29th Mar 2016

-CITE-
11 USC CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE              01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE

-HEAD-
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE

-MISC1-
SUBCHAPTER I – CREDITORS AND CLAIMS
Sec.
501. Filing of proofs of claims or interests.
502. Allowance of claims or interests.
503. Allowance of administrative expenses.
504. Sharing of compensation.
505. Determination of tax liability.
506. Determination of secured status.
507. Priorities.
508. Effect of distribution other than under this title.
509. Claims of codebtors.
510. Subordination.
511. Rate of interest on tax claims.

SUBCHAPTER II – DEBTOR’S DUTIES AND BENEFITS
521. Debtor’s duties.
522. Exemptions.
523. Exceptions to discharge.
524. Effect of discharge.
525. Protection against discriminatory treatment.
526. Restrictions on debt relief agencies.
527. Disclosures.
528. Requirements for debt relief agencies.

SUBCHAPTER III – THE ESTATE
541. Property of the estate.
542. Turnover of property to the estate.
543. Turnover of property by a custodian.
544. Trustee as lien creditor and as successor to certain
creditors and purchasers.
545. Statutory liens.
546. Limitations on avoiding powers.
547. Preferences.
548. Fraudulent transfers and obligations.
549. Postpetition transactions.
550. Liability of transferee of avoided transfer.
551. Automatic preservation of avoided transfer.
552. Postpetition effect of security interest.
553. Setoff.
554. Abandonment of property of the estate.
555. Contractual right to liquidate, terminate, or
accelerate a securities contract.
556. Contractual right to liquidate, terminate, or
accelerate a commodities contract or forward
contract.
557. Expedited determination of interests in, and
abandonment or other disposition of grain assets.
558. Defenses of the estate.
559. Contractual right to liquidate, terminate, or
accelerate a repurchase agreement.
560. Contractual right to liquidate, terminate, or
accelerate a swap agreement.
561. Contractual right to terminate, liquidate, accelerate,
or offset under a master netting agreement and across
contracts; proceedings under chapter 15.
562. Timing of damage measure in connection with swap
agreements, securities contracts, forward contracts,
commodity contracts, repurchase agreements, and
master netting agreements.

AMENDMENTS
2010 – Pub. L. 111-327, Sec. 2(a)(50), Dec. 22, 2010, 124 Stat.
3562, substituted “and master netting agreements” for “or master
netting agreements” in item 562.
2005 – Pub. L. 109-8, title II, Secs. 227(b), 228(b), 229(b),
title VII, Sec. 704(b), title IX, Secs. 907(k)(2), (p)(1),
910(a)(2), Apr. 20, 2005, 119 Stat. 69, 71, 72, 126, 181, 182, 184,
added items 511, 526 to 528, 561 and 562 and substituted
“Contractual right to liquidate, terminate, or accelerate a
securities contract” for “Contractual right to liquidate a
securities contract” in item 555, “Contractual right to liquidate,
terminate, or accelerate a commodities contract or forward
contract” for “Contractual right to liquidate a commodity contract
or forward contract” in item 556, “Contractual right to liquidate,
terminate, or accelerate a repurchase agreement” for “Contractual
right to liquidate a repurchase agreement” in item 559, and
“Contractual right to liquidate, terminate, or accelerate a swap
agreement” for “Contractual right to terminate a swap agreement” in
item 560.
1990 – Pub. L. 101-311, title I, Sec. 106(b), June 25, 1990, 104
Stat. 268, added item 560.
1986 – Pub. L. 99-554, title II, Sec. 283(q), Oct. 27, 1986, 100
Stat. 3118, amended items 557 to 559 generally, substituting
“interests in, and abandonment or other disposition of grain
assets” for “in and disposition of grain” in item 557.
1984 – Pub. L. 98-353, title III, Secs. 352(b), 396(b), 470(b),
July 10, 1984, 98 Stat. 361, 366, 380, added items 557, 558, and
559.
1982 – Pub. L. 97-222, Sec. 6(b), July 27, 1982, 96 Stat. 237,
added items 555 and 556.

-End-

-CITE-
11 USC SUBCHAPTER I – CREDITORS AND CLAIMS 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I – CREDITORS AND CLAIMS

-HEAD-
SUBCHAPTER I – CREDITORS AND CLAIMS

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-CITE-
11 USC Sec. 501 01/07/2011

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TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I – CREDITORS AND CLAIMS

-HEAD-
Sec. 501. Filing of proofs of claims or interests

-STATUTE-
(a) A creditor or an indenture trustee may file a proof of claim.
An equity security holder may file a proof of interest.
(b) If a creditor does not timely file a proof of such creditor’s
claim, an entity that is liable to such creditor with the debtor,
or that has secured such creditor, may file a proof of such claim.
(c) If a creditor does not timely file a proof of such creditor’s
claim, the debtor or the trustee may file a proof of such claim.
(d) A claim of a kind specified in section 502(e)(2), 502(f),
502(g), 502(h) or 502(i) of this title may be filed under
subsection (a), (b), or (c) of this section the same as if such
claim were a claim against the debtor and had arisen before the
date of the filing of the petition.
(e) A claim arising from the liability of a debtor for fuel use
tax assessed consistent with the requirements of section 31705 of
title 49 may be filed by the base jurisdiction designated pursuant
to the International Fuel Tax Agreement (as defined in section
31701 of title 49) and, if so filed, shall be allowed as a single
claim.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2578; Pub. L. 98-353, title
III, Sec. 444, July 10, 1984, 98 Stat. 373; Pub. L. 109-8, title
VII, Sec. 702, Apr. 20, 2005, 119 Stat. 125.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
The House amendment adopts section 501(b) of the Senate amendment
leaving the Rules of Bankruptcy Procedure free to determine where a
proof of claim must be filed.
Section 501(c) expands language contained in section 501(c) of
the House bill and Senate amendment to permit the debtor to file a
proof of claim if a creditor does not timely file a proof of the
creditor’s claim in a case under title 11.
The House amendment deletes section 501(e) of the Senate
amendment as a matter to be left to the rules of bankruptcy
procedure. It is anticipated that the rules will enable
governmental units, like other creditors, to have a reasonable time
to file proofs of claim in bankruptcy cases.
For purposes of section 501, a proof of “interest” includes the
interest of a general or limited partner in a partnership, the
interest of a proprietor in a sole proprietorship, or the interest
of a common or preferred stockholder in a corporation.

SENATE REPORT NO. 95-989
This section governs the means by which creditors and equity
security holders present their claims or interests to the court.
Subsection (a) permits a creditor to file a proof of claim or
interest. An indenture trustee representing creditors may file a
proof of claim on behalf of the creditors he represents.
This subsection is permissive only, and does not require filing
of a proof of claim by any creditor. It permits filing where some
purpose would be served, such as where a claim that appears on a
list filed under proposed 11 U.S.C. 924 or 1111 was incorrectly
stated or listed as disputed, contingent, or unliquidated, where a
creditor with a lien is undersecured and asserts a claim for the
balance of the debt owed him (his unsecured claim, as determined
under proposed 11 U.S.C. 506(a)), or in a liquidation case where
there will be a distribution of assets to the holders of allowed
claims. In other instances, such as in no-asset liquidation cases,
in situations where a secured creditor does not assert any claim
against the estate and a determination of his claim is not made
under proposed 11 U.S.C. 506, or in situations where the claim
asserted would be subordinated and the creditor would not recover
from the estate in any event, filing of a proof of claim may simply
not be necessary. The Rules of Bankruptcy Procedure and practice
under the law will guide creditors as to when filing is necessary
and when it may be dispensed with. In general, however, unless a
claim is listed in a chapter 9 or chapter 11 case and allowed as a
result of the list, a proof of claim will be a prerequisite to
allowance for unsecured claims, including priority claims and the
unsecured portion of a claim asserted by the holder of a lien.
The Rules of Bankruptcy Procedure will set the time limits, the
form, and the procedure for filing, which will determine whether
claims are timely or tardily filed. The rules governing time limits
for filing proofs of claims will continue to apply under section
405(d) of the bill. These provide a 6-month-bar date for the filing
of tax claims.
Subsection (b) permits a codebtor, surety, or guarantor to file a
proof of claim on behalf of the creditor to which he is liable if
the creditor does not timely file a proof of claim.
In liquidation and individual repayment plan cases, the trustee
or the debtor may file a proof of claim under subsection (c) if the
creditor does not timely file. The purpose of this subsection is
mainly to protect the debtor if the creditor’s claim is
nondischargeable. If the creditor does not file, there would be no
distribution on the claim, and the debtor would have a greater debt
to repay after the case is closed than if the claim were paid in
part or in full in the case or under the plan.
Subsection (d) governs the filing of claims of the kind specified
in subsections (f), (g), (h), (i), or (j) of proposed 11 U.S.C.
502. The separation of this provision from the other claim-filing
provisions in this section is intended to indicate that claims of
the kind specified, which do not become fixed or do not arise until
after the commencement of the case, must be treated differently for
filing purposes such as the bar date for filing claims. The rules
will provide for later filing of claims of these kinds.
Subsection (e) gives governmental units (including tax
authorities) at least six months following the date for the first
meeting of creditors in a chapter 7 or chapter 13 case within which
to file proof of claims.

AMENDMENTS
2005 – Subsec. (e). Pub. L. 109-8 added subsec. (e).
1984 – Subsec. (d). Pub. L. 98-353 inserted “502(e)(2),”.

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.

CHILD SUPPORT CREDITORS OR THEIR REPRESENTATIVES; APPEARANCE BEFORE
COURT
Pub. L. 103-394, title III, Sec. 304(g), Oct. 22, 1994, 108 Stat.
4134, provided that: “Child support creditors or their
representatives shall be permitted to appear and intervene without
charge, and without meeting any special local court rule
requirement for attorney appearances, in any bankruptcy case or
proceeding in any bankruptcy court or district court of the United
States if such creditors or representatives file a form in such
court that contains information detailing the child support debt,
its status, and other characteristics.”

-End-

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11 USC Sec. 502 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I – CREDITORS AND CLAIMS

-HEAD-
Sec. 502. Allowance of claims or interests

-STATUTE-
(a) A claim or interest, proof of which is filed under section
501 of this title, is deemed allowed, unless a party in interest,
including a creditor of a general partner in a partnership that is
a debtor in a case under chapter 7 of this title, objects.
(b) Except as provided in subsections (e)(2), (f), (g), (h) and
(i) of this section, if such objection to a claim is made, the
court, after notice and a hearing, shall determine the amount of
such claim in lawful currency of the United States as of the date
of the filing of the petition, and shall allow such claim in such
amount, except to the extent that –
(1) such claim is unenforceable against the debtor and property
of the debtor, under any agreement or applicable law for a reason
other than because such claim is contingent or unmatured;
(2) such claim is for unmatured interest;
(3) if such claim is for a tax assessed against property of the
estate, such claim exceeds the value of the interest of the
estate in such property;
(4) if such claim is for services of an insider or attorney of
the debtor, such claim exceeds the reasonable value of such
services;
(5) such claim is for a debt that is unmatured on the date of
the filing of the petition and that is excepted from discharge
under section 523(a)(5) of this title;
(6) if such claim is the claim of a lessor for damages
resulting from the termination of a lease of real property, such
claim exceeds –
(A) the rent reserved by such lease, without acceleration,
for the greater of one year, or 15 percent, not to exceed three
years, of the remaining term of such lease, following the
earlier of –
(i) the date of the filing of the petition; and
(ii) the date on which such lessor repossessed, or the
lessee surrendered, the leased property; plus

(B) any unpaid rent due under such lease, without
acceleration, on the earlier of such dates;

(7) if such claim is the claim of an employee for damages
resulting from the termination of an employment contract, such
claim exceeds –
(A) the compensation provided by such contract, without
acceleration, for one year following the earlier of –
(i) the date of the filing of the petition; or
(ii) the date on which the employer directed the employee
to terminate, or such employee terminated, performance under
such contract; plus

(B) any unpaid compensation due under such contract, without
acceleration, on the earlier of such dates;

(8) such claim results from a reduction, due to late payment,
in the amount of an otherwise applicable credit available to the
debtor in connection with an employment tax on wages, salaries,
or commissions earned from the debtor; or
(9) proof of such claim is not timely filed, except to the
extent tardily filed as permitted under paragraph (1), (2), or
(3) of section 726(a) of this title or under the Federal Rules of
Bankruptcy Procedure, except that a claim of a governmental unit
shall be timely filed if it is filed before 180 days after the
date of the order for relief or such later time as the Federal
Rules of Bankruptcy Procedure may provide, and except that in a
case under chapter 13, a claim of a governmental unit for a tax
with respect to a return filed under section 1308 shall be timely
if the claim is filed on or before the date that is 60 days after
the date on which such return was filed as required.

(c) There shall be estimated for purpose of allowance under this
section –
(1) any contingent or unliquidated claim, the fixing or
liquidation of which, as the case may be, would unduly delay the
administration of the case; or
(2) any right to payment arising from a right to an equitable
remedy for breach of performance.

(d) Notwithstanding subsections (a) and (b) of this section, the
court shall disallow any claim of any entity from which property is
recoverable under section 542, 543, 550, or 553 of this title or
that is a transferee of a transfer avoidable under section 522(f),
522(h), 544, 545, 547, 548, 549, or 724(a) of this title, unless
such entity or transferee has paid the amount, or turned over any
such property, for which such entity or transferee is liable under
section 522(i), 542, 543, 550, or 553 of this title.
(e)(1) Notwithstanding subsections (a), (b), and (c) of this
section and paragraph (2) of this subsection, the court shall
disallow any claim for reimbursement or contribution of an entity
that is liable with the debtor on or has secured the claim of a
creditor, to the extent that –
(A) such creditor’s claim against the estate is disallowed;
(B) such claim for reimbursement or contribution is contingent
as of the time of allowance or disallowance of such claim for
reimbursement or contribution; or
(C) such entity asserts a right of subrogation to the rights of
such creditor under section 509 of this title.

(2) A claim for reimbursement or contribution of such an entity
that becomes fixed after the commencement of the case shall be
determined, and shall be allowed under subsection (a), (b), or (c)
of this section, or disallowed under subsection (d) of this
section, the same as if such claim had become fixed before the date
of the filing of the petition.
(f) In an involuntary case, a claim arising in the ordinary
course of the debtor’s business or financial affairs after the
commencement of the case but before the earlier of the appointment
of a trustee and the order for relief shall be determined as of the
date such claim arises, and shall be allowed under subsection (a),
(b), or (c) of this section or disallowed under subsection (d) or
(e) of this section, the same as if such claim had arisen before
the date of the filing of the petition.
(g)(1) A claim arising from the rejection, under section 365 of
this title or under a plan under chapter 9, 11, 12, or 13 of this
title, of an executory contract or unexpired lease of the debtor
that has not been assumed shall be determined, and shall be allowed
under subsection (a), (b), or (c) of this section or disallowed
under subsection (d) or (e) of this section, the same as if such
claim had arisen before the date of the filing of the petition.
(2) A claim for damages calculated in accordance with section 562
shall be allowed under subsection (a), (b), or (c), or disallowed
under subsection (d) or (e), as if such claim had arisen before the
date of the filing of the petition.
(h) A claim arising from the recovery of property under section
522, 550, or 553 of this title shall be determined, and shall be
allowed under subsection (a), (b), or (c) of this section, or
disallowed under subsection (d) or (e) of this section, the same as
if such claim had arisen before the date of the filing of the
petition.
(i) A claim that does not arise until after the commencement of
the case for a tax entitled to priority under section 507(a)(8) of
this title shall be determined, and shall be allowed under
subsection (a), (b), or (c) of this section, or disallowed under
subsection (d) or (e) of this section, the same as if such claim
had arisen before the date of the filing of the petition.
(j) A claim that has been allowed or disallowed may be
reconsidered for cause. A reconsidered claim may be allowed or
disallowed according to the equities of the case. Reconsideration
of a claim under this subsection does not affect the validity of
any payment or transfer from the estate made to a holder of an
allowed claim on account of such allowed claim that is not
reconsidered, but if a reconsidered claim is allowed and is of the
same class as such holder’s claim, such holder may not receive any
additional payment or transfer from the estate on account of such
holder’s allowed claim until the holder of such reconsidered and
allowed claim receives payment on account of such claim
proportionate in value to that already received by such other
holder. This subsection does not alter or modify the trustee’s
right to recover from a creditor any excess payment or transfer
made to such creditor.
(k)(1) The court, on the motion of the debtor and after a
hearing, may reduce a claim filed under this section based in whole
on an unsecured consumer debt by not more than 20 percent of the
claim, if –
(A) the claim was filed by a creditor who unreasonably refused
to negotiate a reasonable alternative repayment schedule proposed
on behalf of the debtor by an approved nonprofit budget and
credit counseling agency described in section 111;
(B) the offer of the debtor under subparagraph (A) –
(i) was made at least 60 days before the date of the filing
of the petition; and
(ii) provided for payment of at least 60 percent of the
amount of the debt over a period not to exceed the repayment
period of the loan, or a reasonable extension thereof; and

(C) no part of the debt under the alternative repayment
schedule is nondischargeable.

(2) The debtor shall have the burden of proving, by clear and
convincing evidence, that –
(A) the creditor unreasonably refused to consider the debtor’s
proposal; and
(B) the proposed alternative repayment schedule was made prior
to expiration of the 60-day period specified in paragraph
(1)(B)(i).

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2579; Pub. L. 98-353, title
III, Sec. 445, July 10, 1984, 98 Stat. 373; Pub. L. 99-554, title
II, Secs. 257(j), 283(f), Oct. 27, 1986, 100 Stat. 3115, 3117; Pub.
L. 103-394, title II, Sec. 213(a), title III, Sec. 304(h)(1), Oct.
22, 1994, 108 Stat. 4125, 4134; Pub. L. 109-8, title II, Sec.
201(a), title VII, Sec. 716(d), title IX, Sec. 910(b), Apr. 20,
2005, 119 Stat. 42, 130, 184.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
The House amendment adopts a compromise position in section
502(a) between H.R. 8200, as passed by the House, and the Senate
amendment. Section 502(a) has been modified to make clear that a
party in interest includes a creditor of a partner in a partnership
that is a debtor under chapter 7. Since the trustee of the
partnership is given an absolute claim against the estate of each
general partner under section 723(c), creditors of the partner must
have standing to object to claims against the partnership at the
partnership level because no opportunity will be afforded at the
partner’s level for such objection.
The House amendment contains a provision in section 502(b)(1)
that requires disallowance of a claim to the extent that such claim
is unenforceable against the debtor and unenforceable against
property of the debtor. This is intended to result in the
disallowance of any claim for deficiency by an undersecured
creditor on a non-recourse loan or under a State antideficiency
law, special provision for which is made in section 1111, since
neither the debtor personally, nor the property of the debtor is
liable for such a deficiency. Similarly claims for usurious
interest or which could be barred by an agreement between the
creditor and the debtor would be disallowed.
Section 502(b)(7)(A) represents a compromise between the House
bill and the Senate amendment. The House amendment takes the
provision in H.R. 8200 as passed by the House of Representatives
but increases the percentage from 10 to 15 percent.
As used in section 502(b)(7), the phrase “lease of real property”
applies only to a “true” or “bona fide” lease and does not apply to
financing leases of real property or interests therein, or to
leases of such property which are intended as security.
Historically, the limitation on allowable claims of lessors of
real property was based on two considerations. First, the amount of
the lessor’s damages on breach of a real estate lease was
considered contingent and difficult to prove. Partly for this
reason, claims of a lessor of real estate were not provable prior
to the 1934 amendments, to the Bankruptcy Act [former title 11].
Second, in a true lease of real property, the lessor retains all
risks and benefits as to the value of the real estate at the
termination of the lease. Historically, it was, therefore,
considered equitable to limit the claims of real estate lessor.
However, these considerations are not present in “lease
financing” transactions where, in substance, the “lease” involves a
sale of the real estate and the rental payments are in substance
the payment of principal and interest on a secured loan or sale. In
a financing lease the lessor is essentially a secured or unsecured
creditor (depending upon whether his interest is perfected or not)
of the debtor, and the lessor’s claim should not be subject to the
502(b)(7) limitation. Financing “leases” are in substance
installment sales or loans. The “lessors” are essentially sellers
or lenders and should be treated as such for purposes of the
bankruptcy law.
Whether a “lease” is true or bona fide lease or, in the
alternative a financing “lease” or a lease intended as security,
depends upon the circumstances of each case. The distinction
between a true lease and a financing transaction is based upon the
economic substance of the transaction and not, for example, upon
the locus of title, the form of the transaction or the fact that
the transaction is denominated as a “lease.” The fact that the
lessee, upon compliance with the terms of the lease, becomes or has
the option to become the owner of the leased property for no
additional consideration or for nominal consideration indicates
that the transaction is a financing lease or lease intended as
security. In such cases, the lessor has no substantial interest in
the leased property at the expiration of the lease term. In
addition, the fact that the lessee assumes and discharges
substantially all the risks and obligations ordinarily attributed
to the outright ownership of the property is more indicative of a
financing transaction than of a true lease. The rental payments in
such cases are in substance payments of principal and interest
either on a loan secured by the leased real property or on the
purchase of the leased real property. See, e.g., Financial
Accounting Standards Board Statement No. 13 and SEC Reg. S-X, 17
C.F.R. sec. 210.3-16(q) (1977); cf. First National Bank of Chicago
v. Irving Trust Co., 74 F.2d 263 (2nd Cir. 1934); and Albenda and
Lief, “Net Lease Financing Transactions Under the Proposed
Bankruptcy Act of 1973,” 30 Business Lawyer, 713 (1975).
Section 502(c) of the House amendment presents a compromise
between similar provisions contained in the House bill and the
Senate amendment. The compromise language is consistent with an
amendment to the definition of “claim” in section 104(4)(B) of the
House amendment and requires estimation of any right to an
equitable remedy for breach of performance if such breach gives
rise to a right to payment. To the extent language in the House and
Senate reports indicate otherwise, such language is expressly
overruled.
Section 502(e) of the House amendment contains language modifying
a similar section in the House bill and Senate amendment. Section
502(e)(1) states the general rule requiring the court to disallow
any claim for reimbursement or contribution of an entity that is
liable with the debtor on, or that has secured, the claim of a
creditor to any extent that the creditor’s claim against the estate
is disallowed. This adopts a policy that a surety’s claim for
reimbursement or contribution is entitled to no better status than
the claim of the creditor assured by such surety. Section
502(e)(1)(B) alternatively disallows any claim for reimbursement or
contribution by a surety to the extent such claim is contingent as
of the time of allowance. Section 502(e)(2) is clear that to the
extent a claim for reimbursement or contribution becomes fixed
after the commencement of the case that it is to be considered a
prepetition claim for purposes of allowance. The combined effect of
sections 502(e)(1)(B) and 502(e)(2) is that a surety or codebtor is
generally permitted a claim for reimbursement or contribution to
the extent the surety or codebtor has paid the assured party at the
time of allowance. Section 502(e)(1)(C) alternatively indicates
that a claim for reimbursement or contribution of a surety or
codebtor is disallowed to the extent the surety or codebtor
requests subrogation under section 509 with respect to the rights
of the assured party. Thus, the surety or codebtor has a choice; to
the extent a claim for contribution or reimbursement would be
advantageous, such as in the case where such a claim is secured, a
surety or codebtor may opt for reimbursement or contribution under
section 502(e). On the other hand, to the extent the claim for such
surety or codebtor by way of subrogation is more advantageous, such
as where such claim is secured, the surety may elect subrogation
under section 509.
The section changes current law by making the election identical
in all other respects. To the extent a creditor’s claim is
satisfied by a surety or codebtor, other creditors should not
benefit by the surety’s inability to file a claim against the
estate merely because such surety or codebtor has failed to pay
such creditor’s claim in full. On the other hand, to the extent the
creditor’s claim against the estate is otherwise disallowed, the
surety or codebtor should not be entitled to increased rights by
way of reimbursement or contribution, to the detriment of competing
claims of other unsecured creditors, than would be realized by way
of subrogation.
While the foregoing scheme is equitable with respect to other
unsecured creditors of the debtor, it is desirable to preserve
present law to the extent that a surety or codebtor is not
permitted to compete with the creditor he has assured until the
assured party’s claim has paid in full. Accordingly, section 509(c)
of the House amendment subordinates both a claim by way of
subrogation or a claim for reimbursement or contribution of a
surety or codebtor to the claim of the assured party until the
assured party’s claim is paid in full.
Section 502(h) of the House amendment expands similar provisions
contained in the House bill and the Senate amendment to indicate
that any claim arising from the recovery of property under section
522(i), 550, or 553 shall be determined as though it were a
prepetition claim.
Section 502(i) of the House amendment adopts a provision
contained in section 502(j) of H.R. 8200 as passed by the House but
that was not contained in the Senate amendment.
Section 502(i) of H.R. 8200 as passed by the House, but was not
included in the Senate amendment, is deleted as a matter to be left
to the bankruptcy tax bill next year.
The House amendment deletes section 502(i) of the Senate bill but
adopts the policy of that section to a limited extent for
confirmation of a plan of reorganization in section 1111(b) of the
House amendment.
Section 502(j) of the House amendment is new. The provision
codifies section 57k of the Bankruptcy Act [section 93(k) of former
title 11].
Allowance of Claims or Interest: The House amendment adopts
section 502(b)(9) of the House bill which disallows any tax claim
resulting from a reduction of the Federal Unemployment Tax Act
(FUTA) credit (sec. 3302 of the Internal Revenue Code [26 U.S.C.
3302]) on account of a tardy contribution to a State unemployment
fund if the contribution is attributable to ways or other
compensation paid by the debtor before bankruptcy. The Senate
amendment allowed this reduction, but would have subordinated it to
other claims in the distribution of the estate’s assets by treating
it as a punitive (nonpecuniary loss) penalty. The House amendment
would also not bar reduction of the FUTA credit on account of a
trustee’s late payment of a contribution to a State unemployment
fund if the contribution was attributable to a trustee’s payment of
compensation earned from the estate.
Section 511 of the Senate amendment is deleted. Its substance is
adopted in section 502(b)(9) of the House amendment which reflects
an identical provision contained in H.R. 8200 as passed by the
House.

SENATE REPORT NO. 95-989
A proof of claim or interest is prima facie evidence of the claim
or interest. Thus, it is allowed under subsection (a) unless a
party in interest objects. The rules and case law will determine
who is a party in interest for purposes of objection to allowance.
The case law is well developed on this subject today. As a result
of the change in the liability of a general partner’s estate for
the debts of this partnership, see proposed 11 U.S.C. 723, the
category of persons that are parties in interest in the partnership
case will be expanded to include a creditor of a partner against
whose estate the trustee of the partnership estate may proceed
under proposed 11 U.S.C. 723(c).
Subsection (b) prescribes the grounds on which a claim may be
disallowed. The court will apply these standards if there is an
objection to a proof of claim. The burden of proof on the issue of
allowance is left to the Rules of Bankruptcy Procedure. Under the
current chapter XIII rules, a creditor is required to prove that
his claim is free from usury, rule 13-301. It is expected that the
rules will make similar provision for both liquidation and
individual repayment plan cases. See Bankruptcy Act Sec. 656(b)
[section 1056(b) of former title 11]; H.R. 31, 94th Cong., 1st
sess., sec. 6-104(a) (1975).
Paragraph (1) requires disallowance if the claim is unenforceable
against the debtor for any reason (such as usury,
unconscionability, or failure of consideration) other than because
it is contingent or unmatured. All such contingent or unmatured
claims are to be liquidated by the bankruptcy court in order to
afford the debtor complete bankruptcy relief; these claims are
generally not provable under present law.
Paragraph (2) requires disallowance to the extent that the claim
is for unmatured interest as of the date of the petition. Whether
interest is matured or unmatured on the date of bankruptcy is to be
determined without reference to any ipso facto or bankruptcy clause
in the agreement creating the claim. Interest disallowed under this
paragraph includes postpetition interest that is not yet due and
payable, and any portion of prepaid interest that represents an
original discounting of the claim, yet that would not have been
earned on the date of bankruptcy. For example, a claim on a $1,000
note issued the day before bankruptcy would only be allowed to the
extent of the cash actually advanced. If the original discount was
10 percent so that the cash advanced was only $900, then
notwithstanding the face amount of note, only $900 would be
allowed. If $900 was advanced under the note some time before
bankruptcy, the interest component of the note would have to be
prorated and disallowed to the extent it was for interest after the
commencement of the case.
Section 502(b) thus contains two principles of present law.
First, interest stops accruing at the date of the filing of the
petition, because any claim for unmatured interest is disallowed
under this paragraph. Second, bankruptcy operates as the
acceleration of the principal amount of all claims against the
debtor. One unarticulated reason for this is that the discounting
factor for claims after the commencement of the case is equivalent
to contractual interest rate on the claim. Thus, this paragraph
does not cause disallowance of claims that have not been discounted
to a present value because of the irrebuttable presumption that the
discounting rate and the contractual interest rate (even a zero
interest rate) are equivalent.
Paragraph (3) requires disallowance of a claim to the extent that
the creditor may offset the claim against a debt owing to the
debtor. This will prevent double recovery, and permit the claim to
be filed only for the balance due. This follows section 68 of the
Bankruptcy Act [section 108 of former title 11].
Paragraph (4) requires disallowance of a property tax claim to
the extent that the tax due exceeds the value of the property. This
too follows current law to the extent the property tax is ad
valorem.
Paragraph (5) prevents overreaching by the debtor’s attorneys and
concealing of assets by debtors. It permits the court to examine
the claim of a debtor’s attorney independently of any other
provision of this subsection, and to disallow it to the extent that
it exceeds the reasonable value of the attorneys’ services.
Postpetition alimony, maintenance or support claims are
disallowed under paragraph (6). They are to be paid from the
debtor’s postpetition property, because the claims are
nondischargeable.
Paragraph (7), derived from current law, limits the damages
allowable to a landlord of the debtor. The history of this
provision is set out at length in Oldden v. Tonto Realty Co., 143
F.2d 916 (2d Cir. 1944). It is designed to compensate the landlord
for his loss while not permitting a claim so large (based on a long-
term lease) as to prevent other general unsecured creditors from
recovering a dividend from the estate. The damages a landlord may
assert from termination of a lease are limited to the rent reserved
for the greater of one year or ten percent of the remaining lease
term, not to exceed three years, after the earlier of the date of
the filing of the petition and the date of surrender or
repossession in a chapter 7 case and 3 years lease payments in a
chapter 9, 11, or 13 case. The sliding scale formula for chapter 7
cases is new and designed to protect the long-term lessor. This
subsection does not apply to limit administrative expense claims
for use of the leased premises to which the landlord is otherwise
entitled.
This paragraph will not overrule Oldden, or the proposition for
which it has been read to stand: To the extent that a landlord has
a security deposit in excess of the amount of his claim allowed
under this paragraph, the excess comes into the estate. Moreover,
his allowed claim is for his total damages, as limited by this
paragraph. By virtue of proposed 11 U.S.C. 506(a) and 506(d), the
claim will be divided into a secured portion and an unsecured
portion in those cases in which the deposit that the landlord holds
is less than his damages. As under Oldden, he will not be permitted
to offset his actual damages against his security deposit and then
claim for the balance under this paragraph. Rather, his security
deposit will be applied in satisfaction of the claim that is
allowed under this paragraph.
As used in section 502(b)(7), the phrase “lease of real property”
applies only to a “true” or “bona fide” lease and does not apply to
financing leases of real property or interests therein, or to
leases of such property which are intended as security.
Historically, the limitation on allowable claims of lessors of
real property was based on two considerations. First, the amount of
the lessors damages on breach of a real estate lease was considered
contingent and difficult to prove. Partly for this reason, claims
of a lessor of real estate were not provable prior to the 1934
amendments to the Bankruptcy Act [former title 11]. Second, in a
true lease of real property, the lessor retains all risk and
benefits as to the value of the real estate at the termination of
the lease. Historically, it was, therefore, considered equitable to
limit the claims of a real estate lessor.
However, these considerations are not present in “lease
financing” transactions where, in substance, the “lease” involves a
sale of the real estate and the rental payments are in substance
the payment of principal and interest on a secured loan or sale. In
a financing lease the lessor is essentially a secured or unsecured
creditor (depending upon whether his interest is perfected or not)
of the debtor, and the lessor’s claim should not be subject to the
502(b)(7) limitation. Financing “leases” are in substance
installment sales or loans. The “lessors” are essentially sellers
or lenders and should be treated as such for purposes of the
bankruptcy law.
Whether a “lease” is true or bona fide lease or, in the
alternative, a financing “lease” or a lease intended as security,
depends upon the circumstances of each case. The distinction
between a true lease and a financing transaction is based upon the
economic substance of the transaction and not, for example, upon
the locus of title, the form of the transaction or the fact that
the transaction is denominated as a “lease”. The fact that the
lessee, upon compliance with the terms of the lease, becomes or has
the option to become the owner of the leased property for no
additional consideration or for nominal consideration indicates
that the transaction is a financing lease or lease intended as
security. In such cases, the lessor has no substantial interest in
the leased property at the expiration of the lease term. In
addition, the fact that the lessee assumes and discharges
substantially all the risks and obligations ordinarily attributed
to the outright ownership of the property is more indicative of a
financing transaction than of a true lease. The rental payments in
such cases are in substance payments of principal and interest
either on a loan secured by the leased real property or on the
purchase of the leased real property. See, e. g., Financial
Accounting Standards Board Statement No. 13 and SEC Reg. S-X, 17
C.F.R. sec. 210.3-16(q) (1977); cf. First National Bank of Chicago
v. Irving Trust Co., 74 F.2d 263 (2nd Cir. 1934); and Albenda and
Lief, “Net Lease Financing Transactions Under the Proposed
Bankruptcy Act of 1973,” 30 Business Lawyer, 713 (1975).
Paragraph (8) is new. It tracks the landlord limitation on
damages provision in paragraph (7) for damages resulting from the
breach by the debtor of an employment contract, but limits the
recovery to the compensation reserved under an employment contract
for the year following the earlier of the date of the petition and
the termination of employment.
Subsection (c) requires the estimation of any claim liquidation
of which would unduly delay the closing of the estate, such as a
contingent claim, or any claim for which applicable law provides
only an equitable remedy, such as specific performance. This
subsection requires that all claims against the debtor be converted
into dollar amounts.
Subsection (d) is derived from present law. It requires
disallowance of a claim of a transferee of a voidable transfer in
toto if the transferee has not paid the amount or turned over the
property received as required under the sections under which the
transferee’s liability arises.
Subsection (e) also derived from present law, requires
disallowance of the claim for reimbursement or contribution of a
codebtor, surety or guarantor of an obligation of the debtor,
unless the claim of the creditor on such obligation has been paid
in full. The provision prevents competition between a creditor and
his guarantor for the limited proceeds in the estate.
Subsection (f) specifies that “involuntary gap” creditors receive
the same treatment as prepetition creditors. Under the allowance
provisions of this subsection, knowledge of the commencement of the
case will be irrelevant. The claim is to be allowed “the same as if
such claim had arisen before the date of the filing of the
petition.” Under voluntary petition, proposed 11 U.S.C. 303(f),
creditors must be permitted to deal with the debtor and be assured
that their claims will be paid. For purposes of this subsection,
“creditors” include governmental units holding claims for tax
liabilities incurred during the period after the petition is filed
and before the earlier of the order for relief or appointment of a
trustee.
Subsection (g) gives entities injured by the rejection of an
executory contract or unexpired lease, either under section 365 or
under a plan or reorganization, a prepetition claim for any
resulting damages, and requires that the injured entity be treated
as a prepetition creditor with respect to that claim.
Subsection (h) gives a transferee of a setoff that is recovered
by one trustee a prepetition claim for the amount recovered.
Subsection (i) answers the nonrecourse loan problem and gives the
creditor an unsecured claim for the difference between the value of
the collateral and the debt in response to the decision in Great
National Life Ins. Co. v. Pine Gate Associates, Ltd., Bankruptcy
Case No. B75-4345A (N.D.Ga. Sept. 16, 1977).
The bill, as reported, deletes a provision in the bill as
originally introduced (former sec. 502(i)) requiring a tax
authority to file a proof of claim for recapture of an investment
credit where, during title 11 proceedings, the trustee sells or
otherwise disposes of property before the title 11 case began. The
tax authority should not be required to submit a formal claim for a
taxable event (a sale or other disposition of the asset) of whose
occurrence the trustee necessarily knows better than the taxing
authority. For procedural purposes, the recapture of investment
credit is to be treated as an administrative expense, as to which
only a request for payment is required.

HOUSE REPORT NO. 95-595
Paragraph (9) [of subsec. (b)] requires disallowance of certain
employment tax claims. These relate to a Federal tax credit for
State unemployment insurance taxes which is disallowed if the State
tax is paid late. This paragraph disallows the Federal claim for
the tax the same as if the credit had been allowed in full on the
Federal return.

-REFTEXT-
REFERENCES IN TEXT
The Federal Rules of Bankruptcy Procedure, referred to in subsec.
(b)(9), are set out in the Appendix to this title.

-MISC2-
AMENDMENTS
2005 – Subsec. (b)(9). Pub. L. 109-8, Sec. 716(d), inserted “,
and except that in a case under chapter 13, a claim of a
governmental unit for a tax with respect to a return filed under
section 1308 shall be timely if the claim is filed on or before the
date that is 60 days after the date on which such return was filed
as required” before period at end.
Subsec. (g). Pub. L. 109-8, Sec. 910(b), designated existing
provisions as par. (1) and added par. (2).
Subsec. (k). Pub. L. 109-8, Sec. 201(a), added subsec. (k).
1994 – Subsec. (b)(9). Pub. L. 103-394, Sec. 213(a), added par.
(9).
Subsec. (i). Pub. L. 103-394, Sec. 304(h)(1), substituted
“507(a)(8)” for “507(a)(7)”.
1986 – Subsec. (b)(6)(A)(ii). Pub. L. 99-554, Sec. 283(f)(1),
substituted “repossessed” for “reposessed”.
Subsec. (g). Pub. L. 99-554, Sec. 257(j), inserted reference to
chapter 12.
Subsec. (i). Pub. L. 99-554, Sec. 283(f)(2), substituted
“507(a)(7)” for “507(a)(6)”.
1984 – Subsec. (a). Pub. L. 98-353, Sec. 445(a), inserted
“general” before “partner”.
Subsec. (b). Pub. L. 98-353, Sec. 445(b)(1), (2), in provisions
preceding par. (1), inserted “(e)(2),” after “subsections” and “in
lawful currency of the United States” after “claim”.
Subsec. (b)(1). Pub. L. 98-353, Sec. 445(b)(3), substituted “and”
for “, and unenforceable against”.
Subsec. (b)(3). Pub. L. 98-353, Sec. 445(b)(5), inserted “the”
after “exceeds”.
Pub. L. 98-353, Sec. 445(b)(4), struck out par. (3) “such claim
may be offset under section 553 of this title against a debt owing
to the debtor;”, and redesignated par. (4) as (3).
Subsec. (b)(4). Pub. L. 98-353, Sec. 445(b)(4), redesignated par.
(5) as (4). Former par. (4) redesignated (3).
Subsec. (b)(5). Pub. L. 98-353, Sec. 445(b)(6), substituted “such
claim” for “the claim” and struck out the comma after “petition”.
Pub. L. 98-353, Sec. 445(b)(4), redesignated par. (6) as (5).
Former par. (5) redesignated (4).
Subsec. (b)(6). Pub. L. 98-353, Sec. 445(b)(4), redesignated par.
(7) as (6). Former par. (6) redesignated (5).
Subsec. (b)(7). Pub. L. 98-353, Sec. 445(b)(7)(A), inserted “the
claim of an employee” before “for damages”.
Pub. L. 98-353, Sec. 445(b)(4), redesignated par. (8) as (7).
Former par. (7) redesignated (6).
Subsec. (b)(7)(A)(i). Pub. L. 98-353, Sec. 445(b)(7)(B),
substituted “or” for “and”.
Subsec. (b)(7)(B). Pub. L. 98-353, Sec. 445(b)(7)(C), (D),
substituted “any” for “the” and inserted a comma after “such
contract”.
Subsec. (b)(8), (9). Pub. L. 98-353, Sec. 445(b)(4), redesignated
par. (9) as (8). Former par. (8) redesignated (7).
Subsec. (c)(1). Pub. L. 98-353, Sec. 445(c)(1), inserted “the”
before “fixing” and substituted “administration” for “closing”.
Subsec. (c)(2). Pub. L. 98-353, Sec. 445(c)(2), inserted “right
to payment arising from a” after “any” and struck out “if such
breach gives rise to a right to payment” after “breach of
performance”.
Subsec. (e)(1). Pub. L. 98-353, Sec. 445(d)(1), (2), in
provisions preceding subpar. (A) substituted “, (b), and (c)” for
“and (b)” and substituted “or has secured” for “, or has secured,”.
Subsec. (e)(1)(B). Pub. L. 98-353, Sec. 445(d)(3), inserted “or
disallowance” after “allowance”.
Subsec. (e)(1)(C). Pub. L. 98-353, Sec. 445(d)(4), substituted
“asserts a right of subrogation to the rights of such creditor” for
“requests subrogation” and struck out “to the rights of such
creditor” after “of this title”.
Subsec. (h). Pub. L. 98-353, Sec. 445(e), substituted “522” for
“522(i)”.
Subsec. (j). Pub. L. 98-353, Sec. 445(f), amended subsec. (j)
generally, inserting provisions relating to reconsideration of a
disallowed claim, and provisions relating to reconsideration of a
claim under this subsection.

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. 503 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I – CREDITORS AND CLAIMS

-HEAD-
Sec. 503. Allowance of administrative expenses

-STATUTE-
(a) An entity may timely file a request for payment of an
administrative expense, or may tardily file such request if
permitted by the court for cause.
(b) After notice and a hearing, there shall be allowed
administrative expenses, other than claims allowed under section
502(f) of this title, including –
(1)(A) the actual, necessary costs and expenses of preserving
the estate including –
(i) wages, salaries, and commissions for services rendered
after the commencement of the case; and
(ii) wages and benefits awarded pursuant to a judicial
proceeding or a proceeding of the National Labor Relations
Board as back pay attributable to any period of time occurring
after commencement of the case under this title, as a result of
a violation of Federal or State law by the debtor, without
regard to the time of the occurrence of unlawful conduct on
which such award is based or to whether any services were
rendered, if the court determines that payment of wages and
benefits by reason of the operation of this clause will not
substantially increase the probability of layoff or termination
of current employees, or of nonpayment of domestic support
obligations, during the case under this title;

(B) any tax –
(i) incurred by the estate, whether secured or unsecured,
including property taxes for which liability is in rem, in
personam, or both, except a tax of a kind specified in section
507(a)(8) of this title; or
(ii) attributable to an excessive allowance of a tentative
carryback adjustment that the estate received, whether the
taxable year to which such adjustment relates ended before or
after the commencement of the case;

(C) any fine, penalty, or reduction in credit relating to a tax
of a kind specified in subparagraph (B) of this paragraph; and
(D) notwithstanding the requirements of subsection (a), a
governmental unit shall not be required to file a request for the
payment of an expense described in subparagraph (B) or (C), as a
condition of its being an allowed administrative expense;
(2) compensation and reimbursement awarded under section 330(a)
of this title;
(3) the actual, necessary expenses, other than compensation and
reimbursement specified in paragraph (4) of this subsection,
incurred by –
(A) a creditor that files a petition under section 303 of
this title;
(B) a creditor that recovers, after the court’s approval, for
the benefit of the estate any property transferred or concealed
by the debtor;
(C) a creditor in connection with the prosecution of a
criminal offense relating to the case or to the business or
property of the debtor;
(D) a creditor, an indenture trustee, an equity security
holder, or a committee representing creditors or equity
security holders other than a committee appointed under section
1102 of this title, in making a substantial contribution in a
case under chapter 9 or 11 of this title;
(E) a custodian superseded under section 543 of this title,
and compensation for the services of such custodian; or
(F) a member of a committee appointed under section 1102 of
this title, if such expenses are incurred in the performance of
the duties of such committee;

(4) reasonable compensation for professional services rendered
by an attorney or an accountant of an entity whose expense is
allowable under subparagraph (A), (B), (C), (D), or (E) of
paragraph (3) of this subsection, based on the time, the nature,
the extent, and the value of such services, and the cost of
comparable services other than in a case under this title, and
reimbursement for actual, necessary expenses incurred by such
attorney or accountant;
(5) reasonable compensation for services rendered by an
indenture trustee in making a substantial contribution in a case
under chapter 9 or 11 of this title, based on the time, the
nature, the extent, and the value of such services, and the cost
of comparable services other than in a case under this title;
(6) the fees and mileage payable under chapter 119 of title 28;
(7) with respect to a nonresidential real property lease
previously assumed under section 365, and subsequently rejected,
a sum equal to all monetary obligations due, excluding those
arising from or relating to a failure to operate or a penalty
provision, for the period of 2 years following the later of the
rejection date or the date of actual turnover of the premises,
without reduction or setoff for any reason whatsoever except for
sums actually received or to be received from an entity other
than the debtor, and the claim for remaining sums due for the
balance of the term of the lease shall be a claim under section
502(b)(6);
(8) the actual, necessary costs and expenses of closing a
health care business incurred by a trustee or by a Federal agency
(as defined in section 551(1) of title 5) or a department or
agency of a State or political subdivision thereof, including any
cost or expense incurred –
(A) in disposing of patient records in accordance with
section 351; or
(B) in connection with transferring patients from the health
care business that is in the process of being closed to another
health care business; and

(9) the value of any goods received by the debtor within 20
days before the date of commencement of a case under this title
in which the goods have been sold to the debtor in the ordinary
course of such debtor’s business.

(c) Notwithstanding subsection (b), there shall neither be
allowed, nor paid –
(1) a transfer made to, or an obligation incurred for the
benefit of, an insider of the debtor for the purpose of inducing
such person to remain with the debtor’s business, absent a
finding by the court based on evidence in the record that –
(A) the transfer or obligation is essential to retention of
the person because the individual has a bona fide job offer
from another business at the same or greater rate of
compensation;
(B) the services provided by the person are essential to the
survival of the business; and
(C) either –
(i) the amount of the transfer made to, or obligation
incurred for the benefit of, the person is not greater than
an amount equal to 10 times the amount of the mean transfer
or obligation of a similar kind given to nonmanagement
employees for any purpose during the calendar year in which
the transfer is made or the obligation is incurred; or
(ii) if no such similar transfers were made to, or
obligations were incurred for the benefit of, such
nonmanagement employees during such calendar year, the amount
of the transfer or obligation is not greater than an amount
equal to 25 percent of the amount of any similar transfer or
obligation made to or incurred for the benefit of such
insider for any purpose during the calendar year before the
year in which such transfer is made or obligation is
incurred;

(2) a severance payment to an insider of the debtor, unless –
(A) the payment is part of a program that is generally
applicable to all full-time employees; and
(B) the amount of the payment is not greater than 10 times
the amount of the mean severance pay given to nonmanagement
employees during the calendar year in which the payment is
made; or

(3) other transfers or obligations that are outside the
ordinary course of business and not justified by the facts and
circumstances of the case, including transfers made to, or
obligations incurred for the benefit of, officers, managers, or
consultants hired after the date of the filing of the petition.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2581; Pub. L. 98-353, title
III, Sec. 446, July 10, 1984, 98 Stat. 374; Pub. L. 99-554, title
II, Sec. 283(g), Oct. 27, 1986, 100 Stat. 3117; Pub. L. 103-394,
title I, Sec. 110, title II, Sec. 213(c), title III, Sec.
304(h)(2), Oct. 22, 1994, 108 Stat. 4113, 4126, 4134; Pub. L. 109-
8, title III, Secs. 329, 331, title IV, Sec. 445, title VII, Sec.
712(b), (c), title XI, Sec. 1103, title XII, Secs. 1208, 1227(b),
Apr. 20, 2005, 119 Stat. 101, 102, 117, 128, 190, 194, 200.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 503(a) of the House amendment represents a compromise
between similar provisions in the House bill and the Senate
amendment by leaving to the Rules of Bankruptcy Procedure the
determination of the location at which a request for payment of an
administrative expense may be filed. The preamble to section 503(b)
of the House bill makes a similar change with respect to the
allowance of administrative expenses.
Section 503(b)(1) adopts the approach taken in the House bill as
modified by some provisions contained in the Senate amendment. The
preamble to section 503(b) makes clear that none of the paragraphs
of section 503(b) apply to claims or expenses of the kind specified
in section 502(f) that arise in the ordinary course of the debtor’s
business or financial affairs and that arise during the gap between
the commencement of an involuntary case and the appointment of a
trustee or the order for relief, whichever first occurs. The
remainder of section 503(b) represents a compromise between H.R.
8200 as passed by the House and the Senate amendments. Section
503(b)(3)(E) codifies present law in cases such as Randolph v.
Scruggs, 190 U.S. 533, which accords administrative expense status
to services rendered by a prepetition custodian or other party to
the extent such services actually benefit the estate. Section
503(b)(4) of the House amendment conforms to the provision
contained in H.R. 8200 as passed by the House and deletes language
contained in the Senate amendment providing a different standard of
compensation under section 330 of that amendment.

SENATE REPORT NO. 95-989
Subsection (a) of this section permits administrative expense
claimants to file with the court a request for payment of an
administrative expense. The Rules of Bankruptcy Procedure will
specify the time, the form, and the method of such a filing.
Subsection (b) specifies the kinds of administrative expenses
that are allowable in a case under the bankruptcy code. The
subsection is derived mainly from section 64a(1) of the Bankruptcy
Act [section 104(a)(1) of former title 11], with some changes. The
actual, necessary costs and expenses of preserving the estate,
including wages, salaries, or commissions for services rendered
after the order for relief, and any taxes on, measured by, or
withheld from such wages, salaries, or commissions, are allowable
as administrative expenses.
In general, administrative expenses include taxes which the
trustee incurs in administering the debtor’s estate, including
taxes on capital gains from sales of property by the trustee and
taxes on income earned by the estate during the case. Interest on
tax liabilities and certain tax penalties incurred by the trustee
are also included in this first priority.
Taxes which the Internal Revenue Service may find due after
giving the trustee a so-called “quickie” tax refund and later doing
an audit of the refund are also payable as administrative expenses.
The tax code [title 26] permits the trustee of an estate which
suffers a net operating loss to carry back the loss against an
earlier profit year of the estate or of the debtor and to obtain a
tentative refund for the earlier year, subject, however, to a later
full audit of the loss which led to the refund. The bill, in
effect, requires the Internal Revenue Service to issue a tentative
refund to the trustee (whether the refund was applied for by the
debtor or by the trustee), but if the refund later proves to have
been erroneous in amount, the Service can request that the tax
attributable to the erroneous refund be payable by the estate as an
administrative expense.
Postpetition payments to an individual debtor for services
rendered to the estate are administrative expenses, and are not
property of the estate when received by the debtor. This situation
would most likely arise when the individual was a sole proprietor
and was employed by the estate to run the business after the
commencement of the case. An individual debtor in possession would
be so employed, for example. See Local Loan v. Hunt, 292 U.S. 234,
243 (1943).
Compensation and reimbursement awarded officers of the estate
under section 330 are allowable as administrative expenses. Actual,
necessary expenses, other than compensation of a professional
person, incurred by a creditor that files an involuntary petition,
by a creditor that recovers property for the benefit of the estate,
by a creditor that acts in connection with the prosecution of a
criminal offense relating to the case, by a creditor, indenture,
trustee, equity security holder, or committee of creditors or
equity security holders (other than official committees) that makes
a substantial contribution to a reorganization or municipal debt
adjustment case, or by a superseded custodian, are all allowable
administrative expenses. The phrase “substantial contribution in
the case” is derived from Bankruptcy Act Secs. 242 and 243
[sections 642 and 643 of former title 11]. It does not require a
contribution that leads to confirmation of a plan, for in many
cases, it will be a substantial contribution if the person involved
uncovers facts that would lead to a denial of confirmation, such as
fraud in connection with the case.
Paragraph (4) permits reasonable compensation for professional
services rendered by an attorney or an accountant of an equity
whose expense is compensable under the previous paragraph.
Paragraph (5) permits reasonable compensation for an indenture
trustee in making a substantial contribution in a reorganization or
municipal debt adjustment case. Finally, paragraph (6) permits
witness fees and mileage as prescribed under chapter 119 [Sec. 2041
et seq.] of title 28.

AMENDMENTS
2005 – Subsec. (b)(1)(A). Pub. L. 109-8, Sec. 329, amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: “the actual, necessary costs and expenses of preserving
the estate, including wages, salaries, or commissions for services
rendered after the commencement of the case;”.
Subsec. (b)(1)(B)(i). Pub. L. 109-8, Sec. 712(b), inserted
“whether secured or unsecured, including property taxes for which
liability is in rem, in personam, or both,” before “except”.
Subsec. (b)(1)(D). Pub. L. 109-8, Sec. 712(c), added subpar. (D).
Subsec. (b)(4). Pub. L. 109-8, Sec. 1208, inserted “subparagraph
(A), (B), (C), (D), or (E) of” before “paragraph (3)”.
Subsec. (b)(7). Pub. L. 109-8, Sec. 445, added par. (7).
Subsec. (b)(8). Pub. L. 109-8, Sec. 1103, added par. (8).
Subsec. (b)(9). Pub. L. 109-8, Sec. 1227(b), added par. (9).
Subsec. (c). Pub. L. 109-8, Sec. 331, added subsec. (c).
1994 – Subsec. (a). Pub. L. 103-394, Sec. 213(c), inserted
“timely” after “may” and “, or may tardily file such request if
permitted by the court for cause” before period at end.
Subsec. (b)(1)(B)(i). Pub. L. 103-394, Sec. 304(h)(2),
substituted “507(a)(8)” for “507(a)(7)”.
Subsec. (b)(3)(F). Pub. L. 103-394, Sec. 110, added subpar. (F).
1986 – Subsec. (b)(1)(B)(i). Pub. L. 99-554, Sec. 283(g)(1),
substituted “507(a)(7)” for “507(a)(6)”.
Subsec. (b)(5). Pub. L. 99-554, Sec. 283(g)(2), inserted “and”
after “title;”.
Subsec. (b)(6). Pub. L. 99-554, Sec. 283(g)(3), substituted a
period for “; and”.
1984 – Subsec. (b). Pub. L. 98-353, Sec. 446(1), struck out the
comma after “be allowed” in provisions preceding par. (1).
Subsec. (b)(1)(C). Pub. L. 98-353, Sec. 446(2), struck out the
comma after “credit”.
Subsec. (b)(2). Pub. L. 98-353, Sec. 446(3), inserted “(a)” after
“330”.
Subsec. (b)(3). Pub. L. 98-353, Sec. 446(4), inserted a comma
after “paragraph (4) of this subsection”.
Subsec. (b)(3)(C). Pub. L. 98-353, Sec. 446(5), struck out the
comma after “case”.
Subsec. (b)(5). Pub. L. 98-353, Sec. 446(6), struck out “and”
after “title;”.
Subsec. (b)(6). Pub. L. 98-353, Sec. 446(7), substituted “; and”
for 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.

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. 504 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I – CREDITORS AND CLAIMS

-HEAD-
Sec. 504. Sharing of compensation

-STATUTE-
(a) Except as provided in subsection (b) of this section, a
person receiving compensation or reimbursement under section
503(b)(2) or 503(b)(4) of this title may not share or agree to
share –
(1) any such compensation or reimbursement with another person;
or
(2) any compensation or reimbursement received by another
person under such sections.

(b)(1) A member, partner, or regular associate in a professional
association, corporation, or partnership may share compensation or
reimbursement received under section 503(b)(2) or 503(b)(4) of this
title with another member, partner, or regular associate in such
association, corporation, or partnership, and may share in any
compensation or reimbursement received under such sections by
another member, partner, or regular associate in such association,
corporation, or partnership.
(2) An attorney for a creditor that files a petition under
section 303 of this title may share compensation and reimbursement
received under section 503(b)(4) of this title with any other
attorney contributing to the services rendered or expenses incurred
by such creditor’s attorney.
(c) This section shall not apply with respect to sharing, or
agreeing to share, compensation with a bona fide public service
attorney referral program that operates in accordance with non-
Federal law regulating attorney referral services and with rules
of professional responsibility applicable to attorney acceptance of
referrals.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2582; Pub. L. 109-8, title
III, Sec. 326, Apr. 20, 2005, 119 Stat. 99.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
Section 504 prohibits the sharing of compensation, or fee
splitting, among attorneys, other professionals, or trustees. The
section provides only two exceptions: partners or associates in the
same professional association, partnership, or corporation may
share compensation inter se; and attorneys for petitioning
creditors that join in a petition commencing an involuntary case
may share compensation.

