITE-
11 USC Sec. 784 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 7 – LIQUIDATION
SUBCHAPTER V – CLEARING BANK LIQUIDATION

-HEAD-
Sec. 784. Right to be heard

-STATUTE-
The Board or a Federal reserve bank (in the case of a clearing
bank that is a member of that bank) may raise and may appear and be
heard on any issue in a case under this subchapter.

-SOURCE-
(Added Pub. L. 106-554, Sec. 1(a)(5) [title I, Sec. 112(c)(5)(B)],
Dec. 21, 2000, 114 Stat. 2763, 2763A-395.)

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