AMENDMENTS
2005 – Subsec. (c). Pub. L. 109-8 added subsec. (c).

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. 505 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I – CREDITORS AND CLAIMS

-HEAD-
Sec. 505. Determination of tax liability

-STATUTE-
(a)(1) Except as provided in paragraph (2) of this subsection,
the court may determine the amount or legality of any tax, any fine
or penalty relating to a tax, or any addition to tax, whether or
not previously assessed, whether or not paid, and whether or not
contested before and adjudicated by a judicial or administrative
tribunal of competent jurisdiction.
(2) The court may not so determine –
(A) the amount or legality of a tax, fine, penalty, or addition
to tax if such amount or legality was contested before and
adjudicated by a judicial or administrative tribunal of competent
jurisdiction before the commencement of the case under this
title;
(B) any right of the estate to a tax refund, before the earlier
of –
(i) 120 days after the trustee properly requests such refund
from the governmental unit from which such refund is claimed;
or
(ii) a determination by such governmental unit of such
request; or

(C) the amount or legality of any amount arising in connection
with an ad valorem tax on real or personal property of the
estate, if the applicable period for contesting or redetermining
that amount under applicable nonbankruptcy law has expired.

(b)(1)(A) The clerk shall maintain a list under which a Federal,
State, or local governmental unit responsible for the collection of
taxes within the district may –
(i) designate an address for service of requests under this
subsection; and
(ii) describe where further information concerning additional
requirements for filing such requests may be found.

(B) If such governmental unit does not designate an address and
provide such address to the clerk under subparagraph (A), any
request made under this subsection may be served at the address for
the filing of a tax return or protest with the appropriate taxing
authority of such governmental unit.
(2) A trustee may request a determination of any unpaid liability
of the estate for any tax incurred during the administration of the
case by submitting a tax return for such tax and a request for such
a determination to the governmental unit charged with
responsibility for collection or determination of such tax at the
address and in the manner designated in paragraph (1). Unless such
return is fraudulent, or contains a material misrepresentation, the
estate, the trustee, the debtor, and any successor to the debtor
are discharged from any liability for such tax –
(A) upon payment of the tax shown on such return, if –
(i) such governmental unit does not notify the trustee,
within 60 days after such request, that such return has been
selected for examination; or
(ii) such governmental unit does not complete such an
examination and notify the trustee of any tax due, within 180
days after such request or within such additional time as the
court, for cause, permits;

(B) upon payment of the tax determined by the court, after
notice and a hearing, after completion by such governmental unit
of such examination; or
(C) upon payment of the tax determined by such governmental
unit to be due.

(c) Notwithstanding section 362 of this title, after
determination by the court of a tax under this section, the
governmental unit charged with responsibility for collection of
such tax may assess such tax against the estate, the debtor, or a
successor to the debtor, as the case may be, subject to any
otherwise applicable law.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2582; Pub. L. 98-353, title
III, Sec. 447, July 10, 1984, 98 Stat. 374; Pub. L. 109-8, title
VII, Secs. 701(b), 703, 715, Apr. 20, 2005, 119 Stat. 124, 125,
129; Pub. L. 111-327, Sec. 2(a)(14), Dec. 22, 2010, 124 Stat.
3559.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 505 of the House amendment adopts a compromise position
with respect to the determination of tax liability from the
position taken in H.R. 8200 as passed by the House and in the
Senate amendment.
Determinations of tax liability: Authority of bankruptcy court to
rule on merits of tax claims. – The House amendment authorizes the
bankruptcy court to rule on the merits of any tax claim involving
an unpaid tax, fine, or penalty relating to a tax, or any addition
to a tax, of the debtor or the estate. This authority applies, in
general, whether or not the tax, penalty, fine, or addition to tax
had been previously assessed or paid. However, the bankruptcy court
will not have jurisdiction to rule on the merits of any tax claim
which has been previously adjudicated, in a contested proceeding,
before a court of competent jurisdiction. For this purpose, a
proceeding in the U.S. Tax Court is to be considered “contested” if
the debtor filed a petition in the Tax Court by the commencement of
the case and the Internal Revenue Service had filed an answer to
the petition. Therefore, if a petition and answer were filed in the
Tax Court before the title II petition was filed, and if the debtor
later defaults in the Tax Court, then, under res judicata
principles, the bankruptcy court could not then rule on the
debtor’s or the estate’s liability for the same taxes.
The House amendment adopts the rule of the Senate bill that the
bankruptcy court can, under certain conditions, determine the
amount of tax refund claim by the trustee. Under the House
amendment, if the refund results from an offset or counterclaim to
a claim or request for payment by the Internal Revenue Service, or
other tax authority, the trustee would not first have to file an
administrative claim for refund with the tax authority.
However, if the trustee requests a refund in other situations, he
would first have to submit an administrative claim for the refund.
Under the House amendment, if the Internal Revenue Service, or
other tax authority does not rule on the refund claim within 120
days, then the bankruptcy court may rule on the merits of the
refund claim.
Under the Internal Revenue Code [title 26], a suit for refund of
Federal taxes cannot be filed until 6 months after a claim for
refund is filed with the Internal Revenue Service (sec. 6532(a)
[title 26]). Because of the bankruptcy aim to close the estate as
expeditiously as possible, the House amendment shortens to 120 days
the period for the Internal Revenue Service to decide the refund
claim.
The House amendment also adopts the substance of the Senate bill
rule permitting the bankruptcy court to determine the amount of any
penalty, whether punitive or pecuniary in nature, relating to taxes
over which it has jurisdiction.
Jurisdiction of the tax court in bankruptcy cases: The Senate
amendment provided a detailed series of rules concerning the
jurisdiction of the U.S. Tax Court, or similar State or local
administrative tribunal to determine personal tax liabilities of an
individual debtor. The House amendment deletes these specific rules
and relies on procedures to be derived from broad general powers of
the bankruptcy court.
Under the House amendment, as under present law, a corporation
seeking reorganization under chapter 11 is considered to be
personally before the bankruptcy court for purposes of giving that
court jurisdiction over the debtor’s personal liability for a
nondischargeable tax.
The rules are more complex where the debtor is an individual
under chapter 7, 11, or 13. An individual debtor or the tax
authority can, as under section 17c of the present Bankruptcy Act
[section 35(c) of former title 11], file a request that the
bankruptcy court determine the debtor’s personal liability for the
balance of any nondischargeable tax not satisfied from assets of
the estate. The House amendment intends to retain these procedures
and also adds a rule staying commencement or continuation of any
proceeding in the Tax Court after the bankruptcy petition is filed,
unless and until that stay is lifted by the bankruptcy judge under
section 362(a)(8). The House amendment also stays assessment as
well as collection of a prepetition claim against the debtor (sec.
362(a)(6)). A tax authority would not, however, be stayed from
issuing a deficiency notice during the bankruptcy case (sec.
(b)(7)) [sec. 362(b)(8)]. The Senate amendment repealed the
existing authority of the Internal Revenue Service to make an
immediate assessment of taxes upon bankruptcy (sec. 6871(a) of the
code [title 26]. See section 321 of the Senate bill. As indicated,
the substance of that provision, also affecting State and local
taxes, is contained in section 362(a)(6) of the House amendment.
The statute of limitations is tolled under the House amendment
while the bankruptcy case is pending.
Where no proceeding in the Tax Court is pending at the
commencement of the bankruptcy case, the tax authority can, under
the House amendment, file a claim against the estate for a
prepetition tax liability and may also file a request that the
bankruptcy court hear arguments and decide the merits of an
individual debtor’s personal liability for the balance of any
nondischargeable tax liability not satisfied from assets of the
estate. Bankruptcy terminology refers to the latter type of request
as a creditor’s complaint to determine the dischargeability of a
debt. Where such a complaint is filed, the bankruptcy court will
have personal jurisdiction over an individual debtor, and the
debtor himself would have no access to the Tax Court, or to any
other court, to determine his personal liability for
nondischargeable taxes.
If a tax authority decides not to file a claim for taxes which
would typically occur where there are few, if any, assets in the
estate, normally the tax authority would also not request the
bankruptcy court to rule on the debtor’s personal liability for a
nondischargeable tax. Under the House amendment, the tax authority
would then have to follow normal procedures in order to collect a
nondischargeable tax. For example, in the case of nondischargeable
Federal income taxes, the Internal Revenue Service would be
required to issue a deficiency notice to an individual debtor, and
the debtor could then file a petition in the Tax Court – or a
refund suit in a district court – as the forum in which to litigate
his personal liability for a nondischargeable tax.
Under the House amendment, as under present law, an individual
debtor can also file a complaint to determine dischargeability.
Consequently, where the tax authority does not file a claim or a
request that the bankruptcy court determine dischargeability of a
specific tax liability, the debtor could file such a request on his
own behalf, so that the bankruptcy court would then determine both
the validity of the claim against assets in the estate and also the
personal liability of the debtor for any nondischargeable tax.
Where a proceeding is pending in the Tax Court at the
commencement of the bankruptcy case, the commencement of the
bankruptcy case automatically stays further action in the Tax Court
case unless and until the stay is lifted by the bankruptcy court.
The Senate amendment repealed a provision of the Internal Revenue
case barring a debtor from filing a petition in the Tax Court after
commencement of a bankruptcy case (sec. 6871(b) of the code [26
U.S.C. 6871(b)]). See section 321 of the Senate bill. As indicated
earlier, the equivalent of the code amendment is embodied in
section 362(a)(8) of the House amendment, which automatically stays
commencement or continuation of any proceeding in the Tax Court
until the stay is lifted or the case is terminated. The stay will
permit sufficient time for the bankruptcy trustee to determine if
he desires to join the Tax Court proceeding on behalf of the
estate. Where the trustee chooses to join the Tax Court proceeding,
it is expected that he will seek permission to intervene in the Tax
Court case and then request that the stay on the Tax Court
proceeding be lifted. In such a case, the merits of the tax
liability will be determined by the Tax Court, and its decision
will bind both the individual debtor as to any taxes which are
nondischargeable and the trustee as to the tax claim against the
estate.
Where the trustee does not want to intervene in the Tax Court,
but an individual debtor wants to have the Tax Court determine the
amount of his personal liability for nondischargeable taxes, the
debtor can request the bankruptcy court to lift the automatic stay
on existing Tax Court proceedings. If the stay is lifted and the
Tax Court reaches its decision before the bankruptcy court’s
decision on the tax claim against the estate, the decision of the
Tax Court would bind the bankruptcy court under principles of res
judicata because the decision of the Tax Court affected the
personal liability of the debtor. If the trustee does not wish to
subject the estate to the decision of the Tax Court if the latter
court decides the issues before the bankruptcy court rules, the
trustee could resist the lifting of the stay on the existing Tax
Court proceeding. If the Internal Revenue Service had issued a
deficiency notice to the debtor before the bankruptcy case began,
but as of the filing of the bankruptcy petition the 90-day period
for filing in the Tax Court was still running, the debtor would be
automatically stayed from filing a petition in the Tax Court. If
either the debtor or the Internal Revenue Service then files a
complaint to determine dischargeability in the bankruptcy court,
the decision of the bankruptcy court would bind both the debtor and
the Internal Revenue Service.
The bankruptcy judge could, however, lift the stay on the debtor
to allow him to petition the Tax Court, while reserving the right
to rule on the tax authority’s claim against assets of the estate.
The bankruptcy court could also, upon request by the trustee,
authorize the trustee to intervene in the Tax Court for purposes of
having the estate also governed by the decision of the Tax Court.
In essence, under the House amendment, the bankruptcy judge will
have authority to determine which court will determine the merits
of the tax claim both as to claims against the estate and claims
against the debtor concerning his personal liability for
nondischargeable taxes. Thus, if the Internal Revenue Service, or a
State or local tax authority, files a petition to determine
dischargeability, the bankruptcy judge can either rule on the
merits of the claim and continue the stay on any pending Tax Court
proceeding or lift the stay on the Tax Court and hold the
dischargeability complaint in abeyance. If he rules on the merits
of the complaint before the decision of the Tax Court is reached,
the bankruptcy court’s decision would bind the debtor as to
nondischargeable taxes and the Tax Court would be governed by that
decision under principles of res judicata. If the bankruptcy judge
does not rule on the merits of the complaint before the decision of
the Tax Court is reached, the bankruptcy court will be bound by the
decision of the Tax Court as it affects the amount of any claim
against the debtor’s estate.
If the Internal Revenue Service does not file a complaint to
determine dischargeability and the automatic stay on a pending Tax
Court proceeding is not lifted, the bankruptcy court could
determine the merits of any tax claim against the estate. That
decision will not bind the debtor personally because he would not
have been personally before the bankruptcy court unless the debtor
himself asks the bankruptcy court to rule on his personal
liability. In any such situation where no party filed a
dischargeability petition, the debtor would have access to the Tax
Court to determine his personal liability for a nondischargeable
tax debt. While the Tax Court in such a situation could take into
account the ruling of the bankruptcy court on claims against the
estate in deciding the debtor’s personal liability, the bankruptcy
court’s ruling would not bind the Tax Court under principles of res
judicata, because the debtor, in that situation, would not have
been personally before the bankruptcy court.
If neither the debtor nor the Internal Revenue Service files a
claim against the estate or a request to rule on the debtor’s
personal liability, any pending tax court proceeding would be
stayed until the closing of the bankruptcy case, at which time the
stay on the tax court would cease and the tax court case could
continue for purposes of deciding the merits of the debtor’s
personal liability for nondischargeable taxes.
Audit of trustee’s returns: Under both bills, the bankruptcy
court could determine the amount of any administrative period
taxes. The Senate amendment, however, provided for an expedited
audit procedure, which was mandatory in some cases. The House
amendment (sec. 505(b)), adopts the provision of the House bill
allowing the trustee discretion in all cases whether to ask the
Internal Revenue Service, or State or local tax authority for a
prompt audit of his returns on behalf of the estate. The House
amendment, however, adopts the provision of the Senate bill
permitting a prompt audit only on the basis of tax returns filed by
the trustee for completed taxable periods. Procedures for a prompt
audit set forth in the Senate bill are also adopted in modified
form.
Under the procedure, before the case can be closed, the trustee
may request a tax audit by the local, State or Federal tax
authority of all tax returns filed by the trustee. The taxing
authority would have to notify the trustee and the bankruptcy court
within 60 days whether it accepts returns or desires to audit the
returns more fully. If an audit is conducted, the taxing authority
would have to notify the trustee of tax deficiency within 180 days
after the original request, subject to extensions of time if the
bankruptcy court approves. If the trustee does not agree with the
results of the audit, the trustee could ask the bankruptcy court to
resolve the dispute. Once the trustee’s tax liability for
administration period taxes has thus been determined, the legal
effect in a case under chapter 7 or 11 would be to discharge the
trustee and any predecessor of the trustee, and also the debtor,
from any further liability for these taxes.
The prompt audit procedure would not be available with respect to
any tax liability as to which any return required to be filed on
behalf of the estate is not filed with the proper tax authority.
The House amendment also specifies that a discharge of the trustee
or the debtor which would otherwise occur will not be granted, or
will be void if the return filed on behalf of the estate reflects
fraud or material misrepresentation of facts.
For purposes of the above prompt audit procedures, it is intended
that the tax authority with which the request for audit is to be
filed is, as the Federal taxes, the office of the District Director
in the district where the bankruptcy case is pending.
Under the House amendment, if the trustee does not request a
prompt audit, the debtor would not be discharged from possible
transferee liability if any assets are returned to the debtor.
Assessment after decision: As indicated above, the commencement
of a bankruptcy case automatically stays assessment of any tax
(sec. 362(a)(6)). However, the House amendment provides (sec.
505(c)) that if the bankruptcy court renders a final judgment with
regard to any tax (under the rules discussed above), the tax
authority may then make an assessment (if permitted to do so under
otherwise applicable tax law) without waiting for termination of
the case or confirmation of a reorganization plan.
Trustee’s authority to appeal tax cases: The equivalent provision
in the House bill (sec. 505(b)) and in the Senate bill (sec.
362(h)) authorizing the trustee to prosecute an appeal or review of
a tax case are deleted as unnecessary. Section 541(a) of the House
amendment provides that property of the estate is to include all
legal or equitable interests of the debtor. These interests include
the debtor’s causes of action, so that the specific provisions of
the House and Senate bills are not needed.

SENATE REPORT NO. 95-989
Subsections (a) and (b) are derived, with only stylistic changes,
from section 2a(2A) of the Bankruptcy Act [section 11(a)(2A) of
former title 11]. They permit determination by the bankruptcy court
of any unpaid tax liability of the debtor that has not been
contested before or adjudicated by a judicial or administrative
tribunal of competent jurisdiction before the bankruptcy case, and
the prosecution by the trustee of an appeal from an order of such a
body if the time for review or appeal has not expired before the
commencement of the bankruptcy case. As under current Bankruptcy
Act Sec. 2a (2A), Arkansas Corporation Commissioner v. Thompson,
313 U.S. 132 (1941), remains good law to permit abstention where
uniformity of assessment is of significant importance.
Section (c) deals with procedures for obtaining a prompt audit of
tax returns filed by the trustee in a liquidation or reorganization
case. Under the bill as originally introduced, a trustee who is “in
doubt” concerning tax liabilities of the estate incurred during a
title 11 proceeding could obtain a discharge from personal
liability for himself and the debtor (but not for the debtor or the
debtor’s successor in a reorganization), provided that certain
administrative procedures were followed. The trustee could request
a prompt tax audit by the local, State, or Federal governmental
unit. The taxing authority would have to notify the trustee and the
court within sixty days whether it accepted the return or desired
to audit the returns more fully. If an audit were conducted, the
tax office would have to notify the trustee of any tax deficiency
within 4 months (subject to an extension of time if the court
approved). These procedures would apply only to tax years completed
on or before the case was closed and for which the trustee had
filed a tax return.
The committee bill eliminates the “in doubt” rule and makes
mandatory (rather than optional) the trustee’s request for a prompt
audit of the estate’s tax returns. In many cases, the trustee could
not be certain that his returns raised no doubt about possible tax
issues. In addition, it is desirable not to create a situation
where the taxing authority asserts a tax liability against the
debtor (as transferee of surplus assets, if any, return to him)
after the case is over; in any such situation, the debtor would be
called on to defend a tax return which he did not prepare. Under
the amendment, all disputes concerning these returns are to be
resolved by the bankruptcy court, and both the trustee and the
debtor himself do not then face potential post-bankruptcy tax
liabilities based on these returns. This result would occur as to
the debtor, however, only in a liquidation case.
In a reorganization in which the debtor or a successor to the
debtor continues in existence, the trustee could obtain a discharge
from personal liability through the prompt audit procedure, but the
Treasury could still claim a deficiency against the debtor (or his
successor) for additional taxes due on returns filed during the
title 11 proceedings.

HOUSE REPORT NO. 95-595
Subsection (c) is new. It codifies in part the referee’s decision
in In re Statmaster Corp., 465 F.2d 987 (5th Cir. 1972). Its
purpose is to protect the trustee from personal liability for a tax
falling on the estate that is not assessed until after the case is
closed. If necessary to permit expeditious closing of the case, the
court, on request of the trustee, must order the governmental unit
charged with the responsibility for collection or determination of
the tax to audit the trustee’s return or be barred from attempting
later collection. The court will be required to permit sufficient
time to perform an audit, if the taxing authority requests it. The
final order of the court and the payment of the tax determined in
that order discharges the trustee, the debtor, and any successor to
the debtor from any further liability for the tax. See Plumb, The
Tax Recommendations of the Commission on the Bankruptcy Laws: Tax
Procedures, 88 Harv. L. Rev. 1360, 1423-42 (1975).

AMENDMENTS
2010 – Subsec. (a)(2)(C). Pub. L. 111-327 substituted “applicable
nonbankruptcy law” for “any law (other than a bankruptcy law)”.
2005 – Subsec. (a)(2)(C). Pub. L. 109-8, Sec. 701(b), added
subpar. (C).
Subsec. (b). Pub. L. 109-8, Sec. 703, added par. (1),
redesignated existing provisions of subsec. (b) as par. (2) and
inserted “at the address and in the manner designated in paragraph
(1)” after “determination of such tax” in introductory provisions,
redesignated former pars. (1) to (3) of subsec. (b) as subpars. (A)
to (C), respectively, of par. (2), and redesignated former subpars
(A) and (B) of par. (1) as cls. (i) and (ii), respectively, of
subpar. (A).
Subsec. (b)(2). Pub. L. 109-8, Sec. 715, inserted “the estate,”
after “misrepresentation,” in introductory provisions.
1984 – Subsec. (a)(2)(B)(i). Pub. L. 98-353 substituted “or” for
“and”.

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. 506 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I – CREDITORS AND CLAIMS

-HEAD-
Sec. 506. Determination of secured status

-STATUTE-
(a)(1) An allowed claim of a creditor secured by a lien on
property in which the estate has an interest, or that is subject to
setoff under section 553 of this title, is a secured claim to the
extent of the value of such creditor’s interest in the estate’s
interest in such property, or to the extent of the amount subject
to setoff, as the case may be, and is an unsecured claim to the
extent that the value of such creditor’s interest or the amount so
subject to setoff is less than the amount of such allowed claim.
Such value shall be determined in light of the purpose of the
valuation and of the proposed disposition or use of such property,
and in conjunction with any hearing on such disposition or use or
on a plan affecting such creditor’s interest.
(2) If the debtor is an individual in a case under chapter 7 or
13, such value with respect to personal property securing an
allowed claim shall be determined based on the replacement value of
such property as of the date of the filing of the petition without
deduction for costs of sale or marketing. With respect to property
acquired for personal, family, or household purposes, replacement
value shall mean the price a retail merchant would charge for
property of that kind considering the age and condition of the
property at the time value is determined.
(b) To the extent that an allowed secured claim is secured by
property the value of which, after any recovery under subsection
(c) of this section, is greater than the amount of such claim,
there shall be allowed to the holder of such claim, interest on
such claim, and any reasonable fees, costs, or charges provided for
under the agreement or State statute under which such claim arose.
(c) The trustee may recover from property securing an allowed
secured claim the reasonable, necessary costs and expenses of
preserving, or disposing of, such property to the extent of any
benefit to the holder of such claim, including the payment of all
ad valorem property taxes with respect to the property.
(d) To the extent that a lien secures a claim against the debtor
that is not an allowed secured claim, such lien is void, unless –
(1) such claim was disallowed only under section 502(b)(5) or
502(e) of this title; or
(2) such claim is not an allowed secured claim due only to the
failure of any entity to file a proof of such claim under section
501 of this title.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2583; Pub. L. 98-353, title
III, Sec. 448, July 10, 1984, 98 Stat. 374; Pub. L. 109-8, title
III, Sec. 327, title VII, Sec. 712(d), Apr. 20, 2005, 119 Stat. 99,
128.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 506(a) of the House amendment adopts the provision
contained in the Senate amendment and rejects a contrary provision
as contained in H.R. 8200 as passed by the House. The provision
contained in the Senate amendment and adopted by the House
amendment recognizes that an amount subject to set-off is
sufficient to recognize a secured status in the holder of such
right. Additionally a determination of what portion of an allowed
claim is secured and what portion is unsecured is binding only for
the purpose for which the determination is made. Thus
determinations for purposes of adequate protection is not binding
for purposes of “cram down” on confirmation in a case under chapter
11.
Section 506(b) of the House amendment adopts language contained
in the Senate amendment and rejects language contained in H.R. 8200
as passed by the House. If the security agreement between the
parties provides for attorneys’ fees, it will be enforceable under
title 11, notwithstanding contrary law, and is recoverable from the
collateral after any recovery under section 506(c).
Section 506(c) of the House amendment was contained in H.R. 8200
as passed by the House and adopted, verbatim, in the Senate
amendment. Any time the trustee or debtor in possession expends
money to provide for the reasonable and necessary cost and expenses
of preserving or disposing of a secured creditor’s collateral, the
trustee or debtor in possession is entitled to recover such
expenses from the secured party or from the property securing an
allowed secured claim held by such party.
Section 506(d) of the House amendment is derived from H.R. 8200
as passed by the House and is adopted in lieu of the alternative
test provided in section 506(d) of the Senate amendment. For
purposes of section 506(d) of the House amendment, the debtor is a
party in interest.
Determination of Secured Status: The House amendment deletes
section 506(d)(3) of the Senate amendment, which insures that a tax
lien securing a nondischargeable tax claim is not voided because a
tax authority with notice or knowledge of the bankruptcy case fails
to file a claim for the liability (as it may elect not to do, if it
is clear there are insufficient assets to pay the liability). Since
the House amendment retains section 506(d) of the House bill that a
lien is not voided unless a party in interest has requested that
the court determine and allow or disallow the claim, provision of
the Senate amendment is not necessary.

SENATE REPORT NO. 95-989
Subsection (a) of this section separates an undersecured
creditor’s claim into two parts: He has a secured claim to the
extent of the value of his collateral; and he has an unsecured
claim for the balance of his claim. The subsection also provides
for the valuation of claims which involve setoffs under section
553. While courts will have to determine value on a case-by-case
basis, the subsection makes it clear that valuation is to be
determined in light of the purpose of the valuation and the
proposed disposition or use of the subject property. This
determination shall be made in conjunction with any hearing on such
disposition or use of property or on a plan affecting the
creditor’s interest. To illustrate, a valuation early in the case
in a proceeding under sections 361-363 would not be binding upon
the debtor or creditor at the time of confirmation of the plan.
Throughout the bill, references to secured claims are only to the
claim determined to be secured under this subsection, and not to
the full amount of the creditor’s claim. This provision abolishes
the use of the terms “secured creditor” and “unsecured creditor”
and substitutes in their places the terms “secured claim” and
“unsecured claim.”
Subsection (b) codifies current law by entitling a creditor with
an oversecured claim to any reasonable fees (including attorney’s
fees), costs, or charges provided under the agreement under which
the claim arose. These fees, costs, and charges are secured claims
to the extent that the value of the collateral exceeds the amount
of the underlying claim.
Subsection (c) also codifies current law by permitting the
trustee to recover from property the value of which is greater than
the sum of the claims secured by a lien on that property the
reasonable, necessary costs and expenses of preserving, or
disposing of, the property. The recovery is limited to the extent
of any benefit to the holder of such claim.
Subsection (d) provides that to the extent a secured claim is not
allowed, its lien is void unless the holder had neither actual
notice nor knowledge of the case, the lien was not listed by the
debtor in a chapter 9 or 11 case or such claim was disallowed only
under section 502(e).

HOUSE REPORT NO. 95-595
Subsection (d) permits liens to pass through the bankruptcy case
unaffected. However, if a party in interest requests the court to
determine and allow or disallow the claim secured by the lien under
section 502 and the claim is not allowed, then the lien is void to
the extent that the claim is not allowed. The voiding provision
does not apply to claims disallowed only under section 502(e),
which requires disallowance of certain claims against the debtor by
a codebtor, surety, or guarantor for contribution or reimbursement.

AMENDMENTS
2005 – Subsec. (a). Pub. L. 109-8, Sec. 327, designated existing
provisions as par. (1) and added par. (2).
Subsec. (b). Pub. L. 109-8, Sec. 712(d)(1), inserted “or State
statute” after “agreement”.
Subsec. (c). Pub. L. 109-8, Sec. 712(d)(2), inserted “, including
the payment of all ad valorem property taxes with respect to the
property” before period at end.
1984 – Subsec. (b). Pub. L. 98-353, Sec. 448(a), inserted “for”
after “provided”.
Subsec. (d)(1). Pub. L. 98-353, Sec. 448(b), substituted “such
claim was disallowed only under section 502(b)(5) or 502(e) of this
title” for “a party in interest has not requested that the court
determine and allow or disallow such claim under section 502 of
this title”.
Subsec. (d)(2). Pub. L. 98-353, Sec. 448(b), substituted “such
claim is not an allowed secured claim due only to the failure of
any entity to file a proof of such claim under section 501 of this
title” for “such claim was disallowed only under section 502(e) 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 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. 507 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I – CREDITORS AND CLAIMS

-HEAD-
Sec. 507. Priorities

-STATUTE-
(a) The following expenses and claims have priority in the
following order:
(1) First:
(A) Allowed unsecured claims for domestic support obligations
that, as of the date of the filing of the petition in a case
under this title, are owed to or recoverable by a spouse,
former spouse, or child of the debtor, or such child’s parent,
legal guardian, or responsible relative, without regard to
whether the claim is filed by such person or is filed by a
governmental unit on behalf of such person, on the condition
that funds received under this paragraph by a governmental unit
under this title after the date of the filing of the petition
shall be applied and distributed in accordance with applicable
nonbankruptcy law.
(B) Subject to claims under subparagraph (A), allowed
unsecured claims for domestic support obligations that, as of
the date of the filing of the petition, are assigned by a
spouse, former spouse, child of the debtor, or such child’s
parent, legal guardian, or responsible relative to a
governmental unit (unless such obligation is assigned
voluntarily by the spouse, former spouse, child, parent, legal
guardian, or responsible relative of the child for the purpose
of collecting the debt) or are owed directly to or recoverable
by a governmental unit under applicable nonbankruptcy law, on
the condition that funds received under this paragraph by a
governmental unit under this title after the date of the filing
of the petition be applied and distributed in accordance with
applicable nonbankruptcy law.
(C) If a trustee is appointed or elected under section 701,
702, 703, 1104, 1202, or 1302, the administrative expenses of
the trustee allowed under paragraphs (1)(A), (2), and (6) of
section 503(b) shall be paid before payment of claims under
subparagraphs (A) and (B), to the extent that the trustee
administers assets that are otherwise available for the payment
of such claims.

(2) Second, administrative expenses allowed under section
503(b) of this title, unsecured claims of any Federal reserve
bank related to loans made through programs or facilities
authorized under section 13(3) of the Federal Reserve Act (12
U.S.C. 343),(!1) and any fees and charges assessed against the
estate under chapter 123 of title 28.

(3) Third, unsecured claims allowed under section 502(f) of
this title.
(4) Fourth, allowed unsecured claims, but only to the extent of
$10,000 for each individual or corporation, as the case may be,
earned within 180 days before the date of the filing of the
petition or the date of the cessation of the debtor’s business,
whichever occurs first, for –
(A) wages, salaries, or commissions, including vacation,
severance, and sick leave pay earned by an individual; or
(B) sales commissions earned by an individual or by a
corporation with only 1 employee, acting as an independent
contractor in the sale of goods or services for the debtor in
the ordinary course of the debtor’s business if, and only if,
during the 12 months preceding that date, at least 75 percent
of the amount that the individual or corporation earned by
acting as an independent contractor in the sale of goods or
services was earned from the debtor.

(5) Fifth, allowed unsecured claims for contributions to an
employee benefit plan –
(A) arising from services rendered within 180 days before the
date of the filing of the petition or the date of the cessation
of the debtor’s business, whichever occurs first; but only
(B) for each such plan, to the extent of –
(i) the number of employees covered by each such plan
multiplied by $10,000; less
(ii) the aggregate amount paid to such employees under
paragraph (4) of this subsection, plus the aggregate amount
paid by the estate on behalf of such employees to any other
employee benefit plan.

(6) Sixth, allowed unsecured claims of persons –
(A) engaged in the production or raising of grain, as defined
in section 557(b) of this title, against a debtor who owns or
operates a grain storage facility, as defined in section 557(b)
of this title, for grain or the proceeds of grain, or
(B) engaged as a United States fisherman against a debtor who
has acquired fish or fish produce from a fisherman through a
sale or conversion, and who is engaged in operating a fish
produce storage or processing facility –

but only to the extent of $4,000 for each such individual.
(7) Seventh, allowed unsecured claims of individuals, to the
extent of $1,800 for each such individual, arising from the
deposit, before the commencement of the case, of money in
connection with the purchase, lease, or rental of property, or
the purchase of services, for the personal, family, or household
use of such individuals, that were not delivered or provided.
(8) Eighth, allowed unsecured claims of governmental units,
only to the extent that such claims are for –
(A) a tax on or measured by income or gross receipts for a
taxable year ending on or before the date of the filing of the
petition –
(i) for which a return, if required, is last due, including
extensions, after three years before the date of the filing
of the petition;
(ii) assessed within 240 days before the date of the filing
of the petition, exclusive of –
(I) any time during which an offer in compromise with
respect to that tax was pending or in effect during that
240-day period, plus 30 days; and
(II) any time during which a stay of proceedings against
collections was in effect in a prior case under this title
during that 240-day period, plus 90 days; or

(iii) other than a tax of a kind specified in section
523(a)(1)(B) or 523(a)(1)(C) of this title, not assessed
before, but assessable, under applicable law or by agreement,
after, the commencement of the case;

(B) a property tax incurred before the commencement of the
case and last payable without penalty after one year before the
date of the filing of the petition;
(C) a tax required to be collected or withheld and for which
the debtor is liable in whatever capacity;
(D) an employment tax on a wage, salary, or commission of a
kind specified in paragraph (4) of this subsection earned from
the debtor before the date of the filing of the petition,
whether or not actually paid before such date, for which a
return is last due, under applicable law or under any
extension, after three years before the date of the filing of
the petition;
(E) an excise tax on –
(i) a transaction occurring before the date of the filing
of the petition for which a return, if required, is last due,
under applicable law or under any extension, after three
years before the date of the filing of the petition; or
(ii) if a return is not required, a transaction occurring
during the three years immediately preceding the date of the
filing of the petition;

(F) a customs duty arising out of the importation of
merchandise –
(i) entered for consumption within one year before the date
of the filing of the petition;
(ii) covered by an entry liquidated or reliquidated within
one year before the date of the filing of the petition; or
(iii) entered for consumption within four years before the
date of the filing of the petition but unliquidated on such
date, if the Secretary of the Treasury certifies that failure
to liquidate such entry was due to an investigation pending
on such date into assessment of antidumping or countervailing
duties or fraud, or if information needed for the proper
appraisement or classification of such merchandise was not
available to the appropriate customs officer before such
date; or

(G) a penalty related to a claim of a kind specified in this
paragraph and in compensation for actual pecuniary loss.

An otherwise applicable time period specified in this paragraph
shall be suspended for any period during which a governmental
unit is prohibited under applicable nonbankruptcy law from
collecting a tax as a result of a request by the debtor for a
hearing and an appeal of any collection action taken or proposed
against the debtor, plus 90 days; plus any time during which the
stay of proceedings was in effect in a prior case under this
title or during which collection was precluded by the existence
of 1 or more confirmed plans under this title, plus 90 days.
(9) Ninth, allowed unsecured claims based upon any commitment
by the debtor to a Federal depository institutions regulatory
agency (or predecessor to such agency) to maintain the capital of
an insured depository institution.
(10) Tenth, allowed claims for death or personal injury
resulting from the operation of a motor vehicle or vessel if such
operation was unlawful because the debtor was intoxicated from
using alcohol, a drug, or another substance.

(b) If the trustee, under section 362, 363, or 364 of this title,
provides adequate protection of the interest of a holder of a claim
secured by a lien on property of the debtor and if, notwithstanding
such protection, such creditor has a claim allowable under
subsection (a)(2) of this section arising from the stay of action
against such property under section 362 of this title, from the
use, sale, or lease of such property under section 363 of this
title, or from the granting of a lien under section 364(d) of this
title, then such creditor’s claim under such subsection shall have
priority over every other claim allowable under such subsection.
(c) For the purpose of subsection (a) of this section, a claim of
a governmental unit arising from an erroneous refund or credit of a
tax has the same priority as a claim for the tax to which such
refund or credit relates.
(d) An entity that is subrogated to the rights of a holder of a
claim of a kind specified in subsection (a)(1), (a)(4), (a)(5),
(a)(6), (a)(7), (a)(8), or (a)(9) of this section is not subrogated
to the right of the holder of such claim to priority under such
subsection.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2583; Pub. L. 98-353, title
III, Secs. 350, 449, July 10, 1984, 98 Stat. 358, 374; Pub. L. 101-
647, title XXV, Sec. 2522(d), Nov. 29, 1990, 104 Stat. 4867; Pub.
L. 103-394, title I, Sec. 108(c), title II, Sec. 207, title III,
Sec. 304(c), title V, Sec. 501(b)(3), (d)(11), Oct. 22, 1994, 108
Stat. 4112, 4123, 4132, 4142, 4145; Pub. L. 109-8, title II, Secs.
212, 223, title VII, Secs. 705, 706, title XIV, Sec. 1401, title
XV, Sec. 1502(a)(1), Apr. 20, 2005, 119 Stat. 51, 62, 126, 214,
216; Pub. L. 111-203, title XI, Sec. 1101(b), July 21, 2010, 124
Stat. 2115; Pub. L. 111-327, Sec. 2(a)(15), Dec. 22, 2010, 124
Stat. 3559.)

-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 507(a)(3) of the House amendment represents a compromise
dollar amount and date for the priority between similar provisions
contained in H.R. 8200 as passed by the House and the Senate
amendments. A similar compromise is contained in section 507(a)(4).
Section 507(a)(5) represents a compromise on amount between the
priority as contained in H.R. 8200 as passed by the House and the
Senate amendment. The Senate provision for limiting the priority to
consumers having less than a fixed gross income is deleted.
Section 507(a)(6) of the House amendment represents a compromise
between similar provisions contained in H.R. 8200 as passed by the
House and the Senate amendment.
Section 507(b) of the House amendment is new and is derived from
the compromise contained in the House amendment with respect to
adequate protection under section 361. Subsection (b) provides that
to the extent adequate protection of the interest of a holder of a
claim proves to be inadequate, then the creditor’s claim is given
priority over every other allowable claim entitled to distribution
under section 507(a). Section 507(b) of the Senate amendment is
deleted.
Section 507(c) of the House amendment is new. Section 507(d) of
the House amendment prevents subrogation with respect to priority
for certain priority claims. Subrogation with respect to priority
is intended to be permitted for administrative claims and claims
arising during the gap period.
Priorities: Under the House amendment, taxes receive priority as
follows:
First. Administration expenses: The amendment generally follows
the Senate amendment in providing expressly that taxes incurred
during the administration of the estate share the first priority
given to administrative expenses generally. Among the taxes which
receives first priority, as defined in section 503, are the
employees’ and the employer’s shares of employment taxes on wages
earned and paid after the petition is filed. Section 503(b)(1) also
includes in administration expenses a tax liability arising from an
excessive allowance by a tax authority of a “quickie refund” to the
estate. (In the case of Federal taxes, such refunds are allowed
under special rules based on net operating loss carrybacks (sec.
6411 of the Internal Revenue Code [title 26]).
An exception is made to first priority treatment for taxes
incurred by the estate with regard to the employer’s share of
employment taxes on wages earned from the debtor before the
petition but paid from the estate after the petition has been
filed. In this situation, the employer’s tax receives either sixth
priority or general claim treatment.
The House amendment also adopts the provisions of the Senate
amendment which include in the definition of administrative
expenses under section 503 any fine, penalty (including “additions
to tax” under applicable tax laws) or reduction in credit imposed
on the estate.
Second. “Involuntary gap” claims: “Involuntary gap” creditors are
granted second priority by paragraph (2) of section 507(a). This
priority includes tax claims arising in the ordinary course of the
debtor’s business or financial affairs after he has been placed
involuntarily in bankruptcy but before a trustee is appointed or
before the order for relief.
Third. Certain taxes on prepetition wages: Wage claims entitled
to third priority are for compensation which does not exceed $2,000
and was earned during the 90 days before the filing of the
bankruptcy petition or the cessation of the debtor’s business.
Certain employment taxes receive third priority in payment from the
estate along with the payment of wages to which the taxes relate.
In the case of wages earned before the filing of the petition, but
paid by the trustee (rather than by the debtor) after the filing of
the petition, claims or the employees’ share of the employment
taxes (withheld income taxes and the employees’ share of the social
security or railroad retirement tax) receive third priority to the
extent the wage claims themselves are entitled to this priority.
In the case of wages earned from and paid by the debtor before
the filing of the petition, the employer’s share of the employment
taxes on these wages paid by the debtor receives sixth priority or,
if not entitled to that priority, are treated only as general
claims. Under the House amendment, the employer’s share of
employment taxes on wages earned by employees of the debtor, but
paid by the trustee after the filing of the bankruptcy petition,
will also receive sixth priority to the extent that claims for the
wages receive third priority. To the extent the claims for wages do
not receive third priority, but instead are treated only as general
claims, claims for the employer’s share of the employment taxes
attributable to those wages will also be treated as general claims.
In calculating the amounts payable as general wage claims, the
trustee must pay the employer’s share of employment taxes on such
wages.
Sixth priority. The House amendment modifies the provisions of
both the House bill and Senate amendment in the case of sixth
priority taxes. Under the amendment, the following Federal, State
and local taxes are included in the sixth priority:
First. Income and gross receipts taxes incurred before the date
of the petition for which the last due date of the return,
including all extensions of time granted to file the return,
occurred within 3 years before the date on which the petition was
filed, or after the petition date. Under this rule, the due date of
the return, rather than the date on which the taxes were assessed,
determines the priority.
Second. Income and gross receipts taxes assessed at any time
within 240 days before the petition date. Under this rule, the date
on which the governmental unit assesses the tax, rather than the
due date of the return, determines the priority.
If, following assessment of a tax, the debtor submits an offer in
compromise to the governmental unit, the House amendment provides
that the 240-day period is to be suspended for the duration of the
offer and will resume running after the offer is withdrawn or
rejected by the governmental unit, but the tax liability will
receive priority if the title 11 petition is filed during the
balance of the 240-day period or during a minimum of 30 days after
the offer is withdrawn or rejected. This rule modifies a provision
of the Senate amendment dealing specifically with offers in
compromise. Under the modified rule, if, after the assessment, an
offer in compromise is submitted by the debtor and is still pending
(without having been accepted or rejected) at the date on which a
title 11 petition is filed, the underlying liability will receive
sixth priority. However, if an assessment of a tax liability is
made but the tax is not collected within 240 days, the tax will not
receive priority under section 507(a)(6)(A)(i) and the debtor
cannot revive a priority for that tax by submitting an offer in
compromise.
Third. Income and gross receipts taxes not assessed before the
petition date but still permitted, under otherwise applicable tax
laws, to be assessed. Thus, for example, a prepetition tax
liability is to receive sixth priority under this rule if, under
the applicable statute of limitations, the tax liability can still
be assessed by the tax authority. This rule also covers situations
referred to in section 507(a)(6)(B)(ii) of the Senate amendment
where the assessment or collection of a tax was prohibited before
the petition pending exhaustion of judicial or administrative
remedies, except that the House amendment eliminates the 300-day
limitation of the Senate bill. So, for example, if before the
petition a debtor was engaged in litigation in the Tax Court,
during which the Internal Revenue Code [title 26] bars the Internal
Revenue Service from assessing or collecting the tax, and if the
tax court decision is made in favor of the Service before the
petition under title 11 is filed, thereby lifting the restrictions
on assessment and collection, the tax liability will receive sixth
priority even if the tax authority does not make an assessment
within 300 days before the petition (provided, of course, that the
statute of limitations on assessment has not expired by the
petition date).
In light of the above categories of the sixth priority, and tax
liability of the debtor (under the Internal Revenue Code [title 26]
or State or local law) as a transferee of property from another
person will receive sixth priority without the limitations
contained in the Senate amendment so long as the transferee
liability had not been assessed by the tax authority by the
petition date but could still have been assessed by that date under
the applicable tax statute of limitations or, if the transferee
liability had been assessed before the petition, the assessment was
made no more than 240 days before the petition date.
Also in light of the above categories, the treatment of
prepetition tax liabilities arising from an excessive allowance to
the debtor of a tentative carryback adjustment, such as a “quickie
refund” under section 6411 of the Internal Revenue Code [title 26]
is revised as follows: If the tax authority has assessed the
additional tax before the petition, the tax liability will receive
priority if the date of assessment was within 240 days before the
petition date. If the tax authority had not assessed the additional
tax by the petition, the tax liability will still receive priority
so long as, on the petition date, assessment of the liability is
not barred by the statute of limitations.
Fourth. Any property tax assessed before the commencement of the
case and last payable without penalty within 1 year before the
petition, or thereafter.
Fifth. Taxes which the debtor was required by law to withhold or
collect from others and for which he is liable in any capacity,
regardless of the age of the tax claims. This category covers the
so-called “trust fund” taxes, that is, income taxes which an
employer is required to withhold from the pay of his employees, and
the employees’ share of social security taxes.
In addition, this category includes the liability of a
responsible officer under the Internal Revenue Code (sec. 6672)
[title 26] for income taxes or for the employees’ share of social
security taxes which that officer was responsible for withholding
from the wages of employees and paying to the Treasury, although he
was not himself the employer. This priority will operate when a
person found to be a responsible officer has himself filed in title
11, and the priority will cover the debtor’s responsible officer
liability regardless of the age of the tax year to which the tax
relates. The U.S. Supreme Court has interpreted present law to
require the same result as will be reached under this rule. U.S. v.
Sotelo, 436 U.S. 268 (1978) [98 S.Ct. 1795, 56 L.Ed.2d 275,
rehearing denied 98 S.Ct. 3126, 438 U.S. 907, 57 L.Ed.2d 1150].
This category also includes the liability under section 3505 of
the Internal Revenue Code [26 U.S.C. 3505] of a taxpayer who loans
money for the payment of wages or other compensation.
Sixth. The employer’s share of employment taxes on wages paid
before the petition and on third-priority wages paid postpetition
by the estate. The priority rules under the House amendment
governing employment taxes can thus be summarized as follows:
Claims for the employees’ shares of employment taxes attributable
to wages both earned and paid before the filing of the petition are
to receive sixth priority. In the case of employee wages earned,
but not paid, before the filing of the bankruptcy petition, claims
for the employees’ share of employment taxes receive third priority
to the extent the wages themselves receive third priority. Claims
which relate to wages earned before the petition, but not paid
before the petition (and which are not entitled to the third
priority under the rule set out above), will be paid as general
claims. Since the related wages will receive no priority, the
related employment taxes would also be paid as nonpriority general
claims.
The employer’s share of the employment taxes on wages earned and
paid before the bankruptcy petition will receive sixth priority to
the extent the return for these taxes was last due (including
extensions of time) within 3 years before the filing of the
petition, or was due after the petition was filed. Older tax claims
of this nature will be payable as general claims. In the case of
wages earned by employees before the petition, but actually paid by
the trustee (as claims against the estate) after the title 11 case
commenced, the employer’s share of the employment taxes on third
priority wages will be payable as sixth priority claims and the
employer’s taxes on prepetition wages which are treated only as
general claims will be payable only as general claims. In
calculating the amounts payable as general wage claims, the trustee
must pay the employer’s share of employment taxes on such wages.
The House amendment thus deletes the provision of the Senate
amendment that certain employer taxes receive third priority and
are to be paid immediately after payment of third priority wages
and the employees’ shares of employment taxes on those wages.
In the case of employment taxes relating to wages earned and paid
after the petition, both the employees’ shares and the employer’s
share will receive first priority as administration expenses of the
estate.
Seventh. Excise taxes on transactions for which a return, if
required, is last due, under otherwise applicable law or under any
extension of time to file the return, within 3 years before the
petition was filed, or thereafter. If a return is not required with
regard to a particular excise tax, priority is given if the
transaction or event itself occurred within 3 years before the date
on which the title 11 petition was filed. All Federal, State or
local taxes generally considered or expressly treated as excises
are covered by this category, including sales taxes, estate and
gift taxes, gasoline and special fuel taxes, and wagering and truck
taxes.
Eighth. Certain unpaid customs duties. The House amendment covers
in this category duties on imports entered for consumption within 1
year before the filing of the petition, but which are still
unliquidated on the petition date; duties covered by an entry
liquidated or reliquidated within 1 year before the petition date;
and any duty on merchandise entered for consumption within 4 years
before the petition but not liquidated on the petition date, if the
Secretary of the Treasury or his delegate certifies that duties
were not liquidated because of possible assessment of antidumping
or countervailing duties or fraud penalties.
For purposes of the above priority rules, the House amendment
adopts the provision of the Senate bill that any tax liability
which, under otherwise applicable tax law, is collectible in the
form of a “penalty,” is to be treated in the same manner as a tax
liability. In bankruptcy terminology, such tax liabilities are
referred to as pecuniary loss penalties. Thus, any tax liability
which under the Internal Revenue Code [title 26] or State or local
tax law is payable as a “penalty,” in addition to the liability of
a responsible person under section 6672 of the Internal Revenue
Code [26 U.S.C. 6672] will be entitled to the priority which the
liability would receive if it were expressly labeled as a “tax”
under the applicable tax law. However, a tax penalty which is
punitive in nature is given subordinated treatment under section
726(a)(4).
The House amendment also adopts the provision of the Senate
amendment that a claim arising from an erroneous refund or credit
of tax, other than a “quickie refund,” is to receive the same
priority as the tax to which the refund or credit relates.
The House amendment deletes the express provision of the Senate
amendment that a tax liability is to receive sixth priority if it
satisfies any one of the subparagraphs of section 507(a)(6) even if
the liability fails to satisfy the terms of one or more other
subparagraphs. No change of substance is intended by the deletion,
however, in light of section 102(5) of the House amendment,
providing a rule of construction that the word “or” is not intended
to be exclusive.
The House amendment deletes from the express priority categories
of the Senate amendment the priority for a debtor’s liability as a
third party for failing to surrender property or to pay an
obligation in response to a levy for taxes of another, and the
priority for amounts provided for under deferred payment agreements
between a debtor and the tax authority.
The House amendment also adopts the substance of the definition
in section 346(a) the Senate amendment of when taxes are to be
considered “incurred” except that the House amendment applies these
definitions solely for purposes of determining which category of
section 507 tests the priority of a particular tax liability. Thus,
for example, the House amendment contains a special rule for the
treatment of taxes under the 45-day exception to the preference
rules under section 547 and the definitions of when a tax is
incurred for priority purposes are not to apply to such preference
rules. Under the House amendment, for purposes of the priority
rules, a tax on income for a particular period is to be considered
“incurred” on the last day of the period. A tax on or measured by
some event, such as the payment of wages or a transfer by reason of
death or gift, or an excise tax on a sale or other transaction, is
to be considered “incurred” on the date of the transaction or
event.

SENATE REPORT NO. 95-989
Section 507 specifies the kinds of claims that are entitled to
priority in distribution, and the order of their priority.
Paragraph (1) grants first priority to allowed administrative
expenses and to fees and charges assessed against the estate under
chapter 123 [Sec. 1911 et seq.] of title 28. Taxes included as
administrative expenses under section 503(b)(1) of the bill
generally receive the first priority, but the bill makes certain
qualifications: Examples of these specially treated claims are the
estate’s liability for recapture of an investment tax credit
claimed by the debtor before the title 11 case (this liability
receives sixth priority) and the estate’s employment tax
liabilities on wages earned before, but paid after, the petition
was filed (this liability generally receives the same priority as
the wages).
“Involuntary gap” creditors, granted first priority under current
law, are granted second priority by paragraph (2). This priority,
covering claims arising in the ordinary course of the debtor’s
business or financial affairs after a title 11 case has begun but
before a trustee is appointed or before the order for relief,
includes taxes incurred during the conduct of such activities.
Paragraph (3) expands and increases the wage priority found in
current section 64a(2) [section 104(a)(2) of former title 11]. The
amount entitled to priority is raised from $600 to $1,800. The
former figure was last adjusted in 1926. Inflation has made it
nearly meaningless, and the bill brings it more than up to date.
The three month limit of current law is retained, but is modified
to run from the earlier of the date of the filing of the petition
or the date of the cessation of the debtor’s business. The priority
is expanded to cover vacation, severance, and sick leave pay. The
bill adds to the third priority so-called “trust fund” taxes, that
is, withheld income taxes and the employees’ share of the social
security or railroad retirement taxes, but only to the extent that
the wages on which taxes are imposed are themselves entitled to
third priority.
The employer’s share, the employment tax and the employer’s share
of the social security or railroad retirement tax on third priority
compensation, is also included in the third priority category, but
only if, and to the extent that the wages and related trust fund
taxes have first been paid in full. Because of the claimants urgent
need for their wages in the typical cases, the employer’s taxes
should not be paid before the wage claims entitled to priority, as
well as the related trust fund taxes, are fully paid.
Paragraph (4) overrules United States v. Embassy Restaurant, 359
U.S. 29 (1958), which held that fringe benefits were not entitled
to wage priority status. The bill recognizes the realities of labor
contract negotiations, where fringe benefits may be substituted for
wage demands. The priority granted is limited to claims for
contributions to employee benefit plans such as pension plans,
health or life insurance plans, and others, arising from services
rendered within 120 days before the commencement of the case or the
date of cessation of the debtor’s business, whichever occurs first.
The dollar limit placed on the total of all contributions payable
under this paragraph is equal to the difference between the maximum
allowable priority under paragraph (3), $1,800, times the number of
employees covered by the plan less the actual distributions under
paragraph (3) with respect to these employees.
Paragraph (5) is a new priority for consumer creditors – those
who have deposited money in connection with the purchase, lease, or
rental of property, or the purchase of services, for their
personal, family, or household use, that were not delivered or
provided. The priority amount is not to exceed $600. In order to
reach only those persons most deserving of this special priority,
it is limited to individuals whose adjustable gross income from all
sources derived does not exceed $20,000. See Senate Hearings,
testimony of Prof. Vern Countryman, at pp. 848-849. The income of
the husband and wife should be aggregated for the purposes of the
$20,000 limit if either or both spouses assert such a priority
claim.
The sixth priority is for certain taxes. Priority is given to
income taxes for a taxable year that ended on or before the date of
the filing of the petition, if the last due date of the return for
such year occurred not more than 3 years immediately before the
date on which the petition was filed (Sec. 507(a)(6)(A)(i)). For
the purposes of this rule, the last due date of the return is the
last date under any extension of time to file the return which the
taxing authority may have granted the debtor.
Employment taxes and transfer taxes (including gift, estate,
sales, use and other excise taxes) are also given sixth priority if
the transaction or event which gave rise to the tax occurred before
the petition date, provided that the required return or report of
such tax liabilities was last due within 3 years before the
petition was filed or was last due after the petition date (Sec.
507(a)(6)(A)(ii)). The employment taxes covered under this rule are
the employer’s share of the social security and railroad retirement
taxes and required employer payments toward unemployment insurance.
Priority is given to income taxes and other taxes of a kind
described in section 507(a)(6)(A)(i) and (ii) which the Federal,
State, or local tax authority had assessed within 3 years after the
last due date of the return, that is, including any extension of
time to file the return, if the debtor filed in title 11 within 240
days after the assessment was made (Sec. 507(a)(6)(B)(i)). This
rule may bring into the sixth priority the debtor’s tax liability
for some taxable years which would not qualify for priority under
the general three-year rule of section 507(a)(6)(A).
The sixth priority category also includes taxes which the tax
authority was barred by law from assessing or collecting at any
time during the 300 days before the petition under title 11 was
filed (Sec. 507(a)(6)(B)(ii)). In the case of certain Federal
taxes, this preserves a priority for tax liabilities for years more
than three years before the filing of the petition where the debtor
and the Internal Revenue Service were negotiating over an audit of
the debtor’s returns or were engaged in litigation in the Tax
Court. In such situations, the tax law prohibits the service’s
right to assess a tax deficiency until ninety days after the
service sends the taxpayer a deficiency letter or, if the taxpayer
files a petition in the Tax Court during that 90-day period, until
the outcome of the litigation. A similar priority exists in present
law, except that the taxing authority is allowed no time to assess
and collect the taxes after the restrictions on assessment
(discussed above) are lifted. Some taxpayers have exploited this
loophole by filing in bankruptcy immediately after the end of the
90-day period or immediately after the close of Tax Court
proceedings. The bill remedies this defect by preserving a priority
for taxes the assessment of which was barred by law by giving the
tax authority 300 days within which to make the assessment after
the lifting of the bar and then to collect or file public notice of
its tax lien. Thus, if a taxpayer files a title 11 petition at any
time during that 300-day period, the tax deficiency will be
entitled to priority. If the petition is filed more than 300 days
after the restriction on assessment was lifted, the taxing
authority will not have priority for the tax deficiency.
Taxes for which an offer in compromise was withdrawn by the
debtor, or rejected by a governmental unit, within 240 days before
the petition date (Sec. 507(a)(6)(B)(iii)) will also receive sixth
priority. This rule closes a loophole under present law under
which, following an assessment of tax, some taxpayers have
submitted a formal offer in compromise, dragged out negotiations
with the taxing authority until the tax liability would lose
priority under the three-year priority period of present law, and
then filed in bankruptcy before the governmental unit could take
collection steps.
Also included are certain taxes for which no return or report is
required by law (Sec. 507(a)(6)(C)), if the taxable transaction
occurred within three years before the petition was filed.
Taxes (not covered by the third priority) which the debtor was
required by law to withhold or collect from others and for which he
is liable in any capacity, regardless of the age of the tax claims
(Sec. 507(a)(6)(D)) are included. This category covers the so-
called “trust fund” taxes, that is, income taxes which an employer
is required to withhold from the pay of his employees, the
employees’ shares of social security and railroad retirement taxes,
and also Federal unemployment insurance. This category also
includes excise taxes which a seller of goods or services is
required to collect from a buyer and pay over to a taxing
authority.
This category also covers the liability of a responsible
corporate officer under the Internal Revenue Code [title 26] for
income taxes or for the employees’ share of employment taxes which,
under the tax law, the employer was required to withhold from the
wages of employees. This priority will operate where a person found
to be a responsible officer has himself filed a petition under
title 11, and the priority covers the debtor’s liability as an
officer under the Internal Revenue Code, regardless of the age of
the tax year to which the tax relates.
The priority rules under the bill governing employment taxes can
be summarized as follows: In the case of wages earned and actually
paid before the petition under title 11 was filed, the liability
for the employees’ share of the employment taxes, regardless of the
prepetition year in which the wages were earned and paid. The
employer’s share of the employment taxes on all wages earned and
paid before the petition receive sixth priority; generally, these
taxes will be those for which a return was due within three years
before the petition. With respect to wages earned by employees
before the petition but actually paid by the trustee after the
title 11 case commenced, taxes required to be withheld receives the
same priority as the wages themselves. Thus, the employees’ share
of taxes on third priority wages also receives third priority.
Taxes on the balance of such wages receive no priority and are
collectible only as general claims because the wages themselves are
payable only as general claims and liability for the taxes arises
only to the extent the wages are actually paid. The employer’s
share of employment taxes on third priority wages earned before the
petition but paid after the petition was filed receives third
priority, but only if the wages in this category have first been
paid in full. Assuming there are sufficient funds to pay third
priority wages and the related employer taxes in full, the
employer’s share of taxes on the balance of wage payments becomes a
general claim (because the wages themselves are payable as general
claims). Both the employees’ and the employer’s share of employment
taxes on wages earned and paid after the petition was filed receive
first priority as administrative expenses.
Also covered by this sixth priority are property taxes required
to be assessed within 3 years before the filing of the petition
(Sec. 507(a)(6)(E)).
Taxes attributable to a tentative carryback adjustment received
by the debtor before the petition was filed, such as a “quickie
refund” received under section 6411 of the Internal Revenue Code
[title 26] (Sec. 507(a)(6)(F)) are included. However, the tax claim
against the debtor will rein a prepetition loss year for which the
tax return was last due, including extensions, within 3 years
before the petition was filed.
Taxes resulting from a recapture, occasioned by a transfer during
bankruptcy, of a tax credit or deduction taken during an earlier
tax year (Sec. 507(a)(6)(G)) are included. A typical example occurs
when there is a sale by the trustee of depreciable property during
the case and depreciation deductions taken in prepetition years are
subject to recapture under section 1250 of the Code [title 26].
Taxes owed by the debtor as a transferee of assets from another
person who is liable for a tax, if the tax claim against the
transferor would have received priority in a chapter 11 case
commenced by the transferor within 1 year before the date of the
petition filed by the transferee (Sec. 507(a)(6)(H)), are included.
Also included are certain tax payments required to have been made
during the 1 year immediately before the petition was filed, where
the debtor had previously entered into a deferred payment agreement
(including an offer in compromise) to pay an agreed liability in
periodic installments but had become delinquent in one or more
installments before the petition was filed (Sec. 507(a)(6)(I)).
This priority covers all types of deferred or part payment
agreements. The priority covers only installments which first
became due during the 1 year before the petition but which remained
unpaid at the date of the petition. The priority does not come into
play, however, if before the case began or during the case, the
debtor and the taxing authority agree to a further extension of
time to pay the delinquent amounts.
Certain tax-related liabilities which are not true taxes or which
are not collected by regular assessment procedures (Sec.
507(a)(6)(J)) are included. One type of liability covered in this
category is the liability under section 3505 of the Internal
Revenue Code [title 26] of a lender who pays wages directly to
employees of another employer or who supplies funds to an employer
for the payment of wages. Another is the liability under section
6332 of the Internal Revenue Code [title 26], of a person who fails
to turn over money or property of the taxpayer in response to a
levy. Since the taxing authority must collect such a liability from
the third party by suit rather than normal assessment procedures,
an extra year is added to the normal 3-year priority periods. If a
suit was commenced by the taxing authority within the four-year
period and before the petition was filed, the priority is also
preserved, provided that the suit had not terminated more than 1
year before the date of the filing of the petition.
Also included are certain unpaid customs duties which have not
grown unreasonably “stale” (Sec. 507(a)(6)(K)). These include
duties on imports entered for consumption with 3 years before the
filing of the petition if the duties are still unliquidated on the
petition date. If an import entry has been liquidated (in general,
liquidation is in an administrative determination of the value and
tariff rate of the item) or reliquidated, within two years of the
filing of the petition the customs liability is given priority. If
the Secretary of the Treasury certifies that customs duties were
not liquidated because of an investigation into possible assessment
of antidumping or countervailing duties, or because of fraud
penalties, duties not liquidated for this reason during the five
years before the importer filed under title 11 also will receive
priority.
Subsection (a) of this section also provides specifically that
interest on sixth priority tax claims accrued before the filing of
the petition is also entitled to sixth priority.
Subsection (b) of this section provides that any fine or penalty
which represents compensation for actual pecuniary loss of a
governmental unit, and which involves a tax liability entitled to
sixth priority, is to receive the same priority.
Subsection (b) also provides that a claim arising from an
erroneous refund or credit of tax is to be given the same priority
as the tax to which the refund or credit relates.

-REFTEXT-
REFERENCES IN TEXT
Section 13(3) of the Federal Reserve Act, referred to in subsec.
(a)(2), is classified to section 343(3) of Title 12, Banks and
Banking.

-MISC2-
AMENDMENTS
2010 – Subsec. (a)(2). Pub. L. 111-203 inserted “unsecured claims
of any Federal reserve bank related to loans made through programs
or facilities authorized under section 13(3) of the Federal Reserve
Act (12 U.S.C. 343),” after “this title,”.
Subsec. (a)(8)(A)(ii)(II). Pub. L. 111-327 substituted “; or” for
period at end.
2005 – Subsec. (a)(1). Pub. L. 109-8, Sec. 212(9), added par.
(1). Former par. (1) redesignated (2).
Subsec. (a)(2). Pub. L. 109-8, Sec. 212(2), (3), redesignated
par. (1) as (2) and substituted “Second” for “First”. Former par.
(2) redesignated (3).
Subsec. (a)(3). Pub. L. 109-8, Sec. 212(2), (4), redesignated
par. (2) as (3) and substituted “Third” for “Second”. Former par.
(3) redesignated (4).
Subsec. (a)(4). Pub. L. 109-8, Sec. 1401, which directed
amendment of par. (4), “as amended by section 212″, by substituting
“$10,000″ for “$4,000″ and “180” for “90” in introductory
provisions, effective Apr. 20, 2005, was executed to this par.,
which was par. (3), to reflect the probable intent of Congress,
notwithstanding that the redesignation of this par. as (4) by Pub.
L. 109-8, Sec. 212(2), was effective 180 days after Apr. 20, 2005.
See Effective Date of 2005 Amendment notes below.
Pub. L. 109-8, Sec. 212(2), (5), redesignated par. (3) as (4) and
substituted “Fourth” for “Third” in introductory provisions and a
period for semicolon at end. Former par. (4) redesignated (5).
Subsec. (a)(5). Pub. L. 109-8, Sec. 212(2), (6), redesignated
par. (4) as (5) and substituted “Fifth” for “Fourth” in
introductory provisions. Former par. (5) redesignated (6).
Subsec. (a)(5)(B)(i). Pub. L. 109-8, Sec. 1401(2), which directed
amendment of par. (5), “as amended by section 212″, by substituting
“$10,000″ for “$4,000″, effective Apr. 20, 2005, was executed to
this par., which was par. (4), to reflect the probable intent of
Congress, notwithstanding that the redesignation of this par. as
(5) by Pub. L. 109-8, Sec. 212(2), was effective 180 days after
Apr. 20, 2005. See Effective Date of 2005 Amendment notes below.
Subsec. (a)(5)(B)(ii). Pub. L. 109-8, Sec. 1502(a)(1)(A)(i),
substituted “paragraph (4)” for “paragraph (3)”.
Subsec. (a)(6). Pub. L. 109-8, Sec. 212(2), (7), redesignated
par. (5) as (6) and substituted “Sixth” for “Fifth” in introductory
provisions. Former par. (6) redesignated (7).
Subsec. (a)(7). Pub. L. 109-8, Sec. 212(1), (2), (8),
redesignated par. (6) as (7), substituted “Seventh” for “Sixth”,
and struck out former par. (7) which read as follows: “Seventh,
allowed claims for debts to a spouse, former spouse, or child of
the debtor, for alimony to, maintenance for, or support of such
spouse or child, in connection with a separation agreement, divorce
decree or other order of a court of record, determination made in
accordance with State or territorial law by a governmental unit, or
property settlement agreement, but not to the extent that such debt

“(A) is assigned to another entity, voluntarily, by operation
of law, or otherwise; or
“(B) includes a liability designated as alimony, maintenance,
or support, unless such liability is actually in the nature of
alimony, maintenance or support.”
Subsec. (a)(8). Pub. L. 109-8, Sec. 705(2), inserted at end “An
otherwise applicable time period specified in this paragraph shall
be suspended for any period during which a governmental unit is
prohibited under applicable nonbankruptcy law from collecting a tax
as a result of a request by the debtor for a hearing and an appeal
of any collection action taken or proposed against the debtor, plus
90 days; plus any time during which the stay of proceedings was in
effect in a prior case under this title or during which collection
was precluded by the existence of 1 or more confirmed plans under
this title, plus 90 days.”
Subsec. (a)(8)(A). Pub. L. 109-8, Sec. 705(1)(A), inserted “for a
taxable year ending on or before the date of the filing of the
petition” after “gross receipts” in introductory provisions.
Subsec. (a)(8)(A)(i). Pub. L. 109-8, Sec. 705(1)(B), struck out
“for a taxable year ending on or before the date of the filing of
the petition” before “for which a return”.
Subsec. (a)(8)(A)(ii). Pub. L. 109-8, Sec. 705(1)(C), added cl.
(ii) and struck out former cl. (ii) which read as follows:
“assessed within 240 days, plus any time plus 30 days during which
an offer in compromise with respect to such tax that was made
within 240 days after such assessment was pending, before the date
of the filing of the petition; or”.
Subsec. (a)(8)(B). Pub. L. 109-8, Sec. 706, substituted
“incurred” for “assessed”.
Subsec. (a)(8)(D). Pub. L. 109-8, Sec. 1502(a)(1)(A)(ii),
substituted “paragraph (4)” for “paragraph (3)”.
Subsec. (a)(10). Pub. L. 109-8, Sec. 223, added par. (10).
Subsec. (b). Pub. L. 109-8, Sec. 1502(a)(1)(B), substituted
“subsection (a)(2)” for “subsection (a)(1)”.
Subsec. (d). Pub. L. 109-8, Sec. 1502(a)(1)(C), substituted
“subsection (a)(1)” for “subsection (a)(3)”.
1994 – Subsec. (a)(3). Pub. L. 103-394, Sec. 207, amended par.
(3) generally. Prior to amendment, par. (3) read as follows:
“Third, allowed unsecured claims for wages, salaries, or
commissions, including vacation, severance, and sick leave pay –
“(A) earned by an individual within 90 days before the date of
the filing of the petition or the date of the cessation of the
debtor’s business, whichever occurs first; but only
“(B) to the extent of $2,000 for each such individual.”
Subsec. (a)(4)(B)(i). Pub. L. 103-394, Sec. 108(c)(1),
substituted “$4,000″ for “$2,000″.
Subsec. (a)(5). Pub. L. 103-394, Secs. 108(c)(2), 501(b)(3),
substituted “section 557(b)” for “section 557(b)(1)” after “grain,
as defined in” and “section 557(b)” for “section 557(b)(2)” after
“facility, as defined in” in subpar. (A) and “$4,000″ for “$2,000″
in concluding provisions.
Subsec. (a)(6). Pub. L. 103-394, Sec. 108(c)(3), substituted
“$1,800″ for “$900″.
Subsec. (a)(7). Pub. L. 103-394, Sec. 304(c)(3), added par. (7).
Former par. (7) redesignated (8).
Subsec. (a)(8). Pub. L. 103-394, Sec. 304(c)(2), redesignated
par. (7) as (8) and substituted “Eighth” for “Seventh”. Former par.
(8) redesignated (9).
Subsec. (a)(9). Pub. L. 103-394, Secs. 304(c)(1), 501(d)(11)(A),
redesignated par. (8) as (9) and substituted “Ninth” for “Eighth”
and “a Federal depository institutions regulatory agency (or
predecessor to such agency)” for “the Federal Deposit Insurance
Corporation, the Resolution Trust Corporation, the Director of the
Office of Thrift Supervision, the Comptroller of the Currency, or
the Board of Governors of the Federal Reserve System, or their
predecessors or successors,”.
Subsec. (d). Pub. L. 103-394, Sec. 501(d)(11)(B), substituted
“(a)(6), (a)(7), (a)(8), or (a)(9)” for “or (a)(6)”.
1990 – Subsec. (a)(8). Pub. L. 101-647 added par. (8).
1984 – Subsec. (a)(3). Pub. L. 98-353, Sec. 449(a)(1), inserted a
comma after “severance”.
Subsec. (a)(4). Pub. L. 98-353, Sec. 449(a)(2), substituted “an
employee benefit plan” for “employee benefit plans” in provisions
preceding subpar. (A).
Subsec. (a)(4)(B)(i). Pub. L. 98-353, Sec. 449(a)(3), inserted
“each” after “covered by”.
Subsec. (a)(5). Pub. L. 98-353, Sec. 350(3), added par. (5).
Former par. (5) redesignated (6).
Subsec. (a)(6). Pub. L. 98-353, Sec. 350(1), redesignated former
par. (5) as (6) and substituted “Sixth” for “Fifth”. Former par.
(6) redesignated (7).
Subsec. (a)(7). Pub. L. 98-353, Secs. 350(2), 449(a)(4),
redesignated former par. (6) as (7), substituted “Seventh” for
“Sixth”, and inserted “only” after “units,”.
Subsec. (c). Pub. L. 98-353, Sec. 449(b), substituted “has the
same priority” for “shall be treated the same”.

EFFECTIVE DATE OF 2010 AMENDMENT
Amendment by Pub. L. 111-203 effective 1 day after July 21, 2010,
except as otherwise provided, see section 4 of Pub. L. 111-203, set
out as an Effective Date note under section 5301 of Title 12, Banks
and Banking.

EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-8, title XIV, Sec. 1406, Apr. 20, 2005, 119 Stat.
215, as amended by Pub. L. 111-327, Sec. 3, Dec. 22, 2010, 124
Stat. 3563, provided that:
“(a) Effective Date. – Except as provided in subsection (b), this
title [amending this section and sections 523, 548, 1104, and 1114
of this title and enacting provisions set out as a note under
section 523 of this title] and the amendments made by this title
shall take effect on the date of the enactment of this Act [Apr.
20, 2005].
“(b) Application of Amendments. –
“(1) In general. – Except as provided in paragraph (2), the
amendments made by this title shall apply only with respect to
cases commenced under title 11 of the United States Code on or
after the date of the enactment of this Act [Apr. 20, 2005].
“(2) Avoidance period. – The amendment made by section 1402(1)
[amending section 548 of this title] shall apply only with
respect to cases commenced under title 11 of the United States
Code more than 1 year after the date of the enactment of this
Act.”
Amendment by sections 212, 223, 705, 706, and 1502(a)(1) of 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.

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. (a)(4), dollar amount “10,950” was adjusted to
“11,725”; in subsec. (a)(5), dollar amount “10,950” was adjusted to
“11,725”; in subsec. (a)(6), dollar amount “5,400” was adjusted to
“5,775”; and, in subsec. (a)(7), dollar amount “2,425” was adjusted
to “2,600”. 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. (a)(4), dollar amount “10,000” was adjusted to
“10,950”; in subsec. (a)(5), dollar amount “10,000” was adjusted to
“10,950”; in subsec. (a)(6), dollar amount “4,925” was adjusted to
“5,400”; and, in subsec. (a)(7), dollar amount “2,225” was adjusted
to “2,425”.
By notice dated Feb. 18, 2004, 69 F.R. 8482, effective Apr. 1,
2004, in subsec. (a)(3), dollar amount “4,650” was adjusted to
“4,925”; in subsec. (a)(4)(B)(i), dollar amount “4,650” was
adjusted to “4,925”; in subsec. (a)(5), dollar amount “4,650” was
adjusted to “4,925”; and, in subsec. (a)(6), dollar amount “2,100”
was adjusted to “2,225”.
By notice dated Feb. 13, 2001, 66 F.R. 10910, effective Apr. 1,
2001, in subsec. (a)(3), dollar amount “4,300” was adjusted to
“4,650”; in subsec. (a)(4)(B)(i), dollar amount “4,300” was
adjusted to “4,650”; in subsec. (a)(5), dollar amount “4,300” was
adjusted to “4,650”; and, in subsec. (a)(6), dollar amount “1,950”
was adjusted to “2,100”.
By notice dated Feb. 3, 1998, 63 F.R. 7179, effective Apr. 1,
1998, in subsec. (a)(3), dollar amount “4,000” was adjusted to
“4,300”; in subsec. (a)(4)(B)(i), dollar amount “4,000” was
adjusted to “4,300”; in subsec. (a)(5), dollar amount “4,000” was
adjusted to “4,300”; and, in subsec. (a)(6), dollar amount “1,800”
was adjusted to “1,950”.

-FOOTNOTE-
(!1) See References in Text note below.

-End-

-CITE-
11 USC Sec. 508 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I – CREDITORS AND CLAIMS

-HEAD-
Sec. 508. Effect of distribution other than under this title

-STATUTE-
If a creditor of a partnership debtor receives, from a general
partner that is not a debtor in a case under chapter 7 of this
title, payment of, or a transfer of property on account of, a claim
that is allowed under this title and that is not secured by a lien
on property of such partner, such creditor may not receive any
payment under this title on account of such claim until each of the
other holders of claims on account of which such holders are
entitled to share equally with such creditor under this title has
received payment under this title equal in value to the
consideration received by such creditor from such general partner.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2585; Pub. L. 109-8, title
VIII, Sec. 802(d)(7), Apr. 20, 2005, 119 Stat. 146.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 508(b) of the House amendment is new and provides an
identical rule with respect to a creditor of a partnership who
receives payment from a partner, to that of a creditor of a debtor
who receives a payment in a foreign proceeding involving the
debtor.

SENATE REPORT NO. 95-989
This section prohibits a creditor from receiving any distribution
in the bankruptcy case if he has received payment of a portion of
his claim in a foreign proceeding, until the other creditors in the
bankruptcy case in this country that are entitled to share equally
with that creditor have received as much as he has in the foreign
proceeding.

AMENDMENTS
2005 – Pub. L. 109-8 designated subsec. (b) as entire section and
struck out subsec. (a) which read as follows: “If a creditor
receives, in a foreign proceeding, payment of, or a transfer of
property on account of, a claim that is allowed under this title,
such creditor may not receive any payment under this title on
account of such claim until each of the other holders of claims on
account of which such holders are entitled to share equally with
such creditor under this title has received payment under this
title equal in value to the consideration received by such creditor
in such foreign proceeding.”

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. 509 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I – CREDITORS AND CLAIMS

-HEAD-
Sec. 509. Claims of codebtors

-STATUTE-
(a) Except as provided in subsection (b) or (c) of this section,
an entity that is liable with the debtor on, or that has secured, a
claim of a creditor against the debtor, and that pays such claim,
is subrogated to the rights of such creditor to the extent of such
payment.
(b) Such entity is not subrogated to the rights of such creditor
to the extent that –
(1) a claim of such entity for reimbursement or contribution on
account of such payment of such creditor’s claim is –
(A) allowed under section 502 of this title;
(B) disallowed other than under section 502(e) of this title;
or
(C) subordinated under section 510 of this title; or

(2) as between the debtor and such entity, such entity received
the consideration for the claim held by such creditor.

(c) The court shall subordinate to the claim of a creditor and
for the benefit of such creditor an allowed claim, by way of
subrogation under this section, or for reimbursement or
contribution, of an entity that is liable with the debtor on, or
that has secured, such creditor’s claim, until such creditor’s
claim is paid in full, either through payments under this title or
otherwise.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2585; Pub. L. 98-353, title
III, Sec. 450, July 10, 1984, 98 Stat. 375.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 509 of the House amendment represents a substantial
revision of provisions contained in H.R. 8200 as passed by the
House and in the Senate amendment. Section 509(a) states a general
rule that a surety or co-debtor is subrogated to the rights of a
creditor assured by the surety or co-debtor to the extent the
surety or co-debtor pays such creditor. Section 509(b) states a
general exception indicating that subrogation is not granted to the
extent that a claim of a surety or co-debtor for reimbursement or
contribution is allowed under section 502 or disallowed other than
under section 502(e). Additionally, section 509(b)(1)(C) provides
that such claims for subrogation are subordinated to the extent
that a claim of the surety or co-debtor for reimbursement or
contribution is subordinated under section 510(a)(1) or 510(b).
Section 509(b)(2) reiterates the well-known rule that prevents a
debtor that is ultimately liable on the debt from recovering from a
surety or a co-debtor. Although the language in section 509(b)(2)
focuses in terms of receipt of consideration, legislative history
appearing elsewhere indicates that an agreement to share
liabilities should prevail over an agreement to share profits
throughout title 11. This is particularly important in the context
of co-debtors who are partners. Section 509(c) subordinates the
claim of a surety or co-debtor to the claim of an assured creditor
until the creditor’s claim is paid in full.

SENATE REPORT NO. 95-989
Section 509 deals with codebtors generally, and is in addition to
the disallowance provision in section 502(e). This section is based
on the notion that the only rights available to a surety,
guarantor, or comaker are contribution, reimbursement, and
subrogation. The right that applies in a particular situation will
depend on the agreement between the debtor and the codebtor, and on
whether and how payment was made by the codebtor to the creditor.
The claim of a surety or codebtor for contribution or reimbursement
is discharged even if the claim is never filed, as is any claim for
subrogation even if the surety or codebtor chooses to file a claim
for contribution or reimbursement instead.
Subsection (a) subrogates the codebtor (whether as a codebtor,
surety, or guarantor) to the rights of the creditor, to the extent
of any payment made by the codebtor to the creditor. Whether the
creditor’s claim was filed under section 501(a) or 501(b) is
irrelevant. The right of subrogation will exist even if the primary
creditor’s claim is allowed by virtue of being listed under
proposed 11 U.S.C. 924 or 1111, and not by reason of a proof of
claim.
Subsection (b) permits a subrogated codebtor to receive payments
in the bankruptcy case only if the creditor has been paid in full,
either through payments under the bankruptcy code or otherwise.

AMENDMENTS
1984 – Subsec. (a). Pub. L. 98-353, Sec. 450(a), substituted
“subsection (b) or” for “subsections (b) and”, and inserted
“against the debtor” after “a creditor”.
Subsec. (b)(1). Pub. L. 98-353, Sec. 450(b), substituted “of
such” for “of a” after “account”.
Subsec. (c). Pub. L. 98-353, Sec. 450(c), substituted “this
section” for “section 509 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. 510 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I – CREDITORS AND CLAIMS

-HEAD-
Sec. 510. Subordination

-STATUTE-
(a) A subordination agreement is enforceable in a case under this
title to the same extent that such agreement is enforceable under
applicable nonbankruptcy law.
(b) For the purpose of distribution under this title, a claim
arising from rescission of a purchase or sale of a security of the
debtor or of an affiliate of the debtor, for damages arising from
the purchase or sale of such a security, or for reimbursement or
contribution allowed under section 502 on account of such a claim,
shall be subordinated to all claims or interests that are senior to
or equal the claim or interest represented by such security, except
that if such security is common stock, such claim has the same
priority as common stock.
(c) Notwithstanding subsections (a) and (b) of this section,
after notice and a hearing, the court may –
(1) under principles of equitable subordination, subordinate
for purposes of distribution all or part of an allowed claim to
all or part of another allowed claim or all or part of an allowed
interest to all or part of another allowed interest; or
(2) order that any lien securing such a subordinated claim be
transferred to the estate.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2586; Pub. L. 98-353, title
III, Sec. 451, July 10, 1984, 98 Stat. 375.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 510(c)(1) of the House amendment represents a compromise
between similar provisions in the House bill and Senate amendment.
After notice and a hearing, the court may, under principles of
equitable subordination, subordinate for purposes of distribution
all or part of an allowed claim to all or part of another allowed
claim or all or part of an allowed interest to all or part of
another allowed interest. As a matter of equity, it is reasonable
that a court subordinate claims to claims and interests to
interests. It is intended that the term “principles of equitable
subordination” follow existing case law and leave to the courts
development of this principle. To date, under existing law, a claim
is generally subordinated only if holder of such claim is guilty of
inequitable conduct, or the claim itself is of a status susceptible
to subordination, such as a penalty or a claim for damages arising
from the purchase or sale of a security of the debtor. The fact
that such a claim may be secured is of no consequence to the issue
of subordination. However, it is inconceivable that the status of a
claim as a secured claim could ever be grounds for justifying
equitable subordination.
Subordination: Since the House amendment authorizes subordination
of claims only under principles of equitable subordination, and
thus incorporates principles of existing case law, a tax claim
would rarely be subordinated under this provision of the bill.
Section 511 of the Senate amendment is deleted. Its substance is
adopted in section 502(b)(9) of the House amendment which reflects
an identical provision contained in H.R. 8200 as passed by the
House.

SENATE REPORT NO. 95-989
Subsection (a) requires the court to enforce subordination
agreements. A subordination agreement will not be enforced,
however, in a reorganization case in which the class that is the
beneficiary of the agreement has accepted, as specified in proposed
11 U.S.C. 1126, a plan that waives their rights under the
agreement. Otherwise, the agreement would prevent just what chapter
11 contemplates: that seniors may give up rights to juniors in the
interest of confirmation of a plan and rehabilitation of the
debtor. The subsection also requires the court to subordinate in
payment any claim for rescission of a purchase or sale of a
security of the debtor or of an affiliate, or for damages arising
from the purchase or sale of such a security, to all claims and
interests that are senior to the claim or interest represented by
the security. Thus, the later subordination varies with the claim
or interest involved. If the security is a debt instrument, the
damages or rescission claim will be granted the status of a general
unsecured claim. If the security is an equity security, the damages
or rescission claim is subordinated to all creditors and treated
the same as the equity security itself.
Subsection (b) authorizes the bankruptcy court, in ordering
distribution of assets, to subordinate all or any part of any claim
to all or any part of another claim, regardless of the priority
ranking of either claim. In addition, any lien securing such a
subordinated claim may be transferred to the estate. The bill
provides, however, that any subordination ordered under this
provision must be based on principles of equitable subordination.
These principles are defined by case law, and have generally
indicated that a claim may normally be subordinated only if its
holder is guilty of misconduct. As originally introduced, the bill
provided specifically that a tax claim may not be subordinated on
equitable grounds. The bill deletes this express exception, but the
effect under the amendment should be much the same in most
situations since, under the judicial doctrine of equitable
subordination, a tax claim would rarely be subordinated.

AMENDMENTS
1984 – Subsec. (b). Pub. L. 98-353 amended subsec. (b) generally.
Prior to amendment, subsec. (b) read as follows: “Any claim for
recission of a purchase or sale of a security of the debtor or of
an affiliate or for damages arising from the purchase or sale of
such a security shall be subordinated for purposes of distribution
to all claims and interests that are senior or equal to the claim
or interest represented by such security.”

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. 511 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I – CREDITORS AND CLAIMS

-HEAD-
Sec. 511. Rate of interest on tax claims

-STATUTE-
(a) If any provision of this title requires the payment of
interest on a tax claim or on an administrative expense tax, or the
payment of interest to enable a creditor to receive the present
value of the allowed amount of a tax claim, the rate of interest
shall be the rate determined under applicable nonbankruptcy law.
(b) In the case of taxes paid under a confirmed plan under this
title, the rate of interest shall be determined as of the calendar
month in which the plan is confirmed.

-SOURCE-
(Added Pub. L. 109-8, title VII, Sec. 704(a), Apr. 20, 2005, 119
Stat. 125.)

-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 II – DEBTOR’S DUTIES AND BENEFITS 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER II – DEBTOR’S DUTIES AND BENEFITS

-HEAD-
SUBCHAPTER II – DEBTOR’S DUTIES AND BENEFITS

-End-

-CITE-
11 USC Sec. 521 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER II – DEBTOR’S DUTIES AND BENEFITS

-HEAD-
Sec. 521. Debtor’s duties

-STATUTE-
(a) The debtor shall –
(1) file –
(A) a list of creditors; and
(B) unless the court orders otherwise –
(i) a schedule of assets and liabilities;
(ii) a schedule of current income and current expenditures;
(iii) a statement of the debtor’s financial affairs and, if
section 342(b) applies, a certificate –
(I) of an attorney whose name is indicated on the
petition as the attorney for the debtor, or a bankruptcy
petition preparer signing the petition under section
110(b)(1), indicating that such attorney or the bankruptcy
petition preparer delivered to the debtor the notice
required by section 342(b); or
(II) if no attorney is so indicated, and no bankruptcy
petition preparer signed the petition, of the debtor that
such notice was received and read by the debtor;

(iv) copies of all payment advices or other evidence of
payment received within 60 days before the date of the filing
of the petition, by the debtor from any employer of the
debtor;
(v) a statement of the amount of monthly net income,
itemized to show how the amount is calculated; and
(vi) a statement disclosing any reasonably anticipated
increase in income or expenditures over the 12-month period
following the date of the filing of the petition;

(2) if an individual debtor’s schedule of assets and
liabilities includes debts which are secured by property of the
estate –
(A) within thirty days after the date of the filing of a
petition under chapter 7 of this title or on or before the date
of the meeting of creditors, whichever is earlier, or within
such additional time as the court, for cause, within such
period fixes, file with the clerk a statement of his intention
with respect to the retention or surrender of such property
and, if applicable, specifying that such property is claimed as
exempt, that the debtor intends to redeem such property, or
that the debtor intends to reaffirm debts secured by such
property; and
(B) within 30 days after the first date set for the meeting
of creditors under section 341(a), or within such additional
time as the court, for cause, within such 30-day period fixes,
perform his intention with respect to such property, as
specified by subparagraph (A) of this paragraph;

except that nothing in subparagraphs (A) and (B) of this
paragraph shall alter the debtor’s or the trustee’s rights with
regard to such property under this title, except as provided in
section 362(h);
(3) if a trustee is serving in the case or an auditor is
serving under section 586(f) of title 28, cooperate with the
trustee as necessary to enable the trustee to perform the
trustee’s duties under this title;
(4) if a trustee is serving in the case or an auditor is
serving under section 586(f) of title 28, surrender to the
trustee all property of the estate and any recorded information,
including books, documents, records, and papers, relating to
property of the estate, whether or not immunity is granted under
section 344 of this title;
(5) appear at the hearing required under section 524(d) of this
title;
(6) in a case under chapter 7 of this title in which the debtor
is an individual, not retain possession of personal property as
to which a creditor has an allowed claim for the purchase price
secured in whole or in part by an interest in such personal
property unless the debtor, not later than 45 days after the
first meeting of creditors under section 341(a), either –
(A) enters into an agreement with the creditor pursuant to
section 524(c) with respect to the claim secured by such
property; or
(B) redeems such property from the security interest pursuant
to section 722; and

(7) unless a trustee is serving in the case, continue to
perform the obligations required of the administrator (as defined
in section 3 of the Employee Retirement Income Security Act of
1974) of an employee benefit plan if at the time of the
commencement of the case the debtor (or any entity designated by
the debtor) served as such administrator.

If the debtor fails to so act within the 45-day period referred to
in paragraph (6), the stay under section 362(a) is terminated with
respect to the personal property of the estate or of the debtor
which is affected, such property shall no longer be property of the
estate, and the creditor may take whatever action as to such
property as is permitted by applicable nonbankruptcy law, unless
the court determines on the motion of the trustee filed before the
expiration of such 45-day period, and after notice and a hearing,
that such property is of consequential value or benefit to the
estate, orders appropriate adequate protection of the creditor’s
interest, and orders the debtor to deliver any collateral in the
debtor’s possession to the trustee.
(b) In addition to the requirements under subsection (a), a
debtor who is an individual shall file with the court –
(1) a certificate from the approved nonprofit budget and credit
counseling agency that provided the debtor services under section
109(h) describing the services provided to the debtor; and
(2) a copy of the debt repayment plan, if any, developed under
section 109(h) through the approved nonprofit budget and credit
counseling agency referred to in paragraph (1).

(c) In addition to meeting the requirements under subsection (a),
a debtor shall file with the court a record of any interest that a
debtor has in an education individual retirement account (as
defined in section 530(b)(1) of the Internal Revenue Code of 1986)
or under a qualified State tuition program (as defined in section
529(b)(1) of such Code).
(d) If the debtor fails timely to take the action specified in
subsection (a)(6) of this section, or in paragraphs (1) and (2) of
section 362(h), with respect to property which a lessor or bailor
owns and has leased, rented, or bailed to the debtor or as to which
a creditor holds a security interest not otherwise voidable under
section 522(f), 544, 545, 547, 548, or 549, nothing in this title
shall prevent or limit the operation of a provision in the
underlying lease or agreement that has the effect of placing the
debtor in default under such lease or agreement by reason of the
occurrence, pendency, or existence of a proceeding under this title
or the insolvency of the debtor. Nothing in this subsection shall
be deemed to justify limiting such a provision in any other
circumstance.
(e)(1) If the debtor in a case under chapter 7 or 13 is an
individual and if a creditor files with the court at any time a
request to receive a copy of the petition, schedules, and statement
of financial affairs filed by the debtor, then the court shall make
such petition, such schedules, and such statement available to such
creditor.
(2)(A) The debtor shall provide –
(i) not later than 7 days before the date first set for the
first meeting of creditors, to the trustee a copy of the Federal
income tax return required under applicable law (or at the
election of the debtor, a transcript of such return) for the most
recent tax year ending immediately before the commencement of the
case and for which a Federal income tax return was filed; and
(ii) at the same time the debtor complies with clause (i), a
copy of such return (or if elected under clause (i), such
transcript) to any creditor that timely requests such copy.

(B) If the debtor fails to comply with clause (i) or (ii) of
subparagraph (A), the court shall dismiss the case unless the
debtor demonstrates that the failure to so comply is due to
circumstances beyond the control of the debtor.
(C) If a creditor requests a copy of such tax return or such
transcript and if the debtor fails to provide a copy of such tax
return or such transcript to such creditor at the time the debtor
provides such tax return or such transcript to the trustee, then
the court shall dismiss the case unless the debtor demonstrates
that the failure to provide a copy of such tax return or such
transcript is due to circumstances beyond the control of the
debtor.
(3) If a creditor in a case under chapter 13 files with the court
at any time a request to receive a copy of the plan filed by the
debtor, then the court shall make available to such creditor a copy
of the plan –
(A) at a reasonable cost; and
(B) not later than 7 days after such request is filed.

(f) At the request of the court, the United States trustee, or
any party in interest in a case under chapter 7, 11, or 13, a
debtor who is an individual shall file with the court –
(1) at the same time filed with the taxing authority, a copy of
each Federal income tax return required under applicable law (or
at the election of the debtor, a transcript of such tax return)
with respect to each tax year of the debtor ending while the case
is pending under such chapter;
(2) at the same time filed with the taxing authority, each
Federal income tax return required under applicable law (or at
the election of the debtor, a transcript of such tax return) that
had not been filed with such authority as of the date of the
commencement of the case and that was subsequently filed for any
tax year of the debtor ending in the 3-year period ending on the
date of the commencement of the case;
(3) a copy of each amendment to any Federal income tax return
or transcript filed with the court under paragraph (1) or (2);
and
(4) in a case under chapter 13 –
(A) on the date that is either 90 days after the end of such
tax year or 1 year after the date of the commencement of the
case, whichever is later, if a plan is not confirmed before
such later date; and
(B) annually after the plan is confirmed and until the case
is closed, not later than the date that is 45 days before the
anniversary of the confirmation of the plan;

a statement, under penalty of perjury, of the income and
expenditures of the debtor during the tax year of the debtor most
recently concluded before such statement is filed under this
paragraph, and of the monthly income of the debtor, that shows
how income, expenditures, and monthly income are calculated.

(g)(1) A statement referred to in subsection (f)(4) shall
disclose –
(A) the amount and sources of the income of the debtor;
(B) the identity of any person responsible with the debtor for
the support of any dependent of the debtor; and
(C) the identity of any person who contributed, and the amount
contributed, to the household in which the debtor resides.

(2) The tax returns, amendments, and statement of income and
expenditures described in subsections (e)(2)(A) and (f) shall be
available to the United States trustee (or the bankruptcy
administrator, if any), the trustee, and any party in interest for
inspection and copying, subject to the requirements of section
315(c) of the Bankruptcy Abuse Prevention and Consumer Protection
Act of 2005.
(h) If requested by the United States trustee or by the trustee,
the debtor shall provide –
(1) a document that establishes the identity of the debtor,
including a driver’s license, passport, or other document that
contains a photograph of the debtor; or
(2) such other personal identifying information relating to the
debtor that establishes the identity of the debtor.

(i)(1) Subject to paragraphs (2) and (4) and notwithstanding
section 707(a), if an individual debtor in a voluntary case under
chapter 7 or 13 fails to file all of the information required under
subsection (a)(1) within 45 days after the date of the filing of
the petition, the case shall be automatically dismissed effective
on the 46th day after the date of the filing of the petition.
(2) Subject to paragraph (4) and with respect to a case described
in paragraph (1), any party in interest may request the court to
enter an order dismissing the case. If requested, the court shall
enter an order of dismissal not later than 7 days after such
request.
(3) Subject to paragraph (4) and upon request of the debtor made
within 45 days after the date of the filing of the petition
described in paragraph (1), the court may allow the debtor an
additional period of not to exceed 45 days to file the information
required under subsection (a)(1) if the court finds justification
for extending the period for the filing.
(4) Notwithstanding any other provision of this subsection, on
the motion of the trustee filed before the expiration of the
applicable period of time specified in paragraph (1), (2), or (3),
and after notice and a hearing, the court may decline to dismiss
the case if the court finds that the debtor attempted in good faith
to file all the information required by subsection (a)(1)(B)(iv)
and that the best interests of creditors would be served by
administration of the case.
(j)(1) Notwithstanding any other provision of this title, if the
debtor fails to file a tax return that becomes due after the
commencement of the case or to properly obtain an extension of the
due date for filing such return, the taxing authority may request
that the court enter an order converting or dismissing the case.
(2) If the debtor does not file the required return or obtain the
extension referred to in paragraph (1) within 90 days after a
request is filed by the taxing authority under that paragraph, the
court shall convert or dismiss the case, whichever is in the best
interests of creditors and the estate.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2586; Pub. L. 98-353, title
III, Secs. 305, 452, July 10, 1984, 98 Stat. 352, 375; Pub. L. 99-
554, title II, Sec. 283(h), Oct. 27, 1986, 100 Stat. 3117; Pub. L.
109-8, title I, Sec. 106(d), title II, Sec. 225(b), title III,
Secs. 304(1), 305(2), 315(b), 316, title IV, Sec. 446(a), title VI,
Sec. 603(c), title VII, Sec. 720, Apr. 20, 2005, 119 Stat. 38, 66,
78, 80, 89, 92, 118, 123, 133; Pub. L. 111-16, Sec. 2(5), (6), May
7, 2009, 123 Stat. 1607; Pub. L. 111-327, Sec. 2(a)(16), Dec. 22,
2010, 124 Stat. 3559.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 521 of the House amendment modifies a comparable
provision contained in the House bill and Senate amendment. The
Rules of Bankruptcy Procedure should provide where the list of
creditors is to be filed. In addition, the debtor is required to
attend the hearing on discharge under section 524(d).

SENATE REPORT NO. 95-989
This section lists three duties of the debtor in a bankruptcy
case. The Rules of Bankruptcy Procedure will specify the means of
carrying out these duties. The first duty is to file with the court
a list of creditors and, unless the court orders otherwise, a
schedule of assets and liabilities and a statement of his financial
affairs. Second, the debtor is required to cooperate with the
trustee as necessary to enable the trustee to perform the trustee’s
duties. Finally, the debtor must surrender to the trustee all
property of the estate, and any recorded information, including
books, documents, records, and papers, relating to property of the
estate. This phrase “recorded information, including books,
documents, records, and papers,” has been used here and throughout
the bill as a more general term, and includes such other forms of
recorded information as data in computer storage or in other
machine readable forms.
The list in this section is not exhaustive of the debtor’s
duties. Others are listed elsewhere in proposed title 11, such as
in section 343, which requires the debtor to submit to examination,
or in the Rules of Bankruptcy Procedure, as continued by Sec.
404(a) of S. 2266, such as the duty to attend any hearing on
discharge, Rule 402(2).

-REFTEXT-
REFERENCES IN TEXT
Section 3 of the Employee Retirement Income Security Act of 1974,
referred to in subsec. (a)(7), is classified to section 1002 of
Title 29, Labor.
Sections 530(b)(1) and 529(b)(1) of the Internal Revenue Code of
1986, referred to in subsec. (c), are classified to sections
530(b)(1) and 529(b)(1), respectively, of Title 26, Internal
Revenue Code.
Section 315(c) of the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, referred to in subsec. (g)(2), is section
315(c) of Pub. L. 109-8, which is set out as a note under this
section.

-MISC2-
AMENDMENTS
2010 – Subsec. (a)(2). Pub. L. 111-327, Sec. 2(a)(16)(A)(iii), in
subpar. (C) substituted “except that” for subpar. (C) designation.
Subsec. (a)(2)(A). Pub. L. 111-327, Sec. 2(a)(16)(A)(i), struck
out “the debtor shall” after “period fixes,” and inserted “and”
after semicolon at end.
Subsec. (a)(2)(B). Pub. L. 111-327, Sec. 2(a)(16)(A)(ii), struck
out “the debtor shall” after “period fixes,” and “and” after
semicolon at end.
Subsec. (a)(3), (4). Pub. L. 111-327, Sec. 2(a)(16)(B), inserted
“is” after “auditor”.
2009 – Subsec. (e)(3)(B). Pub. L. 111-16, Sec. 2(5), substituted
“7 days” for “5 days”.
Subsec. (i)(2). Pub. L. 111-16, Sec. 2(6), substituted “7 days”
for “5 days”.
2005 – Pub. L. 109-8, Sec. 106(d)(1), designated existing
provisions as subsec. (a).
Subsec. (a). Pub. L. 109-8, Sec. 304(1), added concluding
provisions.
Subsec. (a)(1). Pub. L. 109-8, Sec. 315(b)(1), amended par. (1)
generally. Prior to amendment, par. (1) read as follows: “file a
list of creditors, and unless the court orders otherwise, a
schedule of assets and liabilities, a schedule of current income
and current expenditures, and a statement of the debtor’s financial
affairs;”.
Subsec. (a)(2). Pub. L. 109-8, Sec. 305(2)(A), struck out
“consumer” before “debts” in introductory provisions.
Subsec. (a)(2)(B). Pub. L. 109-8, Sec. 305(2)(B), substituted “30
days after the first date set for the meeting of creditors under
section 341(a)” for “forty-five days after the filing of a notice
of intent under this section” and “30-day” for “forty-five day”.
Subsec. (a)(2)(C). Pub. L. 109-8, Sec. 305(2)(C), inserted “,
except as provided in section 362(h)” before semicolon.
Subsec. (a)(3), (4). Pub. L. 109-8, Sec. 603(c), inserted “or an
auditor serving under section 586(f) of title 28″ after “serving in
the case”.
Subsec. (a)(6). Pub. L. 109-8, Sec. 304(1), added par. (6).
Subsec. (a)(7). Pub. L. 109-8, Sec. 446(a), added par. (7).
Subsec. (b). Pub. L. 109-8, Sec. 106(d)(2), added subsec. (b).
Subsec. (c). Pub. L. 109-8, Sec. 225(b), added subsec. (c).
Subsec. (d). Pub. L. 109-8, Sec. 305(2)(D), added subsec. (d).
Subsecs. (e) to (h). Pub. L. 109-8, Sec. 315(b)(2), added
subsecs. (e) to (h).
Subsec. (i). Pub. L. 109-8, Sec. 316, added subsec. (i).
Subsec. (j). Pub. L. 109-8, Sec. 720, added subsec. (j).
1986 – Par. (4). Pub. L. 99-554 inserted “, whether or not
immunity is granted under section 344 of this title” after second
reference to “estate”.
1984 – Par. (1). Pub. L. 98-353, Sec. 305(2), inserted “a
schedule of current income and current expenditures,” after
“liabilities,”.
Pars. (2) to (5). Pub. L. 98-353, Sec. 305(1), (3), added par.
(2), redesignated former pars. (2) to (4) as (3) to (5),
respectively.
Pub. L. 98-353, Sec. 452, which directed the insertion of “,
whether or not immunity is granted under section 344 of this title”
after second reference to “estate” in par. (3) as redesignated
above, could not be executed because such reference appeared in
par. (4) rather than in par. (3).

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
Pub. L. 109-8, title VI, Sec. 603(e), Apr. 20, 2005, 119 Stat.
123, provided that: “The amendments made by this section [amending
this section, section 727 of this title and section 586 of Title
28, Judiciary and Judicial Procedure, and enacting provisions set
out as a note under section 586 of Title 28] shall take effect 18
months after the date of enactment of this Act [Apr. 20, 2005].”
Amendment by sections 106(d), 225(b), 304(1), 305(2), 315(b),
316, 446(a), and 720 of 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
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.

CONFIDENTIALITY OF TAX INFORMATION
Pub. L. 109-8, title III, Sec. 315(c), Apr. 20, 2005, 119 Stat.
91, provided that:
“(1) Not later than 180 days after the date of the enactment of
this Act [Apr. 20, 2005], the Director of the Administrative Office
of the United States Courts shall establish procedures for
safeguarding the confidentiality of any tax information required to
be provided under this section.
“(2) The procedures under paragraph (1) shall include
restrictions on creditor access to tax information that is required
to be provided under this section.
“(3) Not later than 540 days after the date of enactment of this
Act, the Director of the Administrative Office of the United States
Courts shall prepare and submit to the President pro tempore of the
Senate and the Speaker of the House of Representatives a report
that –
“(A) assesses the effectiveness of the procedures established
under paragraph (1); and
“(B) if appropriate, includes proposed legislation to –
“(i) further protect the confidentiality of tax information;
and
“(ii) provide penalties for the improper use by any person of
the tax information required to be provided under this
section.”

PROVIDING REQUESTED TAX DOCUMENTS TO THE COURT
Pub. L. 109-8, title XII, Sec. 1228, Apr. 20, 2005, 119 Stat.
200, provided that:
“(a) Chapter 7 Cases. – The court shall not grant a discharge in
the case of an individual who is a debtor in a case under chapter 7
of title 11, United States Code, unless requested tax documents
have been provided to the court.
“(b) Chapter 11 and Chapter 13 Cases. – The court shall not
confirm a plan of reorganization in the case of an individual under
chapter 11 or 13 of title 11, United States Code, unless requested
tax documents have been filed with the court.
“(c) Document Retention. – The court shall destroy documents
submitted in support of a bankruptcy claim not sooner than 3 years
after the date of the conclusion of a case filed by an individual
under chapter 7, 11, or 13 of title 11, United States Code. In the
event of a pending audit or enforcement action, the court may
extend the time for destruction of such requested tax documents.”

-End-

-CITE-
11 USC Sec. 522 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER II – DEBTOR’S DUTIES AND BENEFITS

-HEAD-
Sec. 522. Exemptions

-STATUTE-
(a) In this section –
(1) “dependent” includes spouse, whether or not actually
dependent; and
(2) “value” means fair market value as of the date of the
filing of the petition or, with respect to property that becomes
property of the estate after such date, as of the date such
property becomes property of the estate.

(b)(1) Notwithstanding section 541 of this title, an individual
debtor may exempt from property of the estate the property listed
in either paragraph (2) or, in the alternative, paragraph (3) of
this subsection. In joint cases filed under section 302 of this
title and individual cases filed under section 301 or 303 of this
title by or against debtors who are husband and wife, and whose
estates are ordered to be jointly administered under Rule 1015(b)
of the Federal Rules of Bankruptcy Procedure, one debtor may not
elect to exempt property listed in paragraph (2) and the other
debtor elect to exempt property listed in paragraph (3) of this
subsection. If the parties cannot agree on the alternative to be
elected, they shall be deemed to elect paragraph (2), where such
election is permitted under the law of the jurisdiction where the
case is filed.
(2) Property listed in this paragraph is property that is
specified under subsection (d), unless the State law that is
applicable to the debtor under paragraph (3)(A) specifically does
not so authorize.
(3) Property listed in this paragraph is –
(A) subject to subsections (o) and (p), any property that is
exempt under Federal law, other than subsection (d) of this
section, or State or local law that is applicable on the date of
the filing of the petition to the place in which the debtor’s
domicile has been located for the 730 days immediately preceding
the date of the filing of the petition or if the debtor’s
domicile has not been located in a single State for such 730-day
period, the place in which the debtor’s domicile was located for
180 days immediately preceding the 730-day period or for a longer
portion of such 180-day period than in any other place;
(B) any interest in property in which the debtor had,
immediately before the commencement of the case, an interest as a
tenant by the entirety or joint tenant to the extent that such
interest as a tenant by the entirety or joint tenant is exempt
from process under applicable nonbankruptcy law; and
(C) retirement funds to the extent that those funds are in a
fund or account that is exempt from taxation under section 401,
403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code
of 1986.

If the effect of the domiciliary requirement under subparagraph (A)
is to render the debtor ineligible for any exemption, the debtor
may elect to exempt property that is specified under subsection
(d).
(4) For purposes of paragraph (3)(C) and subsection (d)(12), the
following shall apply:
(A) If the retirement funds are in a retirement fund that has
received a favorable determination under section 7805 of the
Internal Revenue Code of 1986, and that determination is in
effect as of the date of the filing of the petition in a case
under this title, those funds shall be presumed to be exempt from
the estate.
(B) If the retirement funds are in a retirement fund that has
not received a favorable determination under such section 7805,
those funds are exempt from the estate if the debtor demonstrates
that –
(i) no prior determination to the contrary has been made by a
court or the Internal Revenue Service; and
(ii)(I) the retirement fund is in substantial compliance with
the applicable requirements of the Internal Revenue Code of
1986; or
(II) the retirement fund fails to be in substantial
compliance with the applicable requirements of the Internal
Revenue Code of 1986 and the debtor is not materially
responsible for that failure.

(C) A direct transfer of retirement funds from 1 fund or
account that is exempt from taxation under section 401, 403, 408,
408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986,
under section 401(a)(31) of the Internal Revenue Code of 1986, or
otherwise, shall not cease to qualify for exemption under
paragraph (3)(C) or subsection (d)(12) by reason of such direct
transfer.
(D)(i) Any distribution that qualifies as an eligible rollover
distribution within the meaning of section 402(c) of the Internal
Revenue Code of 1986 or that is described in clause (ii) shall
not cease to qualify for exemption under paragraph (3)(C) or
subsection (d)(12) by reason of such distribution.
(ii) A distribution described in this clause is an amount that –

(I) has been distributed from a fund or account that is
exempt from taxation under section 401, 403, 408, 408A, 414,
457, or 501(a) of the Internal Revenue Code of 1986; and
(II) to the extent allowed by law, is deposited in such a
fund or account not later than 60 days after the distribution
of such amount.

(c) Unless the case is dismissed, property exempted under this
section is not liable during or after the case for any debt of the
debtor that arose, or that is determined under section 502 of this
title as if such debt had arisen, before the commencement of the
case, except –
(1) a debt of a kind specified in paragraph (1) or (5) of
section 523(a) (in which case, notwithstanding any provision of
applicable nonbankruptcy law to the contrary, such property shall
be liable for a debt of a kind specified in such paragraph);
(2) a debt secured by a lien that is –
(A)(i) not avoided under subsection (f) or (g) of this
section or under section 544, 545, 547, 548, 549, or 724(a) of
this title; and
(ii) not void under section 506(d) of this title; or
(B) a tax lien, notice of which is properly filed;

(3) a debt of a kind specified in section 523(a)(4) or
523(a)(6) of this title owed by an institution-affiliated party
of an insured depository institution to a Federal depository
institutions regulatory agency acting in its capacity as
conservator, receiver, or liquidating agent for such institution;
or
(4) a debt in connection with fraud in the obtaining or
providing of any scholarship, grant, loan, tuition, discount,
award, or other financial assistance for purposes of financing an
education at an institution of higher education (as that term is
defined in section 101 of the Higher Education Act of 1965 (20
U.S.C. 1001)).

(d) The following property may be exempted under subsection
(b)(2) of this section:
(1) The debtor’s aggregate interest, not to exceed $15,000 in
value, in real property or personal property that the debtor or a
dependent of the debtor uses as a residence, in a cooperative
that owns property that the debtor or a dependent of the debtor
uses as a residence, or in a burial plot for the debtor or a
dependent of the debtor.
(2) The debtor’s interest, not to exceed $2,400 in value, in
one motor vehicle.
(3) The debtor’s interest, not to exceed $400 in value in any
particular item or $8,000 in aggregate value, in household
furnishings, household goods, wearing apparel, appliances, books,
animals, crops, or musical instruments, that are held primarily
for the personal, family, or household use of the debtor or a
dependent of the debtor.
(4) The debtor’s aggregate interest, not to exceed $1,000 in
value, in jewelry held primarily for the personal, family, or
household use of the debtor or a dependent of the debtor.
(5) The debtor’s aggregate interest in any property, not to
exceed in value $800 plus up to $7,500 of any unused amount of
the exemption provided under paragraph (1) of this subsection.
(6) The debtor’s aggregate interest, not to exceed $1,500 in
value, in any implements, professional books, or tools, of the
trade of the debtor or the trade of a dependent of the debtor.
(7) Any unmatured life insurance contract owned by the debtor,
other than a credit life insurance contract.
(8) The debtor’s aggregate interest, not to exceed in value
$8,000 less any amount of property of the estate transferred in
the manner specified in section 542(d) of this title, in any
accrued dividend or interest under, or loan value of, any
unmatured life insurance contract owned by the debtor under which
the insured is the debtor or an individual of whom the debtor is
a dependent.
(9) Professionally prescribed health aids for the debtor or a
dependent of the debtor.
(10) The debtor’s right to receive –
(A) a social security benefit, unemployment compensation, or
a local public assistance benefit;
(B) a veterans’ benefit;
(C) a disability, illness, or unemployment benefit;
(D) alimony, support, or separate maintenance, to the extent
reasonably necessary for the support of the debtor and any
dependent of the debtor;
(E) a payment under a stock bonus, pension, profitsharing,
annuity, or similar plan or contract on account of illness,
disability, death, age, or length of service, to the extent
reasonably necessary for the support of the debtor and any
dependent of the debtor, unless –
(i) such plan or contract was established by or under the
auspices of an insider that employed the debtor at the time
the debtor’s rights under such plan or contract arose;
(ii) such payment is on account of age or length of
service; and
(iii) such plan or contract does not qualify under section
401(a), 403(a), 403(b), or 408 of the Internal Revenue Code
of 1986.

(11) The debtor’s right to receive, or property that is
traceable to –
(A) an award under a crime victim’s reparation law;
(B) a payment on account of the wrongful death of an
individual of whom the debtor was a dependent, to the extent
reasonably necessary for the support of the debtor and any
dependent of the debtor;
(C) a payment under a life insurance contract that insured
the life of an individual of whom the debtor was a dependent on
the date of such individual’s death, to the extent reasonably
necessary for the support of the debtor and any dependent of
the debtor;
(D) a payment, not to exceed $15,000, on account of personal
bodily injury, not including pain and suffering or compensation
for actual pecuniary loss, of the debtor or an individual of
whom the debtor is a dependent; or
(E) a payment in compensation of loss of future earnings of
the debtor or an individual of whom the debtor is or was a
dependent, to the extent reasonably necessary for the support
of the debtor and any dependent of the debtor.

(12) Retirement funds to the extent that those funds are in a
fund or account that is exempt from taxation under section 401,
403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code
of 1986.

(e) A waiver of an exemption executed in favor of a creditor that
holds an unsecured claim against the debtor is unenforceable in a
case under this title with respect to such claim against property
that the debtor may exempt under subsection (b) of this section. A
waiver by the debtor of a power under subsection (f) or (h) of this
section to avoid a transfer, under subsection (g) or (i) of this
section to exempt property, or under subsection (i) of this section
to recover property or to preserve a transfer, is unenforceable in
a case under this title.
(f)(1) Notwithstanding any waiver of exemptions but subject to
paragraph (3), the debtor may avoid the fixing of a lien on an
interest of the debtor in property to the extent that such lien
impairs an exemption to which the debtor would have been entitled
under subsection (b) of this section, if such lien is –
(A) a judicial lien, other than a judicial lien that secures a
debt of a kind that is specified in section 523(a)(5); or
(B) a nonpossessory, nonpurchase-money security interest in any

(i) household furnishings, household goods, wearing apparel,
appliances, books, animals, crops, musical instruments, or
jewelry that are held primarily for the personal, family, or
household use of the debtor or a dependent of the debtor;
(ii) implements, professional books, or tools, of the trade
of the debtor or the trade of a dependent of the debtor; or
(iii) professionally prescribed health aids for the debtor or
a dependent of the debtor.

(2)(A) For the purposes of this subsection, a lien shall be
considered to impair an exemption to the extent that the sum of –
(i) the lien;
(ii) all other liens on the property; and
(iii) the amount of the exemption that the debtor could claim
if there were no liens on the property;

exceeds the value that the debtor’s interest in the property would
have in the absence of any liens.
(B) In the case of a property subject to more than 1 lien, a lien
that has been avoided shall not be considered in making the
calculation under subparagraph (A) with respect to other liens.
(C) This paragraph shall not apply with respect to a judgment
arising out of a mortgage foreclosure.
(3) In a case in which State law that is applicable to the debtor

(A) permits a person to voluntarily waive a right to claim
exemptions under subsection (d) or prohibits a debtor from
claiming exemptions under subsection (d); and
(B) either permits the debtor to claim exemptions under State
law without limitation in amount, except to the extent that the
debtor has permitted the fixing of a consensual lien on any
property or prohibits avoidance of a consensual lien on property
otherwise eligible to be claimed as exempt property;

the debtor may not avoid the fixing of a lien on an interest of the
debtor or a dependent of the debtor in property if the lien is a
nonpossessory, nonpurchase-money security interest in implements,
professional books, or tools of the trade of the debtor or a
dependent of the debtor or farm animals or crops of the debtor or a
dependent of the debtor to the extent the value of such implements,
professional books, tools of the trade, animals, and crops exceeds
$5,000.
(4)(A) Subject to subparagraph (B), for purposes of paragraph
(1)(B), the term “household goods” means –
(i) clothing;
(ii) furniture;
(iii) appliances;
(iv) 1 radio;
(v) 1 television;
(vi) 1 VCR;
(vii) linens;
(viii) china;
(ix) crockery;
(x) kitchenware;
(xi) educational materials and educational equipment primarily
for the use of minor dependent children of the debtor;
(xii) medical equipment and supplies;
(xiii) furniture exclusively for the use of minor children, or
elderly or disabled dependents of the debtor;
(xiv) personal effects (including the toys and hobby equipment
of minor dependent children and wedding rings) of the debtor and
the dependents of the debtor; and
(xv) 1 personal computer and related equipment.

(B) The term “household goods” does not include –
(i) works of art (unless by or of the debtor, or any relative
of the debtor);
(ii) electronic entertainment equipment with a fair market
value of more than $500 in the aggregate (except 1 television, 1
radio, and 1 VCR);
(iii) items acquired as antiques with a fair market value of
more than $500 in the aggregate;
(iv) jewelry with a fair market value of more than $500 in the
aggregate (except wedding rings); and
(v) a computer (except as otherwise provided for in this
section), motor vehicle (including a tractor or lawn tractor),
boat, or a motorized recreational device, conveyance, vehicle,
watercraft, or aircraft.

(g) Notwithstanding sections 550 and 551 of this title, the
debtor may exempt under subsection (b) of this section property
that the trustee recovers under section 510(c)(2), 542, 543, 550,
551, or 553 of this title, to the extent that the debtor could have
exempted such property under subsection (b) of this section if such
property had not been transferred, if –
(1)(A) such transfer was not a voluntary transfer of such
property by the debtor; and
(B) the debtor did not conceal such property; or
(2) the debtor could have avoided such transfer under
subsection (f)(1)(B) of this section.

(h) The debtor may avoid a transfer of property of the debtor or
recover a setoff to the extent that the debtor could have exempted
such property under subsection (g)(1) of this section if the
trustee had avoided such transfer, if –
(1) such transfer is avoidable by the trustee under section
544, 545, 547, 548, 549, or 724(a) of this title or recoverable
by the trustee under section 553 of this title; and
(2) the trustee does not attempt to avoid such transfer.

(i)(1) If the debtor avoids a transfer or recovers a setoff under
subsection (f) or (h) of this section, the debtor may recover in
the manner prescribed by, and subject to the limitations of,
section 550 of this title, the same as if the trustee had avoided
such transfer, and may exempt any property so recovered under
subsection (b) of this section.
(2) Notwithstanding section 551 of this title, a transfer avoided
under section 544, 545, 547, 548, 549, or 724(a) of this title,
under subsection (f) or (h) of this section, or property recovered
under section 553 of this title, may be preserved for the benefit
of the debtor to the extent that the debtor may exempt such
property under subsection (g) of this section or paragraph (1) of
this subsection.
(j) Notwithstanding subsections (g) and (i) of this section, the
debtor may exempt a particular kind of property under subsections
(g) and (i) of this section only to the extent that the debtor has
exempted less property in value of such kind than that to which the
debtor is entitled under subsection (b) of this section.
(k) Property that the debtor exempts under this section is not
liable for payment of any administrative expense except –
(1) the aliquot share of the costs and expenses of avoiding a
transfer of property that the debtor exempts under subsection (g)
of this section, or of recovery of such property, that is
attributable to the value of the portion of such property
exempted in relation to the value of the property recovered; and
(2) any costs and expenses of avoiding a transfer under
subsection (f) or (h) of this section, or of recovery of property
under subsection (i)(1) of this section, that the debtor has not
paid.

(l) The debtor shall file a list of property that the debtor
claims as exempt under subsection (b) of this section. If the
debtor does not file such a list, a dependent of the debtor may
file such a list, or may claim property as exempt from property of
the estate on behalf of the debtor. Unless a party in interest
objects, the property claimed as exempt on such list is exempt.
(m) Subject to the limitation in subsection (b), this section
shall apply separately with respect to each debtor in a joint case.
(n) For assets in individual retirement accounts described in
section 408 or 408A of the Internal Revenue Code of 1986, other
than a simplified employee pension under section 408(k) of such
Code or a simple retirement account under section 408(p) of such
Code, the aggregate value of such assets exempted under this
section, without regard to amounts attributable to rollover
contributions under section 402(c), 402(e)(6), 403(a)(4),
403(a)(5), and 403(b)(8) of the Internal Revenue Code of 1986, and
earnings thereon, shall not exceed $1,000,000 in a case filed by a
debtor who is an individual, except that such amount may be
increased if the interests of justice so require.
(o) For purposes of subsection (b)(3)(A), and notwithstanding
subsection (a), the value of an interest in –
(1) real or personal property that the debtor or a dependent of
the debtor uses as a residence;
(2) a cooperative that owns property that the debtor or a
dependent of the debtor uses as a residence;
(3) a burial plot for the debtor or a dependent of the debtor;
or
(4) real or personal property that the debtor or a dependent of
the debtor claims as a homestead;

shall be reduced to the extent that such value is attributable to
any portion of any property that the debtor disposed of in the 10-
year period ending on the date of the filing of the petition with
the intent to hinder, delay, or defraud a creditor and that the
debtor could not exempt, or that portion that the debtor could not
exempt, under subsection (b), if on such date the debtor had held
the property so disposed of.
(p)(1) Except as provided in paragraph (2) of this subsection and
sections 544 and 548, as a result of electing under subsection
(b)(3)(A) to exempt property under State or local law, a debtor may
not exempt any amount of interest that was acquired by the debtor
during the 1215-day period preceding the date of the filing of the
petition that exceeds in the aggregate $125,000 in value in –
(A) real or personal property that the debtor or a dependent of
the debtor uses as a residence;
(B) a cooperative that owns property that the debtor or a
dependent of the debtor uses as a residence;
(C) a burial plot for the debtor or a dependent of the debtor;
or
(D) real or personal property that the debtor or dependent of
the debtor claims as a homestead.

(2)(A) The limitation under paragraph (1) shall not apply to an
exemption claimed under subsection (b)(3)(A) by a family farmer for
the principal residence of such farmer.
(B) For purposes of paragraph (1), any amount of such interest
does not include any interest transferred from a debtor’s previous
principal residence (which was acquired prior to the beginning of
such 1215-day period) into the debtor’s current principal
residence, if the debtor’s previous and current residences are
located in the same State.
(q)(1) As a result of electing under subsection (b)(3)(A) to
exempt property under State or local law, a debtor may not exempt
any amount of an interest in property described in subparagraphs
(A), (B), (C), and (D) of subsection (p)(1) which exceeds in the
aggregate $125,000 if –
(A) the court determines, after notice and a hearing, that the
debtor has been convicted of a felony (as defined in section 3156
of title 18), which under the circumstances, demonstrates that
the filing of the case was an abuse of the provisions of this
title; or
(B) the debtor owes a debt arising from –
(i) any violation of the Federal securities laws (as defined
in section 3(a)(47) of the Securities Exchange Act of 1934),
any State securities laws, or any regulation or order issued
under Federal securities laws or State securities laws;
(ii) fraud, deceit, or manipulation in a fiduciary capacity
or in connection with the purchase or sale of any security
registered under section 12 or 15(d) of the Securities Exchange
Act of 1934 or under section 6 of the Securities Act of 1933;
(iii) any civil remedy under section 1964 of title 18; or
(iv) any criminal act, intentional tort, or willful or
reckless misconduct that caused serious physical injury or
death to another individual in the preceding 5 years.

(2) Paragraph (1) shall not apply to the extent the amount of an
interest in property described in subparagraphs (A), (B), (C), and
(D) of subsection (p)(1) is reasonably necessary for the support of
the debtor and any dependent of the debtor.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2586; Pub. L. 98-353, title
III, Secs. 306, 453, July 10, 1984, 98 Stat. 353, 375; Pub. L. 99-
554, title II, Sec. 283(i), Oct. 27, 1986, 100 Stat. 3117; Pub. L.
101-647, title XXV, Sec. 2522(b), Nov. 29, 1990, 104 Stat. 4866;
Pub. L. 103-394, title I, Sec. 108(d), title III, Secs. 303,
304(d), 310, title V, Sec. 501(d)(12), Oct. 22, 1994, 108 Stat.
4112, 4132, 4133, 4137, 4145; Pub. L. 106-420, Sec. 4, Nov. 1,
2000, 114 Stat. 1868; Pub. L. 109-8, title II, Secs. 216, 224(a),
(e)(1), title III, Secs. 307, 308, 313(a), 322(a), Apr. 20, 2005,
119 Stat. 55, 62, 65, 81, 87, 96; Pub. L. 111-327, Sec. 2(a)(17),
Dec. 22, 2010, 124 Stat. 3559.)

-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 522 of the House amendment represents a compromise on the
issue of exemptions between the position taken in the House bill,
and that taken in the Senate amendment. Dollar amounts specified in
section 522(d) of the House bill have been reduced from amounts as
contained in H.R. 8200 as passed by the House. The States may, by
passing a law, determine whether the Federal exemptions will apply
as an alternative to State exemptions in bankruptcy cases.
Section 522(c)(1) tracks the House bill and provides that
dischargeable tax claims may not be collected out of exempt
property.
Section 522(f)(2) is derived from the Senate amendment
restricting the debtor to avoidance of nonpossessory, nonpurchase
money security interests.
Exemptions: Section 522(c)(1) of the House amendment adopts a
provision contained in the House bill that dischargeable taxes
cannot be collected from exempt assets. This changes present law,
which allows collection of dischargeable taxes from exempt
property, a rule followed in the Senate amendment. Nondischargeable
taxes, however, will continue to the [be] collectable out of exempt
property. It is anticipated that in the next session Congress will
review the exemptions from levy currently contained in the Internal
Revenue Code [title 26] with a view to increasing the exemptions to
more realistic levels.

SENATE REPORT NO. 95-989
Subsection (a) of this section defines two terms: “dependent”
includes the debtor’s spouse, whether or not actually dependent;
and “value” means fair market value as of the date of the filing of
the petition.
Subsection (b) tracks current law. It permits a debtor the
exemptions to which he is entitled under other Federal law and the
law of the State of his domicile. Some of the items that may be
exempted under Federal laws other than title 11 include:
Foreign Service Retirement and Disability payments, 22 U.S.C.
1104; (!1)

Social security payments, 42 U.S.C. 407;
Injury or death compensation payments from war risk hazards, 42
U.S.C. 1717;
Wages of fishermen, seamen, and apprentices, 46 U.S.C. 601;
(!2)

Civil service retirement benefits, 5 U.S.C. 729, 2265; (!3)

Longshoremen’s and Harbor Workers’ Compensation Act death and
disability benefits, 33 U.S.C. 916;
Railroad Retirement Act annuities and pensions, 45 U.S.C.
228(L); (!4)

Veterans benefits, 45 U.S.C. 352(E); (!5)

Special pensions paid to winners of the Congressional Medal of
Honor, 38 U.S.C. 3101; (!6) and

Federal homestead lands on debts contracted before issuance of
the patent, 43 U.S.C. 175.
He may also exempt an interest in property in which the debtor had
an interest as a tenant by the entirety or joint tenant to the
extent that interest would have been exempt from process under
applicable nonbankruptcy law.
Under proposed section 541, all property of the debtor becomes
property of the estate, but the debtor is permitted to exempt
certain property from property of the estate under this section.
Property may be exempted even if it is subject to a lien, but only
the unencumbered portion of the property is to be counted in
computing the “value” of the property for the purposes of
exemption.
As under current law, the debtor will be permitted to convert
nonexempt property into exempt property before filing a bankruptcy
petition. The practice is not fraudulent as to creditors, and
permits the debtor to make full use of the exemptions to which he
is entitled under the law.
Subsection (c) insulates exempt property from prepetition claims
other than tax claims (whether or not dischargeable), and other
than alimony, maintenance, or support claims that are excepted from
discharge. The bankruptcy discharge does not prevent enforcement of
valid liens. The rule of Long v. Bullard, 117 U.S. 617 (1886), is
accepted with respect to the enforcement of valid liens on
nonexempt property as well as on exempt property. Cf. Louisville
Joint Stock Land Bank v. Radford, 295 U.S. 555, 583 (1935).
Subsection (c)(3) permits the collection of dischargeable taxes
from exempt assets. Only assets exempted from levy under Section
6334 of the Internal Revenue Code [title 26] or under applicable
state or local tax law cannot be applied to satisfy these tax
claims. This rule applies to prepetition tax claims against the
debtor regardless of whether the claims do or do not receive
priority and whether they are dischargeable or nondischargeable.
Thus, even if a tax is dischargeable vis-a-vis the debtor’s after-
acquired assets, it may nevertheless be collectible from exempt
property held by the estate. (Taxes incurred by the debtor’s estate
which are collectible as first priority administrative expenses are
not collectible from the debtor’s estate which are collectible as
first priority administrative expenses are not collectible from the
debtor’s exempt assets.)
Subsection (d) protects the debtor’s exemptions, either Federal
or State, by making unenforceable in a bankruptcy case a waiver of
exemptions or a waiver of the debtor’s avoiding powers under the
following subsections.
Subsection (e) protects the debtor’s exemptions, his discharge,
and thus his fresh start by permitting him to avoid certain liens
on exempt property. The debtor may avoid a judicial lien on any
property to the extent that the property could have been exempted
in the absence of the lien, and may similarly avoid a nonpurchase-
money security interest in certain household and personal goods.
The avoiding power is independent of any waiver of exemptions.
Subsection (f) gives the debtor the ability to exempt property
that the trustee recovers under one of the trustee’s avoiding
powers if the property was involuntarily transferred away from the
debtor (such as by the fixing of a judicial lien) and if the debtor
did not conceal the property. The debtor is also permitted to
exempt property that the trustee recovers as the result of the
avoiding of the fixing of certain security interests to the extent
that the debtor could otherwise have exempted the property.
Subsection (g) provides that if the trustee does not exercise an
avoiding power to recover a transfer of property that would be
exempt, the debtor may exercise it and exempt the property, if the
transfer was involuntary and the debtor did not conceal the
property. If the debtor wishes to preserve his right to pursue any
action under this provision, then he must intervene in any action
brought by the trustee based on the same cause of action. It is not
intended that the debtor be given an additional opportunity to
avoid a transfer or that the transferee should have to defend the
same action twice. Rather, the section is primarily designed to
give the debtor the rights the trustee could have, but has not,
pursued. The debtor is given no greater rights under this provision
than the trustee, and thus, the debtor’s avoiding powers under
proposed sections 544, 545, 547, and 548, are subject to proposed
546, as are the trustee’s powers.
These subsections are cumulative. The debtor is not required to
choose which he will use to gain an exemption. Instead, he may use
more than one in any particular instance, just as the trustee’s
avoiding powers are cumulative.
Subsection (h) permits recovery by the debtor of property
transferred by an avoided transfer from either the initial or
subsequent transferees. It also permits preserving a transfer for
the benefit of the debtor. In either event, the debtor may exempt
the property recovered or preserved.
Subsection (i) makes clear that the debtor may exempt property
under the avoiding subsections (f) and (h) only to the extent he
has exempted less property than allowed under subsection (b).
Subsection (j) makes clear that the liability of the debtor’s
exempt property is limited to the debtor’s aliquot share of the
costs and expenses recovery of property that the trustee recovers
and the debtor later exempts, and any costs and expenses of
avoiding a transfer by the debtor that the debtor has not already
paid.
Subsection (k) requires the debtor to file a list of property
that he claims as exempt from property of the estate. Absent an
objection to the list, the property is exempted. A dependent of the
debtor may file it and thus be protected if the debtor fails to
file the list.
Subsection (l) provides the rule for a joint case.

HOUSE REPORT NO. 95-595
Subsection (a) of this section defines two terms: “dependent”
includes the debtor’s spouse, whether or not actually dependent;
and “value” means fair market value as of the date of the filing of
the petition.
Subsection (b), the operative subsection of this section, is a
significant departure from present law. It permits an individual
debtor in a bankruptcy case a choice between exemption systems. The
debtor may choose the Federal exemptions prescribed in subsection
(d), or he may choose the exemptions to which he is entitled under
other Federal law and the law of the State of his domicile. If the
debtor chooses the latter, some of the items that may be exempted
under other Federal laws include:
– Foreign Service Retirement and Disability payments, 22 U.S.C.
1104; (!7)

– Social security payments, 42 U.S.C. 407;
– Injury or death compensation payments from war risk hazards,
42 U.S.C. 1717;
– Wages of fishermen, seamen, and apprentices, 46 U.S.C. 601;
(!8)

– Civil service retirement benefits, 5 U.S.C. 729, 2265; (!9)

– Longshoremen’s and Harbor Workers’ Compensation Act death and
disability benefits, 33 U.S.C. 916;
– Railroad Retirement Act annuities and pensions, 45 U.S.C.
228(l); (!10)

– Veterans benefits, 45 U.S.C. 352(E); (!11)

– Special pensions paid to winners of the Congressional Medal of
Honor, 38 U.S.C. 3101; (!12) and

– Federal homestead lands on debts contracted before issuance of
the patent, 43 U.S.C. 175.
He may also exempt an interest in property in which the debtor had
an interest as a tenant by the entirety or joint tenant to the
extent that interest would have been exempt from process under
applicable nonbankruptcy law. The Rules will provide for the
situation where the debtor’s choice of exemption, Federal or State,
was improvident and should be changed, for example, where the court
has ruled against the debtor with respect to a major exemption.
Under proposed 11 U.S.C. 541, all property of the debtor becomes
property of the estate, but the debtor is permitted to exempt
certain property from property of the estate under this section.
Property may be exempted even if it is subject to a lien, but only
the unencumbered portion of the property is to be counted in
computing the “value” of the property for the purposes of
exemption. Thus, for example, a residence worth $30,000 with a
mortgage of $25,000 will be exemptable [sic] to the extent of
$5,000. This follows current law. The remaining value of the
property will be dealt with in the bankruptcy case as is any
interest in property that is subject to a lien.
As under current law, the debtor will be permitted to convert
nonexempt property into exempt property before filing a bankruptcy
petition. See Hearings, pt. 3, at 1355-58. The practice is not
fraudulent as to creditors and permits the debtor to make full use
of the exemptions to which he is entitled under the law.
Subsection (c) insulates exempt property from prepetition claims,
except tax and alimony, maintenance, or support claims that are
excepted from discharge. The bankruptcy discharge will not prevent
enforcement of valid liens. The rule of Long v. Bullard, 117 U.S.
617 (1886) [6 S.Ct. 917, 29 L.Ed. 1004], is accepted with respect
to the enforcement of valid liens on nonexempt property as well as
on exempt property. Cf. Louisville Joint Stock Land Bank v.
Radford, 295 U.S. 555, 583 (1935) [55 S.Ct. 854].
Subsection (d) specifies the Federal exemptions to which the
debtor is entitled. They are derived in large part from the Uniform
Exemptions Act, promulgated by the Commissioners of Uniform State
Laws in August, 1976. Eleven categories of property are exempted.
First is a homestead to the extent of $10,000, which may be claimed
in real or personal property that the debtor or a dependent of the
debtor uses as a residence. Second, the debtor may exempt a motor
vehicle to the extent of $1500. Third, the debtor may exempt
household goods, furnishings, clothing, and similar household
items, held primarily for the personal, family, or household use of
the debtor or a dependent of the debtor. “Animals” includes all
animals, such as pets, livestock, poultry, and fish, if they are
held primarily for personal, family or household use. The
limitation for third category items is $300 on any particular item.
The debtor may also exempt up to $750 of personal jewelry.
Paragraph (5) permits the exemption of $500, plus any unused
amount of the homestead exemption, in any property, in order not to
discriminate against the nonhomeowner. Paragraph (6) grants the
debtor up to $1000 in implements, professional books, or tools, of
the trade of the debtor or a dependent. Paragraph (7) exempts a
life insurance contract, other than a credit life insurance
contract, owned by the debtor. This paragraph refers to the life
insurance contract itself. It does not encompass any other rights
under the contract, such as the right to borrow out the loan value.
Because of this provision, the trustee may not surrender a life
insurance contract, which remains property of the debtor if he
chooses the Federal exemptions. Paragraph (8) permits the debtor to
exempt up to $5000 in loan value in a life insurance policy owned
by the debtor under which the debtor or an individual of whom the
debtor is a dependent is the insured. The exemption provided by
this paragraph and paragraph (7) will also include the debtor’s
rights in a group insurance certificate under which the insured is
an individual of whom the debtor is a dependent (assuming the
debtor has rights in the policy that could be exempted) or the
debtor. A trustee is authorized to collect the entire loan value on
every life insurance policy owned by the debtor as property of the
estate. First, however, the debtor will choose which policy or
policies under which the loan value will be exempted. The $5000
figure is reduced by the amount of any automatic premium loan
authorized after the date of the filing of the petition under
section 542(d). Paragraph (9) exempts professionally prescribed
health aids.
Paragraph (10) exempts certain benefits that are akin to future
earnings of the debtor. These include social security, unemployment
compensation, or public assistance benefits, veteran’s benefits,
disability, illness, or unemployment benefits, alimony, support, or
separate maintenance (but only to the extent reasonably necessary
for the support of the debtor and any dependents of the debtor),
and benefits under a certain stock bonus, pension, profitsharing,
annuity or similar plan based on illness, disability, death, age or
length of service. Paragraph (11) allows the debtor to exempt
certain compensation for losses. These include crime victim’s
reparation benefits, wrongful death benefits (with a reasonably
necessary for support limitation), life insurance proceeds (same
limitation), compensation for bodily injury, not including pain and
suffering ($10,000 limitation), and loss of future earnings
payments (support limitation). This provision in subparagraph
(D)(11) is designed to cover payments in compensation of actual
bodily injury, such as the loss of a limb, and is not intended to
include the attendant costs that accompany such a loss, such as
medical payments, pain and suffering, or loss of earnings. Those
items are handled separately by the bill.
Subsection (e) protects the debtor’s exemptions, either Federal
or State, by making unenforceable in a bankruptcy case a waiver of
exemptions or a waiver of the debtor’s avoiding powers under the
following subsections.
Subsection (f) protects the debtor’s exemptions, his discharge,
and thus his fresh start by permitting him to avoid certain liens
on exempt property. The debtor may avoid a judicial lien on any
property to the extent that the property could have been exempted
in the absence of the lien, and may similarly avoid a nonpurchase-
money security interest in certain household and personal goods.
The avoiding power is independent of any waiver of exemptions.
Subsection (g) gives the debtor the ability to exempt property
that the trustee recovers under one of the trustee’s avoiding
powers if the property was involuntarily transferred away from the
debtor (such as by the fixing of a judicial lien) and if the debtor
did not conceal the property. The debtor is also permitted to
exempt property that the trustee recovers as the result of the
avoiding of the fixing of certain security interests to the extent
that the debtor could otherwise have exempted the property.
If the trustee does not pursue an avoiding power to recover a
transfer of property that would be exempt, the debtor may pursue it
and exempt the property, if the transfer was involuntary and the
debtor did not conceal the property. If the debtor wishes to
preserve his right to pursue an action under this provision, then
he must intervene in any action brought by the trustee based on the
same cause of action. It is not intended that the debtor be given
an additional opportunity to avoid a transfer or that the
transferee have to defend the same action twice. Rather, the
section is primarily designed to give the debtor the rights the
trustee could have pursued if the trustee chooses not to pursue
them. The debtor is given no greater rights under this provision
than the trustee, and thus the debtor’s avoiding powers under
proposed 11 U.S.C. 544, 545, 547, and 548, are subject to proposed
11 U.S.C. 546, as are the trustee’s powers.
These subsections are cumulative. The debtor is not required to
choose which he will use to gain an exemption. Instead, he may use
more than one in any particular instance, just as the trustee’s
avoiding powers are cumulative.
Subsection (i) permits recovery by the debtor of property
transferred in an avoided transfer from either the initial or
subsequent transferees. It also permits preserving a transfer for
the benefit of the debtor. Under either case the debtor may exempt
the property recovered or preserved.
Subsection (k) makes clear that the debtor’s aliquot share of the
costs and expenses [for] recovery of property that the trustee
recovers and the debtor later exempts, and any costs and expenses
of avoiding a transfer by the debtor that the debtor has not
already paid.
Subsection (l) requires the debtor to file a list of property
that he claims as exempt from property of the estate. Absent an
objection to the list, the property is exempted. A dependent of the
debtor may file it and thus be protected if the debtor fails to
file the list.
Subsection (m) requires the clerk of the bankruptcy court to give
notice of any exemptions claimed under subsection (l), in order
that parties in interest may have an opportunity to object to the
claim.
Subsection (n) provides the rule for a joint case: each debtor is
entitled to the Federal exemptions provided under this section or
to the State exemptions, whichever the debtor chooses.

-REFTEXT-
REFERENCES IN TEXT
The Federal Rules of Bankruptcy Procedure, referred to in subsec.
(b)(1), are set out in the Appendix to this title.
The Internal Revenue Code of 1986, referred to in subsecs.
(b)(3)(C), (4), (d)(10)(E)(iii), (12), and (n), is classified
generally to Title 26, Internal Revenue Code.
Sections 3(a)(47), 12, and 15(d) of the Securities Exchange Act
of 1934, referred to in subsec. (q)(1)(B)(i), (ii), are classified
to sections 78c(a)(47), 78l, and 78o(d), respectively, of Title 15,
Commerce and Trade.
Section 6 of the Securities Exchange Act of 1933, referred to in
subsec. (q)(1)(B)(ii), is classified to section 77f of Title 15,
Commerce and Trade.

-MISC2-
AMENDMENTS
2010 – Subsec. (b)(3)(A). Pub. L. 111-327, Sec. 2(a)(17)(A),
substituted “petition to the place” for “petition at the place” and
“located in a single State” for “located at a single State”.
Subsec. (c)(1). Pub. L. 111-327, Sec. 2(a)(17)(B), substituted
“such paragraph” for “section 523(a)(5)”.
2005 – Subsec. (b). Pub. L. 109-8, Sec. 224(a)(1)(B)-(F),
designated introductory provisions of subsec. (b) as par. (1),
substituted “paragraph (3)” for “paragraph (2)” in two places and
“paragraph (2)” for “paragraph (1)” wherever appearing, struck out
“Such property is – ” after “case is filed.”, and struck out former
par. (1) which read: “property that is specified under subsection
(d) of this section, unless the State law that is applicable to the
debtor under paragraph (2)(A) of this subsection specifically does
not so authorize; or, in the alternative,”.
Subsec. (b)(2). Pub. L. 109-8, Sec. 224(a)(1)(B), added par. (2).
Former par. (2) redesignated (3).
Subsec. (b)(2)(C). Pub. L. 109-8, Sec. 224(a)(1)(A)(i)-(iii),
added subpar. (C).
Subsec. (b)(3). Pub. L. 109-8, Sec. 307(2), inserted “If the
effect of the domiciliary requirement under subparagraph (A) is to
render the debtor ineligible for any exemption, the debtor may
elect to exempt property that is specified under subsection (d).”
at end.
Pub. L. 109-8, Sec. 224(a)(1)(A)(iv), redesignated par. (2) as
(3) and inserted introductory provisions.
Subsec. (b)(3)(A). Pub. L. 109-8, Sec. 308(1), inserted “subject
to subsections (o) and (p),” before “any property”.
Pub. L. 109-8, Sec. 307(1), substituted “730 days” for “180 days”
and “or if the debtor’s domicile has not been located at a single
State for such 730-day period, the place in which the debtor’s
domicile was located for 180 days immediately preceding the 730-day
period or for a longer portion of such 180-day period than in any
other place” for “, or for a longer portion of such 180-day period
than in any other place”.
Subsec. (b)(4). Pub. L. 109-8, Sec. 224(a)(1)(G), added par. (4).
Subsec. (c)(1). Pub. L. 109-8, Sec. 216(1), added par. (1) and
struck out former par. (1) which read as follows: “a debt of a kind
specified in section 523(a)(1) or 523(a)(5) of this title;”.
Subsec. (d). Pub. L. 109-8, Sec. 224(a)(2)(A), substituted
“subsection (b)(2)” for “subsection (b)(1)” in introductory
provisions.
Subsec. (d)(12). Pub. L. 109-8, Sec. 224(a)(2)(B), added par.
(12).
Subsec. (f)(1)(A). Pub. L. 109-8, Sec. 216(2), substituted “a
debt of a kind that is specified in section 523(a)(5); or” for “a
debt –
“(i) to a spouse, former spouse, or child of the debtor, for
alimony to, maintenance for, or support of such spouse or child,
in connection with a separation agreement, divorce decree or
other order of a court of record, determination made in
accordance with State or territorial law by a governmental unit,
or property settlement agreement; and
“(ii) to the extent that such debt –
“(I) is not assigned to another entity, voluntarily, by
operation of law, or otherwise; and
“(II) includes a liability designated as alimony,
maintenance, or support, unless such liability is actually in
the nature of alimony, maintenance or support.; or”.
Subsec. (f)(4). Pub. L. 109-8, Sec. 313(a), added par. (4).
Subsec. (g)(2). Pub. L. 109-8, Sec. 216(3), substituted
“subsection (f)(1)(B)” for “subsection (f)(2)”.
Subsec. (n). Pub. L. 109-8, Sec. 224(e)(1), added subsec. (n).
Subsec. (o). Pub. L. 109-8, Sec. 308(2), added subsec. (o).
Subsecs. (p), (q). Pub. L. 109-8, Sec. 322(a), added subsecs. (p)
and (q).
2000 – Subsec. (c)(4). Pub. L. 106-420 added par. (4).
1994 – Subsec. (b). Pub. L. 103-394, Sec. 501(d)(12)(A),
substituted “Federal Rules of Bankruptcy Procedure” for “Bankruptcy
Rules”.
Subsec. (d)(1) to (6). Pub. L. 103-394, Sec. 108(d)(1)-(6),
substituted “$15,000″ for “$7,500″ in par. (1), “$2,400″ for
“$1,200″ in par. (2), “$400″ and “$8,000″ for “$200″ and “$4,000″,
respectively, in par. (3), “$1,000″ for “$500″ in par. (4), “$800″
and “$7,500″ for “$400″ and “$3,750″, respectively, in par. (5),
and “$1,500″ for “$750″ in par. (6).
Subsec. (d)(8). Pub. L. 103-394, Sec. 108(d)(7), substituted
“$8,000″ for “$4,000″.
Subsec. (d)(10)(E)(iii). Pub. L. 103-394, Sec. 501(d)(12)(B),
substituted “or 408″ for “408, or 409″ and “Internal Revenue Code
of 1986″ for “Internal Revenue Code of 1954 (26 U.S.C. 401(a),
403(a), 403(b), 408, or 409)”.
Subsec. (d)(11)(D). Pub. L. 103-394, Sec. 108(d)(8), substituted
“$15,000″ for “$7,500″.
Subsec. (f)(1). Pub. L. 103-394, Secs. 303(3), 310(1), designated
existing provisions as par. (1) and inserted “but subject to
paragraph (3)” after “waiver of exemptions” in introductory
provisions. Former par. (1) redesignated subpar. (A) of par. (1).
Subsec. (f)(1)(A). Pub. L. 103-394, Secs. 303(2), 304(d),
redesignated par. (1) as subpar. (A) of par. (1) and inserted “,
other than a judicial lien that secures a debt –
“(i) to a spouse, former spouse, or child of the debtor, for
alimony to, maintenance for, or support of such spouse or child,
in connection with a separation agreement, divorce decree or
other order of a court of record, determination made in
accordance with State or territorial law by a governmental unit,
or property settlement agreement; and
“(ii) to the extent that such debt –
“(I) is not assigned to another entity, voluntarily, by
operation of law, or otherwise; and
“(II) includes a liability designated as alimony,
maintenance, or support, unless such liability is actually in
the nature of alimony, maintenance or support.”
Subsec. (f)(1)(B). Pub. L. 103-394, Sec. 303(1), redesignated
par. (2) as subpar. (B) of par. (1) and subpars. (A) to (C) of par.
(2) as cls. (i) to (iii), respectively, of subpar. (B) of par. (1).
Subsec. (f)(2). Pub. L. 103-394, Sec. 303(4), added par. (2).
Former par. (2) redesignated subpar. (B) of par. (1).
Subsec. (f)(3). Pub. L. 103-394, Sec. 310(2), added par. (3).
1990 – Subsec. (c)(3). Pub. L. 101-647 added par. (3).
1986 – Subsec. (h)(1). Pub. L. 99-554, Sec. 283(i)(1),
substituted “553 of this title” for “553 of this tittle”.
Subsec. (i)(2). Pub. L. 99-554, Sec. 283(i)(2), substituted
“this” for “his” after “subsection (g) of”.
1984 – Subsec. (a)(2). Pub. L. 98-353, Sec. 453(a), inserted “or,
with respect to property that becomes property of an estate after
such date, as of the date such property becomes property of the
estate”.
Subsec. (b). Pub. L. 98-353, Sec. 306(a), inserted provision that
in joint cases filed under section 302 of this title and individual
cases filed under section 301 or 303 of this title by or against
debtors who are husband and wife, and whose estates are ordered to
be jointly administered under Rule 1015(b) of the Bankruptcy Rules,
one debtor may not elect to exempt property listed in paragraph (1)
and the other debtor elect to exempt property listed in paragraph
(2) of this subsection, but that if the parties cannot agree on the
alternative to be elected, they shall be deemed to elect paragraph
(1), where such election is permitted under the law of the
jurisdiction where the case is filed.
Subsec. (c). Pub. L. 98-353, Sec. 453(b), amended subsec. (c)
generally. Prior to amendment, subsec. (c) read as follows: “Unless
the case is dismissed, property exempted under this section is not
liable during or after the case for any debt of the debtor that
arose, or that is determined under section 502 of this title as if
such claim had arisen before the commencement of the case, except –

“(1) a debt of a kind specified in section 523(a)(1) or section
523(a)(5) of this title; or
“(2) a lien that is –
“(A) not avoided under section 544, 545, 547, 548, 549, or
724(a) of this title;
“(B) not voided under section 506(d) of this title; or
“(C)(i) a tax lien, notice of which is properly filed; and
“(ii) avoided under section 545(2) of this title.”
Subsec. (d)(3). Pub. L. 98-353, Sec. 306(b), inserted “or $4,000
in aggregate value”.
Subsec. (d)(5). Pub. L. 98-353, Sec. 306(c), amended par. (5)
generally. Prior to amendment, par. (5) read as follows: “The
debtor’s aggregate interest, not to exceed in value $400 plus any
unused amount of the exemption provided under paragraph (1) of this
subsection, in any property.”
Subsec. (e). Pub. L. 98-353, Sec. 453(c), substituted “an
exemption” for “exemptions”.
Subsec. (m). Pub. L. 98-353, Sec. 306(d), substituted “Subject to
the limitation in subsection (b), this section shall apply
separately with respect to each debtor in a joint case” for “This
section shall apply separately with respect to each debtor in a
joint case”.

EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, with amendments by sections 216, 224(a), (e)(1), 307, and
313(a) of Pub. L. 109-8 not applicable with respect to cases
commenced under this title before such effective date, except as
otherwise provided, and amendments by sections 308 and 322(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 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.

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. (d)(1), dollar amount “20,200” was adjusted to
“21,625”; in subsec. (d)(2), dollar amount “3,225” was adjusted to
“3,450”; in subsec. (d)(3), dollar amounts “525” and “10,775” were
adjusted to “550” and “11,525”, respectively; in subsec. (d)(4),
dollar amount “1,350” was adjusted to “1,450”; in subsec. (d)(5),
dollar amounts “1,075” and “10,125” were adjusted to “1,150” and
“10,825”, respectively; in subsec. (d)(6), dollar amount “2,025”
was adjusted to “2,175”; in subsec. (d)(8), dollar amount “10,775”
was adjusted to “11,525”; in subsec. (d)(11)(D), dollar amount
“20,200” was adjusted to “21,625”; in subsec. (f)(3)(B), dollar
amount “5,475” was adjusted to “5,850”; in subsec. (f)(4)(B),
dollar amount “550” was adjusted to “600” each time it appeared; in
subsec. (n), dollar amount “1,095,000” was adjusted to “1,171,650”;
in subsec. (p)(1), dollar amount “136,875” was adjusted to
“146,450”; and, in subsec. (q)(1), dollar amount “136,875” was
adjusted to “146,450”. 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. (d)(1), dollar amount “18,450” was adjusted to
“20,200”; in subsec. (d)(2), dollar amount “2,950” was adjusted to
“3,225”; in subsec. (d)(3), dollar amounts “475” and “9,850” were
adjusted to “525” and “10,775”, respectively; in subsec. (d)(4),
dollar amount “1,225” was adjusted to “1,350”; in subsec. (d)(5),
dollar amounts “975” and “9,250” were adjusted to “1,075” and
“10,125”, respectively; in subsec. (d)(6), dollar amount “1,850”
was adjusted to “2,025”; in subsec. (d)(8), dollar amount “9,850”
was adjusted to “10,775”; in subsec. (d)(11)(D), dollar amount
“18,450” was adjusted to “20,200”; in subsec. (f)(3), dollar amount
“5,000” was adjusted to “5,475”; in subsec. (f)(4), dollar amount
“500” was adjusted to “550” each time it appeared; in subsec. (n),
dollar amount “1,000,000” was adjusted to “1,095,000”; in subsec.
(p), dollar amount “125,000” was adjusted to “136,875”; and, in
subsec. (q), dollar amount “125,000” was adjusted to “136,875”.
By notice dated Feb. 18, 2004, 69 F.R. 8482, effective Apr. 1,
2004, in subsec. (d)(1), dollar amount “17,425” was adjusted to
“18,450”; in subsec. (d)(2), dollar amount “2,775” was adjusted to
“2,950”; in subsec. (d)(3), dollar amounts “450” and “9,300” were
adjusted to “475” and “9,850”, respectively; in subsec. (d)(4),
dollar amount “1,150” was adjusted to “1,225”; in subsec. (d)(5),
dollar amounts “925” and “8,725” were adjusted to “975” and
“9,250”, respectively; in subsec. (d)(6), dollar amount “1,750” was
adjusted to “1,850”; in subsec. (d)(8), dollar amount “9,300” was
adjusted to “9,850”; and, in subsec. (d)(11)(D), dollar amount
“17,425” was adjusted to “18,450”.
By notice dated Feb. 13, 2001, 66 F.R. 10910, effective Apr. 1,
2001, in subsec. (d)(1), dollar amount “16,150” was adjusted to
“17,425”; in subsec. (d)(2), dollar amount “2,575” was adjusted to
“2,775”; in subsec. (d)(3), dollar amounts “425” and “8,625” were
adjusted to “450” and “9,300”, respectively; in subsec. (d)(4),
dollar amount “1,075” was adjusted to “1,150”; in subsec. (d)(5),
dollar amounts “850” and “8,075” were adjusted to “925” and
“8,725”, respectively; in subsec. (d)(6), dollar amount “1,625” was
adjusted to “1,750”; in subsec. (d)(8), dollar amount “8,625” was
adjusted to “9,300”; and, in subsec. (d)(11)(D), dollar amount
“16,150” was adjusted to “17,425”.
By notice dated Feb. 3, 1998, 63 F.R. 7179, effective Apr. 1,
1998, in subsec. (d)(1), dollar amount “15,000” was adjusted to
“16,150”; in subsec. (d)(2), dollar amount “2,400” was adjusted to
“2,575”; in subsec. (d)(3), dollar amounts “400” and “8,000” were
adjusted to “425” and “8,625”, respectively; in subsec. (d)(4),
dollar amount “1,000” was adjusted to “1,075”; in subsec. (d)(5),
dollar amounts “800” and “7,500” were adjusted to “850” and
“8,075”, respectively; in subsec. (d)(6), dollar amount “1,500” was
adjusted to “1,625”; in subsec. (d)(8), dollar amount “8,000” was
adjusted to “8,625”; and, in subsec. (d)(11)(D), dollar amount
“15,000” was adjusted to “16,150”.

-FOOTNOTE-

(!1) Replaced by 22 U.S.C. 4060(c).

(!2) Replaced by 46 U.S.C. 11108, 11109.

(!3) Replaced by 5 U.S.C. 8346.

(!4) Replaced by 45 U.S.C. 231m.

(!5) Railroad unemployment benefits are covered by 45 U.S.C.
352(e).

(!6) Veterans benefits generally are covered by 38 U.S.C. 3101
[now 5301].

(!7) Replaced by 22 U.S.C. 4060(c).

(!8) Replaced by 46 U.S.C. 11108, 11109.

(!9) Replaced by 5 U.S.C. 8346.

(!10) Replaced by 45 U.S.C. 231m.

(!11) Railroad unemployment benefits are covered by 45 U.S.C.
352(e).

(!12) Veterans benefits generally are covered by 38 U.S.C. 3101
[now 5301].

-End-

-CITE-
11 USC Sec. 523 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER II – DEBTOR’S DUTIES AND BENEFITS

-HEAD-
Sec. 523. Exceptions to discharge

-STATUTE-
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or
1328(b) of this title does not discharge an individual debtor from
any debt –
(1) for a tax or a customs duty –
(A) of the kind and for the periods specified in section
507(a)(3) or 507(a)(8) of this title, whether or not a claim
for such tax was filed or allowed;
(B) with respect to which a return, or equivalent report or
notice, if required –
(i) was not filed or given; or
(ii) was filed or given after the date on which such
return, report, or notice was last due, under applicable law
or under any extension, and after two years before the date
of the filing of the petition; or

(C) with respect to which the debtor made a fraudulent return
or willfully attempted in any manner to evade or defeat such
tax;

(2) for money, property, services, or an extension, renewal, or
refinancing of credit, to the extent obtained by –
(A) false pretenses, a false representation, or actual fraud,
other than a statement respecting the debtor’s or an insider’s
financial condition;
(B) use of a statement in writing –
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial
condition;
(iii) on which the creditor to whom the debtor is liable
for such money, property, services, or credit reasonably
relied; and
(iv) that the debtor caused to be made or published with
intent to deceive; or

(C)(i) for purposes of subparagraph (A) –
(I) consumer debts owed to a single creditor and
aggregating more than $500 for luxury goods or services
incurred by an individual debtor on or within 90 days before
the order for relief under this title are presumed to be
nondischargeable; and
(II) cash advances aggregating more than $750 that are
extensions of consumer credit under an open end credit plan
obtained by an individual debtor on or within 70 days before
the order for relief under this title, are presumed to be
nondischargeable; and

(ii) for purposes of this subparagraph –
(I) the terms “consumer”, “credit”, and “open end credit
plan” have the same meanings as in section 103 of the Truth
in Lending Act; and
(II) the term “luxury goods or services” does not include
goods or services reasonably necessary for the support or
maintenance of the debtor or a dependent of the debtor;

(3) neither listed nor scheduled under section 521(a)(1) of
this title, with the name, if known to the debtor, of the
creditor to whom such debt is owed, in time to permit –
(A) if such debt is not of a kind specified in paragraph (2),
(4), or (6) of this subsection, timely filing of a proof of
claim, unless such creditor had notice or actual knowledge of
the case in time for such timely filing; or
(B) if such debt is of a kind specified in paragraph (2),
(4), or (6) of this subsection, timely filing of a proof of
claim and timely request for a determination of
dischargeability of such debt under one of such paragraphs,
unless such creditor had notice or actual knowledge of the case
in time for such timely filing and request;

(4) for fraud or defalcation while acting in a fiduciary
capacity, embezzlement, or larceny;
(5) for a domestic support obligation;
(6) for willful and malicious injury by the debtor to another
entity or to the property of another entity;
(7) to the extent such debt is for a fine, penalty, or
forfeiture payable to and for the benefit of a governmental unit,
and is not compensation for actual pecuniary loss, other than a
tax penalty –
(A) relating to a tax of a kind not specified in paragraph
(1) of this subsection; or
(B) imposed with respect to a transaction or event that
occurred before three years before the date of the filing of
the petition;

(8) unless excepting such debt from discharge under this
paragraph would impose an undue hardship on the debtor and the
debtor’s dependents, for –
(A)(i) an educational benefit overpayment or loan made,
insured, or guaranteed by a governmental unit, or made under
any program funded in whole or in part by a governmental unit
or nonprofit institution; or
(ii) an obligation to repay funds received as an educational
benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified education
loan, as defined in section 221(d)(1) of the Internal Revenue
Code of 1986, incurred by a debtor who is an individual;

(9) for death or personal injury caused by the debtor’s
operation of a motor vehicle, vessel, or aircraft if such
operation was unlawful because the debtor was intoxicated from
using alcohol, a drug, or another substance;
(10) that was or could have been listed or scheduled by the
debtor in a prior case concerning the debtor under this title or
under the Bankruptcy Act in which the debtor waived discharge, or
was denied a discharge under section 727(a)(2), (3), (4), (5),
(6), or (7) of this title, or under section 14c(1), (2), (3),
(4), (6), or (7) of such Act;
(11) provided in any final judgment, unreviewable order, or
consent order or decree entered in any court of the United States
or of any State, issued by a Federal depository institutions
regulatory agency, or contained in any settlement agreement
entered into by the debtor, arising from any act of fraud or
defalcation while acting in a fiduciary capacity committed with
respect to any depository institution or insured credit union;
(12) for malicious or reckless failure to fulfill any
commitment by the debtor to a Federal depository institutions
regulatory agency to maintain the capital of an insured
depository institution, except that this paragraph shall not
extend any such commitment which would otherwise be terminated
due to any act of such agency;
(13) for any payment of an order of restitution issued under
title 18, United States Code;
(14) incurred to pay a tax to the United States that would be
nondischargeable pursuant to paragraph (1);
(14A) incurred to pay a tax to a governmental unit, other than
the United States, that would be nondischargeable under paragraph
(1);
(14B) incurred to pay fines or penalties imposed under Federal
election law;
(15) to a spouse, former spouse, or child of the debtor and not
of the kind described in paragraph (5) that is incurred by the
debtor in the course of a divorce or separation or in connection
with a separation agreement, divorce decree or other order of a
court of record, or a determination made in accordance with State
or territorial law by a governmental unit;
(16) for a fee or assessment that becomes due and payable after
the order for relief to a membership association with respect to
the debtor’s interest in a unit that has condominium ownership,
in a share of a cooperative corporation, or a lot in a homeowners
association, for as long as the debtor or the trustee has a
legal, equitable, or possessory ownership interest in such unit,
such corporation, or such lot, but nothing in this paragraph
shall except from discharge the debt of a debtor for a membership
association fee or assessment for a period arising before entry
of the order for relief in a pending or subsequent bankruptcy
case;
(17) for a fee imposed on a prisoner by any court for the
filing of a case, motion, complaint, or appeal, or for other
costs and expenses assessed with respect to such filing,
regardless of an assertion of poverty by the debtor under
subsection (b) or (f)(2) of section 1915 of title 28 (or a
similar non-Federal law), or the debtor’s status as a prisoner,
as defined in section 1915(h) of title 28 (or a similar non-
Federal law);
(18) owed to a pension, profit-sharing, stock bonus, or other
plan established under section 401, 403, 408, 408A, 414, 457, or
501(c) of the Internal Revenue Code of 1986, under –
(A) a loan permitted under section 408(b)(1) of the Employee
Retirement Income Security Act of 1974, or subject to section
72(p) of the Internal Revenue Code of 1986; or
(B) a loan from a thrift savings plan permitted under
subchapter III of chapter 84 of title 5, that satisfies the
requirements of section 8433(g) of such title;

but nothing in this paragraph may be construed to provide that
any loan made under a governmental plan under section 414(d), or
a contract or account under section 403(b), of the Internal
Revenue Code of 1986 constitutes a claim or a debt under this
title; or
(19) that –
(A) is for –
(i) the violation of any of the Federal securities laws (as
that term is defined in section 3(a)(47) of the Securities
Exchange Act of 1934), any of the State securities laws, or
any regulation or order issued under such Federal or State
securities laws; or
(ii) common law fraud, deceit, or manipulation in
connection with the purchase or sale of any security; and

(B) results, before, on, or after the date on which the
petition was filed, from –
(i) any judgment, order, consent order, or decree entered
in any Federal or State judicial or administrative
proceeding;
(ii) any settlement agreement entered into by the debtor;
or
(iii) any court or administrative order for any damages,
fine, penalty, citation, restitutionary payment, disgorgement
payment, attorney fee, cost, or other payment owed by the
debtor.

For purposes of this subsection, the term “return” means a return
that satisfies the requirements of applicable nonbankruptcy law
(including applicable filing requirements). Such term includes a
return prepared pursuant to section 6020(a) of the Internal Revenue
Code of 1986, or similar State or local law, or a written
stipulation to a judgment or a final order entered by a
nonbankruptcy tribunal, but does not include a return made pursuant
to section 6020(b) of the Internal Revenue Code of 1986, or a
similar State or local law.
(b) Notwithstanding subsection (a) of this section, a debt that
was excepted from discharge under subsection (a)(1), (a)(3), or
(a)(8) of this section, under section 17a(1), 17a(3), or 17a(5) of
the Bankruptcy Act, under section 439A (!1) of the Higher Education
Act of 1965, or under section 733(g) (!1) of the Public Health
Service Act in a prior case concerning the debtor under this title,
or under the Bankruptcy Act, is dischargeable in a case under this
title unless, by the terms of subsection (a) of this section, such
debt is not dischargeable in the case under this title.

(c)(1) Except as provided in subsection (a)(3)(B) of this
section, the debtor shall be discharged from a debt of a kind
specified in paragraph (2), (4), or (6) of subsection (a) of this
section, unless, on request of the creditor to whom such debt is
owed, and after notice and a hearing, the court determines such
debt to be excepted from discharge under paragraph (2), (4), or
(6), as the case may be, of subsection (a) of this section.
(2) Paragraph (1) shall not apply in the case of a Federal
depository institutions regulatory agency seeking, in its capacity
as conservator, receiver, or liquidating agent for an insured
depository institution, to recover a debt described in subsection
(a)(2), (a)(4), (a)(6), or (a)(11) owed to such institution by an
institution-affiliated party unless the receiver, conservator, or
liquidating agent was appointed in time to reasonably comply, or
for a Federal depository institutions regulatory agency acting in
its corporate capacity as a successor to such receiver,
conservator, or liquidating agent to reasonably comply, with
subsection (a)(3)(B) as a creditor of such institution-affiliated
party with respect to such debt.
(d) If a creditor requests a determination of dischargeability of
a consumer debt under subsection (a)(2) of this section, and such
debt is discharged, the court shall grant judgment in favor of the
debtor for the costs of, and a reasonable attorney’s fee for, the
proceeding if the court finds that the position of the creditor was
not substantially justified, except that the court shall not award
such costs and fees if special circumstances would make the award
unjust.
(e) Any institution-affiliated party of an insured depository
institution shall be considered to be acting in a fiduciary
capacity with respect to the purposes of subsection (a)(4) or (11).

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2590; Pub. L. 96-56, Sec.
3, Aug. 14, 1979, 93 Stat. 387; Pub. L. 97-35, title XXIII, Sec.
2334(b), Aug. 13, 1981, 95 Stat. 863; Pub. L. 98-353, title III,
Secs. 307, 371, 454, July 10, 1984, 98 Stat. 353, 364, 375; Pub. L.
99-554, title II, Secs. 257(n), 281, 283(j), Oct. 27, 1986, 100
Stat. 3115-3117; Pub. L. 101-581, Sec. 2(a), Nov. 15, 1990, 104
Stat. 2865; Pub. L. 101-647, title XXV, Sec. 2522(a), title XXXI,
Sec. 3102(a), title XXXVI, Sec. 3621, Nov. 29, 1990, 104 Stat.
4865, 4916, 4964; Pub. L. 103-322, title XXXII, Sec. 320934, Sept.
13, 1994, 108 Stat. 2135; Pub. L. 103-394, title II, Sec. 221,
title III, Secs. 304(e), (h)(3), 306, 309, title V, Sec.
501(d)(13), Oct. 22, 1994, 108 Stat. 4129, 4133-4135, 4137, 4145;
Pub. L. 104-134, title I, Sec. 101[(a)] [title VIII, Sec. 804(b)],
Apr. 26, 1996, 110 Stat. 1321, 1321-74; renumbered title I, Pub. L.
104-140, Sec. 1(a), May 2, 1996, 110 Stat. 1327; Pub. L. 104-193,
title III, Sec. 374(a), Aug. 22, 1996, 110 Stat. 2255; Pub. L. 105-
244, title IX, Sec. 971(a), Oct. 7, 1998, 112 Stat. 1837; Pub. L.
107-204, title VIII, Sec. 803, July 30, 2002, 116 Stat. 801; Pub.
L. 109-8, title II, Secs. 215, 220, 224(c), title III, Secs. 301,
310, 314(a), title IV, Sec. 412, title VII, Sec. 714, title XII,
Secs. 1209, 1235, title XIV, Sec. 1404(a), title XV, Sec.
1502(a)(2), Apr. 20, 2005, 119 Stat. 54, 59, 64, 75, 84, 88, 107,
128, 194, 204, 215, 216; Pub. L. 111-327, Sec. 2(a)(18), Dec. 22,
2010, 124 Stat. 3559.)

-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 523(a)(1) represents a compromise between the position
taken in the House bill and the Senate amendment. Section 523(a)(2)
likewise represents a compromise between the position taken in the
House bill and the Senate amendment with respect to the false
financial statement exception to discharge. In order to clarify
that a “renewal of credit” includes a “refinancing of credit”,
explicit reference to a refinancing of credit is made in the
preamble to section 523(a)(2). A renewal of credit or refinancing
of credit that was obtained by a false financial statement within
the terms of section 523(a)(2) is nondischargeable. However, each
of the provisions of section 523(a)(2) must be proved. Thus, under
section 523(a)(2)(A) a creditor must prove that the debt was
obtained by false pretenses, a false representation, or actual
fraud, other than a statement respecting the debtor’s or an
insider’s financial condition. Subparagraph (A) is intended to
codify current case law e.g., Neal v. Clark, 95 U.S. 704 (1887) [24
L. Ed. 586], which interprets “fraud” to mean actual or positive
fraud rather than fraud implied in law. Subparagraph (A) is
mutually exclusive from subparagraph (B). Subparagraph (B) pertains
to the so-called false financial statement. In order for the debt
to be nondischargeable, the creditor must prove that the debt was
obtained by the use of a statement in writing (i) that is
materially false; (ii) respecting the debtor’s or an insider’s
financial condition; (iii) on which the creditor to whom the debtor
is liable for obtaining money, property, services, or credit
reasonably relied; (iv) that the debtor caused to be made or
published with intent to deceive. Section 523(a)(2)(B)(iv) is not
intended to change from present law since the statement that the
debtor causes to be made or published with the intent to deceive
automatically includes a statement that the debtor actually makes
or publishes with an intent to deceive. Section 523(a)(2)(B) is
explained in the House report. Under section 523(a)(2)(B)(i) a
discharge is barred only as to that portion of a loan with respect
to which a false financial statement is materially false.
In many cases, a creditor is required by state law to refinance
existing credit on which there has been no default. If the creditor
does not forfeit remedies or otherwise rely to his detriment on a
false financial statement with respect to existing credit, then an
extension, renewal, or refinancing of such credit is
nondischargeable only to the extent of the new money advanced; on
the other hand, if an existing loan is in default or the creditor
otherwise reasonably relies to his detriment on a false financial
statement with regard to an existing loan, then the entire debt is
nondischargeable under section 523(a)(2)(B). This codifies the
reasoning expressed by the second circuit in In re Danns, 558 F.2d
114 (2d Cir. 1977).
Section 523(a)(3) of the House amendment is derived from the
Senate amendment. The provision is intended to overrule Birkett v.
Columbia Bank, 195 U.S. 345 (1904) [25 S.Ct. 38, 49 L.Ed. 231, 12
Am.Bankr.Rep. 691].
Section 523(a)(4) of the House amendment represents a compromise
between the House bill and the Senate amendment.
Section 523(a)(5) is a compromise between the House bill and the
Senate amendment. The provision excepts from discharge a debt owed
to a spouse, former spouse or child of the debtor, in connection
with a separation agreement, divorce decree, or property settlement
agreement, for alimony to, maintenance for, or support of such
spouse or child but not to the extent that the debt is assigned to
another entity. If the debtor has assumed an obligation of the
debtor’s spouse to a third party in connection with a separation
agreement, property settlement agreement, or divorce proceeding,
such debt is dischargeable to the extent that payment of the debt
by the debtor is not actually in the nature of alimony,
maintenance, or support of debtor’s spouse, former spouse, or
child.
Section 523(a)(6) adopts the position taken in the House bill and
rejects the alternative suggested in the Senate amendment. The
phrase “willful and malicious injury” covers a willful and
malicious conversion.
Section 523(a)(7) of the House amendment adopts the position
taken in the Senate amendment and rejects the position taken in the
House bill. A penalty relating to a tax cannot be nondischargeable
unless the tax itself is nondischargeable.
Section 523(a)(8) represents a compromise between the House bill
and the Senate amendment regarding educational loans. This
provision is broader than current law which is limited to federally
insured loans. Only educational loans owing to a governmental unit
or a nonprofit institution of higher education are made
nondischargeable under this paragraph.
Section 523(b) is new. The section represents a modification of
similar provisions contained in the House bill and the Senate
amendment.
Section 523(c) of the House amendment adopts the position taken
in the Senate amendment.
Section 523(d) represents a compromise between the position taken
in the House bill and the Senate amendment on the issue of
attorneys’ fees in false financial statement complaints to
determine dischargeability. The provision contained in the House
bill permitting the court to award damages is eliminated. The court
must grant the debtor judgment or a reasonable attorneys’ fee
unless the granting of judgment would be clearly inequitable.
Nondischargeable debts: The House amendment retains the basic
categories of nondischargeable tax liabilities contained in both
bills, but restricts the time limits on certain nondischargeable
taxes. Under the amendment, nondischargeable taxes cover taxes
entitled to priority under section 507(a)(6) of title 11 and, in
the case of individual debtors under chapters 7, 11, or 13, tax
liabilities with respect to which no required return had been filed
or as to which a late return had been filed if the return became
last due, including extensions, within 2 years before the date of
the petition or became due after the petition or as to which the
debtor made a fraudulent return, entry or invoice or fraudulently
attempted to evade or defeat the tax.
In the case of individuals in liquidation under chapter 7 or in
reorganization under chapter 11 of title 11, section 1141(d)(2)
incorporates by reference the exceptions to discharge continued in
section 523. Different rules concerning the discharge of taxes
where a partnership or corporation reorganizes under chapter 11,
apply under section 1141.
The House amendment also deletes the reduction rule contained in
section 523(e) of the Senate amendment. Under that rule, the amount
of an otherwise nondischargeable tax liability would be reduced by
the amount which a governmental tax authority could have collected
from the debtor’s estate if it had filed a timely claim against the
estate but which it did not collect because no such claim was
filed. This provision is deleted in order not to effectively compel
a tax authority to file claim against the estate in “no asset”
cases, along with a dischargeability petition. In no-asset cases,
therefore, if the tax authority is not potentially penalized by
failing to file a claim, the debtor in such cases will have a
better opportunity to choose the prepayment forum, bankruptcy court
or the Tax Court, in which to litigate his personal liability for a
nondischargeable tax.
The House amendment also adopts the Senate amendment provision
limiting the nondischargeability of punitive tax penalties, that
is, penalties other than those which represent collection of a
principal amount of tax liability through the form of a “penalty.”
Under the House amendment, tax penalties which are basically
punitive in nature are to be nondischargeable only if the penalty
is computed by reference to a related tax liability which is
nondischargeable or, if the amount of the penalty is not computed
by reference to a tax liability, the transaction or event giving
rise to the penalty occurred during the 3-year period ending on the
date of the petition.

SENATE REPORT NO. 95-989
This section specifies which of the debtor’s debts are not
discharged in a bankruptcy case, and certain procedures for
effectuating the section. The provision in Bankruptcy Act Sec. 17c
[section 35(c) of former title 11] granting the bankruptcy courts
jurisdiction to determine dischargeability is deleted as
unnecessary, in view of the comprehensive grant of jurisdiction
prescribed in proposed 28 U.S.C. 1334(b), which is adequate to
cover the full jurisdiction that the bankruptcy courts have today
over dischargeability and related issues under Bankruptcy Act Sec.
17c. The Rules of Bankruptcy Procedure will specify, as they do
today, who may request determinations of dischargeability, subject,
of course, to proposed 11 U.S.C. 523(c), and when such a request
may be made. Proposed 11 U.S.C. 350, providing for reopening of
cases, provides one possible procedure for a determination of
dischargeability and related issues after a case is closed.
Subsection (a) lists nine kinds of debts excepted from discharge.
Taxes that are excepted from discharge are set forth in paragraph
(1). These include claims against the debtor which receive priority
in the second, third and sixth categories (Sec. 507(a)(3)(B) and
(c) and (6)). These categories include taxes for which the tax
authority failed to file a claim against the estate or filed its
claim late. Whether or not the taxing authority’s claim is secured
will also not affect the claim’s nondischargeability if the tax
liability in question is otherwise entitled to priority.
Also included in the nondischargeable debts are taxes for which
the debtor had not filed a required return as of the petition date,
or for which a return had been filed beyond its last permitted due
date (Sec. 523(a)(1)(B)). For this purpose, the date of the tax
year to which the return relates is immaterial. The late return
rule applies, however, only to the late returns filed within three
years before the petition was filed, and to late returns filed
after the petition in title 11 was filed. For this purpose, the
taxable year in question need not be one or more of the three years
immediately preceding the filing of the petition.
Tax claims with respect to which the debtor filed a fraudulent
return, entry or invoice, or fraudulently attempted to evade or
defeat any tax (Sec. 523(a)(1)(C)) are included. The date of the
taxable year with regard to which the fraud occurred is immaterial.
Also included are tax payments due under an agreement for
deferred payment of taxes, which a debtor had entered into with the
Internal Revenue Service (or State or local tax authority) before
the filing of the petition and which relate to a prepetition tax
liability (Sec. 523(a)(1)(D)) are also nondischargeable. This
classification applies only to tax claims which would have received
priority under section 507(a) if the taxpayer had filed a title 11
petition on the date on which the deferred payment agreement was
entered into. This rule also applies only to installment payments
which become due during and after the commencement of the title 11
case. Payments which had become due within one year before the
filing of the petition receive sixth priority, and will be
nondischargeable under the general rule of section 523(a)(1)(A).
The above categories of nondischargeability apply to customs
duties as well as to taxes.
Paragraph (2) provides that as under Bankruptcy Act Sec. 17a(2)
[section 35(a)(2) of former title 11], a debt for obtaining money,
property, services, or a refinancing extension or renewal of credit
by false pretenses, a false representation, or actual fraud, or by
use of a statement in writing respecting the debtor’s financial
condition that is materially false, on which the creditor
reasonably relied, and which the debtor made or published with
intent to deceive, is excepted from discharge. This provision is
modified only slightly from current section 17a(2). First, “actual
fraud” is added as a ground for exception from discharge. Second,
the creditor must not only have relied on a false statement in
writing, but the reliance must have been reasonable. This codifies
case law construing present section 17a(2). Third, the phrase “in
any manner whatsoever” that appears in current law after “made or
published” is deleted as unnecessary, the word “published” is used
in the same sense that it is used in defamation cases.
Unscheduled debts are excepted from discharge under paragraph
(3). The provision, derived from section 17a(3) [section 35(a)(3)
of former title 11], follows current law, but clarifies some
uncertainties generated by the case law construing 17a(3). The debt
is excepted from discharge if it was not scheduled in time to
permit timely action by the creditor to protect his rights, unless
the creditor had notice or actual knowledge of the case.
Paragraph (4) excepts debts for fraud incurred by the debtor
while acting in a fiduciary capacity or for defalcation,
embezzlement, or misappropriation.
Paragraph (5) provides that debts for willful and malicious
conversion or injury by the debtor to another entity or the
property of another entity are nondischargeable. Under this
paragraph “willful” means deliberate or intentional. To the extent
that Tinker v. Colwell, 139 U.S. 473 (1902), held that a less
strict standard is intended, and to the extent that other cases
have relied on Tinker to apply a “reckless disregard” standard,
they are overruled.
Paragraph (6) excepts from discharge debts to a spouse, former
spouse, or child of the debtor for alimony to, maintenance for, or
support of the spouse or child. This language, in combination with
the repeal of section 456(b) of the Social Security Act (42 U.S.C.
656(b)) by section 326 of the bill, will apply to make
nondischargeable only alimony, maintenance, or support owed
directly to a spouse or dependent. What constitutes alimony,
maintenance, or support, will be determined under the bankruptcy
law, not State law. Thus, cases such as In re Waller, 494 F.2d 447
(6th Cir. 1974), are overruled, and the result in cases such as
Fife v. Fife, 1 Utah 2d 281, 265 P.2d 642 (1952) is followed. The
proviso, however, makes nondischargeable any debts resulting from
an agreement by the debtor to hold the debtor’s spouse harmless on
joint debts, to the extent that the agreement is in payment of
alimony, maintenance, or support of the spouse, as determined under
bankruptcy law considerations as to whether a particular agreement
to pay money to a spouse is actually alimony or a property
settlement.
Paragraph (7) makes nondischargeable certain liabilities for
penalties including tax penalties if the underlying tax with
respect to which the penalty was imposed is also nondischargeable
(sec. 523(a)(7)). These latter liabilities cover those which, but
are penal in nature, as distinct from so-called “pecuniary loss”
penalties which, in the case of taxes, involve basically the
collection of a tax under the label of a “penalty.” This provision
differs from the bill as introduced, which did not link the
nondischarge of a tax penalty with the treatment of the underlying
tax. The amended provision reflects the existing position of the
Internal Revenue Service as to tax penalties imposed by the
Internal Revenue Code (Rev.Rul. 68-574, 1968-2 C.B. 595).
Paragraph (8) follows generally current law and excerpts from
discharge student loans until such loans have been due and owing
for five years. Such loans include direct student loans as well as
insured and guaranteed loans. This provision is intended to be self-
executing and the lender or institution is not required to file a
complaint to determine the nondischargeability of any student loan.
Paragraph (9) excepts from discharge debts that the debtor owed
before a previous bankruptcy case concerning the debtor in which
the debtor was denied a discharge other than on the basis of the
six-year bar.
Subsection (b) of this section permits discharge in a bankruptcy
case of an unscheduled debt from a prior case. This provision is
carried over from Bankruptcy Act Sec. 17b [section 35(b) of former
title 11]. The result dictated by the subsection would probably not
be different if the subsection were not included. It is included
nevertheless for clarity.
Subsection (c) requires a creditor who is owed a debt that may be
excepted from discharge under paragraph (2), (4), or (5), (false
statements, defalcation or larceny misappropriation, or willful and
malicious injury) to initiate proceedings in the bankruptcy court
for an exception to discharge. If the creditor does not act, the
debt is discharged. This provision does not change current law.
Subsection (d) is new. It provides protection to a consumer
debtor that dealt honestly with a creditor who sought to have a
debt excepted from discharge on the ground of falsity in the
incurring of the debt. The debtor may be awarded costs and a
reasonable attorney’s fee for the proceeding to determine the
dischargeability of a debt under subsection (a)(2), if the court
finds that the proceeding was frivolous or not brought by its
creditor in good faith.
The purpose of the provision is to discourage creditors from
initiating proceedings to obtaining a false financial statement
exception to discharge in the hope of obtaining a settlement from
an honest debtor anxious to save attorney’s fees. Such practices
impair the debtor’s fresh start and are contrary to the spirit of
the bankruptcy laws.

HOUSE REPORT NO. 95-595
Subsection (a) lists eight kinds of debts excepted from
discharge. Taxes that are entitled to priority are excepted from
discharge under paragraph (1). In addition, taxes with respect to
which the debtor made a fraudulent return or willfully attempted to
evade or defeat, or with respect to which a return (if required)
was not filed or was not filed after the due date and after one
year before the bankruptcy case are excepted from discharge. If the
taxing authority’s claim has been disallowed, then it would be
barred by the more modern rules of collateral estoppel from
reasserting that claim against the debtor after the case was
closed. See Plumb, The Tax Recommendations of the Commission on the
Bankruptcy Laws: Tax Procedures, 88 Harv.L.Rev. 1360, 1388 (1975).
As under Bankruptcy Act Sec. 17a(2) [section 35(a)(2) of former
title 11], debt for obtaining money, property, services, or an
extension or renewal of credit by false pretenses, a false
representation, or actual fraud, or by use of a statement in
writing respecting the debtor’s financial condition that is
materially false, on which the creditor reasonably relied, and that
the debtor made or published with intent to deceive, is excepted
from discharge. This provision is modified only slightly from
current section 17a(2). First, “actual fraud” is added as a grounds
for exception from discharge. Second, the creditor must not only
have relied on a false statement in writing, the reliance must have
been reasonable. This codifies case law construing this provision.
Third, the phrase “in any manner whatsoever” that appears in
current law after “made or published” is deleted as unnecessary.
The word “published” is used in the same sense that it is used in
slander actions.
Unscheduled debts are excepted from discharge under paragraph
(3). The provision, derived from section 17a(3) [section 35(a)(3)
of former title 11], follows current law, but clarifies some
uncertainties generated by the case law construing 17a(3). The debt
is excepted from discharge if it was not scheduled in time to
permit timely action by the creditor to protect his rights, unless
the creditor had notice or actual knowledge of the case.
Paragraph (4) excepts debts for embezzlement or larceny. The
deletion of willful and malicious conversion from Sec. 17a(2) of
the Bankruptcy Act [section 35(a)(2) of former title 11] is not
intended to effect a substantive change. The intent is to include
in the category of non-dischargeable debts a conversion under which
the debtor willfully and maliciously intends to borrow property for
a short period of time with no intent to inflict injury but on
which injury is in fact inflicted.
Paragraph (5) excepts from discharge debts to a spouse, former
spouse, or child of the debtor for alimony to, maintenance for, or
support of, the spouse or child. This language, in combination with
the repeal of section 456(b) of the Social Security Act (42 U.S.C.
656(b)) by section 327 of the bill, will apply to make
nondischargeable only alimony, maintenance, or support owed
directly to a spouse or dependent. See Hearings, pt. 2, at 942.
What constitutes alimony, maintenance, or support, will be
determined under the bankruptcy laws, not State law. Thus, cases
such as In re Waller, 494 F.2d 447 (6th Cir. 1974); Hearings, pt.
3, at 1308-10, are overruled, and the result in cases such as Fife
v. Fife, 1 Utah 2d 281, 265 P.2d 642 (1952) is followed. This
provision will, however, make nondischargeable any debts resulting
from an agreement by the debtor to hold the debtor’s spouse
harmless on joint debts, to the extent that the agreement is in
payment of alimony, maintenance, or support of the spouse, as
determined under bankruptcy law considerations that are similar to
considerations of whether a particular agreement to pay money to a
spouse is actually alimony or a property settlement. See Hearings,
pt. 3, at 1287-1290.
Paragraph (6) excepts debts for willful and malicious injury by
the debtor to another person or to the property of another person.
Under this paragraph, “willful” means deliberate or intentional. To
the extent that Tinker v. Colwell, 193 U.S. 473 (1902) [24 S.Ct.
505, 48 L.Ed. 754, 11 Am.Bankr.Rep. 568], held that a looser
standard is intended, and to the extent that other cases have
relied on Tinker to apply a “reckless disregard” standard, they are
overruled.
Paragraph (7) excepts from discharge a debt for a fine, penalty,
or forfeiture payable to and for the benefit of a governmental
unit, that is not compensation for actual pecuniary loss.
Paragraph (8) [enacted as (9)] excepts from discharge debts that
the debtor owed before a previous bankruptcy case concerning the
debtor in which the debtor was denied a discharge other than on the
basis of the six-year bar.
Subsection (d) is new. It provides protection to a consumer
debtor that dealt honestly with a creditor who sought to have a
debt excepted from discharge on grounds of falsity in the incurring
of the debt. The debtor is entitled to costs of and a reasonable
attorney’s fee for the proceeding to determine the dischargeability
of a debt under subsection (a)(2), if the creditor initiated the
proceeding and the debt was determined to be dischargeable. The
court is permitted to award any actual pecuniary loss that the
debtor may have suffered as a result of the proceeding (such as
loss of a day’s pay). The purpose of the provision is to discourage
creditors from initiating false financial statement exception to
discharge actions in the hopes of obtaining a settlement from an
honest debtor anxious to save attorney’s fees. Such practices
impair the debtor’s fresh start.

-REFTEXT-
REFERENCES IN TEXT
The Internal Revenue Code of 1986, referred to in subsec. (a), is
classified generally to Title 26, Internal Revenue Code.
Section 103 of the Truth in Lending Act, referred to in subsec.
(a)(2)(C)(ii)(I), is classified to section 1602 of Title 15,
Commerce and Trade.
The Bankruptcy Act, referred to in subsecs. (a)(10) and (b), is
act July 1, 1898, ch. 541, 30 Stat. 544, as amended, which was
classified generally to former Title 11. Sections 14c and 17a of
the Bankruptcy Act were classified to sections 32(c) and 35(a) of
former Title 11.
Section 408(b)(1) of the Employee Retirement Income Security Act
of 1974, referred to in subsec. (a)(18)(A), is classified to
section 1108(b)(1) of Title 29, Labor.
Section 3(a)(47) of the Securities Exchange Act of 1934, referred
to in subsec. (a)(19)(A)(i), is classified to section 78c(a)(47) of
Title 15, Commerce and Trade.
Section 439A of the Higher Education Act of 1965, referred to in
subsec. (b), was classified to section 1087-3 of Title 20,
Education, and was repealed by Pub. L. 95-598, title III, Sec. 317,
Nov. 6, 1978, 92 Stat. 2678.
Section 733(g) of the Public Health Service Act, referred to in
subsec. (b), was repealed by Pub. L. 95-598, title III, Sec. 327,
Nov. 6, 1978, 92 Stat. 2679. A subsec. (g), containing similar
provisions, was added to section 733 by Pub. L. 97-35, title XXVII,
Sec. 2730, Aug. 13, 1981, 95 Stat. 919. Section 733 was
subsequently omitted in the general revision of subchapter V of
chapter 6A of Title 42, The Public Health and Welfare, by Pub. L.
102-408, title I, Sec. 102, Oct. 13, 1992, 106 Stat. 1994. See
section 292f(g) of Title 42.

-MISC2-
AMENDMENTS
2010 – Subsec. (a)(2)(C)(ii)(II). Pub. L. 111-327, Sec.
2(a)(18)(A), substituted semicolon for period at end.
Subsec. (a)(3). Pub. L. 111-327, Sec. 2(a)(18)(B), substituted
“521(a)(1)” for “521(1)” in introductory provisions.
2005 – Pub. L. 109-8, Sec. 1209(1), transferred par. (15) and
inserted it after subsec. (a)(14A). See 1994 Amendments note below.
Pub. L. 109-8, Sec. 215(3), in par. (15), inserted “to a spouse,
former spouse, or child of the debtor and” before “not of the kind”
and “or” after “court of record,” and substituted a semicolon for
“unless –
“(A) the debtor does not have the ability to pay such debt from
income or property of the debtor not reasonably necessary to be
expended for the maintenance or support of the debtor or a
dependent of the debtor and, if the debtor is engaged in a
business, for the payment of expenditures necessary for the
continuation, preservation, and operation of such business; or
“(B) discharging such debt would result in a benefit to the
debtor that outweighs the detrimental consequences to a spouse,
former spouse, or child of the debtor;”.
Subsec. (a). Pub. L. 109-8, Sec. 714(2), inserted at end “For
purposes of this subsection, the term ‘return’ means a return that
satisfies the requirements of applicable nonbankruptcy law
(including applicable filing requirements). Such term includes a
return prepared pursuant to section 6020(a) of the Internal Revenue
Code of 1986, or similar State or local law, or a written
stipulation to a judgment or a final order entered by a
nonbankruptcy tribunal, but does not include a return made pursuant
to section 6020(b) of the Internal Revenue Code of 1986, or a
similar State or local law.”
Subsec. (a)(1)(A). Pub. L. 109-8, Sec. 1502(a)(2), substituted
“507(a)(3)” for “507(a)(2)”.
Subsec. (a)(1)(B). Pub. L. 109-8, Sec. 714(1)(A), inserted “or
equivalent report or notice,” after “a return,” in introductory
provisions.
Subsec. (a)(1)(B)(i). Pub. L. 109-8, Sec. 714(1)(B), inserted “or
given” after “filed”.
Subsec. (a)(1)(B)(ii). Pub. L. 109-8, Sec. 714(1)(C), inserted
“or given” after “filed” and “, report, or notice” after “return”.
Subsec. (a)(2)(C). Pub. L. 109-8, Sec. 310, amended subpar. (C)
generally. Prior to amendment, subpar. (C) read as follows: “for
purposes of subparagraph (A) of this paragraph, consumer debts owed
to a single creditor and aggregating more than $1,000 for ‘luxury
goods or services’ incurred by an individual debtor on or within 60
days before the order for relief under this title, or cash advances
aggregating more than $1,000 that are extensions of consumer credit
under an open end credit plan obtained by an individual debtor on
or within 60 days before the order for relief under this title, are
presumed to be nondischargeable; ‘luxury goods or services’ do not
include goods or services reasonably acquired for the support or
maintenance of the debtor or a dependent of the debtor; an
extension of consumer credit under an open end credit plan is to be
defined for purposes of this subparagraph as it is defined in the
Consumer Credit Protection Act;”.
Subsec. (a)(5). Pub. L. 109-8, Sec. 215(1)(A), added par. (5) and
struck out former par. (5) which read as follows: “to a spouse,
former spouse, or child of the debtor, for alimony to, maintenance
for, or support of such spouse or child, in connection with a
separation agreement, divorce decree or other order of a court of
record, determination made in accordance with State or territorial
law by a governmental unit, or property settlement agreement, but
not to the extent that –
“(A) such debt is assigned to another entity, voluntarily, by
operation of law, or otherwise (other than debts assigned
pursuant to section 408(a)(3) of the Social Security Act, or any
such debt which has been assigned to the Federal Government or to
a State or any political subdivision of such State); or
“(B) such debt includes a liability designated as alimony,
maintenance, or support, unless such liability is actually in the
nature of alimony, maintenance, or support;”
Subsec. (a)(8). Pub. L. 109-8, Sec. 220, added par. (8) and
struck out former par. (8) which read as follows: “for an
educational benefit overpayment or loan made, insured or guaranteed
by a governmental unit, or made under any program funded in whole
or in part by a governmental unit or nonprofit institution, or for
an obligation to repay funds received as an educational benefit,
scholarship or stipend, unless excepting such debt from discharge
under this paragraph will impose an undue hardship on the debtor
and the debtor’s dependents;”.
Subsec. (a)(9). Pub. L. 109-8, Sec. 1209(2), substituted “motor
vehicle, vessel, or aircraft” for “motor vehicle”.
Subsec. (a)(14A). Pub. L. 109-8, Sec. 314(a), added par. (14A).
Subsec. (a)(14B). Pub. L. 109-8, Sec. 1235, added par. (14B).
Subsec. (a)(16). Pub. L. 109-8, Sec. 412, struck out “dwelling”
after “debtor’s interest in a” and “housing” after “share of a
cooperative” and substituted “ownership,” for “ownership or” and
“or a lot in a homeowners association, for as long as the debtor or
the trustee has a legal, equitable, or possessory ownership
interest in such unit, such corporation, or such lot,” for “but
only if such fee or assessment is payable for a period during which

“(A) the debtor physically occupied a dwelling unit in the
condominium or cooperative project; or
“(B) the debtor rented the dwelling unit to a tenant and
received payments from the tenant for such period,”.
Subsec. (a)(17). Pub. L. 109-8, Sec. 301, substituted “on a
prisoner by any court” for “by a court” and “subsection (b) or
(f)(2) of section 1915″ for “section 1915(b) or (f)” and inserted
“(or a similar non-Federal law)” after “title 28″ in two places.
Subsec. (a)(18). Pub. L. 109-8, Sec. 224(c), added par. (18).
Pub. L. 109-8, Sec. 215(1)(B), struck out par. (18) which read as
follows: “owed under State law to a State or municipality that is –

“(A) in the nature of support, and
“(B) enforceable under part D of title IV of the Social
Security Act (42 U.S.C. 601 et seq.); or”.
Subsec. (a)(19)(B). Pub. L. 109-8, Sec. 1404(a), inserted “,
before, on, or after the date on which the petition was filed,”
after “results” in introductory provisions.
Subsec. (c)(1). Pub. L. 109-8, Sec. 215(2), substituted “or (6)”
for “(6), or (15)” in two places.
Subsec. (e). Pub. L. 109-8, Sec. 1209(3), substituted “an
insured” for “a insured”.
2002 – Subsec. (a)(19). Pub. L. 107-204 added par. (19).
1998 – Subsec. (a)(8). Pub. L. 105-244 substituted “stipend,
unless” for “stipend, unless – ” and struck out “(B)” before
“excepting such debt” and subpar. (A) which read as follows: “such
loan, benefit, scholarship, or stipend overpayment first became due
more than 7 years (exclusive of any applicable suspension of the
repayment period) before the date of the filing of the petition;
or”.
1996 – Subsec. (a)(5)(A). Pub. L. 104-193, Sec. 374(a)(4),
substituted “section 408(a)(3)” for “section 402(a)(26)”.
Subsec. (a)(17). Pub. L. 104-134 added par. (17).
Subsec. (a)(18). Pub. L. 104-193, Sec. 374(a)(1)-(3), added par.
(18).
1994 – Par. (15). Pub. L. 103-394, Sec. 304(e)[(1)], amended this
section by adding par. (15) at the end. See 2005 Amendment note
above.
Subsec. (a). Pub. L. 103-394, Sec. 501(d)(13)(A)(i), substituted
“1141,” for “1141,,” in introductory provisions.
Subsec. (a)(1)(A). Pub. L. 103-394, Sec. 304(h)(3), substituted
“507(a)(8)” for “507(a)(7)”.
Subsec. (a)(2)(C). Pub. L. 103-394, Secs. 306, 501(d)(13)(A)(ii),
substituted “$1,000 for” for “$500 for”, “60” for “forty” after
“incurred by an individual debtor on or within”, and “60” for
“twenty” after “obtained by an individual debtor on or within”, and
struck out “(15 U.S.C. 1601 et seq.)” after “Protection Act”.
Subsec. (a)(11). Pub. L. 103-322, Sec. 320934(1), struck out “or”
after semicolon at end.
Subsec. (a)(12). Pub. L. 103-322, Sec. 320934(2), which directed
the substitution of “; or” for a period at end of par. (12), could
not be executed because a period did not appear at end.
Subsec. (a)(13). Pub. L. 103-394, Sec. 221(1), substituted
semicolon for period at end.
Pub. L. 103-322, Sec. 320934(3), added par. (13).
Subsec. (a)(14). Pub. L. 103-394, Sec. 221(2), added par. (14).
Subsec. (a)(16). Pub. L. 103-394, Sec. 309, added par. (16).
Subsec. (b). Pub. L. 103-394, Sec. 501(d)(13)(B), struck out “(20
U.S.C. 1087-3)” after “Act of 1965″ and “(42 U.S.C. 294f)” after
“Service Act”.
Subsec. (c)(1). Pub. L. 103-394, Sec. 304(e)(2), substituted
“(6), or (15)” for “or (6)” in two places.
Subsec. (e). Pub. L. 103-394, Sec. 501(d)(13)(C), substituted
“insured depository institution” for “depository institution or
insured credit union”.
1990 – Subsec. (a)(8). Pub. L. 101-647, Sec. 3621, substituted
“for an educational benefit overpayment or loan made, insured or
guaranteed by a governmental unit, or made under any program funded
in whole or in part by a governmental unit or nonprofit
institution, or for an obligation to repay funds received as an
educational benefit, scholarship or stipend, unless” for “for an
educational loan made, insured, or guaranteed by a governmental
unit, or made under any program funded in whole or in part by a
governmental unit or a nonprofit institution, unless” in
introductory provisions and amended subpar. (A) generally. Prior to
amendment, subpar. (A) read as follows: “such loan first became due
before five years (exclusive of any applicable suspension of the
repayment period) before the date of the filing of the petition;
or”.
Subsec. (a)(9). Pub. L. 101-581 and Pub. L. 101-647, Sec.
3102(a), identically amended par. (9) generally. Prior to
amendment, par. (9) read as follows: “to any entity, to the extent
that such debt arises from a judgment or consent decree entered in
a court of record against the debtor wherein liability was incurred
by such debtor as a result of the debtor’s operation of a motor
vehicle while legally intoxicated under the laws or regulations of
any jurisdiction within the United States or its territories
wherein such motor vehicle was operated and within which such
liability was incurred; or”.
Subsec. (a)(11), (12). Pub. L. 101-647, Sec. 2522(a)(1), added
pars. (11) and (12).
Subsec. (c). Pub. L. 101-647, Sec. 2522(a)(3), designated
existing provisions as par. (1) and added par. (2).
Subsec. (e). Pub. L. 101-647, Sec. 2522(a)(2), added subsec. (e).
1986 – Subsec. (a). Pub. L. 99-554, Sec. 257(n), inserted
reference to sections 1228(a) and 1228(b) of this title.
Subsec. (a)(1)(A). Pub. L. 99-554, Sec. 283(j)(1)(A), substituted
“507(a)(7)” for “507(a)(6)”.
Subsec. (a)(5). Pub. L. 99-554, Sec. 281, struck out the comma
after “decree” and inserted “, determination made in accordance
with State or territorial law by a governmental unit,” after
“record”.
Subsec. (a)(9), (10). Pub. L. 99-554, Sec. 283(j)(1)(B),
redesignated par. (9) relating to debts incurred by persons driving
while intoxicated, added by Pub. L. 98-353, as (10).
Subsec. (b). Pub. L. 99-554, Sec. 283(j)(2), substituted
“Service” for “Services”.
1984 – Subsec. (a)(2). Pub. L. 98-353, Sec. 454(a)(1), in
provisions preceding subpar. (A), struck out “obtaining” after
“for”, and substituted “refinancing of credit, to the extent
obtained” for “refinance of credit,”.
Subsec. (a)(2)(A). Pub. L. 98-353, Sec. 307(a)(1), struck out
“or” at end.
Subsec. (a)(2)(B). Pub. L. 98-353, Sec. 307(a)(2), inserted “or”
at end.
Subsec. (a)(2)(B)(iii). Pub. L. 98-353, Sec. 454(a)(1)(A), struck
out “obtaining” before “such”.
Subsec. (a)(2)(C). Pub. L. 98-353, Sec. 307(a)(3), added subpar.
(C).
Subsec. (a)(5). Pub. L. 98-353, Sec. 454(b)(1), inserted “or
other order of a court of record” after “divorce decree,” in
provisions preceding subpar. (A).
Subsec. (a)(5)(A). Pub. L. 98-353, Sec. 454(b)(2), inserted “, or
any such debt which has been assigned to the Federal Government or
to a State or any political subdivision of such State”.
Subsec. (a)(8). Pub. L. 98-353, Secs. 371(1), 454(a)(2), struck
out “of higher education” after “a nonprofit institution of” and
struck out “or” at end.
Subsec. (a)(9). Pub. L. 98-353, Sec. 371(2), added the par. (9)
relating to debts incurred by persons driving while intoxicated.
Subsec. (c). Pub. L. 98-353, Sec. 454(c), inserted “of a kind”
after “debt”.
Subsec. (d). Pub. L. 98-353, Sec. 307(b), substituted “the court
shall grant judgment in favor of the debtor for the costs of, and a
reasonable attorney’s fee for, the proceeding if the court finds
that the position of the creditor was not substantially justified,
except that the court shall not award such costs and fees if
special circumstances would make the award unjust” for “the court
shall grant judgment against such creditor and in favor of the
debtor for the costs of, and a reasonable attorney’s fee for, the
proceeding to determine dischargeability, unless such granting of
judgment would be clearly inequitable”.
1981 – Subsec. (a)(5)(A). Pub. L. 97-35 substituted “law, or
otherwise (other than debts assigned pursuant to section 402(a)(26)
of the Social Security Act);” for “law, or otherwise;”.
1979 – Subsec. (a)(8). Pub. L. 96-56 substituted “for an
educational loan made, insured, or guaranteed by a governmental
unit, or made under any program funded in whole or in part by a
governmental unit or a nonprofit institution of higher education”
for “to a governmental unit, or a nonprofit institution of higher
education, for an educational loan” in the provisions preceding
subpar. (A) and inserted “(exclusive of any applicable suspension
of the repayment period)” after “before five years” in subpar. (A).

EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-8, title XIV, Sec. 1404(b), Apr. 20, 2005, 119 Stat.
215, provided that: “The amendment made by subsection (a) [amending
this section] is effective beginning July 30, 2002.”
Amendment by sections 215, 220, 224(c), 301, 310, 314(a), 412,
714, 1209, 1235, and 1502(a)(2) of 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
Pub. L. 105-244, title IX, Sec. 971(b), Oct. 7, 1998, 112 Stat.
1837, provided that: “The amendment made by subsection (a)
[amending this section] shall apply only with respect to cases
commenced under title 11, United States Code, after the date of
enactment of this Act [Oct. 7, 1998].”

EFFECTIVE DATE OF 1996 AMENDMENT
Section 374(c) of Pub. L. 104-193 provided that: “The amendments
made by this section [amending this section and section 656 of
Title 42, The Public Health and Welfare] shall apply only with
respect to cases commenced under title 11 of the United States Code
after the date of the enactment of this Act [Aug. 22, 1996].”
For provisions relating to effective date of title III of Pub. L.
104-193, see section 395(a)-(c) of Pub. L. 104-193, set out as a
note under section 654 of Title 42, The Public Health and Welfare.

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

EFFECTIVE DATE OF 1990 AMENDMENTS
Section 3104 of title XXXI of Pub. L. 101-647 provided that:
“(a) Effective Date. – This title and the amendments made by this
title [amending this section and section 1328 of this title and
enacting provisions set out as a note under section 101 of this
title] shall take effect on the date of the enactment of this Act
[Nov. 29, 1990].
“(b) Application of Amendments. – The amendments made by this
title [amending this section and section 1328 of this title] shall
not apply with respect to cases commenced under title 11 of the
United States Code before the date of the enactment of this Act.”
Amendment by section 3621 of Pub. L. 101-647 effective 180 days
after Nov. 29, 1990, see section 3631 of Pub. L. 101-647, set out
as an Effective Date note under section 3001 of Title 28, Judiciary
and Judicial Procedure.
Section 4 of Pub. L. 101-581 provided that:
“(a) Effective Date. – This Act and the amendments made by this
Act [amending this section and section 1328 of this title and
enacting provisions set out as a note under section 101 of this
title] shall take effect on the date of the enactment of this Act
[Nov. 15, 1990].
“(b) Application of Amendments. – The amendments made by this Act
[amending this section and section 1328 of this title] shall not
apply with respect to cases commenced under title 11 of the United
States Code before the date of the enactment of this Act.”

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 sections 281 and 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.

EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-35 effective Aug. 13, 1981, see section
2334(c) of Pub. L. 97-35, set out as a note under section 656 of
Title 42, The Public Health and Welfare.

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. (a)(2)(C)(i)(I), dollar amount “550” was adjusted
to “600” and, in subsec. (a)(2)(C)(i)(II), dollar amount “825” was
adjusted to “875”. 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. (a)(2)(C)(i)(I), dollar amount “500” was adjusted
to “550” and, in subsec. (a)(2)(C)(i)(II), dollar amount “750” was
adjusted to “825”.
By notice dated Feb. 18, 2004, 69 F.R. 8482, effective Apr. 1,
2004, in subsec. (a)(2)(C), dollar amount “1,150” was adjusted to
“1,225” each time it appeared.
By notice dated Feb. 13, 2001, 66 F.R. 10910, effective Apr. 1,
2001, in subsec. (a)(2)(C), dollar amount “1,075” was adjusted to
“1,150” each time it appeared.
By notice dated Feb. 3, 1998, 63 F.R. 7179, effective Apr. 1,
1998, in subsec. (a)(2)(C), dollar amount “1,000” was adjusted to
“1,075” each time it appeared.

-FOOTNOTE-
(!1) See References in Text note below.

-End-

-CITE-
11 USC Sec. 524 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER II – DEBTOR’S DUTIES AND BENEFITS

-HEAD-
Sec. 524. Effect of discharge

-STATUTE-
(a) A discharge in a case under this title –
(1) voids any judgment at any time obtained, to the extent that
such judgment is a determination of the personal liability of the
debtor with respect to any debt discharged under section 727,
944, 1141, 1228, or 1328 of this title, whether or not discharge
of such debt is waived;
(2) operates as an injunction against the commencement or
continuation of an action, the employment of process, or an act,
to collect, recover or offset any such debt as a personal
liability of the debtor, whether or not discharge of such debt is
waived; and
(3) operates as an injunction against the commencement or
continuation of an action, the employment of process, or an act,
to collect or recover from, or offset against, property of the
debtor of the kind specified in section 541(a)(2) of this title
that is acquired after the commencement of the case, on account
of any allowable community claim, except a community claim that
is excepted from discharge under section 523, 1228(a)(1), or
1328(a)(1), or that would be so excepted, determined in
accordance with the provisions of sections 523(c) and 523(d) of
this title, in a case concerning the debtor’s spouse commenced on
the date of the filing of the petition in the case concerning the
debtor, whether or not discharge of the debt based on such
community claim is waived.

(b) Subsection (a)(3) of this section does not apply if –
(1)(A) the debtor’s spouse is a debtor in a case under this
title, or a bankrupt or a debtor in a case under the Bankruptcy
Act, commenced within six years of the date of the filing of the
petition in the case concerning the debtor; and
(B) the court does not grant the debtor’s spouse a discharge in
such case concerning the debtor’s spouse; or
(2)(A) the court would not grant the debtor’s spouse a
discharge in a case under chapter 7 of this title concerning such
spouse commenced on the date of the filing of the petition in the
case concerning the debtor; and
(B) a determination that the court would not so grant such
discharge is made by the bankruptcy court within the time and in
the manner provided for a determination under section 727 of this
title of whether a debtor is granted a discharge.

(c) An agreement between a holder of a claim and the debtor, the
consideration for which, in whole or in part, is based on a debt
that is dischargeable in a case under this title is enforceable
only to any extent enforceable under applicable nonbankruptcy law,
whether or not discharge of such debt is waived, only if –
(1) such agreement was made before the granting of the
discharge under section 727, 1141, 1228, or 1328 of this title;
(2) the debtor received the disclosures described in subsection
(k) at or before the time at which the debtor signed the
agreement;
(3) such agreement has been filed with the court and, if
applicable, accompanied by a declaration or an affidavit of the
attorney that represented the debtor during the course of
negotiating an agreement under this subsection, which states that

(A) such agreement represents a fully informed and voluntary
agreement by the debtor;
(B) such agreement does not impose an undue hardship on the
debtor or a dependent of the debtor; and
(C) the attorney fully advised the debtor of the legal effect
and consequences of –
(i) an agreement of the kind specified in this subsection;
and
(ii) any default under such an agreement;

(4) the debtor has not rescinded such agreement at any time
prior to discharge or within sixty days after such agreement is
filed with the court, whichever occurs later, by giving notice of
rescission to the holder of such claim;
(5) the provisions of subsection (d) of this section have been
complied with; and
(6)(A) in a case concerning an individual who was not
represented by an attorney during the course of negotiating an
agreement under this subsection, the court approves such
agreement as –
(i) not imposing an undue hardship on the debtor or a
dependent of the debtor; and
(ii) in the best interest of the debtor.

(B) Subparagraph (A) shall not apply to the extent that such
debt is a consumer debt secured by real property.

(d) In a case concerning an individual, when the court has
determined whether to grant or not to grant a discharge under
section 727, 1141, 1228, or 1328 of this title, the court may hold
a hearing at which the debtor shall appear in person. At any such
hearing, the court shall inform the debtor that a discharge has
been granted or the reason why a discharge has not been granted. If
a discharge has been granted and if the debtor desires to make an
agreement of the kind specified in subsection (c) of this section
and was not represented by an attorney during the course of
negotiating such agreement, then the court shall hold a hearing at
which the debtor shall appear in person and at such hearing the
court shall –
(1) inform the debtor –
(A) that such an agreement is not required under this title,
under nonbankruptcy law, or under any agreement not made in
accordance with the provisions of subsection (c) of this
section; and
(B) of the legal effect and consequences of –
(i) an agreement of the kind specified in subsection (c) of
this section; and
(ii) a default under such an agreement; and

(2) determine whether the agreement that the debtor desires to
make complies with the requirements of subsection (c)(6) of this
section, if the consideration for such agreement is based in
whole or in part on a consumer debt that is not secured by real
property of the debtor.

(e) Except as provided in subsection (a)(3) of this section,
discharge of a debt of the debtor does not affect the liability of
any other entity on, or the property of any other entity for, such
debt.
(f) Nothing contained in subsection (c) or (d) of this section
prevents a debtor from voluntarily repaying any debt.
(g)(1)(A) After notice and hearing, a court that enters an order
confirming a plan of reorganization under chapter 11 may issue, in
connection with such order, an injunction in accordance with this
subsection to supplement the injunctive effect of a discharge under
this section.
(B) An injunction may be issued under subparagraph (A) to enjoin
entities from taking legal action for the purpose of directly or
indirectly collecting, recovering, or receiving payment or recovery
with respect to any claim or demand that, under a plan of
reorganization, is to be paid in whole or in part by a trust
described in paragraph (2)(B)(i), except such legal actions as are
expressly allowed by the injunction, the confirmation order, or the
plan of reorganization.
(2)(A) Subject to subsection (h), if the requirements of
subparagraph (B) are met at the time an injunction described in
paragraph (1) is entered, then after entry of such injunction, any
proceeding that involves the validity, application, construction,
or modification of such injunction, or of this subsection with
respect to such injunction, may be commenced only in the district
court in which such injunction was entered, and such court shall
have exclusive jurisdiction over any such proceeding without regard
to the amount in controversy.
(B) The requirements of this subparagraph are that –
(i) the injunction is to be implemented in connection with a
trust that, pursuant to the plan of reorganization –
(I) is to assume the liabilities of a debtor which at the
time of entry of the order for relief has been named as a
defendant in personal injury, wrongful death, or property-
damage actions seeking recovery for damages allegedly caused
by the presence of, or exposure to, asbestos or asbestos-
containing products;
(II) is to be funded in whole or in part by the securities of
1 or more debtors involved in such plan and by the obligation
of such debtor or debtors to make future payments, including
dividends;
(III) is to own, or by the exercise of rights granted under
such plan would be entitled to own if specified contingencies
occur, a majority of the voting shares of –
(aa) each such debtor;
(bb) the parent corporation of each such debtor; or
(cc) a subsidiary of each such debtor that is also a
debtor; and

(IV) is to use its assets or income to pay claims and
demands; and

(ii) subject to subsection (h), the court determines that –
(I) the debtor is likely to be subject to substantial future
demands for payment arising out of the same or similar conduct
or events that gave rise to the claims that are addressed by
the injunction;
(II) the actual amounts, numbers, and timing of such future
demands cannot be determined;
(III) pursuit of such demands outside the procedures
prescribed by such plan is likely to threaten the plan’s
purpose to deal equitably with claims and future demands;
(IV) as part of the process of seeking confirmation of such
plan –
(aa) the terms of the injunction proposed to be issued
under paragraph (1)(A), including any provisions barring
actions against third parties pursuant to paragraph (4)(A),
are set out in such plan and in any disclosure statement
supporting the plan; and
(bb) a separate class or classes of the claimants whose
claims are to be addressed by a trust described in clause (i)
is established and votes, by at least 75 percent of those
voting, in favor of the plan; and

(V) subject to subsection (h), pursuant to court orders or
otherwise, the trust will operate through mechanisms such as
structured, periodic, or supplemental payments, pro rata
distributions, matrices, or periodic review of estimates of the
numbers and values of present claims and future demands, or
other comparable mechanisms, that provide reasonable assurance
that the trust will value, and be in a financial position to
pay, present claims and future demands that involve similar
claims in substantially the same manner.

(3)(A) If the requirements of paragraph (2)(B) are met and the
order confirming the plan of reorganization was issued or affirmed
by the district court that has jurisdiction over the reorganization
case, then after the time for appeal of the order that issues or
affirms the plan –
(i) the injunction shall be valid and enforceable and may not
be revoked or modified by any court except through appeal in
accordance with paragraph (6);
(ii) no entity that pursuant to such plan or thereafter becomes
a direct or indirect transferee of, or successor to any assets
of, a debtor or trust that is the subject of the injunction shall
be liable with respect to any claim or demand made against such
entity by reason of its becoming such a transferee or successor;
and
(iii) no entity that pursuant to such plan or thereafter makes
a loan to such a debtor or trust or to such a successor or
transferee shall, by reason of making the loan, be liable with
respect to any claim or demand made against such entity, nor
shall any pledge of assets made in connection with such a loan be
upset or impaired for that reason;

(B) Subparagraph (A) shall not be construed to –
(i) imply that an entity described in subparagraph (A)(ii) or
(iii) would, if this paragraph were not applicable, necessarily
be liable to any entity by reason of any of the acts described in
subparagraph (A);
(ii) relieve any such entity of the duty to comply with, or of
liability under, any Federal or State law regarding the making of
a fraudulent conveyance in a transaction described in
subparagraph (A)(ii) or (iii); or
(iii) relieve a debtor of the debtor’s obligation to comply
with the terms of the plan of reorganization, or affect the power
of the court to exercise its authority under sections 1141 and
1142 to compel the debtor to do so.

(4)(A)(i) Subject to subparagraph (B), an injunction described in
paragraph (1) shall be valid and enforceable against all entities
that it addresses.
(ii) Notwithstanding the provisions of section 524(e), such an
injunction may bar any action directed against a third party who is
identifiable from the terms of such injunction (by name or as part
of an identifiable group) and is alleged to be directly or
indirectly liable for the conduct of, claims against, or demands on
the debtor to the extent such alleged liability of such third party
arises by reason of –
(I) the third party’s ownership of a financial interest in the
debtor, a past or present affiliate of the debtor, or a
predecessor in interest of the debtor;
(II) the third party’s involvement in the management of the
debtor or a predecessor in interest of the debtor, or service as
an officer, director or employee of the debtor or a related
party;
(III) the third party’s provision of insurance to the debtor or
a related party; or
(IV) the third party’s involvement in a transaction changing
the corporate structure, or in a loan or other financial
transaction affecting the financial condition, of the debtor or a
related party, including but not limited to –
(aa) involvement in providing financing (debt or equity), or
advice to an entity involved in such a transaction; or
(bb) acquiring or selling a financial interest in an entity
as part of such a transaction.

(iii) As used in this subparagraph, the term “related party”
means –
(I) a past or present affiliate of the debtor;
(II) a predecessor in interest of the debtor; or
(III) any entity that owned a financial interest in –
(aa) the debtor;
(bb) a past or present affiliate of the debtor; or
(cc) a predecessor in interest of the debtor.

(B) Subject to subsection (h), if, under a plan of
reorganization, a kind of demand described in such plan is to be
paid in whole or in part by a trust described in paragraph
(2)(B)(i) in connection with which an injunction described in
paragraph (1) is to be implemented, then such injunction shall be
valid and enforceable with respect to a demand of such kind made,
after such plan is confirmed, against the debtor or debtors
involved, or against a third party described in subparagraph
(A)(ii), if –
(i) as part of the proceedings leading to issuance of such
injunction, the court appoints a legal representative for the
purpose of protecting the rights of persons that might
subsequently assert demands of such kind, and
(ii) the court determines, before entering the order confirming
such plan, that identifying such debtor or debtors, or such third
party (by name or as part of an identifiable group), in such
injunction with respect to such demands for purposes of this
subparagraph is fair and equitable with respect to the persons
that might subsequently assert such demands, in light of the
benefits provided, or to be provided, to such trust on behalf of
such debtor or debtors or such third party.

(5) In this subsection, the term “demand” means a demand for
payment, present or future, that –
(A) was not a claim during the proceedings leading to the
confirmation of a plan of reorganization;
(B) arises out of the same or similar conduct or events that
gave rise to the claims addressed by the injunction issued under
paragraph (1); and
(C) pursuant to the plan, is to be paid by a trust described in
paragraph (2)(B)(i).

(6) Paragraph (3)(A)(i) does not bar an action taken by or at the
direction of an appellate court on appeal of an injunction issued
under paragraph (1) or of the order of confirmation that relates to
the injunction.
(7) This subsection does not affect the operation of section 1144
or the power of the district court to refer a proceeding under
section 157 of title 28 or any reference of a proceeding made prior
to the date of the enactment of this subsection.
(h) Application to Existing Injunctions. – For purposes of
subsection (g) –
(1) subject to paragraph (2), if an injunction of the kind
described in subsection (g)(1)(B) was issued before the date of
the enactment of this Act, as part of a plan of reorganization
confirmed by an order entered before such date, then the
injunction shall be considered to meet the requirements of
subsection (g)(2)(B) for purposes of subsection (g)(2)(A), and to
satisfy subsection (g)(4)(A)(ii), if –
(A) the court determined at the time the plan was confirmed
that the plan was fair and equitable in accordance with the
requirements of section 1129(b);
(B) as part of the proceedings leading to issuance of such
injunction and confirmation of such plan, the court had
appointed a legal representative for the purpose of protecting
the rights of persons that might subsequently assert demands
described in subsection (g)(4)(B) with respect to such plan;
and
(C) such legal representative did not object to confirmation
of such plan or issuance of such injunction; and

(2) for purposes of paragraph (1), if a trust described in
subsection (g)(2)(B)(i) is subject to a court order on the date
of the enactment of this Act staying such trust from settling or
paying further claims –
(A) the requirements of subsection (g)(2)(B)(ii)(V) shall not
apply with respect to such trust until such stay is lifted or
dissolved; and
(B) if such trust meets such requirements on the date such
stay is lifted or dissolved, such trust shall be considered to
have met such requirements continuously from the date of the
enactment of this Act.

(i) The willful failure of a creditor to credit payments received
under a plan confirmed under this title, unless the order
confirming the plan is revoked, the plan is in default, or the
creditor has not received payments required to be made under the
plan in the manner required by the plan (including crediting the
amounts required under the plan), shall constitute a violation of
an injunction under subsection (a)(2) if the act of the creditor to
collect and failure to credit payments in the manner required by
the plan caused material injury to the debtor.
(j) Subsection (a)(2) does not operate as an injunction against
an act by a creditor that is the holder of a secured claim, if –
(1) such creditor retains a security interest in real property
that is the principal residence of the debtor;
(2) such act is in the ordinary course of business between the
creditor and the debtor; and
(3) such act is limited to seeking or obtaining periodic
payments associated with a valid security interest in lieu of
pursuit of in rem relief to enforce the lien.

(k)(1) The disclosures required under subsection (c)(2) shall
consist of the disclosure statement described in paragraph (3),
completed as required in that paragraph, together with the
agreement specified in subsection (c), statement, declaration,
motion and order described, respectively, in paragraphs (4) through
(8), and shall be the only disclosures required in connection with
entering into such agreement.
(2) Disclosures made under paragraph (1) shall be made clearly
and conspicuously and in writing. The terms “Amount Reaffirmed” and
“Annual Percentage Rate” shall be disclosed more conspicuously than
other terms, data or information provided in connection with this
disclosure, except that the phrases “Before agreeing to reaffirm a
debt, review these important disclosures” and “Summary of
Reaffirmation Agreement” may be equally conspicuous. Disclosures
may be made in a different order and may use terminology different
from that set forth in paragraphs (2) through (8), except that the
terms “Amount Reaffirmed” and “Annual Percentage Rate” must be used
where indicated.
(3) The disclosure statement required under this paragraph shall
consist of the following:
(A) The statement: “Part A: Before agreeing to reaffirm a debt,
review these important disclosures:”;
(B) Under the heading “Summary of Reaffirmation Agreement”, the
statement: “This Summary is made pursuant to the requirements of
the Bankruptcy Code”;
(C) The “Amount Reaffirmed”, using that term, which shall be –
(i) the total amount of debt that the debtor agrees to
reaffirm by entering into an agreement of the kind specified in
subsection (c), and
(ii) the total of any fees and costs accrued as of the date
of the disclosure statement, related to such total amount.

(D) In conjunction with the disclosure of the “Amount
Reaffirmed”, the statements –
(i) “The amount of debt you have agreed to reaffirm”; and
(ii) “Your credit agreement may obligate you to pay
additional amounts which may come due after the date of this
disclosure. Consult your credit agreement.”.

(E) The “Annual Percentage Rate”, using that term, which shall
be disclosed as –
(i) if, at the time the petition is filed, the debt is an
extension of credit under an open end credit plan, as the terms
“credit” and “open end credit plan” are defined in section 103
of the Truth in Lending Act, then –
(I) the annual percentage rate determined under paragraphs
(5) and (6) of section 127(b) of the Truth in Lending Act, as
applicable, as disclosed to the debtor in the most recent
periodic statement prior to entering into an agreement of the
kind specified in subsection (c) or, if no such periodic
statement has been given to the debtor during the prior 6
months, the annual percentage rate as it would have been so
disclosed at the time the disclosure statement is given to
the debtor, or to the extent this annual percentage rate is
not readily available or not applicable, then
(II) the simple interest rate applicable to the amount
reaffirmed as of the date the disclosure statement is given
to the debtor, or if different simple interest rates apply to
different balances, the simple interest rate applicable to
each such balance, identifying the amount of each such
balance included in the amount reaffirmed, or
(III) if the entity making the disclosure elects, to
disclose the annual percentage rate under subclause (I) and
the simple interest rate under subclause (II); or

(ii) if, at the time the petition is filed, the debt is an
extension of credit other than under an open end credit plan,
as the terms “credit” and “open end credit plan” are defined in
section 103 of the Truth in Lending Act, then –
(I) the annual percentage rate under section 128(a)(4) of
the Truth in Lending Act, as disclosed to the debtor in the
most recent disclosure statement given to the debtor prior to
the entering into an agreement of the kind specified in
subsection (c) with respect to the debt, or, if no such
disclosure statement was given to the debtor, the annual
percentage rate as it would have been so disclosed at the
time the disclosure statement is given to the debtor, or to
the extent this annual percentage rate is not readily
available or not applicable, then
(II) the simple interest rate applicable to the amount
reaffirmed as of the date the disclosure statement is given
to the debtor, or if different simple interest rates apply to
different balances, the simple interest rate applicable to
each such balance, identifying the amount of such balance
included in the amount reaffirmed, or
(III) if the entity making the disclosure elects, to
disclose the annual percentage rate under (I) and the simple
interest rate under (II).

(F) If the underlying debt transaction was disclosed as a
variable rate transaction on the most recent disclosure given
under the Truth in Lending Act, by stating “The interest rate on
your loan may be a variable interest rate which changes from time
to time, so that the annual percentage rate disclosed here may be
higher or lower.”.
(G) If the debt is secured by a security interest which has not
been waived in whole or in part or determined to be void by a
final order of the court at the time of the disclosure, by
disclosing that a security interest or lien in goods or property
is asserted over some or all of the debts the debtor is
reaffirming and listing the items and their original purchase
price that are subject to the asserted security interest, or if
not a purchase-money security interest then listing by items or
types and the original amount of the loan.
(H) At the election of the creditor, a statement of the
repayment schedule using 1 or a combination of the following –
(i) by making the statement: “Your first payment in the
amount of $___ is due on ___ but the future payment amount may
be different. Consult your reaffirmation agreement or credit
agreement, as applicable.”, and stating the amount of the first
payment and the due date of that payment in the places
provided;
(ii) by making the statement: “Your payment schedule will
be:”, and describing the repayment schedule with the number,
amount, and due dates or period of payments scheduled to repay
the debts reaffirmed to the extent then known by the disclosing
party; or
(iii) by describing the debtor’s repayment obligations with
reasonable specificity to the extent then known by the
disclosing party.

(I) The following statement: “Note: When this disclosure refers
to what a creditor ‘may’ do, it does not use the word ‘may’ to
give the creditor specific permission. The word ‘may’ is used to
tell you what might occur if the law permits the creditor to take
the action. If you have questions about your reaffirming a debt
or what the law requires, consult with the attorney who helped
you negotiate this agreement reaffirming a debt. If you don’t
have an attorney helping you, the judge will explain the effect
of your reaffirming a debt when the hearing on the reaffirmation
agreement is held.”.
(J)(i) The following additional statements:

“Reaffirming a debt is a serious financial decision. The law
requires you to take certain steps to make sure the decision is in
your best interest. If these steps are not completed, the
reaffirmation agreement is not effective, even though you have
signed it.
“1. Read the disclosures in this Part A carefully. Consider the
decision to reaffirm carefully. Then, if you want to reaffirm,
sign the reaffirmation agreement in Part B (or you may use a
separate agreement you and your creditor agree on).
“2. Complete and sign Part D and be sure you can afford to make
the payments you are agreeing to make and have received a copy of
the disclosure statement and a completed and signed reaffirmation
agreement.
“3. If you were represented by an attorney during the
negotiation of your reaffirmation agreement, the attorney must
have signed the certification in Part C.
“4. If you were not represented by an attorney during the
negotiation of your reaffirmation agreement, you must have
completed and signed Part E.
“5. The original of this disclosure must be filed with the
court by you or your creditor. If a separate reaffirmation
agreement (other than the one in Part B) has been signed, it must
be attached.
“6. If you were represented by an attorney during the
negotiation of your reaffirmation agreement, your reaffirmation
agreement becomes effective upon filing with the court unless the
reaffirmation is presumed to be an undue hardship as explained in
Part D.
“7. If you were not represented by an attorney during the
negotiation of your reaffirmation agreement, it will not be
effective unless the court approves it. The court will notify you
of the hearing on your reaffirmation agreement. You must attend
this hearing in bankruptcy court where the judge will review your
reaffirmation agreement. The bankruptcy court must approve your
reaffirmation agreement as consistent with your best interests,
except that no court approval is required if your reaffirmation
agreement is for a consumer debt secured by a mortgage, deed of
trust, security deed, or other lien on your real property, like
your home.

“Your right to rescind (cancel) your reaffirmation agreement. You
may rescind (cancel) your reaffirmation agreement at any time
before the bankruptcy court enters a discharge order, or before the
expiration of the 60-day period that begins on the date your
reaffirmation agreement is filed with the court, whichever occurs
later. To rescind (cancel) your reaffirmation agreement, you must
notify the creditor that your reaffirmation agreement is rescinded
(or canceled).
“What are your obligations if you reaffirm the debt? A reaffirmed
debt remains your personal legal obligation. It is not discharged
in your bankruptcy case. That means that if you default on your
reaffirmed debt after your bankruptcy case is over, your creditor
may be able to take your property or your wages. Otherwise, your
obligations will be determined by the reaffirmation agreement which
may have changed the terms of the original agreement. For example,
if you are reaffirming an open end credit agreement, the creditor
may be permitted by that agreement or applicable law to change the
terms of that agreement in the future under certain conditions.
“Are you required to enter into a reaffirmation agreement by any
law? No, you are not required to reaffirm a debt by any law. Only
agree to reaffirm a debt if it is in your best interest. Be sure
you can afford the payments you agree to make.
“What if your creditor has a security interest or lien? Your
bankruptcy discharge does not eliminate any lien on your property.
A ‘lien’ is often referred to as a security interest, deed of
trust, mortgage or security deed. Even if you do not reaffirm and
your personal liability on the debt is discharged, because of the
lien your creditor may still have the right to take the property
securing the lien if you do not pay the debt or default on it. If
the lien is on an item of personal property that is exempt under
your State’s law or that the trustee has abandoned, you may be able
to redeem the item rather than reaffirm the debt. To redeem, you
must make a single payment to the creditor equal to the amount of
the allowed secured claim, as agreed by the parties or determined
by the court.”.
(ii) In the case of a reaffirmation under subsection (m)(2),
numbered paragraph 6 in the disclosures required by clause (i) of
this subparagraph shall read as follows:
“6. If you were represented by an attorney during the
negotiation of your reaffirmation agreement, your reaffirmation
agreement becomes effective upon filing with the court.”.

(4) The form of such agreement required under this paragraph
shall consist of the following:
“Part B: Reaffirmation Agreement. I (we) agree to reaffirm the
debts arising under the credit agreement described below.
“Brief description of credit agreement:
“Description of any changes to the credit agreement made as part
of this reaffirmation agreement:
“Signature: Date:
“Borrower:
“Co-borrower, if also reaffirming these debts:
“Accepted by creditor:
“Date of creditor acceptance:”.
(5) The declaration shall consist of the following:
(A) The following certification:

“Part C: Certification by Debtor’s Attorney (If Any).
“I hereby certify that (1) this agreement represents a fully
informed and voluntary agreement by the debtor; (2) this agreement
does not impose an undue hardship on the debtor or any dependent of
the debtor; and (3) I have fully advised the debtor of the legal
effect and consequences of this agreement and any default under
this agreement.
“Signature of Debtor’s Attorney: Date:”.
(B) If a presumption of undue hardship has been established
with respect to such agreement, such certification shall state
that, in the opinion of the attorney, the debtor is able to make
the payment.
(C) In the case of a reaffirmation agreement under subsection
(m)(2), subparagraph (B) is not applicable.

(6)(A) The statement in support of such agreement, which the
debtor shall sign and date prior to filing with the court, shall
consist of the following:
“Part D: Debtor’s Statement in Support of Reaffirmation
Agreement.
“1. I believe this reaffirmation agreement will not impose an
undue hardship on my dependents or me. I can afford to make the
payments on the reaffirmed debt because my monthly income (take
home pay plus any other income received) is $___, and my actual
current monthly expenses including monthly payments on post-
bankruptcy debt and other reaffirmation agreements total $___,
leaving $___ to make the required payments on this reaffirmed debt.
I understand that if my income less my monthly expenses does not
leave enough to make the payments, this reaffirmation agreement is
presumed to be an undue hardship on me and must be reviewed by the
court. However, this presumption may be overcome if I explain to
the satisfaction of the court how I can afford to make the payments
here: ___.
“2. I received a copy of the Reaffirmation Disclosure Statement
in Part A and a completed and signed reaffirmation agreement.”.
(B) Where the debtor is represented by an attorney and is
reaffirming a debt owed to a creditor defined in section
19(b)(1)(A)(iv) of the Federal Reserve Act, the statement of
support of the reaffirmation agreement, which the debtor shall sign
and date prior to filing with the court, shall consist of the
following:
“I believe this reaffirmation agreement is in my financial
interest. I can afford to make the payments on the reaffirmed debt.
I received a copy of the Reaffirmation Disclosure Statement in Part
A and a completed and signed reaffirmation agreement.”.
(7) The motion that may be used if approval of such agreement by
the court is required in order for it to be effective, shall be
signed and dated by the movant and shall consist of the following:
“Part E: Motion for Court Approval (To be completed only if the
debtor is not represented by an attorney.). I (we), the debtor(s),
affirm the following to be true and correct:
“I am not represented by an attorney in connection with this
reaffirmation agreement.
“I believe this reaffirmation agreement is in my best interest
based on the income and expenses I have disclosed in my Statement
in Support of this reaffirmation agreement, and because (provide
any additional relevant reasons the court should consider):
“Therefore, I ask the court for an order approving this
reaffirmation agreement.”.
(8) The court order, which may be used to approve such agreement,
shall consist of the following:
“Court Order: The court grants the debtor’s motion and approves
the reaffirmation agreement described above.”.
(l) Notwithstanding any other provision of this title the
following shall apply:
(1) A creditor may accept payments from a debtor before and
after the filing of an agreement of the kind specified in
subsection (c) with the court.
(2) A creditor may accept payments from a debtor under such
agreement that the creditor believes in good faith to be
effective.
(3) The requirements of subsections (c)(2) and (k) shall be
satisfied if disclosures required under those subsections are
given in good faith.

(m)(1) Until 60 days after an agreement of the kind specified in
subsection (c) is filed with the court (or such additional period
as the court, after notice and a hearing and for cause, orders
before the expiration of such period), it shall be presumed that
such agreement is an undue hardship on the debtor if the debtor’s
monthly income less the debtor’s monthly expenses as shown on the
debtor’s completed and signed statement in support of such
agreement required under subsection (k)(6)(A) is less than the
scheduled payments on the reaffirmed debt. This presumption shall
be reviewed by the court. The presumption may be rebutted in
writing by the debtor if the statement includes an explanation that
identifies additional sources of funds to make the payments as
agreed upon under the terms of such agreement. If the presumption
is not rebutted to the satisfaction of the court, the court may
disapprove such agreement. No agreement shall be disapproved
without notice and a hearing to the debtor and creditor, and such
hearing shall be concluded before the entry of the debtor’s
discharge.
(2) This subsection does not apply to reaffirmation agreements
where the creditor is a credit union, as defined in section
19(b)(1)(A)(iv) of the Federal Reserve Act.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2592; Pub. L. 98-353, title
III, Secs. 308, 455, July 10, 1984, 98 Stat. 354, 376; Pub. L. 99-
554, title II, Secs. 257(o), 282, 283(k), Oct. 27, 1986, 100 Stat.
3115-3117; Pub. L. 103-394, title I, Secs. 103, 111(a), title V,
Sec. 501(d)(14), Oct. 22, 1994, 108 Stat. 4108, 4113, 4145; Pub. L.
109-8, title II, Secs. 202, 203(a), title XII, Sec. 1210, Apr. 20,
2005, 119 Stat. 43, 194; Pub. L. 111-327, Sec. 2(a)(19), Dec. 22,
2010, 124 Stat. 3559.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 524(a) of the House amendment represents a compromise
between the House bill and the Senate amendment. Section 524(b) of
the House amendment is new, and represents standards clarifying the
operation of section 524(a)(3) with respect to community property.
Sections 524(c) and (d) represent a compromise between the House
bill and Senate amendment on the issue of reaffirmation of a debt
discharged in bankruptcy. Every reaffirmation to be enforceable
must be approved by the court, and any debtor may rescind a
reaffirmation for 30 days from the time the reaffirmation becomes
enforceable. If the debtor is an individual the court must advise
the debtor of various effects of reaffirmation at a hearing. In
addition, to any extent the debt is a consumer debt that is not
secured by real property of the debtor reaffirmation is permitted
only if the court approves the reaffirmation agreement, before
granting a discharge under section 727, 1141, or 1328, as not
imposing a hardship on the debtor or a dependent of the debtor and
in the best interest of the debtor; alternatively, the court may
approve an agreement entered into in good faith that is in
settlement of litigation of a complaint to determine
dischargeability or that is entered into in connection with
redemption under section 722. The hearing on discharge under
section 524(d) will be held whether or not the debtor desires to
reaffirm any debts.

SENATE REPORT NO. 95-989
Subsection (a) specifies that a discharge in a bankruptcy case
voids any judgment to the extent that it is a determination of the
personal liability of the debtor with respect to a prepetition
debt, and operates as an injunction against the commencement or
continuation of an action, the employment of process, or any act,
including telephone calls, letters, and personal contacts, to
collect, recover, or offset any discharged debt as a personal
liability of the debtor, or from property of the debtor, whether or
not the debtor has waived discharge of the debt involved. The
injunction is to give complete effect to the discharge and to
eliminate any doubt concerning the effect of the discharge as a
total prohibition on debt collection efforts. This paragraph has
been expanded over a comparable provision in Bankruptcy Act Sec.
14f [section 32(f) of former title 11] to cover any act to collect,
such as dunning by telephone or letter, or indirectly through
friends, relatives, or employers, harassment, threats of
repossession, and the like. The change is consonant with the new
policy forbidding binding reaffirmation agreements under proposed
11 U.S.C. 524(b), and is intended to insure that once a debt is
discharged, the debtor will not be pressured in any way to repay
it. In effect, the discharge extinguishes the debt, and creditors
may not attempt to avoid that. The language “whether or not
discharge of such debt is waived” is intended to prevent waiver of
discharge of a particular debt from defeating the purposes of this
section. It is directed at waiver of discharge of a particular
debt, not waiver of discharge in toto as permitted under section
727(a)(9).
Subsection (a) also codifies the split discharge for debtors in
community property states. If community property was in the estate
and community claims were discharged, the discharge is effective
against community creditors of the nondebtor spouse as well as of
the debtor spouse.
Subsection (b) gives further effect to the discharge. It
prohibits reaffirmation agreements after the commencement of the
case with respect to any dischargeable debt. The prohibition
extends to agreements the consideration for which in whole or in
part is based on a dischargeable debt, and it applies whether or
not discharge of the debt involved in the agreement has been
waived. Thus, the prohibition on reaffirmation agreements extends
to debts that are based on discharged debts. Thus, “second
generation” debts, which included all or a part of a discharged
debt could not be included in any new agreement for new money. This
subsection will not have any effect on reaffirmations of debts
discharged under the Bankruptcy Act [former title 11]. It will only
apply to discharges granted if commenced under the new title 11
bankruptcy code.
Subsection (c) grants an exception to the anti-reaffirmation
provision. It permits reaffirmation in connection with the
settlement of a proceeding to determine the dischargeability of the
debt being reaffirmed, or in connection with a redemption agreement
permitted under section 722. In either case, the reaffirmation
agreement must be entered into in good faith and must be approved
by the court.
Subsection (d) provides the discharge of the debtor does not
affect co-debtors or guarantors.

-REFTEXT-
REFERENCES IN TEXT
The Bankruptcy Act, referred to in subsec. (b)(1), is act July 1,
1898, ch. 541, 30 Stat. 544, as amended, which was classified
generally to former Title 11.
The date of the enactment of this subsection, referred to in
subsec. (g)(7), is the date of enactment of Pub. L. 103-394, which
enacted subsec. (g) and was approved Oct. 22, 1994.
The date of the enactment of this Act, referred to in subsec.
(h), probably means the date of enactment of Pub. L. 103-394, which
enacted subsec. (h) and was approved Oct. 22, 1994.
The Truth in Lending Act, referred to in subsec. (k), is title I
of Pub. L. 90-321, May 29, 1968, 82 Stat. 146, as amended, which is
classified generally to subchapter I (Sec. 1601 et seq.) of chapter
41 of Title 15, Commerce and Trade. Sections 103, 127(b), and
128(a)(4) of the Act are classified to sections 1602, 1637(b), and
1638(a)(4), respectively, of Title 15. For complete classification
of this Act to the Code, see Short Title note set out under section
1601 of Title 15 and Tables.
Section 19(b)(1)(A)(iv) of the Federal Reserve Act, referred to
in subsecs. (k)(6)(B) and (m)(2), is classified to section
461(b)(1)(A)(iv) of Title 12, Banks and Banking.

-MISC2-
AMENDMENTS
2010 – Subsec. (k)(3)(J)(i). Pub. L. 111-327, Sec. 2(a)(19)(A),
in last undesignated par., substituted “property securing the lien”
for “security property” and “amount of the allowed secured claim”
for “current value of the security property” and inserted “must”
before “make a single payment”.
Subsec. (k)(5)(B). Pub. L. 111-327, Sec. 2(a)(19)(B), substituted
“that,” for “that”.
2005 – Subsec. (a)(3). Pub. L. 109-8, Sec. 1210, substituted
“section 523, 1228(a)(1), or 1328(a)(1), or that” for “section 523,
1228(a)(1), or 1328(a)(1) of this title, or that”.
Subsec. (c)(2). Pub. L. 109-8, Sec. 203(a)(1), added par. (2) and
struck out former par. (2) which read as follows:
“(2)(A) such agreement contains a clear and conspicuous statement
which advises the debtor that the agreement may be rescinded at any
time prior to discharge or within sixty days after such agreement
is filed with the court, whichever occurs later, by giving notice
of rescission to the holder of such claim; and
“(B) such agreement contains a clear and conspicuous statement
which advises the debtor that such agreement is not required under
this title, under nonbankruptcy law, or under any agreement not in
accordance with the provisions of this subsection;”.
Subsecs. (i), (j). Pub. L. 109-8, Sec. 202, added subsecs. (i)
and (j).
Subsecs. (k) to (m). Pub. L. 109-8, Sec. 203(a)(2), added
subsecs. (k) to (m).
1994 – Subsec. (a)(3). Pub. L. 103-394, Sec. 501(d)(14)(A),
substituted “1328(a)(1)” for “1328(c)(1)”. See 1986 Amendment note
below.
Subsec. (c)(2). Pub. L. 103-394, Sec. 103(a)(1), designated
existing provisions as subpar. (A), inserted “and” at end, and
added subpar. (B).
Subsec. (c)(3). Pub. L. 103-394, Sec. 103(a)(2), struck out “such
agreement” after “which states that” in introductory provisions,
struck out “and” at end of subpar. (A), inserted “such agreement”
in subpars. (A) and (B), and added subpar. (C).
Subsec. (c)(4). Pub. L. 103-394, Sec. 501(d)(14)(B), substituted
“rescission” for “recission”.
Subsec. (d). Pub. L. 103-394, Sec. 103(b), inserted “and was not
represented by an attorney during the course of negotiating such
agreement” after “this section” in introductory provisions.
Subsec. (d)(1)(B)(ii). Pub. L. 103-394, Sec. 501(d)(14)(C),
inserted “and” at end.
Subsecs. (g), (h). Pub. L. 103-394, Sec. 111(a), added subsecs.
(g) and (h).
1986 – Subsec. (a)(1). Pub. L. 99-554, Sec. 257(o)(1), inserted
reference to section 1228 of this title.
Subsec. (a)(3). Pub. L. 99-554, Sec. 257(o)(2), which directed
the substitution of “, 1228(a)(1), or 1328(a)(1)” for “or
1328(a)(1)” was executed by making the substitution for “or
1328(c)(1)” to reflect the probable intent of Congress. See 1994
Amendment note above.
Subsec. (c)(1). Pub. L. 99-554, Sec. 257(o)(1), inserted
reference to section 1228 of this title.
Subsec. (d). Pub. L. 99-554, Sec. 257(o)(1), inserted reference
to section 1228 of this title.
Pub. L. 99-554, Sec. 282, substituted “shall” for “may” before
“hold” in first sentence, inserted “any” after “At” in second
sentence, and inserted “the court shall hold a hearing at which the
debtor shall appear in person and” after “then” in third sentence.
Subsec. (d)(2). Pub. L. 99-554, Sec. 283(k), substituted
“section” for “subsection” after “subsection (c)(6) of this”.
1984 – Subsec. (a)(2). Pub. L. 98-353, Secs. 308(a), 455, struck
out “or from property of the debtor,” before “whether or not
discharge”, and substituted “an act” for “any act”.
Subsec. (a)(3). Pub. L. 98-353, Sec. 455, substituted “an act”
for “any act”.
Subsec. (c)(2). Pub. L. 98-353, Sec. 308(b)(1), (3), added par.
(2). Former par. (2), which related to situations where the debtor
had not rescinded the agreement within 30 days after the agreement
became enforceable, was struck out.
Subsec. (c)(3), (4). Pub. L. 98-352, Sec. 308(b)(3), added pars.
(3) and (4). Former pars. (3) and (4) redesignated (5) and (6),
respectively.
Subsec. (c)(5). Pub. L. 98-353, Sec. 308(b)(2), redesignated
former par. (3) as (5).
Subsec. (c)(6). Pub. L. 98-353, Sec. 308(b)(2), (4), redesignated
former par. (4) as (6) and generally amended par. (6), as so
redesignated, thereby striking out provisions relating to court
approval of such agreements as are entered into in good faith and
are in settlement of litigation under section 523 of this title or
provide for redemption under section 722 of this title.
Subsec. (d)(2). Pub. L. 98-353, Sec. 308(c), substituted
“subsection (c)(6)” for “subsection (c)(4)”.
Subsec. (f). Pub. L. 98-353, Sec. 308(d), added subsec. (f).

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, except
with respect to amendment by section 111(a) of Pub. L. 103-394,
amendment by Pub. L. 103-394 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 sections 282 and 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.

CONSTRUCTION
Section 111(b) of Pub. L. 103-394 provided that: “Nothing in
subsection (a), or in the amendments made by subsection (a)
[amending this section], shall be construed to modify, impair, or
supersede any other authority the court has to issue injunctions in
connection with an order confirming a plan of reorganization.”

-End-

-CITE-
11 USC Sec. 525 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER II – DEBTOR’S DUTIES AND BENEFITS

-HEAD-
Sec. 525. Protection against discriminatory treatment

-STATUTE-
(a) Except as provided in the Perishable Agricultural Commodities
Act, 1930, the Packers and Stockyards Act, 1921, and section 1 of
the Act entitled “An Act making appropriations for the Department
of Agriculture for the fiscal year ending June 30, 1944, and for
other purposes,” approved July 12, 1943, a governmental unit may
not deny, revoke, suspend, or refuse to renew a license, permit,
charter, franchise, or other similar grant to, condition such a
grant to, discriminate with respect to such a grant against, deny
employment to, terminate the employment of, or discriminate with
respect to employment against, a person that is or has been a
debtor under this title or a bankrupt or a debtor under the
Bankruptcy Act, or another person with whom such bankrupt or debtor
has been associated, solely because such bankrupt or debtor is or
has been a debtor under this title or a bankrupt or debtor under
the Bankruptcy Act, has been insolvent before the commencement of
the case under this title, or during the case but before the debtor
is granted or denied a discharge, or has not paid a debt that is
dischargeable in the case under this title or that was discharged
under the Bankruptcy Act.
(b) No private employer may terminate the employment of, or
discriminate with respect to employment against, an individual who
is or has been a debtor under this title, a debtor or bankrupt
under the Bankruptcy Act, or an individual associated with such
debtor or bankrupt, solely because such debtor or bankrupt –
(1) is or has been a debtor under this title or a debtor or
bankrupt under the Bankruptcy Act;
(2) has been insolvent before the commencement of a case under
this title or during the case but before the grant or denial of a
discharge; or
(3) has not paid a debt that is dischargeable in a case under
this title or that was discharged under the Bankruptcy Act.

(c)(1) A governmental unit that operates a student grant or loan
program and a person engaged in a business that includes the making
of loans guaranteed or insured under a student loan program may not
deny a student grant, loan, loan guarantee, or loan insurance to a
person that is or has been a debtor under this title or a bankrupt
or debtor under the Bankruptcy Act, or another person with whom the
debtor or bankrupt has been associated, because the debtor or
bankrupt is or has been a debtor under this title or a bankrupt or
debtor under the Bankruptcy Act, has been insolvent before the
commencement of a case under this title or during the pendency of
the case but before the debtor is granted or denied a discharge, or
has not paid a debt that is dischargeable in the case under this
title or that was discharged under the Bankruptcy Act.
(2) In this section, “student loan program” means any program
operated under title IV of the Higher Education Act of 1965 or a
similar program operated under State or local law.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2593; Pub. L. 98-353, title
III, Sec. 309, July 10, 1984, 98 Stat. 354; Pub. L. 103-394, title
III, Sec. 313, title V, Sec. 501(d)(15), Oct. 22, 1994, 108 Stat.
4140, 4145; Pub. L. 109-8, title XII, Sec. 1211, Apr. 20, 2005, 119
Stat. 194.)

-MISC1-
HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989
This section is additional debtor protection. It codifies the
result of Perez v. Campbell, 402 U.S. 637 (1971), which held that a
State would frustrate the Congressional policy of a fresh start for
a debtor if it were permitted to refuse to renew a drivers license
because a tort judgment resulting from an automobile accident had
been unpaid as a result of a discharge in bankruptcy.
Notwithstanding any other laws, section 525 prohibits a
governmental unit from denying, revoking, suspending, or refusing
to renew a license, permit, charter, franchise, or other similar
grant to, from conditioning such a grant to, from discrimination
with respect to such a grant against, deny employment to, terminate
the employment of, or discriminate with respect to employment
against, a person that is or has been a debtor or that is or has
been associated with a debtor. The prohibition extends only to
discrimination or other action based solely on the basis of the
bankruptcy, on the basis of insolvency before or during bankruptcy
prior to a determination of discharge, or on the basis of
nonpayment of a debt discharged in the bankruptcy case (the Perez
situation). It does not prohibit consideration of other factors,
such as future financial responsibility or ability, and does not
prohibit imposition of requirements such as net capital rules, if
applied nondiscriminatorily.
In addition, the section is not exhaustive. The enumeration of
various forms of discrimination against former bankrupts is not
intended to permit other forms of discrimination. The courts have
been developing the Perez rule. This section permits further
development to prohibit actions by governmental or quasi-
governmental organizations that perform licensing functions, such
as a State bar association or a medical society, or by other
organizations that can seriously affect the debtors’ livelihood or
fresh start, such as exclusion from a union on the basis of
discharge of a debt to the union’s credit union.
The effect of the section, and of further interpretations of the
Perez rule, is to strengthen the anti-reaffirmation policy found in
section 524(b). Discrimination based solely on nonpayment could
encourage reaffirmations, contrary to the expressed policy.
The section is not so broad as a comparable section proposed by
the Bankruptcy Commission, S. 236, 94th Cong., 1st Sess. Sec. 4-508
(1975), which would have extended the prohibition to any
discrimination, even by private parties. Nevertheless, it is not
limiting either, as noted. The courts will continue to mark the
contours of the anti-discrimination provision in pursuit of sound
bankruptcy policy.

-REFTEXT-
REFERENCES IN TEXT
The Perishable Agricultural Commodities Act, 1930, referred to in
subsec. (a), is act June 10, 1930, ch. 436, 46 Stat. 531, as
amended, which is classified generally to chapter 20A (Sec. 499a et
seq.) of Title 7, Agriculture. For complete classification of this
Act to the Code, see section 499a(a) of Title 7 and Tables.
The Packers and Stockyards Act, 1921, referred to in subsec. (a),
is act Aug. 15, 1921, ch. 64, 42 Stat. 159, as amended, which is
classified generally to chapter 9 (Sec. 181 et seq.) of Title 7.
For complete classification of this Act to the Code, see section
181 of Title 7 and Tables.
Section 1 of the Act entitled “An Act making appropriations for
the Department of Agriculture for the fiscal year ending June 30,
1944, and for other purposes,” approved July 12, 1943, referred to
in subsec. (a), is classified to section 204 of Title 7.
The Bankruptcy Act, referred to in text, is act July 1, 1898, ch.
541, 30 Stat. 544, as amended, which was classified generally to
former Title 11.
The Higher Education Act of 1965, referred to in subsec. (c)(2),
is Pub. L. 89-329, Nov. 8, 1965, 79 Stat. 1219, as amended. Title
IV of the Act is classified generally to subchapter IV (Sec. 1070
et seq.) of chapter 28 of Title 20, Education, and part C (Sec.
2751 et seq.) of subchapter I of chapter 34 of Title 42, The Public
Health and Welfare. For complete classification of this Act to the
Code, see Short Title note set out under section 1001 of Title 20
and Tables.

-MISC2-
AMENDMENTS
2005 – Subsec. (c)(1). Pub. L. 109-8, Sec. 1211(1), inserted
“student” before “grant, loan,”.
Subsec. (c)(2). Pub. L. 109-8, Sec. 1211(2), substituted “any
program operated under” for “the program operated under part B, D,
or E of”.
1994 – Subsec. (a). Pub. L. 103-394, Sec. 501(d)(15), struck out
“(7 U.S.C. 499a-499s)” after “Act, 1930″, “(7 U.S.C. 181-229)”
after “Act, 1921″, and “(57 Stat. 422; 7 U.S.C. 204)” after “July
12, 1943″.
Subsec. (c). Pub. L. 103-394, Sec. 313, added subsec. (c).
1984 – Pub. L. 98-353 designated existing provisions as subsec.
(a), inserted “the” before “Perishable”, and added subsec. (b).

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. 526 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER II – DEBTOR’S DUTIES AND BENEFITS

-HEAD-
Sec. 526. Restrictions on debt relief agencies

-STATUTE-
(a) A debt relief agency shall not –
(1) fail to perform any service that such agency informed an
assisted person or prospective assisted person it would provide
in connection with a case or proceeding under this title;
(2) make any statement, or counsel or advise any assisted
person or prospective assisted person to make a statement in a
document filed in a case or proceeding under this title, that is
untrue or misleading, or that upon the exercise of reasonable
care, should have been known by such agency to be untrue or
misleading;
(3) misrepresent to any assisted person or prospective assisted
person, directly or indirectly, affirmatively or by material
omission, with respect to –
(A) the services that such agency will provide to such
person; or
(B) the benefits and risks that may result if such person
becomes a debtor in a case under this title; or

(4) advise an assisted person or prospective assisted person to
incur more debt in contemplation of such person filing a case
under this title or to pay an attorney or bankruptcy petition
preparer a fee or charge for services performed as part of
preparing for or representing a debtor in a case under this
title.

(b) Any waiver by any assisted person of any protection or right
provided under this section shall not be enforceable against the
debtor by any Federal or State court or any other person, but may
be enforced against a debt relief agency.
(c)(1) Any contract for bankruptcy assistance between a debt
relief agency and an assisted person that does not comply with the
material requirements of this section, section 527, or section 528
shall be void and may not be enforced by any Federal or State court
or by any other person, other than such assisted person.
(2) Any debt relief agency shall be liable to an assisted person
in the amount of any fees or charges in connection with providing
bankruptcy assistance to such person that such debt relief agency
has received, for actual damages, and for reasonable attorneys’
fees and costs if such agency is found, after notice and a hearing,
to have –
(A) intentionally or negligently failed to comply with any
provision of this section, section 527, or section 528 with
respect to a case or proceeding under this title for such
assisted person;
(B) provided bankruptcy assistance to an assisted person in a
case or proceeding under this title that is dismissed or
converted to a case under another chapter of this title because
of such agency’s intentional or negligent failure to file any
required document including those specified in section 521; or
(C) intentionally or negligently disregarded the material
requirements of this title or the Federal Rules of Bankruptcy
Procedure applicable to such agency.

(3) In addition to such other remedies as are provided under
State law, whenever the chief law enforcement officer of a State,
or an official or agency designated by a State, has reason to
believe that any person has violated or is violating this section,
the State –
(A) may bring an action to enjoin such violation;
(B) may bring an action on behalf of its residents to recover
the actual damages of assisted persons arising from such
violation, including any liability under paragraph (2); and
(C) in the case of any successful action under subparagraph (A)
or (B), shall be awarded the costs of the action and reasonable
attorneys’ fees as determined by the court.

(4) The district courts of the United States for districts
located in the State shall have concurrent jurisdiction of any
action under subparagraph (A) or (B) of paragraph (3).
(5) Notwithstanding any other provision of Federal law and in
addition to any other remedy provided under Federal or State law,
if the court, on its own motion or on the motion of the United
States trustee or the debtor, finds that a person intentionally
violated this section, or engaged in a clear and consistent pattern
or practice of violating this section, the court may –
(A) enjoin the violation of such section; or
(B) impose an appropriate civil penalty against such person.

(d) No provision of this section, section 527, or section 528
shall –
(1) annul, alter, affect, or exempt any person subject to such
sections from complying with any law of any State except to the
extent that such law is inconsistent with those sections, and
then only to the extent of the inconsistency; or
(2) be deemed to limit or curtail the authority or ability –
(A) of a State or subdivision or instrumentality thereof, to
determine and enforce qualifications for the practice of law
under the laws of that State; or
(B) of a Federal court to determine and enforce the
qualifications for the practice of law before that court.

-SOURCE-
(Added Pub. L. 109-8, title II, Sec. 227(a), Apr. 20, 2005, 119
Stat. 67; amended Pub. L. 111-327, Sec. 2(a)(20), Dec. 22, 2010,
124 Stat. 3560.)

-REFTEXT-
REFERENCES IN TEXT
The Federal Rules of Bankruptcy Procedure, referred to in subsec.
(c)(2)(C), are set out in the Appendix to this title.

-MISC1-
AMENDMENTS
2010 – Subsec. (a)(2). Pub. L. 111-327, Sec. 2(a)(20)(A),
substituted “that is untrue or” for “that is untrue and”.
Subsec. (a)(4). Pub. L. 111-327, Sec. 2(a)(20)(B), inserted “a”
after “preparer”.

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 Sec. 527 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER II – DEBTOR’S DUTIES AND BENEFITS

-HEAD-
Sec. 527. Disclosures

-STATUTE-
(a) A debt relief agency providing bankruptcy assistance to an
assisted person shall provide –
(1) the written notice required under section 342(b)(1); and
(2) to the extent not covered in the written notice described
in paragraph (1), and not later than 3 business days after the
first date on which a debt relief agency first offers to provide
any bankruptcy assistance services to an assisted person, a clear
and conspicuous written notice advising assisted persons that –
(A) all information that the assisted person is required to
provide with a petition and thereafter during a case under this
title is required to be complete, accurate, and truthful;
(B) all assets and all liabilities are required to be
completely and accurately disclosed in the documents filed to
commence the case, and the replacement value of each asset as
defined in section 506 must be stated in those documents where
requested after reasonable inquiry to establish such value;
(C) current monthly income, the amounts specified in section
707(b)(2), and, in a case under chapter 13 of this title,
disposable income (determined in accordance with section
707(b)(2)), are required to be stated after reasonable inquiry;
and
(D) information that an assisted person provides during their
case may be audited pursuant to this title, and that failure to
provide such information may result in dismissal of the case
under this title or other sanction, including a criminal
sanction.

(b) A debt relief agency providing bankruptcy assistance to an
assisted person shall provide each assisted person at the same time
as the notices required under subsection (a)(1) the following
statement, to the extent applicable, or one substantially similar.
The statement shall be clear and conspicuous and shall be in a
single document separate from other documents or notices provided
to the assisted person:
“IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM
AN ATTORNEY OR BANKRUPTCY PETITION PREPARER.
“If you decide to seek bankruptcy relief, you can represent
yourself, you can hire an attorney to represent you, or you can get
help in some localities from a bankruptcy petition preparer who is
not an attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY
PETITION PREPARER TO GIVE YOU A WRITTEN CONTRACT SPECIFYING WHAT
THE ATTORNEY OR BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND
HOW MUCH IT WILL COST. Ask to see the contract before you hire
anyone.
“The following information helps you understand what must be done
in a routine bankruptcy case to help you evaluate how much service
you need. Although bankruptcy can be complex, many cases are
routine.
“Before filing a bankruptcy case, either you or your attorney
should analyze your eligibility for different forms of debt relief
available under the Bankruptcy Code and which form of relief is
most likely to be beneficial for you. Be sure you understand the
relief you can obtain and its limitations. To file a bankruptcy
case, documents called a Petition, Schedules, and Statement of
Financial Affairs, and in some cases a Statement of Intention, need
to be prepared correctly and filed with the bankruptcy court. You
will have to pay a filing fee to the bankruptcy court. Once your
case starts, you will have to attend the required first meeting of
creditors where you may be questioned by a court official called a
‘trustee’ and by creditors.
“If you choose to file a chapter 7 case, you may be asked by a
creditor to reaffirm a debt. You may want help deciding whether to
do so. A creditor is not permitted to coerce you into reaffirming
your debts.
“If you choose to file a chapter 13 case in which you repay your
creditors what you can afford over 3 to 5 years, you may also want
help with preparing your chapter 13 plan and with the confirmation
hearing on your plan which will be before a bankruptcy judge.
“If you select another type of relief under the Bankruptcy Code
other than chapter 7 or chapter 13, you will want to find out what
should be done from someone familiar with that type of relief.
“Your bankruptcy case may also involve litigation. You are
generally permitted to represent yourself in litigation in
bankruptcy court, but only attorneys, not bankruptcy petition
preparers, can give you legal advice.”.
(c) Except to the extent the debt relief agency provides the
required information itself after reasonably diligent inquiry of
the assisted person or others so as to obtain such information
reasonably accurately for inclusion on the petition, schedules or
statement of financial affairs, a debt relief agency providing
bankruptcy assistance to an assisted person, to the extent
permitted by nonbankruptcy law, shall provide each assisted person
at the time required for the notice required under subsection
(a)(1) reasonably sufficient information (which shall be provided
in a clear and conspicuous writing) to the assisted person on how
to provide all the information the assisted person is required to
provide under this title pursuant to section 521, including –
(1) how to value assets at replacement value, determine current
monthly income, the amounts specified in section 707(b)(2) and,
in a chapter 13 case, how to determine disposable income in
accordance with section 707(b)(2) and related calculations;
(2) how to complete the list of creditors, including how to
determine what amount is owed and what address for the creditor
should be shown; and
(3) how to determine what property is exempt and how to value
exempt property at replacement value as defined in section 506.

(d) A debt relief agency shall maintain a copy of the notices
required under subsection (a) of this section for 2 years after the
date on which the notice is given the assisted person.

-SOURCE-
(Added Pub. L. 109-8, title II, Sec. 228(a), Apr. 20, 2005, 119
Stat. 69; amended Pub. L. 111-327, Sec. 2(a)(21), Dec. 22, 2010,
124 Stat. 3560.)

-MISC1-
AMENDMENTS
2010 – Subsec. (b). Pub. L. 111-327 substituted “Schedules, and
Statement of Financial Affairs, and in some cases a Statement of
Intention,” for “Schedules and Statement of Financial Affairs, as
well as in some cases a Statement of Intention” in third sentence
of fourth undesignated par.

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 Sec. 528 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER II – DEBTOR’S DUTIES AND BENEFITS

-HEAD-
Sec. 528. Requirements for debt relief agencies

-STATUTE-
(a) A debt relief agency shall –
(1) not later than 5 business days after the first date on
which such agency provides any bankruptcy assistance services to
an assisted person, but prior to such assisted person’s petition
under this title being filed, execute a written contract with
such assisted person that explains clearly and conspicuously –
(A) the services such agency will provide to such assisted
person; and
(B) the fees or charges for such services, and the terms of
payment;

(2) provide the assisted person with a copy of the fully
executed and completed contract;
(3) clearly and conspicuously disclose in any advertisement of
bankruptcy assistance services or of the benefits of bankruptcy
directed to the general public (whether in general media,
seminars or specific mailings, telephonic or electronic messages,
or otherwise) that the services or benefits are with respect to
bankruptcy relief under this title; and
(4) clearly and conspicuously use the following statement in
such advertisement: “We are a debt relief agency. We help people
file for bankruptcy relief under the Bankruptcy Code.” or a
substantially similar statement.

(b)(1) An advertisement of bankruptcy assistance services or of
the benefits of bankruptcy directed to the general public includes –

(A) descriptions of bankruptcy assistance in connection with a
chapter 13 plan whether or not chapter 13 is specifically
mentioned in such advertisement; and
(B) statements such as “federally supervised repayment plan” or
“Federal debt restructuring help” or other similar statements
that could lead a reasonable consumer to believe that debt
counseling was being offered when in fact the services were
directed to providing bankruptcy assistance with a chapter 13
plan or other form of bankruptcy relief under this title.

(2) An advertisement, directed to the general public, indicating
that the debt relief agency provides assistance with respect to
credit defaults, mortgage foreclosures, eviction proceedings,
excessive debt, debt collection pressure, or inability to pay any
consumer debt shall –
(A) disclose clearly and conspicuously in such advertisement
that the assistance may involve bankruptcy relief under this
title; and
(B) include the following statement: “We are a debt relief
agency. We help people file for bankruptcy relief under the
Bankruptcy Code.” or a substantially similar statement.

-SOURCE-
(Added Pub. L. 109-8, title II, Sec. 229(a), Apr. 20, 2005, 119
Stat. 71.)

-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 III – THE ESTATE 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
SUBCHAPTER III – THE ESTATE

-End-

-CITE-
11 USC Sec. 541 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 541. Property of the estate

-STATUTE-
(a) The commencement of a case under section 301, 302, or 303 of
this title creates an estate. Such estate is comprised of all the
following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this
section, all legal or equitable interests of the debtor in
property as of the commencement of the case.
(2) All interests of the debtor and the debtor’s spouse in
community property as of the commencement of the case that is –
(A) under the sole, equal, or joint management and control of
the debtor; or
(B) liable for an allowable claim against the debtor, or for
both an allowable claim against the debtor and an allowable
claim against the debtor’s spouse, to the extent that such
interest is so liable.

(3) Any interest in property that the trustee recovers under
section 329(b), 363(n), 543, 550, 553, or 723 of this title.
(4) Any interest in property preserved for the benefit of or
ordered transferred to the estate under section 510(c) or 551 of
this title.
(5) Any interest in property that would have been property of
the estate if such interest had been an interest of the debtor on
the date of the filing of the petition, and that the debtor
acquires or becomes entitled to acquire within 180 days after
such date –
(A) by bequest, devise, or inheritance;
(B) as a result of a property settlement agreement with the
debtor’s spouse, or of an interlocutory or final divorce
decree; or
(C) as a beneficiary of a life insurance policy or of a death
benefit plan.

(6) Proceeds, product, offspring, rents, or profits of or from
property of the estate, except such as are earnings from services
performed by an individual debtor after the commencement of the
case.
(7) Any interest in property that the estate acquires after the
commencement of the case.

(b) Property of the estate does not include –
(1) any power that the debtor may exercise solely for the
benefit of an entity other than the debtor;
(2) any interest of the debtor as a lessee under a lease of
nonresidential real property that has terminated at the
expiration of the stated term of such lease before the
commencement of the case under this title, and ceases to include
any interest of the debtor as a lessee under a lease of
nonresidential real property that has terminated at the
expiration of the stated term of such lease during the case;
(3) any eligibility of the debtor to participate in programs
authorized under the Higher Education Act of 1965 (20 U.S.C. 1001
et seq.; 42 U.S.C. 2751 et seq.), or any accreditation status or
State licensure of the debtor as an educational institution;
(4) any interest of the debtor in liquid or gaseous
hydrocarbons to the extent that –
(A)(i) the debtor has transferred or has agreed to transfer
such interest pursuant to a farmout agreement or any written
agreement directly related to a farmout agreement; and
(ii) but for the operation of this paragraph, the estate
could include the interest referred to in clause (i) only by
virtue of section 365 or 544(a)(3) of this title; or
(B)(i) the debtor has transferred such interest pursuant to a
written conveyance of a production payment to an entity that
does not participate in the operation of the property from
which such production payment is transferred; and
(ii) but for the operation of this paragraph, the estate
could include the interest referred to in clause (i) only by
virtue of section 365 or 542 of this title;

(5) funds placed in an education individual retirement account
(as defined in section 530(b)(1) of the Internal Revenue Code of
1986) not later than 365 days before the date of the filing of
the petition in a case under this title, but –
(A) only if the designated beneficiary of such account was a
child, stepchild, grandchild, or stepgrandchild of the debtor
for the taxable year for which funds were placed in such
account;
(B) only to the extent that such funds –
(i) are not pledged or promised to any entity in connection
with any extension of credit; and
(ii) are not excess contributions (as described in section
4973(e) of the Internal Revenue Code of 1986); and

(C) in the case of funds placed in all such accounts having
the same designated beneficiary not earlier than 720 days nor
later than 365 days before such date, only so much of such
funds as does not exceed $5,000;

(6) funds used to purchase a tuition credit or certificate or
contributed to an account in accordance with section 529(b)(1)(A)
of the Internal Revenue Code of 1986 under a qualified State
tuition program (as defined in section 529(b)(1) of such Code)
not later than 365 days before the date of the filing of the
petition in a case under this title, but –
(A) only if the designated beneficiary of the amounts paid or
contributed to such tuition program was a child, stepchild,
grandchild, or stepgrandchild of the debtor for the taxable
year for which funds were paid or contributed;
(B) with respect to the aggregate amount paid or contributed
to such program having the same designated beneficiary, only so
much of such amount as does not exceed the total contributions
permitted under section 529(b)(6) of such Code with respect to
such beneficiary, as adjusted beginning on the date of the
filing of the petition in a case under this title by the annual
increase or decrease (rounded to the nearest tenth of 1
percent) in the education expenditure category of the Consumer
Price Index prepared by the Department of Labor; and
(C) in the case of funds paid or contributed to such program
having the same designated beneficiary not earlier than 720
days nor later than 365 days before such date, only so much of
such funds as does not exceed $5,000;

(7) any amount –
(A) withheld by an employer from the wages of employees for
payment as contributions –
(i) to –
(I) an employee benefit plan that is subject to title I
of the Employee Retirement Income Security Act of 1974 or
under an employee benefit plan which is a governmental plan
under section 414(d) of the Internal Revenue Code of 1986;
(II) a deferred compensation plan under section 457 of
the Internal Revenue Code of 1986; or
(III) a tax-deferred annuity under section 403(b) of the
Internal Revenue Code of 1986;

except that such amount under this subparagraph shall not
constitute disposable income as defined in section
1325(b)(2); or
(ii) to a health insurance plan regulated by State law
whether or not subject to such title; or

(B) received by an employer from employees for payment as
contributions –
(i) to –
(I) an employee benefit plan that is subject to title I
of the Employee Retirement Income Security Act of 1974 or
under an employee benefit plan which is a governmental plan
under section 414(d) of the Internal Revenue Code of 1986;
(II) a deferred compensation plan under section 457 of
the Internal Revenue Code of 1986; or
(III) a tax-deferred annuity under section 403(b) of the
Internal Revenue Code of 1986;

except that such amount under this subparagraph shall not
constitute disposable income, as defined in section
1325(b)(2); or
(ii) to a health insurance plan regulated by State law
whether or not subject to such title;

(8) subject to subchapter III of chapter 5, any interest of the
debtor in property where the debtor pledged or sold tangible
personal property (other than securities or written or printed
evidences of indebtedness or title) as collateral for a loan or
advance of money given by a person licensed under law to make
such loans or advances, where –
(A) the tangible personal property is in the possession of
the pledgee or transferee;
(B) the debtor has no obligation to repay the money, redeem
the collateral, or buy back the property at a stipulated price;
and
(C) neither the debtor nor the trustee have exercised any
right to redeem provided under the contract or State law, in a
timely manner as provided under State law and section 108(b);
or

(9) any interest in cash or cash equivalents that constitute
proceeds of a sale by the debtor of a money order that is made –
(A) on or after the date that is 14 days prior to the date on
which the petition is filed; and
(B) under an agreement with a money order issuer that
prohibits the commingling of such proceeds with property of the
debtor (notwithstanding that, contrary to the agreement, the
proceeds may have been commingled with property of the debtor),

unless the money order issuer had not taken action, prior to the
filing of the petition, to require compliance with the
prohibition.

Paragraph (4) shall not be construed to exclude from the estate any
consideration the debtor retains, receives, or is entitled to
receive for transferring an interest in liquid or gaseous
hydrocarbons pursuant to a farmout agreement.
(c)(1) Except as provided in paragraph (2) of this subsection, an
interest of the debtor in property becomes property of the estate
under subsection (a)(1), (a)(2), or (a)(5) of this section
notwithstanding any provision in an agreement, transfer instrument,
or applicable nonbankruptcy law –
(A) that restricts or conditions transfer of such interest by
the debtor; or
(B) that is conditioned on the insolvency or financial
condition of the debtor, on the commencement of a case under this
title, or on the appointment of or taking possession by a trustee
in a case under this title or a custodian before such
commencement, and that effects or gives an option to effect a
forfeiture, modification, or termination of the debtor’s interest
in property.

(2) A restriction on the transfer of a beneficial interest of the
debtor in a trust that is enforceable under applicable
nonbankruptcy law is enforceable in a case under this title.
(d) Property in which the debtor holds, as of the commencement of
the case, only legal title and not an equitable interest, such as a
mortgage secured by real property, or an interest in such a
mortgage, sold by the debtor but as to which the debtor retains
legal title to service or supervise the servicing of such mortgage
or interest, becomes property of the estate under subsection (a)(1)
or (2) of this section only to the extent of the debtor’s legal
title to such property, but not to the extent of any equitable
interest in such property that the debtor does not hold.
(e) In determining whether any of the relationships specified in
paragraph (5)(A) or (6)(A) of subsection (b) exists, a legally
adopted child of an individual (and a child who is a member of an
individual’s household, if placed with such individual by an
authorized placement agency for legal adoption by such individual),
or a foster child of an individual (if such child has as the
child’s principal place of abode the home of the debtor and is a
member of the debtor’s household) shall be treated as a child of
such individual by blood.
(f) Notwithstanding any other provision of this title, property
that is held by a debtor that is a corporation described in section
501(c)(3) of the Internal Revenue Code of 1986 and exempt from tax
under section 501(a) of such Code may be transferred to an entity
that is not such a corporation, but only under the same conditions
as would apply if the debtor had not filed a case under this title.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2594; Pub. L. 98-353, title
III, Secs. 363(a), 456, July 10, 1984, 98 Stat. 363, 376; Pub. L.
101-508, title III, Sec. 3007(a)(2), Nov. 5, 1990, 104 Stat. 1388-
28; Pub. L. 102-486, title XXX, Sec. 3017(b), Oct. 24, 1992, 106
Stat. 3130; Pub. L. 103-394, title II, Secs. 208(b), 223, Oct. 22,
1994, 108 Stat. 4124, 4129; Pub. L. 109-8, title II, Sec. 225(a),
title III, Sec. 323, title XII, Secs. 1212, 1221(c), 1230, Apr. 20,
2005, 119 Stat. 65, 97, 194, 196, 201; Pub. L. 111-327, Sec.
2(a)(22), 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 541(a)(7) is new. The provision clarifies that any
interest in property that the estate acquires after the
commencement of the case is property of the estate; for example, if
the estate enters into a contract, after the commencement of the
case, such a contract would be property of the estate. The addition
of this provision by the House amendment merely clarifies that
section 541(a) is an all-embracing definition which includes
charges on property, such as liens held by the debtor on property
of a third party, or beneficial rights and interests that the
debtor may have in property of another. However, only the debtor’s
interest in such property becomes property of the estate. If the
debtor holds bare legal title or holds property in trust for
another, only those rights which the debtor would have otherwise
had emanating from such interest pass to the estate under section
541. Neither this section nor section 545 will affect various
statutory provisions that give a creditor a lien that is valid both
inside and outside bankruptcy against a bona fide purchaser of
property from the debtor, or that creates a trust fund for the
benefit of creditors meeting similar criteria. See Packers and
Stockyards Act Sec. 206, 7 U.S.C. 196 (1976).
Section 541(c)(2) follows the position taken in the House bill
and rejects the position taken in the Senate amendment with respect
to income limitations on a spend-thrift trust.
Section 541(d) of the House amendment is derived from section
541(e) of the Senate amendment and reiterates the general principle
that where the debtor holds bare legal title without any equitable
interest, that the estate acquires bare legal title without any
equitable interest in the property. The purpose of section 541(d)
as applied to the secondary mortgage market is identical to the
purpose of section 541(e) of the Senate amendment and section
541(d) will accomplish the same result as would have been
accomplished by section 541(e). Even if a mortgage seller retains
for purposes of servicing legal title to mortgages or interests in
mortgages sold in the secondary mortgage market, the trustee would
be required by section 541(d) to turn over the mortgages or
interests in mortgages to the purchaser of those mortgages.
The seller of mortgages in the secondary mortgage market will
often retain the original mortgage notes and related documents and
the seller will not endorse the notes to reflect the sale to the
purchaser. Similarly, the purchaser will often not record the
purchaser’s ownership of the mortgages or interests in mortgages
under State recording statutes. These facts are irrelevant and the
seller’s retention of the mortgage documents and the purchaser’s
decision not to record do not change the trustee’s obligation to
turn the mortgages or interests in mortgages over to the purchaser.
The application of section 541(d) to secondary mortgage market
transactions will not be affected by the terms of the servicing
agreement between the mortgage servicer and the purchaser of the
mortgages. Under section 541(d), the trustee is required to
recognize the purchaser’s title to the mortgages or interests in
mortgages and to turn this property over to the purchaser. It makes
no difference whether the servicer and the purchaser characterize
their relationship as one of trust, agency, or independent
contractor.
The purpose of section 541(d) as applied to the secondary
mortgage market is therefore to make certain that secondary
mortgage market sales as they are currently structured are not
subject to challenge by bankruptcy trustees and that purchasers of
mortgages will be able to obtain the mortgages or interests in
mortgages which they have purchased from trustees without the
trustees asserting that a sale of mortgages is a loan from the
purchaser to the seller.
Thus, as section 541(a)(1) clearly states, the estate is
comprised of all legal or equitable interests of the debtor in
property as of the commencement of the case. To the extent such an
interest is limited in the hands of the debtor, it is equally
limited in the hands of the estate except to the extent that
defenses which are personal against the debtor are not effective
against the estate.
Property of the estate: The Senate amendment provided that
property of the estate does not include amounts held by the debtor
as trustee and any taxes withheld or collected from others before
the commencement of the case. The House amendment removes these two
provisions. As to property held by the debtor as a trustee, the
House amendment provides that property of the estate will include
whatever interest the debtor held in the property at the
commencement of the case. Thus, where the debtor held only legal
title to the property and the beneficial interest in that property
belongs to another, such as exists in the case of property held in
trust, the property of the estate includes the legal title, but not
the beneficial interest in the property.
As to withheld taxes, the House amendment deletes the rule in the
Senate bill as unnecessary since property of the estate does not
include the beneficial interest in property held by the debtor as a
trustee. Under the Internal Revenue Code of 1954 (section 7501) [26
U.S.C. 7501], the amounts of withheld taxes are held to be a
special fund in trust for the United States. Where the Internal
Revenue Service can demonstrate that the amounts of taxes withheld
are still in the possession of the debtor at the commencement of
the case, then if a trust is created, those amounts are not
property of the estate. Compare In re Shakesteers Coffee Shops, 546
F.2d 821 (9th Cir. 1976) with In re Glynn Wholesale Building
Materials, Inc. (S.D. Ga. 1978) and In re Progress Tech Colleges,
Inc., 42 Aftr 2d 78-5573 (S.D. Ohio 1977).
Where it is not possible for the Internal Revenue Service to
demonstrate that the amounts of taxes withheld are still in the
possession of the debtor at the commencement of the case, present
law generally includes amounts of withheld taxes as property of the
estate. See, e.g., United States v. Randall, 401 U.S. 513 (1973)
[91 S. Ct. 991, 28 L.Ed.2d 273] and In re Tamasha Town and Country
Club, 483 F.2d 1377 (9th Cir. 1973). Nonetheless, a serious problem
exists where “trust fund taxes” withheld from others are held to be
property of the estate where the withheld amounts are commingled
with other assets of the debtor. The courts should permit the use
of reasonable assumptions under which the Internal Revenue Service,
and other tax authorities, can demonstrate that amounts of withheld
taxes are still in the possession of the debtor at the commencement
of the case. For example, where the debtor had commingled that
amount of withheld taxes in his general checking account, it might
be reasonable to assume that any remaining amounts in that account
on the commencement of the case are the withheld taxes. In
addition, Congress may consider future amendments to the Internal
Revenue Code [title 26] making clear that amounts of withheld taxes
are held by the debtor in a trust relationship and, consequently,
that such amounts are not property of the estate.

SENATE REPORT NO. 95-989
This section defines property of the estate, and specifies what
property becomes property of the estate. The commencement of a
bankruptcy case creates an estate. Under paragraph (1) of
subsection (a), the estate is comprised of all legal or equitable
interest of the debtor in property, wherever located, as of the
commencement of the case. The scope of this paragraph is broad. It
includes all kinds of property, including tangible or intangible
property, causes of action (see Bankruptcy Act Sec. 70a(6) [section
110(a)(6) of former title 11]), and all other forms of property
currently specified in section 70a of the Bankruptcy Act Sec. 70a
[section 110(a) of former title 11], as well as property recovered
by the trustee under section 542 of proposed title 11, if the
property recovered was merely out of the possession of the debtor,
yet remained “property of the debtor.” The debtor’s interest in
property also includes “title” to property, which is an interest,
just as are a possessory interest, or lease-hold interest, for
example. The result of Segal v. Rochelle, 382 U.S. 375 (1966), is
followed, and the right to a refund is property of the estate.
Though this paragraph will include choses in action and claims by
the debtor against others, it is not intended to expand the
debtor’s rights against others more than they exist at the
commencement of the case. For example, if the debtor has a claim
that is barred at the time of the commencement of the case by the
statute of limitations, then the trustee would not be able to
pursue that claim, because he too would be barred. He could take no
greater rights than the debtor himself had. But see proposed 11
U.S.C. 108, which would permit the trustee a tolling of the statute
of limitations if it had not run before the date of the filing of
the petition.
Paragraph (1) has the effect of overruling Lockwood v. Exchange
Bank, 190 U.S. 294 (1903), because it includes as property of the
estate all property of the debtor, even that needed for a fresh
start. After the property comes into the estate, then the debtor is
permitted to exempt it under proposed 11 U.S.C. 522, and the court
will have jurisdiction to determine what property may be exempted
and what remains as property of the estate. The broad
jurisdictional grant in proposed 28 U.S.C. 1334 would have the
effect of overruling Lockwood independently of the change made by
this provision.
Paragraph (1) also has the effect of overruling Lines v.
Frederick, 400 U.S. 18 (1970).
Situations occasionally arise where property ostensibly belonging
to the debtor will actually not be property of the debtor, but will
be held in trust for another. For example, if the debtor has
incurred medical bills that were covered by insurance, and the
insurance company had sent the payment of the bills to the debtor
before the debtor had paid the bill for which the payment was
reimbursement, the payment would actually be held in a constructive
trust for the person to whom the bill was owed. This section and
proposed 11 U.S.C. 545 also will not affect various statutory
provisions that give a creditor of the debtor a lien that is valid
outside as well as inside bankruptcy, or that creates a trust fund
for the benefit of a creditor of the debtor. See Packers and
Stockyards Act Sec. 206, 7 U.S.C. 196.
Bankruptcy Act Sec. 8 [section 26 of former title 11] has been
deleted as unnecessary. Once the estate is created, no interests in
property of the estate remain in the debtor. Consequently, if the
debtor dies during the case, only property exempted from property
of the estate or acquired by the debtor after the commencement of
the case and not included as property of the estate will be
available to the representative of the debtor’s probate estate. The
bankruptcy proceeding will continue in rem with respect to property
of the state, and the discharge will apply in personam to relieve
the debtor, and thus his probate representative, of liability for
dischargeable debts.
The estate also includes the interests of the debtor and the
debtor’s spouse in community property, subject to certain
limitations; property that the trustee recovers under the avoiding
powers; property that the debtor acquires by bequest, devise,
inheritance, a property settlement agreement with the debtor’s
spouse, or as the beneficiary of a life insurance policy within 180
days after the petition; and proceeds, product, offspring, rents,
and profits of or from property of the estate, except such as are
earning from services performed by an individual debtor after the
commencement of the case. Proceeds here is not used in a confining
sense, as defined in the Uniform Commercial Code, but is intended
to be a broad term to encompass all proceeds of property of the
estate. The conversion in form of property of the estate does not
change its character as property of the estate.
Subsection (b) excludes from property of the estate any power,
such as a power of appointment, that the debtor may exercise solely
for the benefit of an entity other than the debtor. This changes
present law which excludes powers solely benefiting other persons
but not other entities.
Subsection (c) invalidates restrictions on the transfer of
property of the debtor, in order that all of the interests of the
debtor in property will become property of the estate. The
provisions invalidated are those that restrict or condition
transfer of the debtor’s interest, and those that are conditioned
on the insolvency or financial condition of the debtor, on the
commencement of a bankruptcy case, or on the appointment of a
custodian of the debtor’s property. Paragraph (2) of subsection
(c), however, preserves restrictions on a transfer of a spendthrift
trust that the restriction is enforceable nonbankruptcy law to the
extent of the income reasonably necessary for the support of a
debtor and his dependents.
Subsection (d) [enacted as (e)], derived from section 70c of the
Bankruptcy Act [section 110(c) of former title 11], gives the
estate the benefit of all defenses available to the debtor as
against an entity other than the estate, including such defenses as
statutes of limitations, statutes of frauds, usury, and other
personal defenses, and makes waiver by the debtor after the
commencement of the case ineffective to bind the estate.
Section 541(e) [enacted as (d)] confirms the current status under
the Bankruptcy Act [former title 11] of bona fide secondary
mortgage market transactions as the purchase and sale of assets.
Mortgages or interests in mortgages sold in the secondary market
should not be considered as part of the debtor’s estate. To permit
the efficient servicing of mortgages or interests in mortgages the
seller often retains the original mortgage notes and related
documents, and the purchaser records under State recording statutes
the purchaser’s ownership of the mortgages or interests in
mortgages purchased. Section 541(e) makes clear that the seller’s
retention of the mortgage documents and the purchaser’s decision
not to record do not impair the asset sale character of secondary
mortgage market transactions. The committee notes that in secondary
mortgage market transactions the parties may characterize their
relationship as one of trust, agency, or independent contractor.
The characterization adopted by the parties should not affect the
statutes in bankruptcy on bona fide secondary mortgage market
purchases and sales.

-REFTEXT-
REFERENCES IN TEXT
The Higher Education Act of 1965, referred to in subsec. (b)(3),
is Pub. L. 89-329, Nov. 8, 1965, 79 Stat. 1219, which is classified
generally to chapter 28 (Sec. 1001 et seq.) of Title 20, Education,
and part C (Sec. 2751 et seq.) of subchapter I of chapter 34 of
Title 42, The Public Health and Welfare. For complete
classification of this Act to the Code, see Short Title note set
out under section 1001 of Title 20 and Tables.
The Internal Revenue Code of 1986, referred to in subsecs. (b)(5)
to (7) and (f), is classified generally to Title 26, Internal
Revenue Code.
The Employee Retirement Income Security Act of 1974, referred to
in subsec. (b)(7)(A)(i)(I), (B)(i)(I), is Pub. L. 93-406, Sept. 2,
1974, 88 Stat. 829, as amended. Title I of the Act is classified
generally to subchapter I (Sec. 1001 et seq.) of chapter 18 of
Title 29, Labor. For complete classification of this Act to the
Code, see Short Title note set out under section 1001 of Title 29
and Tables.

-MISC2-
AMENDMENTS
2010 – Subsec. (b)(6)(B). Pub. L. 111-327 substituted “section
529(b)(6)” for “section 529(b)(7)”.
2005 – Subsec. (b)(4). Pub. L. 109-8, Sec. 225(a)(1)(A), struck
out “or” at end.
Subsec. (b)(4)(B)(ii). Pub. L. 109-8, Sec. 1212, inserted “365
or” before “542”.
Subsec. (b)(5), (6). Pub. L. 109-8, Sec. 225(a)(1)(C), added
pars. (5) and (6). Former par. (5) redesignated (9).
Subsec. (b)(7). Pub. L. 109-8, Sec. 323, added par. (7).
Subsec. (b)(8). Pub. L. 109-8, Sec. 1230, added par. (8).
Subsec. (b)(9). Pub. L. 109-8, Sec. 225(a)(1)(B), redesignated
par. (5) as (9).
Subsec. (e). Pub. L. 109-8, Sec. 225(a)(2), added subsec. (e).
Subsec. (f). Pub. L. 109-8, Sec. 1221(c), added subsec. (f).
1994 – Subsec. (b)(4). Pub. L. 103-394, Sec. 208(b), designated
existing provisions of subpar. (A) as cl. (i) of subpar. (A),
redesignated subpar. (B) as cl. (ii) of subpar. (A), substituted
“the interest referred to in clause (i)” for “such interest”,
substituted “; or” for period at end of cl. (ii), and added subpar.
(B).
Pub. L. 103-394, Sec. 223(2), which directed the amendment of
subsec. (b)(4) by striking out period at end and inserting “; or”,
was executed by inserting “or” after semicolon at end of subsec.
(b)(4)(B)(ii), as added by Pub. L. 103-394, Sec. 208(b)(3), to
reflect the probable intent of Congress.
Subsec. (b)(5). Pub. L. 103-394, Sec. 223, added par. (5).
1992 – Subsec. (b). Pub. L. 102-486 added par. (4) and closing
provisions.
1990 – Subsec. (b)(3). Pub. L. 101-508 added par. (3).
1984 – Subsec. (a). Pub. L. 98-353, Sec. 456(a)(1), (2), struck
out “under” after “under” and inserted “and by whomever held” after
“located”.
Subsec. (a)(3). Pub. L. 98-353, Sec. 456(a)(3), inserted “329(b),
363(n),”.
Subsec. (a)(5). Pub. L. 98-353, Sec. 456(a)(4), substituted “Any”
for “An”.
Subsec. (a)(6). Pub. L. 98-353, Sec. 456(a)(5), substituted “or
profits” for “and profits”.
Subsec. (b). Pub. L. 98-353, Sec. 363(a), amended subsec. (b)
generally. Prior to amendment, subsec. (b) read as follows:
“Property of the estate does not include any power that the debtor
may only exercise solely for the benefit of an entity other than
the debtor.”
Subsec. (c)(1). Pub. L. 98-353, Sec. 456(b)(1), inserted “in an
agreement, transfer, instrument, or applicable nonbankruptcy law”.
Subsec. (c)(1)(B). Pub. L. 98-353, Sec. 456(b)(2), substituted
“taking” for “the taking”, and inserted “before such commencement”
after “custodian”.
Subsec. (d). Pub. L. 98-353, Sec. 456(c), inserted “(1) or (2)”
after “(a)”.
Subsec. (e). Pub. L. 98-353, Sec. 456(d), struck out subsec. (e)
which read as follows: “The estate shall have the benefit of any
defense available to the debtor as against an entity other than the
estate, including statutes of limitation, statutes of frauds,
usury, and other personal defenses. A waiver of any such defense by
the debtor after the commencement of the case does not bind the
estate.”

EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by section 1221(c) of Pub. L. 109-8 applicable to cases
pending under this title on Apr. 20, 2005, or filed under this
title on or after Apr. 20, 2005, with certain exceptions, see
section 1221(d) of Pub. L. 109-8, set out as a note under section
363 of this title.
Amendment by sections 225(a), 323, 1212, and 1230 of 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 1992 AMENDMENT
Amendment by Pub. L. 102-486 effective Oct. 24, 1992, but not
applicable with respect to cases commenced under this title before
Oct. 24, 1992, see section 3017(c) of Pub. L. 102-486, 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.

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)(5)(C), (6)(C), dollar amount “5,475” was
adjusted to “5,850”. 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)(5)(C), (6)(C), dollar amount “5,000” was
adjusted to “5,475”.

-End-

-CITE-
11 USC Sec. 542 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 542. Turnover of property to the estate

-STATUTE-
(a) Except as provided in subsection (c) or (d) of this section,
an entity, other than a custodian, in possession, custody, or
control, during the case, of property that the trustee may use,
sell, or lease under section 363 of this title, or that the debtor
may exempt under section 522 of this title, shall deliver to the
trustee, and account for, such property or the value of such
property, unless such property is of inconsequential value or
benefit to the estate.
(b) Except as provided in subsection (c) or (d) of this section,
an entity that owes a debt that is property of the estate and that
is matured, payable on demand, or payable on order, shall pay such
debt to, or on the order of, the trustee, except to the extent that
such debt may be offset under section 553 of this title against a
claim against the debtor.
(c) Except as provided in section 362(a)(7) of this title, an
entity that has neither actual notice nor actual knowledge of the
commencement of the case concerning the debtor may transfer
property of the estate, or pay a debt owing to the debtor, in good
faith and other than in the manner specified in subsection (d) of
this section, to an entity other than the trustee, with the same
effect as to the entity making such transfer or payment as if the
case under this title concerning the debtor had not been commenced.
(d) A life insurance company may transfer property of the estate
or property of the debtor to such company in good faith, with the
same effect with respect to such company as if the case under this
title concerning the debtor had not been commenced, if such
transfer is to pay a premium or to carry out a nonforfeiture
insurance option, and is required to be made automatically, under a
life insurance contract with such company that was entered into
before the date of the filing of the petition and that is property
of the estate.
(e) Subject to any applicable privilege, after notice and a
hearing, the court may order an attorney, accountant, or other
person that holds recorded information, including books, documents,
records, and papers, relating to the debtor’s property or financial
affairs, to turn over or disclose such recorded information to the
trustee.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2595; Pub. L. 98-353, title
III, Sec. 457, July 10, 1984, 98 Stat. 376; Pub. L. 103-394, title
V, Sec. 501(d)(16), Oct. 22, 1994, 108 Stat. 4146.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 542(a) of the House amendment modifies similar provisions
contained in the House bill and the Senate amendment treating with
turnover of property to the estate. The section makes clear that
any entity, other than a custodian, is required to deliver property
of the estate to the trustee or debtor in possession whenever such
property is acquired by the entity during the case, if the trustee
or debtor in possession may use, sell, or lease the property under
section 363, or if the debtor may exempt the property under section
522, unless the property is of inconsequential value or benefit to
the estate. This section is not intended to require an entity to
deliver property to the trustee if such entity has obtained an
order of the court authorizing the entity to retain possession,
custody or control of the property.
The House amendment adopts section 542(c) of the House bill in
preference to a similar provision contained in section 542(c) of
the Senate amendment. Protection afforded by section 542(c) applies
only to the transferor or payor and not to a transferee or payee
receiving a transfer or payment, as the case may be. Such
transferee or payee is treated under section 549 and section 550 of
title 11.
The extent to which the attorney client privilege is valid
against the trustee is unclear under current law and is left to be
determined by the courts on a case by case basis.

SENATE REPORT NO. 95-989
Subsection (a) of this section requires anyone holding property
of the estate on the date of the filing of the petition, or
property that the trustee may use, sell, or lease under section
363, to deliver it to the trustee. The subsection also requires an
accounting. The holder of property of the estate is excused from
the turnover requirement of this subsection if the property held is
of inconsequential value to the estate. However, this provision
must be read in conjunction with the remainder of the subsection,
so that if the property is of inconsequential monetary value, yet
has a significant use value for the estate, the holder of the
property would not be excused from turnover.
Subsection (b) requires an entity that owes money to the debtor
as of the date of the petition, or that holds money payable on
demand or payable on order, to pay the money to the order of the
trustee. An exception is made to the extent that the entity has a
valid right of setoff, as recognized by section 553.
Subsection (c) provides an exception to subsections (a) and (b).
It protects an entity that has neither actual notice nor actual
knowledge of the case and that transfers, in good faith, property
that is deliverable or payable to the trustee to someone other than
to the estate or on order of the estate. This subsection codifies
the result of Bank of Marin v. England, 385 U.S. 99 (1966), but
does not go so far as to permit bank setoff in violation of the
automatic stay, proposed 11 U.S.C. 362(a)(7), even if the bank
offsetting the debtor’s balance has no knowledge of the case.
Subsection (d) protects life insurance companies that are
required by contract to make automatic premium loans from property
that might otherwise be property of the estate.
Subsection (e) requires an attorney, accountant, or other
professional that holds recorded information relating to the
debtor’s property or financial affairs, to surrender it to the
trustee. This duty is subject to any applicable claim of privilege,
such as attorney-client privilege. It is a new provision that
deprives accountants and attorneys of the leverage that they have
today, under State law lien provisions, to receive payment in full
ahead of other creditors when the information they hold is
necessary to the administration of the estate.

AMENDMENTS
1994 – Subsec. (e). Pub. L. 103-394 substituted “to” for “to to”
after “financial affairs,”.
1984 – Subsec. (e). Pub. L. 98-353 inserted “to turn over or”
before “disclose”.

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. 543 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 543. Turnover of property by a custodian

-STATUTE-
(a) A custodian with knowledge of the commencement of a case
under this title concerning the debtor may not make any
disbursement from, or take any action in the administration of,
property of the debtor, proceeds, product, offspring, rents, or
profits of such property, or property of the estate, in the
possession, custody, or control of such custodian, except such
action as is necessary to preserve such property.
(b) A custodian shall –
(1) deliver to the trustee any property of the debtor held by
or transferred to such custodian, or proceeds, product,
offspring, rents, or profits of such property, that is in such
custodian’s possession, custody, or control on the date that such
custodian acquires knowledge of the commencement of the case; and
(2) file an accounting of any property of the debtor, or
proceeds, product, offspring, rents, or profits of such property,
that, at any time, came into the possession, custody, or control
of such custodian.

(c) The court, after notice and a hearing, shall –
(1) protect all entities to which a custodian has become
obligated with respect to such property or proceeds, product,
offspring, rents, or profits of such property;
(2) provide for the payment of reasonable compensation for
services rendered and costs and expenses incurred by such
custodian; and
(3) surcharge such custodian, other than an assignee for the
benefit of the debtor’s creditors that was appointed or took
possession more than 120 days before the date of the filing of
the petition, for any improper or excessive disbursement, other
than a disbursement that has been made in accordance with
applicable law or that has been approved, after notice and a
hearing, by a court of competent jurisdiction before the
commencement of the case under this title.

(d) After notice and hearing, the bankruptcy court –
(1) may excuse compliance with subsection (a), (b), or (c) of
this section if the interests of creditors and, if the debtor is
not insolvent, of equity security holders would be better served
by permitting a custodian to continue in possession, custody, or
control of such property, and
(2) shall excuse compliance with subsections (a) and (b)(1) of
this section if the custodian is an assignee for the benefit of
the debtor’s creditors that was appointed or took possession more
than 120 days before the date of the filing of the petition,
unless compliance with such subsections is necessary to prevent
fraud or injustice.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2595; Pub. L. 98-353, title
III, Sec. 458, July 10, 1984, 98 Stat. 376; Pub. L. 103-394, title
V, Sec. 501(d)(17), Oct. 22, 1994, 108 Stat. 4146.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 543(a) is a modification of similar provisions contained
in the House bill and the Senate amendment. The provision clarifies
that a custodian may always act as is necessary to preserve
property of the debtor. Section 543(c)(3) excepts from surcharge a
custodian that is an assignee for the benefit of creditors, who was
appointed or took possession before 120 days before the date of the
filing of the petition, whichever is later. The provision also
prevents a custodian from being surcharged in connection with
payments made in accordance with applicable law.

SENATE REPORT NO. 95-989
This section requires a custodian appointed before the bankruptcy
case to deliver to the trustee and to account for property that has
come into his possession, custody, or control as a custodian.
“Property of the debtor” in section (a) includes property that was
property of the debtor at the time the custodian took the property,
but the title to which passed to the custodian. The section
requires the court to protect any obligations incurred by the
custodian, provide for the payment of reasonable compensation for
services rendered and costs and expenses incurred by the custodian,
and to surcharge the custodian for any improper or excessive
disbursement, unless it has been approved by a court of competent
jurisdiction. Subsection (d) reinforces the general abstention
policy in section 305 by permitting the bankruptcy court to
authorize the custodianship to proceed notwithstanding this
section.

AMENDMENTS
1994 – Subsec. (d)(1). Pub. L. 103-394 struck out comma after
“section”.
1984 – Subsec. (a). Pub. L. 98-353, Sec. 458(a), inserted “,
product, offspring, rents, or profits” after “proceeds”.
Subsec. (b)(1). Pub. L. 98-353, Sec. 458(b)(1), inserted “held by
or” after “debtor”, and “, product, offspring, rents, or profits”
after “proceeds”.
Subsec. (b)(2). Pub. L. 98-353, Sec. 458(b)(2), inserted “,
product, offspring, rents, or profits” after “proceeds”.
Subsec. (c)(1). Pub. L. 98-353, Sec. 458(c)(1), inserted “or
proceeds, product, offspring, rents, or profits of such property”
after “property”.
Subsec. (c)(3). Pub. L. 98-353, Sec. 458(c)(2), inserted “that
has been” before “approved”.
Subsec. (d). Pub. L. 98-353, Sec. 458(d), designated existing
provisions as par. (1) and added par. (2).

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. 544 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 544. Trustee as lien creditor and as successor to certain
creditors and purchasers

-STATUTE-
(a) The trustee shall have, as of the commencement of the case,
and without regard to any knowledge of the trustee or of any
creditor, the rights and powers of, or may avoid any transfer of
property of the debtor or any obligation incurred by the debtor
that is voidable by –
(1) a creditor that extends credit to the debtor at the time of
the commencement of the case, and that obtains, at such time and
with respect to such credit, a judicial lien on all property on
which a creditor on a simple contract could have obtained such a
judicial lien, whether or not such a creditor exists;
(2) a creditor that extends credit to the debtor at the time of
the commencement of the case, and obtains, at such time and with
respect to such credit, an execution against the debtor that is
returned unsatisfied at such time, whether or not such a creditor
exists; or
(3) a bona fide purchaser of real property, other than
fixtures, from the debtor, against whom applicable law permits
such transfer to be perfected, that obtains the status of a bona
fide purchaser and has perfected such transfer at the time of the
commencement of the case, whether or not such a purchaser exists.

(b)(1) Except as provided in paragraph (2), the trustee may avoid
any transfer of an interest of the debtor in property or any
obligation incurred by the debtor that is voidable under applicable
law by a creditor holding an unsecured claim that is allowable
under section 502 of this title or that is not allowable only under
section 502(e) of this title.
(2) Paragraph (1) shall not apply to a transfer of a charitable
contribution (as that term is defined in section 548(d)(3)) that is
not covered under section 548(a)(1)(B), by reason of section
548(a)(2). Any claim by any person to recover a transferred
contribution described in the preceding sentence under Federal or
State law in a Federal or State court shall be preempted by the
commencement of the case.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2596; Pub. L. 98-353, title
III, Sec. 459, July 10, 1984, 98 Stat. 377; Pub. L. 105-183, Sec.
3(b), June 19, 1998, 112 Stat. 518.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 544(a)(3) modifies similar provisions contained in the
House bill and Senate amendment so as not to require a creditor to
perform the impossible in order to perfect his interest. Both the
lien creditor test in section 544(a)(1), and the bona fide
purchaser test in section 544(a)(3) should not require a transferee
to perfect a transfer against an entity with respect to which
applicable law does not permit perfection. The avoiding powers
under section 544(a)(1), (2), and (3) are new. In particular,
section 544(a)(1) overrules Pacific Finance Corp. v. Edwards, 309
F.2d 224 (9th Cir. 1962), and In re Federals, Inc., 553 F.2d 509
(6th Cir. 1977), insofar as those cases held that the trustee did
not have the status of a creditor who extended credit immediately
prior to the commencement of the case.
The House amendment deletes section 544(c) of the House bill.

SENATE REPORT NO. 95-989
Subsection (a) is the “strong arm clause” of current law, now
found in Bankruptcy Act Sec. 70c [section 110(c) of former title
11]. It gives the trustee the rights of a creditor on a simple
contract with a judicial lien on the property of the debtor as of
the date of the petition; of a creditor with a writ of execution
against the property of the debtor unsatisfied as of the date of
the petition; and a bona fide purchaser of the real property of the
debtor as of the date of the petition. “Simple contract” as used
here is derived from Bankruptcy Act Sec. 60a(4) [section 96(a)(4)
of former title 11]. The third status, that of a bona fide
purchaser of real property, is new.
Subsection (b) is derived from current section 70e [section
110(e) of former title 11]. It gives the trustee the rights of
actual unsecured creditors under applicable law to void transfers.
It follows Moore v. Bay, 284 U.S. 4 (1931), and overrules those
cases that hold section 70e gives the trustee the rights of secured
creditors.

AMENDMENTS
1998 – Subsec. (b). Pub. L. 105-183 designated existing
provisions as par. (1), substituted “Except as provided in
paragraph (2), the trustee” for “The trustee”, and added par. (2).
1984 – Subsec. (a)(1). Pub. L. 98-353, Sec. 459(1), inserted
“such” after “obtained”.
Subsec. (a)(2). Pub. L. 98-353, Sec. 459(2), substituted “; or”
for “; and”.
Subsec. (a)(3). Pub. L. 98-353, Sec. 459(3), inserted “, other
than fixtures,” after “property”, and “and has perfected such
transfer” after “purchaser” the second place it appeared.

EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-183, Sec. 5, June 19, 1998, 112 Stat. 518, provided
that: “This Act [amending this section and sections 546, 548, 707,
and 1325 of this title and enacting provisions set out as notes
under this section and section 101 of this title] and the
amendments made by this Act shall apply to any case brought under
an applicable provision of title 11, United States Code, that is
pending or commenced on or after the date of enactment of this Act
[June 19, 1998].”

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.

CONSTRUCTION OF 1998 AMENDMENT
Pub. L. 105-183, Sec. 6, June 19, 1998, 112 Stat. 519, provided
that: “Nothing in the amendments made by this Act [amending this
section and sections 546, 548, 707, and 1325 of this title] is
intended to limit the applicability of the Religious Freedom
Restoration Act of 1993 (42 U.S.C. 2002bb [2000bb] et seq.).”

-End-

-CITE-
11 USC Sec. 545 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 545. Statutory liens

-STATUTE-
The trustee may avoid the fixing of a statutory lien on property
of the debtor to the extent that such lien –
(1) first becomes effective against the debtor –
(A) when a case under this title concerning the debtor is
commenced;
(B) when an insolvency proceeding other than under this title
concerning the debtor is commenced;
(C) when a custodian is appointed or authorized to take or
takes possession;
(D) when the debtor becomes insolvent;
(E) when the debtor’s financial condition fails to meet a
specified standard; or
(F) at the time of an execution against property of the
debtor levied at the instance of an entity other than the
holder of such statutory lien;

(2) is not perfected or enforceable at the time of the
commencement of the case against a bona fide purchaser that
purchases such property at the time of the commencement of the
case, whether or not such a purchaser exists, except in any case
in which a purchaser is a purchaser described in section 6323 of
the Internal Revenue Code of 1986, or in any other similar
provision of State or local law;
(3) is for rent; or
(4) is a lien of distress for rent.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2597; Pub. L. 98-353, title
III, Sec. 460, July 10, 1984, 98 Stat. 377; Pub. L. 109-8, title
VII, Sec. 711, Apr. 20, 2005, 119 Stat. 127.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 545 of the House amendment modifies similar provisions
contained in the House bill and Senate amendment to make clear that
a statutory lien may be avoided under section 545 only to the
extent the lien violates the perfection standards of section 545.
Thus a Federal tax lien is invalid under section 545(2) with
respect to property specified in sections 6323(b) and (c) of the
Internal Revenue Code of 1954 [title 26]. As a result of this
modification, section 545(b) of the Senate amendment is deleted as
unnecessary.
Statutory liens: The House amendment retains the provision of
section 545(2) of the House bill giving the trustee in a bankruptcy
case the same power which a bona fide purchaser has to take over
certain kinds of personal property despite the existence of a tax
lien covering that property. The amendment thus retains present
law, and deletes section 545(b) of the Senate amendment which would
have no longer allowed the trustee to step into the shoes of a bona
fide purchaser for this purpose.

SENATE REPORT NO. 95-989
This section permits the trustee to avoid the fixing of certain
statutory liens. It is derived from subsections 67b and 67c of
present law [section 107(b) and (c) of former title 11]. Liens that
first become effective on the bankruptcy or insolvency of the
debtor are voidable by the trustee. Liens that are not perfected or
enforceable on the date of the petition against a bona fide
purchaser are voidable. If a transferee is able to perfect under
section 546(a) and that perfection relates back to an earlier date,
then in spite of the filing of the bankruptcy petition, the trustee
would not be able to defeat the lien, because the lien would be
perfected and enforceable against a bona fide purchaser that
purchased the property on the date of the filing of the petition.
Finally, a lien for rent or of distress for rent is voidable,
whether the lien is a statutory lien or a common law lien of
distress for rent. See proposed 11 U.S.C. 101(37); Bankruptcy Act
Sec. 67(c)(1)(C). The trustee may avoid a lien under this section
even if the lien has been enforced by sale before the commencement
of the case. To that extent, Bankruptcy Act Sec. 67c(5) is not
followed.
Subsection (b) limits the trustee’s power to avoid tax liens
under Federal, state, or local law. For example, under Sec. 6323 of
the Internal Revenue Code [Title 26]. Once public notice of a tax
lien has been filed, the Government is generally entitled to
priority over subsequent lienholders. However, certain purchasers
who acquire an interest in certain specific kinds of personal
property will take free of an existing filed tax lien attaching to
such property. Among the specific kinds of personal property which
a purchaser can acquire free of an existing tax lien (unless the
buyer knows of the existence of the lien) are stocks and
securities, motor vehicles, inventory, and certain household goods.
Under the present Bankruptcy Act (Sec. 67(c)(1)) [section 107(c)(1)
of former title 11], the trustee may be viewed as a bona fide
purchaser, so that he can take over any such designated items free
of tax liens even if the tax authority has perfected its lien.
However, the reasons for enabling a bona fide purchaser to take
these kinds of assets free of an unfiled tax lien, that is, to
encourage free movement of these assets in general commerce, do not
apply to a trustee in a title 11 case, who is not in the same
position as an ordinary bona fide purchaser as to such property.
The bill accordingly adds a new subsection (b) to sec. 545
providing, in effect, that a trustee in bankruptcy does not have
the right under this section to take otherwise specially treated
items of personal property free of a tax lien filed before the
filing of the petition.

-REFTEXT-
REFERENCES IN TEXT
Section 6323 of the Internal Revenue Code of 1986, referred to in
par. (2), is classified to section 6323 of Title 26, Internal
Revenue Code.

-MISC2-
AMENDMENTS
2005 – Par. (2). Pub. L. 109-8 inserted before semicolon at end
“, except in any case in which a purchaser is a purchaser described
in section 6323 of the Internal Revenue Code of 1986, or in any
other similar provision of State or local law”.
1984 – Par. (1)(A). Pub. L. 98-353, Sec. 460(1), struck out “is”
after “is”.
Par. (1)(C). Pub. L. 98-353, Sec. 460(2), substituted “appointed
or authorized to take” for “apponted”.
Par. (2). Pub. L. 98-353, Sec. 460(3), substituted “at the time
of the commencement of the case” for “on the date of the filing of
the petition” in two places.

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. 546 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 546. Limitations on avoiding powers

-STATUTE-
(a) An action or proceeding under section 544, 545, 547, 548, or
553 of this title may not be commenced after the earlier of –
(1) the later of –
(A) 2 years after the entry of the order for relief; or
(B) 1 year after the appointment or election of the first
trustee under section 702, 1104, 1163, 1202, or 1302 of this
title if such appointment or such election occurs before the
expiration of the period specified in subparagraph (A); or

(2) the time the case is closed or dismissed.

(b)(1) The rights and powers of a trustee under sections 544,
545, and 549 of this title are subject to any generally applicable
law that –
(A) permits perfection of an interest in property to be
effective against an entity that acquires rights in such property
before the date of perfection; or
(B) provides for the maintenance or continuation of perfection
of an interest in property to be effective against an entity that
acquires rights in such property before the date on which action
is taken to effect such maintenance or continuation.

(2) If –
(A) a law described in paragraph (1) requires seizure of such
property or commencement of an action to accomplish such
perfection, or maintenance or continuation of perfection of an
interest in property; and
(B) such property has not been seized or such an action has not
been commenced before the date of the filing of the petition;

such interest in such property shall be perfected, or perfection of
such interest shall be maintained or continued, by giving notice
within the time fixed by such law for such seizure or such
commencement.
(c)(1) Except as provided in subsection (d) of this section and
in section 507(c), and subject to the prior rights of a holder of a
security interest in such goods or the proceeds thereof, the rights
and powers of the trustee under sections 544(a), 545, 547, and 549
are subject to the right of a seller of goods that has sold goods
to the debtor, in the ordinary course of such seller’s business, to
reclaim such goods if the debtor has received such goods while
insolvent, within 45 days before the date of the commencement of a
case under this title, but such seller may not reclaim such goods
unless such seller demands in writing reclamation of such goods –
(A) not later than 45 days after the date of receipt of such
goods by the debtor; or
(B) not later than 20 days after the date of commencement of
the case, if the 45-day period expires after the commencement of
the case.

(2) If a seller of goods fails to provide notice in the manner
described in paragraph (1), the seller still may assert the rights
contained in section 503(b)(9).
(d) In the case of a seller who is a producer of grain sold to a
grain storage facility, owned or operated by the debtor, in the
ordinary course of such seller’s business (as such terms are
defined in section 557 of this title) or in the case of a United
States fisherman who has caught fish sold to a fish processing
facility owned or operated by the debtor in the ordinary course of
such fisherman’s business, the rights and powers of the trustee
under sections 544(a), 545, 547, and 549 of this title are subject
to any statutory or common law right of such producer or fisherman
to reclaim such grain or fish if the debtor has received such grain
or fish while insolvent, but –
(1) such producer or fisherman may not reclaim any grain or
fish unless such producer or fisherman demands, in writing,
reclamation of such grain or fish before ten days after receipt
thereof by the debtor; and
(2) the court may deny reclamation to such a producer or
fisherman with a right of reclamation that has made such a demand
only if the court secures such claim by a lien.

(e) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and
548(b) of this title, the trustee may not avoid a transfer that is
a margin payment, as defined in section 101, 741, or 761 of this
title, or settlement payment, as defined in section 101 or 741 of
this title, made by or to (or for the benefit of) a commodity
broker, forward contract merchant, stockbroker, financial
institution, financial participant, or securities clearing agency,
or that is a transfer made by or to (or for the benefit of) a
commodity broker, forward contract merchant, stockbroker, financial
institution, financial participant, or securities clearing agency,
in connection with a securities contract, as defined in section
741(7), commodity contract, as defined in section 761(4), or
forward contract, that is made before the commencement of the case,
except under section 548(a)(1)(A) of this title.
(f) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and
548(b) of this title, the trustee may not avoid a transfer made by
or to (or for the benefit of) a repo participant or financial
participant, in connection with a repurchase agreement and that is
made before the commencement of the case, except under section
548(a)(1)(A) of this title.
(g) Notwithstanding sections 544, 545, 547, 548(a)(1)(B) and
548(b) of this title, the trustee may not avoid a transfer, made by
or to (or for the benefit of) a swap participant or financial
participant, under or in connection with any swap agreement and
that is made before the commencement of the case, except under
section 548(a)(1)(A) of this title.
(h) Notwithstanding the rights and powers of a trustee under
sections 544(a), 545, 547, 549, and 553, if the court determines on
a motion by the trustee made not later than 120 days after the date
of the order for relief in a case under chapter 11 of this title
and after notice and a hearing, that a return is in the best
interests of the estate, the debtor, with the consent of a creditor
and subject to the prior rights of holders of security interests in
such goods or the proceeds of such goods, may return goods shipped
to the debtor by the creditor before the commencement of the case,
and the creditor may offset the purchase price of such goods
against any claim of the creditor against the debtor that arose
before the commencement of the case.
(i)(1) Notwithstanding paragraphs (2) and (3) of section 545, the
trustee may not avoid a warehouseman’s lien for storage,
transportation, or other costs incidental to the storage and
handling of goods.
(2) The prohibition under paragraph (1) shall be applied in a
manner consistent with any State statute applicable to such lien
that is similar to section 7-209 of the Uniform Commercial Code, as
in effect on the date of enactment of the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005, or any successor to
such section 7-209.
(j) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and
548(b) the trustee may not avoid a transfer made by or to (or for
the benefit of) a master netting agreement participant under or in
connection with any master netting agreement or any individual
contract covered thereby that is made before the commencement of
the case, except under section 548(a)(1)(A) and except to the
extent that the trustee could otherwise avoid such a transfer made
under an individual contract covered by such master netting
agreement.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2597; Pub. L. 97-222, Sec.
4, July 27, 1982, 96 Stat. 236; Pub. L. 98-353, title III, Secs.
351, 393, 461, July 10, 1984, 98 Stat. 358, 365, 377; Pub. L. 99-
554, title II, Secs. 257(d), 283(l), Oct. 27, 1986, 100 Stat.
3114, 3117; Pub. L. 101-311, title I, Sec. 103, title II, Sec. 203,
June 25, 1990, 104 Stat. 268, 269; Pub. L. 103-394, title II, Secs.
204(b), 209, 216, 222(a), title V, Sec. 501(b)(4), Oct. 22, 1994,
108 Stat. 4122, 4125, 4126, 4129, 4142; Pub. L. 105-183, Sec. 3(c),
June 19, 1998, 112 Stat. 518; Pub. L. 109-8, title IV, Sec. 406,
title IX, Sec. 907(e), (o)(2), (3), title XII, Sec. 1227(a), Apr.
20, 2005, 119 Stat. 105, 177, 182, 199; Pub. L. 109-390, Sec. 5(b),
Dec. 12, 2006, 120 Stat. 2697.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 546(a) of the House amendment is derived from section
546(c) of the Senate amendment. Section 546(c) of the House
amendment is derived from section 546(b) of the Senate amendment.
It applies to receipt of goods on credit as well as by cash sales.
The section clarifies that a demand for reclamation must be made in
writing anytime before 10 days after receipt of the goods by the
debtor. The section also permits the court to grant the reclaiming
creditor a lien or an administrative expense in lieu of turning
over the property.

SENATE REPORT NO. 95-989
The trustee’s rights and powers under certain of the avoiding
powers are limited by section 546. First, if an interest holder
against whom the trustee would have rights still has, under
applicable nonbankruptcy law, and as of the date of the petition,
the opportunity to perfect his lien against an intervening interest
holder, then he may perfect his interest against the trustee. If
applicable law requires seizure for perfection, then perfection is
by notice to the trustee instead. The rights granted to a creditor
under this subsection prevail over the trustee only if the
transferee has perfected the transfer in accordance with applicable
law, and that perfection relates back to a date that is before the
commencement of the case.
The phrase “generally applicable law” relates to those provisions
of applicable law that apply both in bankruptcy cases and outside
of bankruptcy cases. For example, many State laws, under the
Uniform Commercial Code, permit perfection of a purchase-money
security interest to relate back to defeat an earlier levy by
another creditor if the former was perfected within ten days of
delivery of the property. U.C.C. Sec. 9-301(2). Such perfection
would then be able to defeat an intervening hypothetical judicial
lien creditor on the date of the filing of the petition. The
purpose of the subsection is to protect, in spite of the surprise
intervention of a bankruptcy petition, those whom State law
protects by allowing them to perfect their liens or interests as of
an effective date that is earlier than the date of perfection. It
is not designed to give the States an opportunity to enact
disguised priorities in the form of liens that apply only in
bankruptcy cases.
Subsection (b) [enacted as (c)] specifies that the trustee’s
rights and powers under the strong arm clause, the successor to
creditors provision, the preference section, and the postpetition
transaction section are all subject to any statutory or common-law
right of a seller, in the ordinary course of business, of goods to
the debtor to reclaim the goods if the debtor received the goods on
credit while insolvent. The seller must demand reclamation within
ten days after receipt of the goods by the debtor. As under
nonbankruptcy law, the right is subject to any superior rights of
secured creditors. The purpose of the provision is to recognize, in
part, the validity of section 2-702 of the Uniform Commercial Code,
which has generated much litigation, confusion, and divergent
decisions in different circuits. The right is subject, however, to
the power of the court to deny reclamation and protect the seller
by granting him a priority as an administrative expense for his
claim arising out of the sale of the goods.
Subsection (c) [enacted as (a)] adds a statute of limitations to
the use by the trustee of the avoiding powers. The limitation is
two years after his appointment, or the time the case is closed or
dismissed, whichever occurs later.

-REFTEXT-
REFERENCES IN TEXT
The date of enactment of the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, referred to in subsec. (i)(2), is
the date of enactment of Pub. L. 109-8, which was approved Apr. 20
2005.

-MISC2-
AMENDMENTS
2006 – Subsec. (e). Pub. L. 109-390, Sec. 5(b)(1), inserted “(or
for the benefit of)” before “a commodity broker” and “or that is a
transfer made by or to (or for the benefit of) a commodity broker,
forward contract merchant, stockbroker, financial institution,
financial participant, or securities clearing agency, in connection
with a securities contract, as defined in section 741(7), commodity
contract, as defined in section 761(4), or forward contract,” after
“securities clearing agency,”.
Subsec. (f). Pub. L. 109-390, Sec. 5(b)(2), struck out “that is a
margin payment, as defined in section 741 or 761 of this title, or
settlement payment, as defined in section 741 of this title,” after
“avoid a transfer” and inserted “(or for the benefit of)” before “a
repo participant”.
Subsec. (g). Pub. L. 109-390, Sec. 5(b)(3), inserted “(or for the
benefit of)” before “a swap participant”.
Subsec. (j). Pub. L. 109-390, Sec. 5(b)(4), inserted “(or for the
benefit of)” before “a master netting agreement participant”.
2005 – Subsec. (c). Pub. L. 109-8, Sec. 1227(a), amended subsec.
(c) generally. Prior to amendment, subsec. (c) consisted of pars.
(1) and (2) relating to reclamation of goods sold to an insolvent
debtor.
Subsec. (e). Pub. L. 109-8, Sec. 907(o)(3), inserted “financial
participant,” after “financial institution,”.
Subsec. (f). Pub. L. 109-8, Sec. 907(o)(2), inserted “or
financial participant” after “repo participant”.
Subsec. (g). Pub. L. 109-8, Sec. 907(e)(1), struck out “under a
swap agreement” after “avoid a transfer”, substituted “under or in
connection with any swap agreement” for “in connection with a swap
agreement”, and inserted “or financial participant” after “swap
participant”.
Pub. L. 109-8, Sec. 406(1), redesignated subsec. (g) relating to
return of goods as (h).
Subsec. (h). Pub. L. 109-8, Sec. 406(2), inserted “and subject to
the prior rights of holders of security interests in such goods or
the proceeds of such goods” after “consent of a creditor”.
Pub. L. 109-8, Sec. 406(1), redesignated subsec. (g) relating to
return of goods as (h).
Subsec. (i). Pub. L. 109-8, Sec. 406(3), added subsec. (i).
Subsec. (j). Pub. L. 109-8, Sec. 907(e)(2), added subsec. (j).
1998 – Subsecs. (e) to (g). Pub. L. 105-183 substituted
“548(a)(1)(B)” for “548(a)(2)” and “548(a)(1)(A)” for “548(a)(1)”.
1994 – Subsec. (a)(1). Pub. L. 103-394, Sec. 216, amended par.
(1) generally. Prior to amendment, par. (1) read as follows: “two
years after the appointment of a trustee under section 702, 1104,
1163, 1302, or 1202 of this title; or”.
Subsec. (b). Pub. L. 103-394, Sec. 204(b), amended subsec. (b)
generally. Prior to amendment, subsec. (b) read as follows: “The
rights and powers of a trustee under sections 544, 545, and 549 of
this title are subject to any generally applicable law that permits
perfection of an interest in property to be effective against an
entity that acquires rights in such property before the date of
such perfection. If such law requires seizure of such property or
commencement of an action to accomplish such perfection, and such
property has not been seized or such action has not been commenced
before the date of the filing of the petition, such interest in
such property shall be perfected by notice within the time fixed by
such law for such seizure or commencement.”
Subsec. (c)(1). Pub. L. 103-394, Sec. 209, amended par. (1)
generally. Prior to amendment, par. (1) read as follows: “such a
seller may not reclaim any such goods unless such seller demands in
writing reclamation of such goods before ten days after receipt of
such goods by the debtor; and”.
Subsec. (e). Pub. L. 103-394, Sec. 501(b)(4)(A), substituted
“section 101, 741, or 761″ for “section 101(34), 741(5), or
761(15)” and “section 101 or 741″ for “section 101(35) or 741(8)”.
Subsec. (f). Pub. L. 103-394, Sec. 501(b)(4)(B), substituted
“section 741 or 761″ for “section 741(5) or 761(15)” and “section
741″ for “section 741(8)”.
Subsec. (g). Pub. L. 103-394, Sec. 222(a), added subsec. (g)
relating to return of goods.
1990 – Subsec. (e). Pub. L. 101-311, Sec. 203, inserted reference
to sections 101(34) and 101(35) of this title.
Subsec. (g). Pub. L. 101-311, Sec. 103, added subsec. (g)
relating to trustee’s authority to avoid transfer involving swap
agreement.
1986 – Subsec. (a)(1). Pub. L. 99-554, Sec. 257(d), inserted
reference to section 1202 of this title.
Subsec. (e). Pub. L. 99-554, Sec. 283(l), inserted a comma after
“stockbroker”.
1984 – Subsec. (a)(1). Pub. L. 98-353, Sec. 461(a), substituted
“; or” for “; and”.
Subsec. (b). Pub. L. 98-353, Sec. 461(b), substituted “a trustee
under sections 544, 545, and” for “the trustee under sections 544,
545, or”.
Subsec. (c). Pub. L. 98-353, Secs. 351(1), 461(c)(1)-(4),
substituted “Except as provided in subsection (d) of this section,
the” for “The”, substituted “a trustee” for “the trustee”, struck
out “right” before “or common-law”, inserted “of goods that has
sold goods to the debtor” after “seller”, and struck out “of goods
to the debtor” after “business,”.
Subsec. (c)(2). Pub. L. 98-353, Sec. 461(c)(5)(A), inserted “the”
after “if” in provisions preceding subpar. (A).
Subsec. (c)(2)(A). Pub. L. 98-353, Sec. 461(c)(5)(B), substituted
“a claim of a kind specified in section 503(b) of this title” for
“an administrative expense”.
Subsec. (d). Pub. L. 98-353, Sec. 351(3), added subsec. (d).
Former subsec. (d) redesignated (e).
Subsec. (e). Pub. L. 98-353, Secs. 351(2), 461(d), redesignated
former subsec. (d) as (e) and inserted “financial institution”
after “stockbroker”.
Subsec. (f). Pub. L. 98-353, Sec. 393, added subsec. (f).
1982 – Subsec. (d). Pub. L. 97-222 added subsec. (d).

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 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 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. 547 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 547. Preferences

-STATUTE-
(a) In this section –
(1) “inventory” means personal property leased or furnished,
held for sale or lease, or to be furnished under a contract for
service, raw materials, work in process, or materials used or
consumed in a business, including farm products such as crops or
livestock, held for sale or lease;
(2) “new value” means money or money’s worth in goods,
services, or new credit, or release by a transferee of property
previously transferred to such transferee in a transaction that
is neither void nor voidable by the debtor or the trustee under
any applicable law, including proceeds of such property, but does
not include an obligation substituted for an existing obligation;
(3) “receivable” means right to payment, whether or not such
right has been earned by performance; and
(4) a debt for a tax is incurred on the day when such tax is
last payable without penalty, including any extension.

(b) Except as provided in subsections (c) and (i) of this
section, the trustee may avoid any transfer of an interest of the
debtor in property –
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor
before such transfer was made;
(3) made while the debtor was insolvent;
(4) made –
(A) on or within 90 days before the date of the filing of the
petition; or
(B) between ninety days and one year before the date of the
filing of the petition, if such creditor at the time of such
transfer was an insider; and

(5) that enables such creditor to receive more than such
creditor would receive if –
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent
provided by the provisions of this title.

(c) The trustee may not avoid under this section a transfer –
(1) to the extent that such transfer was –
(A) intended by the debtor and the creditor to or for whose
benefit such transfer was made to be a contemporaneous exchange
for new value given to the debtor; and
(B) in fact a substantially contemporaneous exchange;

(2) to the extent that such transfer was in payment of a debt
incurred by the debtor in the ordinary course of business or
financial affairs of the debtor and the transferee, and such
transfer was –
(A) made in the ordinary course of business or financial
affairs of the debtor and the transferee; or
(B) made according to ordinary business terms;

(3) that creates a security interest in property acquired by
the debtor –
(A) to the extent such security interest secures new value
that was –
(i) given at or after the signing of a security agreement
that contains a description of such property as collateral;
(ii) given by or on behalf of the secured party under such
agreement;
(iii) given to enable the debtor to acquire such property;
and
(iv) in fact used by the debtor to acquire such property;
and

(B) that is perfected on or before 30 days after the debtor
receives possession of such property;

(4) to or for the benefit of a creditor, to the extent that,
after such transfer, such creditor gave new value to or for the
benefit of the debtor –
(A) not secured by an otherwise unavoidable security
interest; and
(B) on account of which new value the debtor did not make an
otherwise unavoidable transfer to or for the benefit of such
creditor;

(5) that creates a perfected security interest in inventory or
a receivable or the proceeds of either, except to the extent that
the aggregate of all such transfers to the transferee caused a
reduction, as of the date of the filing of the petition and to
the prejudice of other creditors holding unsecured claims, of any
amount by which the debt secured by such security interest
exceeded the value of all security interests for such debt on the
later of –
(A)(i) with respect to a transfer to which subsection
(b)(4)(A) of this section applies, 90 days before the date of
the filing of the petition; or
(ii) with respect to a transfer to which subsection (b)(4)(B)
of this section applies, one year before the date of the filing
of the petition; or
(B) the date on which new value was first given under the
security agreement creating such security interest;

(6) that is the fixing of a statutory lien that is not
avoidable under section 545 of this title;
(7) to the extent such transfer was a bona fide payment of a
debt for a domestic support obligation;
(8) if, in a case filed by an individual debtor whose debts are
primarily consumer debts, the aggregate value of all property
that constitutes or is affected by such transfer is less than
$600; or
(9) if, in a case filed by a debtor whose debts are not
primarily consumer debts, the aggregate value of all property
that constitutes or is affected by such transfer is less than
$5,000.

(d) The trustee may avoid a transfer of an interest in property
of the debtor transferred to or for the benefit of a surety to
secure reimbursement of such a surety that furnished a bond or
other obligation to dissolve a judicial lien that would have been
avoidable by the trustee under subsection (b) of this section. The
liability of such surety under such bond or obligation shall be
discharged to the extent of the value of such property recovered by
the trustee or the amount paid to the trustee.
(e)(1) For the purposes of this section –
(A) a transfer of real property other than fixtures, but
including the interest of a seller or purchaser under a contract
for the sale of real property, is perfected when a bona fide
purchaser of such property from the debtor against whom
applicable law permits such transfer to be perfected cannot
acquire an interest that is superior to the interest of the
transferee; and
(B) a transfer of a fixture or property other than real
property is perfected when a creditor on a simple contract cannot
acquire a judicial lien that is superior to the interest of the
transferee.

(2) For the purposes of this section, except as provided in
paragraph (3) of this subsection, a transfer is made –
(A) at the time such transfer takes effect between the
transferor and the transferee, if such transfer is perfected at,
or within 30 days after, such time, except as provided in
subsection (c)(3)(B);
(B) at the time such transfer is perfected, if such transfer is
perfected after such 30 days; or
(C) immediately before the date of the filing of the petition,
if such transfer is not perfected at the later of –
(i) the commencement of the case; or
(ii) 30 days after such transfer takes effect between the
transferor and the transferee.

(3) For the purposes of this section, a transfer is not made
until the debtor has acquired rights in the property transferred.
(f) For the purposes of this section, the debtor is presumed to
have been insolvent on and during the 90 days immediately preceding
the date of the filing of the petition.
(g) For the purposes of this section, the trustee has the burden
of proving the avoidability of a transfer under subsection (b) of
this section, and the creditor or party in interest against whom
recovery or avoidance is sought has the burden of proving the
nonavoidability of a transfer under subsection (c) of this section.
(h) The trustee may not avoid a transfer if such transfer was
made as a part of an alternative repayment schedule between the
debtor and any creditor of the debtor created by an approved
nonprofit budget and credit counseling agency.
(i) If the trustee avoids under subsection (b) a transfer made
between 90 days and 1 year before the date of the filing of the
petition, by the debtor to an entity that is not an insider for the
benefit of a creditor that is an insider, such transfer shall be
considered to be avoided under this section only with respect to
the creditor that is an insider.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2597; Pub. L. 98-353, title
III, Secs. 310, 462, July 10, 1984, 98 Stat. 355, 377; Pub. L. 99-
554, title II, Sec. 283(m), Oct. 27, 1986, 100 Stat. 3117; Pub. L.
103-394, title II, Sec. 203, title III, Sec. 304(f), Oct. 22, 1994,
108 Stat. 4121, 4133; Pub. L. 109-8, title II, Secs. 201(b), 217,
title IV, Secs. 403, 409, title XII, Secs. 1213(a), 1222, Apr. 20,
2005, 119 Stat. 42, 55, 104, 106, 194, 196.)

-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
No limitation is provided for payments to commodity brokers as in
section 766 of the Senate amendment other than the amendment to
section 548 of title 11. Section 547(c)(2) protects most payments.
Section 547(b)(2) of the House amendment adopts a provision
contained in the House bill and rejects an alternative contained in
the Senate amendment relating to the avoidance of a preferential
transfer that is payment of a tax claim owing to a governmental
unit. As provided, section 106(c) of the House amendment overrules
contrary language in the House report with the result that the
Government is subject to avoidance of preferential transfers.
Contrary to language contained in the House report, payment of a
debt by means of a check is equivalent to a cash payment, unless
the check is dishonored. Payment is considered to be made when the
check is delivered for purposes of sections 547(c)(1) and (2).
Section 547(c)(6) of the House bill is deleted and is treated in
a different fashion in section 553 of the House amendment.
Section 547(c)(6) represents a modification of a similar
provision contained in the House bill and Senate amendment. The
exception relating to satisfaction of a statutory lien is deleted.
The exception for a lien created under title 11 is deleted since
such a lien is a statutory lien that will not be avoidable in a
subsequent bankruptcy.
Section 547(e)(1)(B) is adopted from the House bill and Senate
amendment without change. It is intended that the simple contract
test used in this section will be applied as under section
544(a)(1) not to require a creditor to perfect against a creditor
on a simple contract in the event applicable law makes such
perfection impossible. For example, a purchaser from a debtor at an
improperly noticed bulk sale may take subject to the rights of a
creditor on a simple contract of the debtor for 1 year after the
bulk sale. Since the purchaser cannot perfect against such a
creditor on a simple contract, he should not be held responsible
for failing to do the impossible. In the event the debtor goes into
bankruptcy within a short time after the bulk sale, the trustee
should not be able to use the avoiding powers under section
544(a)(1) or 547 merely because State law has made some transfers
of personal property subject to the rights of a creditor on a
simple contract to acquire a judicial lien with no opportunity to
perfect against such a creditor.
Preferences: The House amendment deletes from the category of
transfers on account of antecedent debts which may be avoided under
the preference rules, section 547(b)(2), the exception in the
Senate amendment for taxes owed to governmental authorities.
However, for purposes of the “ordinary course” exception to the
preference rules contained in section 547(c)(2), the House
amendment specifies that the 45-day period referred to in section
547(c)(2)(B) is to begin running, in the case of taxes from the
last due date, including extensions, of the return with respect to
which the tax payment was made.

SENATE REPORT NO. 95-989
This section is a substantial modification of present law. It
modernizes the preference provisions and brings them more into
conformity with commercial practice and the Uniform Commercial
Code.
Subsection (a) contains three definitions. Inventory, new value,
and receivable are defined in their ordinary senses, but are
defined to avoid any confusion or uncertainty surrounding the
terms.
Subsection (b) is the operative provision of the section. It
authorizes the trustee to avoid a transfer if five conditions are
met. These are the five elements of a preference action. First, the
transfer must be to or for the benefit of a creditor. Second, the
transfer must be for or on account of an antecedent debt owed by
the debtor before the transfer was made. Third, the transfer must
have been made when the debtor was insolvent. Fourth, the transfer
must have been made during the 90 days immediately preceding the
commencement of the case. If the transfer was to an insider, the
trustee may avoid the transfer if it was made during the period
that begins one year before the filing of the petition and ends 90
days before the filing, if the insider to whom the transfer was
made had reasonable cause to believe the debtor was insolvent at
the time the transfer was made.
Finally, the transfer must enable the creditor to whom or for
whose benefit it was made to receive a greater percentage of his
claim than he would receive under the distributive provisions of
the bankruptcy code. Specifically, the creditor must receive more
than he would if the case were a liquidation case, if the transfer
had not been made, and if the creditor received payment of the debt
to the extent provided by the provisions of the code.
The phrasing of the final element changes the application of the
greater percentage test from that employed under current law. Under
this language, the court must focus on the relative distribution
between classes as well as the amount that will be received by the
members of the class of which the creditor is a member. The
language also requires the court to focus on the allowability of
the claim for which the preference was made. If the claim would
have been entirely disallowed, for example, then the test of
paragraph (5) will be met, because the creditor would have received
nothing under the distributive provisions of the bankruptcy code.
The trustee may avoid a transfer of a lien under this section
even if the lien has been enforced by sale before the commencement
of the case,
Subsection (b)(2) of this section in effect exempts from the
preference rules payments by the debtor of tax liabilities,
regardless of their priority status.
Subsection (c) contains exceptions to the trustee’s avoiding
power. If a creditor can qualify under any one of the exceptions,
then he is protected to that extent. If he can qualify under
several, he is protected by each to the extent that he can qualify
under each.
The first exception is for a transfer that was intended by all
parties to be a contemporaneous exchange for new value, and was in
fact substantially contemporaneous. Normally, a check is a credit
transaction. However, for the purposes of this paragraph, a
transfer involving a check is considered to be “intended to be
contemporaneous”, and if the check is presented for payment in the
normal course of affairs, which the Uniform Commercial Code
specifies as 30 days, U.C.C. Sec. 3-503(2)(a), that will amount to
a transfer that is “in fact substantially contemporaneous.”
The second exception protects transfers in the ordinary course of
business (or of financial affairs, where a business is not
involved) transfers. For the case of a consumer, the paragraph uses
the phrase “financial affairs” to include such nonbusiness
activities as payment of monthly utility bills. If the debt on
account of which the transfer was made was incurred in the ordinary
course of both the debtor and the transferee, if the transfer was
made not later than 45 days after the debt was incurred, if the
transfer itself was made in the ordinary course of both the debtor
and the transferee, and if the transfer was made according to
ordinary business terms, then the transfer is protected. The
purpose of this exception is to leave undisturbed normal financial
relations, because it does not detract from the general policy of
the preference section to discourage unusual action by either the
debtor or his creditors during the debtor’s slide into bankruptcy.
The third exception is for enabling loans in connection with
which the debtor acquires the property that the loan enabled him to
purchase after the loan is actually made.
The fourth exception codifies the net result rule in section 60c
of current law [section 96(c) of former title 11]. If the creditor
and the debtor have more than one exchange during the 90-day
period, the exchanges are netted out according to the formula in
paragraph (4). Any new value that the creditor advances must be
unsecured in order for it to qualify under this exception.
Paragraph (5) codifies the improvement in position test, and
thereby overrules such cases as DuBay v. Williams, 417 F.2d 1277
(C.A.9, 1966), and Grain Merchants of Indiana, Inc. v. Union Bank
and Savings Co., 408 F.2d 209 (C.A.7, 1969). A creditor with a
security interest in a floating mass, such as inventory or accounts
receivable, is subject to preference attack to the extent he
improves his position during the 90-day period before bankruptcy.
The test is a two-point test, and requires determination of the
secured creditor’s position 90 days before the petition and on the
date of the petition. If new value was first given after 90 days
before the case, the date on which it was first given substitutes
for the 90-day point.
Paragraph (6) excepts statutory liens validated under section 545
from preference attack. It also protects transfers in satisfaction
of such liens, and the fixing of a lien under section 365(j), which
protects a vendee whose contract to purchase real property from the
debtor is rejected.
Subsection (d), derived from section 67a of the Bankruptcy Act
[section 107(a) of former title 11], permits the trustee to avoid a
transfer to reimburse a surety that posts a bond to dissolve a
judicial lien that would have been avoidable under this section.
The second sentence protects the surety from double liability.
Subsection (e) determines when a transfer is made for the
purposes of the preference section. Paragraph (1) defines when a
transfer is perfected. For real property, a transfer is perfected
when it is valid against a bona fide purchaser. For personal
property and fixtures, a transfer is perfected when it is valid
against a creditor on a simple contract that obtains a judicial
lien after the transfer is perfected. “Simple contract” as used
here is derived from Bankruptcy Act Sec. 60a(4) [section 96(a)(4)
of former title 11]. Paragraph (2) specifies that a transfer is
made when it takes effect between the transferor and the transferee
if it is perfected at or within 10 days after that time. Otherwise,
it is made when the transfer is perfected. If it is not perfected
before the commencement of the case, it is made immediately before
the commencement of the case. Paragraph (3) specifies that a
transfer is not made until the debtor has acquired rights in the
property transferred. This provision, more than any other in the
section, overrules DuBay and Grain Merchants, and in combination
with subsection (b)(2), overrules In re King-Porter Co., 446 F.2d
722 (5th Cir. 1971).
Subsection (e) is designed to reach the different results under
the 1962 version of Article 9 of the U.C.C. and under the 1972
version because different actions are required under each version
in order to make a security agreement effective between the
parties.
Subsection (f) creates a presumption of insolvency for the 90
days preceding the bankruptcy case. The presumption is as defined
in Rule 301 of the Federal Rules of Evidence, made applicable in
bankruptcy cases by sections 224 and 225 of the bill. The
presumption requires the party against whom the presumption exists
to come forward with some evidence to rebut the presumption, but
the burden of proof remains on the party in whose favor the
presumption exists.

AMENDMENTS
2005 – Subsec. (b). Pub. L. 109-8, Sec. 1213(a)(1), substituted
“subsections (c) and (i)” for “subsection (c)” in introductory
provisions.
Subsec. (c)(2). Pub. L. 109-8, Sec. 409(1), added par. (2) and
struck out former par. (2) which read as follows: “to the extent
that such transfer was –
“(A) in payment of a debt incurred by the debtor in the
ordinary course of business or financial affairs of the debtor
and the transferee;
“(B) made in the ordinary course of business or financial
affairs of the debtor and the transferee; and
“(C) made according to ordinary business terms;”.
Subsec. (c)(3)(B). Pub. L. 109-8, Sec. 1222, substituted “30
days” for “20 days”.
Subsec. (c)(7). Pub. L. 109-8, Sec. 217, amended par. (7)
generally. Prior to amendment, par. (7) read as follows: “to the
extent such transfer was a bona fide payment of a debt to a spouse,
former spouse, or child of the debtor, for alimony to, maintenance
for, or support of such spouse or child, in connection with a
separation agreement, divorce decree or other order of a court of
record, determination made in accordance with State or territorial
law by a governmental unit, or property settlement agreement, but
not to the extent that such debt –
“(A) is assigned to another entity, voluntarily, by operation
of law, or otherwise; or
“(B) includes a liability designated as alimony, maintenance,
or support, unless such liability is actually in the nature of
alimony, maintenance or support; or”.
Subsec. (c)(9). Pub. L. 109-8, Sec. 409(2), (3), added par. (9).
Subsec. (e)(2). Pub. L. 109-8, Sec. 403, substituted “30” for
“10” wherever appearing.
Subsec. (h). Pub. L. 109-8, Sec. 201(b), added subsec. (h).
Subsec. (i). Pub. L. 109-8, Sec. 1213(a)(2), added subsec. (i).
1994 – Subsec. (c)(3)(B). Pub. L. 103-394, Sec. 203(1),
substituted “20” for “10”.
Subsec. (c)(7), (8). Pub. L. 103-394, Sec. 304(f), added par. (7)
and redesignated former par. (7) as (8).
Subsec. (e)(2)(A). Pub. L. 103-394, Sec. 203(2), inserted before
semicolon at end “, except as provided in subsection (c)(3)(B)”.
1986 – Subsec. (b)(4)(B). Pub. L. 99-554 inserted “and” after the
semicolon.
1984 – Subsec. (a)(2). Pub. L. 98-353, Sec. 462(a)(1), inserted
“including proceeds of such property,” after “law,”.
Subsec. (a)(4). Pub. L. 98-353, Sec. 462(a)(2), struck out “,
without penalty” after “any extension”, and inserted “without
penalty” after “payable”.
Subsec. (b). Pub. L. 98-353, Sec. 462(b)(1), substituted “of an
interest of the debtor in property” for “of property of the debtor”
in provisions preceding par. (1).
Subsec. (b)(4)(B). Pub. L. 98-353, Sec. 462(b)(2), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: “between 90 days and one year before the date of the
filing of the petition, if such creditor, at the time of such
transfer –
“(i) was an insider; and
“(ii) had reasonable cause to believe the debtor was insolvent
at the time of such transfer; and”.
Subsec. (c)(2)(A). Pub. L. 98-353, Sec. 462(d)(1), inserted “by
the debtor” after “incurred”.
Subsec. (c)(2)(B) to (D). Pub. L. 98-353, Sec. 462(c), struck out
subpar. (B) which read as follows: “made not later than 45 days
after such debt was incurred;” and redesignated subpars. (C) and
(D) as (B) and (C), respectively.
Subsec. (c)(3). Pub. L. 98-353, Sec. 462(d)(2), substituted “that
creates” for “of”.
Subsec. (c)(3)(B). Pub. L. 98-353, Sec. 462(d)(3), inserted “on
or” after “perfected”, and substituted “the debtor receives
possession of such property” for “such security interest attaches”.
Subsec. (c)(5). Pub. L. 98-353, Sec. 462(d)(4), substituted “that
creates” for “of”, and “all security interests” for “all security
interest”.
Subsec. (c)(5)(A)(ii). Pub. L. 98-353, Sec. 462(d)(5),
substituted “or” for “and”.
Subsec. (c)(7). Pub. L. 98-353, Sec. 310(3), added par. (7).
Subsec. (d). Pub. L. 98-353, Sec. 462(e), substituted “The” for
“A” before “trustee may avoid”, inserted “an interest in” after
“transfer of”, inserted “to or for the benefit of a surety” after
“transferred”, and inserted “such” after “reimbursement of”.
Subsec. (e)(2)(C)(i). Pub. L. 98-353, Sec. 462(f), substituted
“or” for “and”.
Subsec. (g). Pub. L. 98-353, Sec. 462(g), added subsec. (g).

EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-8, title XII, Sec. 1213(b), Apr. 20, 2005, 119 Stat.
195, provided that: “The amendments made by this section [amending
this section] shall apply to any case that is pending or commenced
on or after the date of enactment of this Act [Apr. 20, 2005].”
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.

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. (c)(9), dollar amount “5,475” was adjusted to
“5,850”. 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. (c)(9), dollar amount “5,000” was adjusted to
“5,475”.

-End-

-CITE-
11 USC Sec. 548 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 548. Fraudulent transfers and obligations

-STATUTE-
(a)(1) The trustee may avoid any transfer (including any transfer
to or for the benefit of an insider under an employment contract)
of an interest of the debtor in property, or any obligation
(including any obligation to or for the benefit of an insider under
an employment contract) incurred by the debtor, that was made or
incurred on or within 2 years before the date of the filing of the
petition, if the debtor voluntarily or involuntarily –
(A) made such transfer or incurred such obligation with actual
intent to hinder, delay, or defraud any entity to which the
debtor was or became, on or after the date that such transfer was
made or such obligation was incurred, indebted; or
(B)(i) received less than a reasonably equivalent value in
exchange for such transfer or obligation; and
(ii)(I) was insolvent on the date that such transfer was made
or such obligation was incurred, or became insolvent as a result
of such transfer or obligation;
(II) was engaged in business or a transaction, or was about to
engage in business or a transaction, for which any property
remaining with the debtor was an unreasonably small capital;
(III) intended to incur, or believed that the debtor would
incur, debts that would be beyond the debtor’s ability to pay as
such debts matured; or
(IV) made such transfer to or for the benefit of an insider, or
incurred such obligation to or for the benefit of an insider,
under an employment contract and not in the ordinary course of
business.

(2) A transfer of a charitable contribution to a qualified
religious or charitable entity or organization shall not be
considered to be a transfer covered under paragraph (1)(B) in any
case in which –
(A) the amount of that contribution does not exceed 15 percent
of the gross annual income of the debtor for the year in which
the transfer of the contribution is made; or
(B) the contribution made by a debtor exceeded the percentage
amount of gross annual income specified in subparagraph (A), if
the transfer was consistent with the practices of the debtor in
making charitable contributions.

(b) The trustee of a partnership debtor may avoid any transfer of
an interest of the debtor in property, or any obligation incurred
by the debtor, that was made or incurred on or within 2 years
before the date of the filing of the petition, to a general partner
in the debtor, if the debtor was insolvent on the date such
transfer was made or such obligation was incurred, or became
insolvent as a result of such transfer or obligation.
(c) Except to the extent that a transfer or obligation voidable
under this section is voidable under section 544, 545, or 547 of
this title, a transferee or obligee of such a transfer or
obligation that takes for value and in good faith has a lien on or
may retain any interest transferred or may enforce any obligation
incurred, as the case may be, to the extent that such transferee or
obligee gave value to the debtor in exchange for such transfer or
obligation.
(d)(1) For the purposes of this section, a transfer is made when
such transfer is so perfected that a bona fide purchaser from the
debtor against whom applicable law permits such transfer to be
perfected cannot acquire an interest in the property transferred
that is superior to the interest in such property of the
transferee, but if such transfer is not so perfected before the
commencement of the case, such transfer is made immediately before
the date of the filing of the petition.
(2) In this section –
(A) “value” means property, or satisfaction or securing of a
present or antecedent debt of the debtor, but does not include an
unperformed promise to furnish support to the debtor or to a
relative of the debtor;
(B) a commodity broker, forward contract merchant, stockbroker,
financial institution, financial participant, or securities
clearing agency that receives a margin payment, as defined in
section 101, 741, or 761 of this title, or settlement payment, as
defined in section 101 or 741 of this title, takes for value to
the extent of such payment;
(C) a repo participant or financial participant that receives a
margin payment, as defined in section 741 or 761 of this title,
or settlement payment, as defined in section 741 of this title,
in connection with a repurchase agreement, takes for value to the
extent of such payment;
(D) a swap participant or financial participant that receives a
transfer in connection with a swap agreement takes for value to
the extent of such transfer; and
(E) a master netting agreement participant that receives a
transfer in connection with a master netting agreement or any
individual contract covered thereby takes for value to the extent
of such transfer, except that, with respect to a transfer under
any individual contract covered thereby, to the extent that such
master netting agreement participant otherwise did not take (or
is otherwise not deemed to have taken) such transfer for value.

(3) In this section, the term “charitable contribution” means a
charitable contribution, as that term is defined in section 170(c)
of the Internal Revenue Code of 1986, if that contribution –
(A) is made by a natural person; and
(B) consists of –
(i) a financial instrument (as that term is defined in
section 731(c)(2)(C) of the Internal Revenue Code of 1986); or
(ii) cash.

(4) In this section, the term “qualified religious or charitable
entity or organization” means –
(A) an entity described in section 170(c)(1) of the Internal
Revenue Code of 1986; or
(B) an entity or organization described in section 170(c)(2) of
the Internal Revenue Code of 1986.

(e)(1) In addition to any transfer that the trustee may otherwise
avoid, the trustee may avoid any transfer of an interest of the
debtor in property that was made on or within 10 years before the
date of the filing of the petition, if –
(A) such transfer was made to a self-settled trust or similar
device;
(B) such transfer was by the debtor;
(C) the debtor is a beneficiary of such trust or similar
device; and
(D) the debtor made such transfer with actual intent to hinder,
delay, or defraud any entity to which the debtor was or became,
on or after the date that such transfer was made, indebted.

(2) For the purposes of this subsection, a transfer includes a
transfer made in anticipation of any money judgment, settlement,
civil penalty, equitable order, or criminal fine incurred by, or
which the debtor believed would be incurred by –
(A) any violation of the securities laws (as defined in section
3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(47))), any State securities laws, or any regulation or
order issued under Federal securities laws or State securities
laws; or
(B) fraud, deceit, or manipulation in a fiduciary capacity or
in connection with the purchase or sale of any security
registered under section 12 or 15(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78l and 78o(d)) or under section 6 of the
Securities Act of 1933 (15 U.S.C. 77f).

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2600; Pub. L. 97-222, Sec.
5, July 27, 1982, 96 Stat. 236; Pub. L. 98-353, title III, Secs.
394, 463, July 10, 1984, 98 Stat. 365, 378; Pub. L. 99-554, title
II, Sec. 283(n), Oct. 27, 1986, 100 Stat. 3117; Pub. L. 101-311,
title I, Sec. 104, title II, Sec. 204, June 25, 1990, 104 Stat.
268, 269; Pub. L. 103-394, title V, Sec. 501(b)(5), Oct. 22, 1994,
108 Stat. 4142; Pub. L. 105-183, Secs. 2, 3(a), June 19, 1998, 112
Stat. 517; Pub. L. 109-8, title IX, Sec. 907(f), (o)(4)-(6), title
XIV, Sec. 1402, Apr. 20, 2005, 119 Stat. 177, 182, 214.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 548(d)(2) is modified to reflect general application of a
provision contained in section 766 of the Senate amendment with
respect to commodity brokers. In particular, section 548(d)(2)(B)
of the House amendment makes clear that a commodity broker who
receives a margin payment is considered to receive the margin
payment in return for “value” for purposes of section 548.

SENATE REPORT NO. 95-989
This section is derived in large part from section 67d of the
Bankruptcy Act [section 107(d) of former title 11]. It permits the
trustee to avoid transfers by the debtor in fraud of his creditors.
Its history dates from the statute of 13 Eliz. c. 5 (1570).
The trustee may avoid fraudulent transfers or obligations if made
with actual intent to hinder, delay, or defraud a past or future
creditor. Transfers made for less than a reasonably equivalent
consideration are also vulnerable if the debtor was or thereby
becomes insolvent, was engaged in business with an unreasonably
small capital, or intended to incur debts that would be beyond his
ability to repay.
The trustee of a partnership debtor may avoid any transfer of
partnership property to a partner in the debtor if the debtor was
or thereby became insolvent.
If a transferee’s only liability to the trustee is under this
section, and if he takes for value and in good faith, then
subsection (c) grants him a lien on the property transferred, or
other similar protection.
Subsection (d) specifies that for the purposes of fraudulent
transfer section, a transfer is made when it is valid against a
subsequent bona fide purchaser. If not made before the commencement
of the case, it is considered made immediately before then.
Subsection (d) also defines “value” to mean property, or the
satisfaction or securing of a present or antecedent debt, but does
not include an unperformed promise to furnish support to the debtor
or a relative of the debtor.

-REFTEXT-
REFERENCES IN TEXT
Sections 170(c) and 731(c)(2)(C) of the Internal Revenue Code of
1986, referred to in subsec. (d)(3), (4), are classified to
sections 170(c) and 731(c)(2)(C), respectively, of Title 26,
Internal Revenue Code.

-MISC2-
AMENDMENTS
2005 – Subsec. (a)(1). Pub. L. 109-8, Sec. 1402(2), in
introductory provisions, inserted “(including any transfer to or
for the benefit of an insider under an employment contract)” after
“avoid any transfer” and “(including any obligation to or for the
benefit of an insider under an employment contract)” after “or any
obligation”.
Pub. L. 109-8, Sec. 1402(1), substituted “2 years” for “one year”
in introductory provisions.
Subsec. (a)(1)(B)(ii)(IV). Pub. L. 109-8, Sec. 1402(3), added
subcl. (IV).
Subsec. (b). Pub. L. 109-8, Sec. 1402(1), substituted “2 years”
for “one year”.
Subsec. (d)(2)(B). Pub. L. 109-8, Sec. 907(o)(4), inserted
“financial participant,” after “financial institution,”.
Subsec. (d)(2)(C). Pub. L. 109-8, Sec. 907(o)(5), inserted “or
financial participant” after “repo participant”.
Subsec. (d)(2)(D). Pub. L. 109-8, Sec. 907(o)(6), inserted “or
financial participant” after “swap participant”.
Subsec. (d)(2)(E). Pub. L. 109-8, Sec. 907(f), added subpar. (E).
Subsec. (e). Pub. L. 109-8, Sec. 1402(4), added subsec. (e).
1998 – Subsec. (a). Pub. L. 105-183, Sec. 3(a), designated
existing provisions as par. (1), redesignated former pars. (1) and
(2) as par. (1)(A) and (B), respectively, redesignated former par.
(2)(A) and (B) as par. (1)(B)(i) and (ii), respectively, and
redesignated former par. (2)(B)(i) to (iii) as par. (1)(B)(ii)(I)
to (III), respectively, and added par. (2).
Subsec. (d)(3), (4). Pub. L. 105-183, Sec. 2, added pars. (3) and
(4).
1994 – Subsec. (d)(2)(B). Pub. L. 103-394, Sec. 501(b)(5)(A),
substituted “section 101, 741, or 761″ for “section 101(34), 741(5)
or 761(15)” and “section 101 or 741″ for “section 101(35) or
741(8)”.
Subsec. (d)(2)(C). Pub. L. 103-394, Sec. 501(b)(5)(B),
substituted “section 741 or 761″ for “section 741(5) or 761(15)”
and “section 741″ for “section 741(8)”.
1990 – Subsec. (d)(2)(B). Pub. L. 101-311, Sec. 204, inserted
reference to sections 101(34) and 101(35) of this title.
Subsec. (d)(2)(D). Pub. L. 101-311, Sec. 104, added subpar. (D).
1986 – Subsec. (d)(2)(B). Pub. L. 99-554 substituted “, financial
institution” for “financial institution,”.
1984 – Subsec. (a). Pub. L. 98-353, Sec. 463(a)(1), substituted
“if the debtor voluntarily or involuntarily” for “if the debtor” in
provisions preceding par. (1).
Subsec. (a)(1). Pub. L. 98-353, Sec. 463(a)(2), substituted “was
made” for “occurred”.
Subsec. (a)(2)(B)(ii). Pub. L. 98-353, Sec. 463(a)(3), inserted
“or a transaction” after “engaged in business”.
Subsec. (c). Pub. L. 98-353, Sec. 463(b), inserted “or may
retain” after “lien on” and struck out “, may retain any lien
transferred,” before “or may enforce any obligation incurred”.
Subsec. (d)(1). Pub. L. 98-353, Sec. 463(c)(1), substituted “is
so” for “becomes so far”, “applicable law permits such transfer to
be” for “such transfer could have been”, and “is made” for
“occurs”.
Subsec. (d)(2)(B). Pub. L. 98-353, Sec. 463(c)(2), inserted
“financial institution,” after “stockbroker”.
Subsec. (d)(2)(C). Pub. L. 98-353, Sec. 394(2), added subpar.
(C).
1982 – Subsec. (d)(2)(B). Pub. L. 97-222 substituted “a commodity
broker, forward contract merchant, stockbroker, or securities
clearing agency that receives a margin payment, as defined in
section 741(5) or 761(15) of this title, or settlement payment, as
defined in section 741(8) of this title, takes for value to extent
of such payment” for “a commodity broker or forward contract
merchant that receives a margin payment, as defined in section
761(15) of this title, takes for value”.

EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by section 1402 of Pub. L. 109-8 effective Apr. 20,
2005, and applicable only with respect to cases commenced under
this title on or after such date, with amendment by par. (1) of
such section applicable only with respect to cases commenced under
this title more than 1 year after Apr. 20, 2005, see section 1406
of Pub. L. 109-8, set out as a note under section 507 of this
title.
Amendment by section 907 of 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 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. 549 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 549. Postpetition transactions

-STATUTE-
(a) Except as provided in subsection (b) or (c) of this section,
the trustee may avoid a transfer of property of the estate –
(1) that occurs after the commencement of the case; and
(2)(A) that is authorized only under section 303(f) or 542(c)
of this title; or
(B) that is not authorized under this title or by the court.

(b) In an involuntary case, the trustee may not avoid under
subsection (a) of this section a transfer made after the
commencement of such case but before the order for relief to the
extent any value, including services, but not including
satisfaction or securing of a debt that arose before the
commencement of the case, is given after the commencement of the
case in exchange for such transfer, notwithstanding any notice or
knowledge of the case that the transferee has.
(c) The trustee may not avoid under subsection (a) of this
section a transfer of an interest in real property to a good faith
purchaser without knowledge of the commencement of the case and for
present fair equivalent value unless a copy or notice of the
petition was filed, where a transfer of an interest in such real
property may be recorded to perfect such transfer, before such
transfer is so perfected that a bona fide purchaser of such real
property, against whom applicable law permits such transfer to be
perfected, could not acquire an interest that is superior to such
interest of such good faith purchaser. A good faith purchaser
without knowledge of the commencement of the case and for less than
present fair equivalent value has a lien on the property
transferred to the extent of any present value given, unless a copy
or notice of the petition was so filed before such transfer was so
perfected.
(d) An action or proceeding under this section may not be
commenced after the earlier of –
(1) two years after the date of the transfer sought to be
avoided; or
(2) the time the case is closed or dismissed.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2601; Pub. L. 98-353, title
III, Sec. 464, July 10, 1984, 98 Stat. 379; Pub. L. 99-554, title
II, Sec. 283(o), Oct. 27, 1986, 100 Stat. 3117; Pub. L. 103-394,
title V, Sec. 501(d)(18), Oct. 22, 1994, 108 Stat. 4146; Pub. L.
109-8, title XII, Sec. 1214, Apr. 20, 2005, 119 Stat. 195.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 549 of the House amendment has been redrafted in order to
incorporate sections 342(b) and (c) of the Senate amendment. Those
sections have been consolidated and redrafted in section 549(c) of
the House amendment. Section 549(d) of the House amendment adopts a
provision contained in section 549(c) of the Senate amendment.

SENATE REPORT NO. 95-989
This section modifies section 70d of current law [section 110(d)
of former title 11]. It permits the trustee to avoid transfers of
property that occur after the commencement of the case. The
transfer must either have been unauthorized, or authorized under a
section that protects only the transferor. Subsection (b) protects
“involuntary gap” transferees to the extent of any value (including
services, but not including satisfaction of a debt that arose
before the commencement of the case), given after commencement in
exchange for the transfer. Notice or knowledge of the transferee is
irrelevant in determining whether he is protected under this
provision.

AMENDMENTS
2005 – Subsec. (c). Pub. L. 109-8 inserted “an interest in” after
“transfer of” in two places and substituted “purchaser of such real
property” for “purchaser of such property” and “such interest” for
“the interest”.
1994 – Subsec. (b). Pub. L. 103-394 inserted “the trustee may not
avoid under subsection (a) of this section” after “involuntary
case,”.
1986 – Subsec. (b). Pub. L. 99-554 substituted “made” for “that
occurs”, and “to the extent” for “is valid against the trustee to
the extent of”, and inserted “is” before “given”.
1984 – Subsec. (a). Pub. L. 98-353, Sec. 464(a)(1), (2),
substituted “(b) or (c)” for “(b) and (c)” in provisions preceding
par. (1) and inserted “only” between “authorized” and “under” in
par. (2)(A). In the original of Pub. L. 98-353, subsec. (a)(2) of
section 464 thereof ended with a period but was followed by pars.
(3), (4), and (5). Such pars. (3), (4), and (5) purported to amend
subsec. (a) of this section in ways not susceptible of execution.
In a predecessor bill [S. 445], these pars. (3), (4), and (5)
formed a part of a subsec. (b) of section 361 thereof which amended
subsec. (b) of this section. Such subsec. (b) of section 361 of S.
445 was not carried into Pub. L. 98-353, Sec. 464.
Subsec. (c). Pub. L. 98-353, Sec. 464(c), amended subsec. (c)
generally. Prior to amendment, subsec. (c) read as follows: “The
trustee may not avoid under subsection (a) of this section a
transfer, to a good faith purchaser without knowledge of the
commencement of the case and for present fair equivalent value or
to a purchaser at a judicial sale, of real property located other
than in the county in which the case is commenced, unless a copy of
the petition was filed in the office where conveyances of real
property in such county are recorded before such transfer was so
far perfected that a bona fide purchaser of such property against
whom applicable law permits such transfer to be perfected cannot
acquire an interest that is superior to the interest of such good
faith or judicial sale purchaser. A good faith purchaser, without
knowledge of the commencement of the case and for less than present
fair equivalent value, of real property located other than in the
county in which the case is commenced, under a transfer that the
trustee may avoid under this section, has a lien on the property
transferred to the extent of any present value given, unless a copy
of the petition was so filed before such transfer was so
perfected.”
Subsec. (d)(1). Pub. L. 98-353, Sec. 464(d), substituted “or” for
“and”.

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. 550 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 550. Liability of transferee of avoided transfer

-STATUTE-
(a) Except as otherwise provided in this section, to the extent
that a transfer is avoided under section 544, 545, 547, 548, 549,
553(b), or 724(a) of this title, the trustee may recover, for the
benefit of the estate, the property transferred, or, if the court
so orders, the value of such property, from –
(1) the initial transferee of such transfer or the entity for
whose benefit such transfer was made; or
(2) any immediate or mediate transferee of such initial
transferee.

(b) The trustee may not recover under section (a)(2) of this
section from –
(1) a transferee that takes for value, including satisfaction
or securing of a present or antecedent debt, in good faith, and
without knowledge of the voidability of the transfer avoided; or
(2) any immediate or mediate good faith transferee of such
transferee.

(c) If a transfer made between 90 days and one year before the
filing of the petition –
(1) is avoided under section 547(b) of this title; and
(2) was made for the benefit of a creditor that at the time of
such transfer was an insider;

the trustee may not recover under subsection (a) from a transferee
that is not an insider.
(d) The trustee is entitled to only a single satisfaction under
subsection (a) of this section.
(e)(1) A good faith transferee from whom the trustee may recover
under subsection (a) of this section has a lien on the property
recovered to secure the lesser of –
(A) the cost, to such transferee, of any improvement made after
the transfer, less the amount of any profit realized by or
accruing to such transferee from such property; and
(B) any increase in the value of such property as a result of
such improvement, of the property transferred.

(2) In this subsection, “improvement” includes –
(A) physical additions or changes to the property transferred;
(B) repairs to such property;
(C) payment of any tax on such property;
(D) payment of any debt secured by a lien on such property that
is superior or equal to the rights of the trustee; and
(E) preservation of such property.

(f) An action or proceeding under this section may not be
commenced after the earlier of –
(1) one year after the avoidance of the transfer on account of
which recovery under this section is sought; or
(2) the time the case is closed or dismissed.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2601; Pub. L. 98-353, title
III, Sec. 465, July 10, 1984, 98 Stat. 379; Pub. L. 103-394, title
II, Sec. 202, Oct. 22, 1994, 108 Stat. 4121.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 550(a)(1) of the House amendment has been modified in
order to permit recovery from an entity for whose benefit an
avoided transfer is made in addition to a recovery from the initial
transferee of the transfer. Section 550(c) would still apply, and
the trustee is entitled only to a single satisfaction. The
liability of a transferee under section 550(a) applies only “to the
extent that a transfer is avoided”. This means that liability is
not imposed on a transferee to the extent that a transferee is
protected under a provision such as section 548(c) which grants a
good faith transferee for value of a transfer that is avoided only
as a fraudulent transfer, a lien on the property transferred to the
extent of value given.
Section 550(b) of the House amendment is modified to indicate
that value includes satisfaction or securing of a present
antecedent debt. This means that the trustee may not recover under
subsection (a)(2) from a subsequent transferee that takes for
“value”, provided the subsequent transferee also takes in good
faith and without knowledge of the transfer avoided.
Section 550(e) of the House amendment is derived from section
550(e) of the Senate amendment.

SENATE REPORT NO. 95-989
Section 550 prescribes the liability of a transferee of an
avoided transfer, and enunciates the separation between the
concepts of avoiding a transfer and recovering from the transferee.
Subsection (a) permits the trustee to recover from the initial
transferee of an avoided transfer or from any immediate or mediate
transferee of the initial transferee. The words “to the extent
that” in the lead in to this subsection are designed to incorporate
the protection of transferees found in proposed 11 U.S.C. 549(b)
and 548(c). Subsection (b) limits the liability of an immediate or
mediate transferee of the initial transferee if such secondary
transferee takes for value, in good faith and without knowledge of
the voidability of the transfer. An immediate or mediate good faith
transferee of a protected secondary transferee is also shielded
from liability. This subsection is limited to the trustee’s right
to recover from subsequent transferees under subsection (a)(2). It
does not limit the trustee’s rights against the initial transferee
under subsection (a)(1). The phrase “good faith” in this paragraph
is intended to prevent a transferee from whom the trustee could
recover from transferring the recoverable property to an innocent
transferee, and receiving a retransfer from him, that is, “washing”
the transaction through an innocent third party. In order for the
transferee to be excepted from liability under this paragraph, he
himself must be a good faith transferee. Subsection (c) is a
further limitation on recovery. It specifies that the trustee is
entitled to only one satisfactory, under subsection (a), even if
more than one transferee is liable.
Subsection (d) protects good faith transferees, either initial or
subsequent, to the extent of the lesser of the cost of any
improvement the transferee makes in the transferred property and
the increase in value of the property as a result of the
improvement. Paragraph (2) of the subsection defines improvement to
include physical additions or changes to the property, repairs,
payment of taxes on the property, payment of a debt secured by a
lien on the property, discharge of a lien on the property, and
preservation of the property.
Subsection (e) establishes a statute of limitations on avoidance
by the Trustee. The limitation is one year after the avoidance of
the transfer or the time the case is closed or dismissed, whichever
is earlier.

AMENDMENTS
1994 – Subsecs. (c) to (f). Pub. L. 103-394 added subsec. (c) and
redesignated former subsecs. (c) to (e) as (d) to (f),
respectively.
1984 – Subsec. (a). Pub. L. 98-353, Sec. 465(a), substituted
“549, 553(b), or 724(a) of this title” for “549, or 724(a) of this
title”.
Subsec. (d)(1)(A). Pub. L. 98-353, Sec. 465(b)(1), inserted “or
accruing to” after “by”.
Subsec. (d)(1)(B). Pub. L. 98-353, Sec. 465(b)(2), substituted
“the value of such property” for “value”.
Subsec. (d)(2)(D). Pub. L. 98-353, Sec. 465(b)(3), substituted
“payment of any debt secured by a lien on such property that is
superior or equal to the rights of the trustee; and” for “payment
of any debt secured by a lien on such property.”
Subsec. (d)(2)(E), (F). Pub. L. 98-353, Sec. 465(b)(3), (4),
struck out subpar. (E) “discharge of any lien against such property
that is superior or equal to the rights of the trustee; and” and
redesignated subpar. (F) as (E).
Subsec. (e)(1). Pub. L. 98-353, Sec. 465(c), substituted “or” for
“and”.

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. 551 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 551. Automatic preservation of avoided transfer

-STATUTE-
Any transfer avoided under section 522, 544, 545, 547, 548, 549,
or 724(a) of this title, or any lien void under section 506(d) of
this title, is preserved for the benefit of the estate but only
with respect to property of the estate.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2602.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 551 is adopted from the House bill and the alternative in
the Senate amendment is rejected. The section is clarified to
indicate that a transfer avoided or a lien that is void is
preserved for the benefit of the estate, but only with respect to
property of the estate. This prevents the trustee from asserting an
avoided tax lien against after acquired property of the debtor.

SENATE REPORT NO. 95-989
This section is a change from present law. It specifies that any
avoided transfer is automatically preserved for the benefit of the
estate. Under current law, the court must determine whether or not
the transfer should be preserved. The operation of the section is
automatic, unlike current law, even though preservation may not
benefit the estate in every instance. A preserved lien may be
abandoned by the trustee under proposed 11 U.S.C. 554 if the
preservation does not benefit the estate. The section as a whole
prevents junior lienors from improving their position at the
expense of the estate when a senior lien is avoided.

-End-

-CITE-
11 USC Sec. 552 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 552. Postpetition effect of security interest

-STATUTE-
(a) Except as provided in subsection (b) of this section,
property acquired by the estate or by the debtor after the
commencement of the case is not subject to any lien resulting from
any security agreement entered into by the debtor before the
commencement of the case.
(b)(1) Except as provided in sections 363, 506(c), 522, 544, 545,
547, and 548 of this title, if the debtor and an entity entered
into a security agreement before the commencement of the case and
if the security interest created by such security agreement extends
to property of the debtor acquired before the commencement of the
case and to proceeds, products, offspring, or profits of such
property, then such security interest extends to such proceeds,
products, offspring, or profits acquired by the estate after the
commencement of the case to the extent provided by such security
agreement and by applicable nonbankruptcy law, except to any extent
that the court, after notice and a hearing and based on the
equities of the case, orders otherwise.
(2) Except as provided in sections 363, 506(c), 522, 544, 545,
547, and 548 of this title, and notwithstanding section 546(b) of
this title, if the debtor and an entity entered into a security
agreement before the commencement of the case and if the security
interest created by such security agreement extends to property of
the debtor acquired before the commencement of the case and to
amounts paid as rents of such property or the fees, charges,
accounts, or other payments for the use or occupancy of rooms and
other public facilities in hotels, motels, or other lodging
properties, then such security interest extends to such rents and
such fees, charges, accounts, or other payments acquired by the
estate after the commencement of the case to the extent provided in
such security agreement, except to any extent that the court, after
notice and a hearing and based on the equities of the case, orders
otherwise.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2602; Pub. L. 98-353, title
III, Sec. 466, July 10, 1984, 98 Stat. 380; Pub. L. 103-394, title
II, Sec. 214(a), Oct. 22, 1994, 108 Stat. 4126; Pub. L. 109-8,
title XII, Sec. 1204(2), Apr. 20, 2005, 119 Stat. 194.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 552(a) is derived from the House bill and the alternative
provision in the Senate amendment is rejected. Section 552(b)
represents a compromise between the House bill and the Senate
amendment. Proceeds coverage, but not after acquired property
clauses, are valid under title 11. The provision allows the court
to consider the equities in each case. In the course of such
consideration the court may evaluate any expenditures by the estate
relating to proceeds and any related improvement in position of the
secured party. Although this section grants a secured party a
security interest in proceeds, product, offspring, rents, or
profits, the section is explicitly subject to other sections of
title 11. For example, the trustee or debtor in possession may use,
sell, or lease proceeds, product, offspring, rents or profits under
section 363.

SENATE REPORT NO. 95-989
Under the Uniform Commercial Code, article 9, creditors may take
security interests in after-acquired property. Section 552 governs
the effect of such a prepetition security interest in postpetition
property. It applies to all security interests as defined in
section 101(37) of the bankruptcy code, not only to U.C.C. security
interests.
As a general rule, if a security agreement is entered into before
the commencement of the case, then property that the estate
acquires is not subject to the security interest created by a
provision in the security agreement extending the security interest
to after-acquired property. Subsection (b) provides an important
exception consistent with the Uniform Commercial Code. If the
security agreement extends to proceeds, product, offspring, rents,
or profits of the property in question, then the proceeds would
continue to be subject to the security interest pursuant to the
terms of the security agreement and provisions of applicable law,
except to the extent that where the estate acquires the proceeds at
the expense of other creditors holding unsecured claims, the
expenditure resulted in an improvement in the position of the
secured party.
The exception covers the situation where raw materials, for
example, are converted into inventory, or inventory into accounts,
at some expense to the estate, thus depleting the fund available
for general unsecured creditors, but is limited to the benefit
inuring to the secured party thereby. Situations in which the
estate incurs expense in simply protecting collateral are governed
by 11 U.S.C. 506(c). In ordinary circumstances, the risk of loss in
continued operations will remain with the estate.

HOUSE REPORT NO. 95-595
Under the Uniform Commercial Code, Article 9, creditors may take
security interests in after-acquired property. This section governs
the effect of such a prepetition security interest in postpetition
property. It applies to all security interests as defined in
section 101 of the bankruptcy code, not only to U.C.C. security
interests.
As a general rule, if a security agreement is entered into before
the case, then property that the estate acquires is not subject to
the security interest created by the security agreement. Subsection
(b) provides the only exception. If the security agreement extends
to proceeds, product, offspring, rents, or profits of property that
the debtor had before the commencement of the case, then the
proceeds, etc., continue to be subject to the security interest,
except to the extent that the estate acquired the proceeds to the
prejudice of other creditors holding unsecured claims. “Extends to”
as used here would include an automatically arising security
interest in proceeds, as permitted under the 1972 version of the
Uniform Commercial Code, as well as an interest in proceeds
specifically designated, as required under the 1962 Code or similar
statutes covering property not covered by the Code. “Prejudice” is
not intended to be a broad term here, but is designed to cover the
situation where the estate expends funds that result in an increase
in the value of collateral. The exception is to cover the situation
where raw materials, for example, are converted into inventory, or
inventory into accounts, at some expense to the estate, thus
depleting the fund available for general unsecured creditors. The
term “proceeds” is not limited to the technical definition of that
term in the U.C.C., but covers any property into which property
subject to the security interest is converted.

AMENDMENTS
2005 – Subsec. (b)(1). Pub. L. 109-8 substituted “products” for
“product” in two places.
1994 – Subsec. (b). Pub. L. 103-394 designated existing
provisions as par. (1), struck out “rents,” after “offspring,” in
two places, and added par. (2).
1984 – Subsec. (b). Pub. L. 98-353 inserted “522,” after
“506(c),”, substituted “an entity entered” for “a secured party
enter”, and substituted “except to any extent” for “except to the
extent”.

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. 553 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 553. Setoff

-STATUTE-
(a) Except as otherwise provided in this section and in sections
362 and 363 of this title, this title does not affect any right of
a creditor to offset a mutual debt owing by such creditor to the
debtor that arose before the commencement of the case under this
title against a claim of such creditor against the debtor that
arose before the commencement of the case, except to the extent
that –
(1) the claim of such creditor against the debtor is
disallowed;
(2) such claim was transferred, by an entity other than the
debtor, to such creditor –
(A) after the commencement of the case; or
(B)(i) after 90 days before the date of the filing of the
petition; and
(ii) while the debtor was insolvent (except for a setoff of a
kind described in section 362(b)(6), 362(b)(7), 362(b)(17),
362(b)(27), 555, 556, 559, 560, or 561); or

(3) the debt owed to the debtor by such creditor was incurred
by such creditor –
(A) after 90 days before the date of the filing of the
petition;
(B) while the debtor was insolvent; and
(C) for the purpose of obtaining a right of setoff against
the debtor (except for a setoff of a kind described in section
362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559,
560, or 561).

(b)(1) Except with respect to a setoff of a kind described in
section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556,
559, 560, 561, 365(h), 546(h), or 365(i)(2) of this title, if a
creditor offsets a mutual debt owing to the debtor against a claim
against the debtor on or within 90 days before the date of the
filing of the petition, then the trustee may recover from such
creditor the amount so offset to the extent that any insufficiency
on the date of such setoff is less than the insufficiency on the
later of –
(A) 90 days before the date of the filing of the petition; and
(B) the first date during the 90 days immediately preceding the
date of the filing of the petition on which there is an
insufficiency.

(2) In this subsection, “insufficiency” means amount, if any, by
which a claim against the debtor exceeds a mutual debt owing to the
debtor by the holder of such claim.
(c) For the purposes of this section, the debtor is presumed to
have been insolvent on and during the 90 days immediately preceding
the date of the filing of the petition.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2602; Pub. L. 98-353, title
III, Secs. 395, 467, July 10, 1984, 98 Stat. 365, 380; Pub. L. 101-
311, title I, Sec. 105, June 25, 1990, 104 Stat. 268; Pub. L. 103-
394, title II, Secs. 205(b), 222(b), title V, Sec. 501(d)(19),
Oct. 22, 1994, 108 Stat. 4123, 4129, 4146; Pub. L. 109-8, title IX,
Sec. 907(n), Apr. 20, 2005, 119 Stat. 181.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 553 of the House amendment is derived from a similar
provision contained in the Senate amendment, but is modified to
clarify application of a two-point test with respect to setoffs.

SENATE REPORT NO. 95-989
This section preserves, with some changes, the right of setoff in
bankruptcy cases now found in section 68 of the Bankruptcy Act
[section 108 of former title 11]. One exception to the right is the
automatic stay, discussed in connection with proposed 11 U.S.C.
362. Another is the right of the trustee to use property under
section 363 that is subject to a right of setoff.
The section states that the right of setoff is unaffected by the
bankruptcy code except to the extent that the creditor’s claim is
disallowed, the creditor acquired (other than from the debtor) the
claim during the 90 days preceding the case while the debtor was
insolvent, the debt being offset was incurred for the purpose of
obtaining a right of setoff, while the debtor was insolvent and
during the 90-day prebankruptcy period, or the creditor improved
his position in the 90-day period (similar to the improvement in
position test found in the preference section 547(c)(5)). Only the
last exception is an addition to current law.
As under section 547(f), the debtor is presumed to have been
insolvent during the 90 days before the case.

AMENDMENTS
2005 – Subsec. (a)(2)(B)(ii). Pub. L. 109-8, Sec. 907(n)(1),
inserted “(except for a setoff of a kind described in section
362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560,
or 561)” before semicolon.
Subsec. (a)(3)(C). Pub. L. 109-8, Sec. 907(n)(2), inserted
“(except for a setoff of a kind described in section 362(b)(6),
362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, or 561)”
before period.
Subsec. (b)(1). Pub. L. 109-8, Sec. 907(n)(3), substituted
“362(b)(17), 362(b)(27), 555, 556, 559, 560, 561,” for
“362(b)(14),” in introductory provisions.
1994 – Subsec. (a)(1). Pub. L. 103-394, Sec. 501(d)(19)(A),
struck out before semicolon at end “other than under section
502(b)(3) of this title”.
Subsec. (b)(1). Pub. L. 103-394, Sec. 501(d)(19)(B), substituted
“section 362(b)(14),” for “section 362(b)(14),,”.
Pub. L. 103-394, Sec. 222(b), which directed the amendment of
section 553(b)(1) by inserting “546(h),” after “365(h),” was
executed by making the insertion in section 553(b)(1) of this title
to reflect the probable intent of Congress.
Pub. L. 103-394, Sec. 205(b), substituted “365(h)” for
“365(h)(2)”.
1990 – Subsec. (b)(1). Pub. L. 101-311 substituted “362(b)(7),
362(b)(14),” for “362(b)(7),”.
1984 – Subsec. (b)(1). Pub. L. 98-353 inserted “, 362(b)(7),”
after “362(b)(6)”, and substituted “, 365(h)(2), or 365(i)(2)” for
“or 365(h)(1)”.

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. 554 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 554. Abandonment of property of the estate

-STATUTE-
(a) After notice and a hearing, the trustee may abandon any
property of the estate that is burdensome to the estate or that is
of inconsequential value and benefit to the estate.
(b) On request of a party in interest and after notice and a
hearing, the court may order the trustee to abandon any property of
the estate that is burdensome to the estate or that is of
inconsequential value and benefit to the estate.
(c) Unless the court orders otherwise, any property scheduled
under section 521(a)(1) of this title not otherwise administered at
the time of the closing of a case is abandoned to the debtor and
administered for purposes of section 350 of this title.
(d) Unless the court orders otherwise, property of the estate
that is not abandoned under this section and that is not
administered in the case remains property of the estate.

-SOURCE-
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2603; Pub. L. 98-353, title
III, Sec. 468, July 10, 1984, 98 Stat. 380; Pub. L. 99-554, title
II, Sec. 283(p), Oct. 27, 1986, 100 Stat. 3118; Pub. L. 111-327,
Sec. 2(a)(23), Dec. 22, 2010, 124 Stat. 3560.)

-MISC1-
HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS
Section 554(b) is new and permits a party in interest to request
the court to order the trustee to abandon property of the estate
that is burdensome to the estate or that is of inconsequential
value to the estate.

SENATE REPORT NO. 95-989
Under this section the court may authorize the trustee to abandon
any property of the estate that is burdensome to the estate or that
is of inconsequential value to the estate. Abandonment may be to
any party with a possessory interest in the property abandoned. In
order to aid administration of the case, subsection (b) deems the
court to have authorized abandonment of any property that is
scheduled under section 521(1) and that is not administered before
the case is closed. That property is deemed abandoned to the
debtor. Subsection (c) specifies that if property is neither
abandoned nor administered it remains property of the estate.

AMENDMENTS
2010 – Subsec. (c). Pub. L. 111-327 substituted “521(a)(1)” for
“521(1)”.
1986 – Subsec. (c). Pub. L. 99-554 substituted “521(1)” for
“521(a)(1)”.
1984 – Subsecs. (a), (b). Pub. L. 98-353, Sec. 468(a), inserted
“and benefit” after “value”.
Subsec. (c). Pub. L. 98-353, Sec. 468(b), amended subsec. (c)
generally. Prior to amendment, subsec. (c) read as follows: “Unless
the court orders otherwise, any property that is scheduled under
section 521(1) of this title and that is not administered before a
case is closed under section 350 of this title is deemed
abandoned.”
Subsec. (d). Pub. L. 98-353, Sec. 468(c), struck out “section (a)
or (b) of” after “not abandoned under”.

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. 555 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 555. Contractual right to liquidate, terminate, or accelerate
a securities contract

-STATUTE-
The exercise of a contractual right of a stockbroker, financial
institution, financial participant, or securities clearing agency
to cause the liquidation, termination, or acceleration of a
securities contract, as defined in section 741 of this title,
because of a condition of the kind specified in section 365(e)(1)
of this title shall not be stayed, avoided, or otherwise limited by
operation of any provision of this title or by order of a court or
administrative agency in any proceeding under this title unless
such order is authorized under the provisions of the Securities
Investor Protection Act of 1970 or any statute administered by the
Securities and Exchange Commission. As used in this section, the
term “contractual right” includes a right set forth in a rule or
bylaw of a derivatives clearing organization (as defined in the
Commodity Exchange Act), a multilateral clearing organization (as
defined in the Federal Deposit Insurance Corporation Improvement
Act of 1991), a national securities exchange, a national securities
association, a securities clearing agency, a contract market
designated under the Commodity Exchange Act, a derivatives
transaction execution facility registered under the Commodity
Exchange Act, or a board of trade (as defined in the Commodity
Exchange Act), or in a resolution of the governing board thereof,
and a right, whether or not in writing, arising under common law,
under law merchant, or by reason of normal business practice.

-SOURCE-
(Added Pub. L. 97-222, Sec. 6(a), July 27, 1982, 96 Stat. 236;
amended Pub. L. 98-353, title III, Sec. 469, July 10, 1984, 98
Stat. 380; Pub. L. 103-394, title V, Sec. 501(b)(6), (d)(20), Oct.
22, 1994, 108 Stat. 4143, 4146; Pub. L. 109-8, title IX, Sec.
907(g), (o)(7), Apr. 20, 2005, 119 Stat. 177, 182.)

-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.
The Commodity Exchange Act, referred to in text, 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.
For complete classification of this Act to the Code, see section 1
of Title 7 and Tables.
The Federal Deposit Insurance Corporation Improvement Act of
1991, referred to in text, is Pub. L. 102-242, Dec. 19, 1991, 105
Stat. 2236, as amended. For complete classification of this Act to
the Code, see Short Title of 1991 Amendment note set out under
section 1811 of Title 12, Banks and Banking, and Tables.

-MISC1-
AMENDMENTS
2005 – Pub. L. 109-8, Sec. 907(g)(1), substituted “Contractual
right to liquidate, terminate, or accelerate a securities contract”
for “Contractual right to liquidate a securities contract” in
section catchline.
Pub. L. 109-8, Sec. 907(g)(2), (o)(7), in first sentence,
inserted “financial participant,” after “financial institution,”
and substituted “liquidation, termination, or acceleration” for
“liquidation”, and substituted second sentence for former second
sentence which read as follows: “As used in this section, the term
‘contractual right’ includes a right set forth in a rule or bylaw
of a national securities exchange, a national securities
association, or a securities clearing agency.”
1994 – Pub. L. 103-394 substituted “section 741 of this title”
for “section 741(7)” and struck out “(15 U.S.C. 78aaa et seq.)”
after “Act of 1970″.
1984 – Pub. L. 98-353 inserted “, financial institution,” after
“stockbroker”.

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. 556 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 556. Contractual right to liquidate, terminate, or accelerate
a commodities contract or forward contract

-STATUTE-
The contractual right of a commodity broker, financial
participant, or forward contract merchant to cause the liquidation,
termination, or acceleration of a commodity contract, as defined in
section 761 of this title, or forward contract because of a
condition of the kind specified in section 365(e)(1) of this title,
and the right to a variation or maintenance margin payment received
from a trustee with respect to open commodity contracts or forward
contracts, shall not be stayed, avoided, or otherwise limited by
operation of any provision of this title or by the order of a court
in any proceeding under this title. As used in this section, the
term “contractual right” includes a right set forth in a rule or
bylaw of a derivatives clearing organization (as defined in the
Commodity Exchange Act), a multilateral clearing organization (as
defined in the Federal Deposit Insurance Corporation Improvement
Act of 1991), a national securities exchange, a national securities
association, a securities clearing agency, a contract market
designated under the Commodity Exchange Act, a derivatives
transaction execution facility registered under the Commodity
Exchange Act, or a board of trade (as defined in the Commodity
Exchange Act) or in a resolution of the governing board thereof and
a right, whether or not evidenced in writing, arising under common
law, under law merchant or by reason of normal business practice.

-SOURCE-
(Added Pub. L. 97-222, Sec. 6(a), July 27, 1982, 96 Stat. 236;
amended Pub. L. 101-311, title II, Sec. 205, June 25, 1990, 104
Stat. 270; Pub. L. 103-394, title V, Sec. 501(b)(7), Oct. 22, 1994,
108 Stat. 4143; Pub. L. 109-8, title IX, Secs. 907(h), (o)(8), Apr.
20, 2005, 119 Stat. 178, 182.)

-REFTEXT-
REFERENCES IN TEXT
The Commodity Exchange Act, referred to in text, 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.
For complete classification of this Act to the Code, see section 1
of Title 7 and Tables.
The Federal Deposit Insurance Corporation Improvement Act of
1991, referred to in text, is Pub. L. 102-242, Dec. 19, 1991, 105
Stat. 2236, as amended. For complete classification of this Act to
the Code, see Short Title of 1991 Amendment note set out under
section 1811 of Title 12, Banks and Banking, and Tables.

-MISC1-
AMENDMENTS
2005 – Pub. L. 109-8, Sec. 907(o)(8), inserted “, financial
participant,” after “commodity broker” in first sentence.
Pub. L. 109-8, Sec. 907(h), substituted “Contractual right to
liquidate, terminate, or accelerate a commodities contract or
forward contract” for “Contractual right to liquidate a commodities
contract or forward contract” in section catchline, “liquidation,
termination, or acceleration” for “liquidation” in first sentence,
and “As used in this section, the term ‘contractual right’ includes
a right set forth in a rule or bylaw of a derivatives clearing
organization (as defined in the Commodity Exchange Act), a
multilateral clearing organization (as defined in the Federal
Deposit Insurance Corporation Improvement Act of 1991), a national
securities exchange, a national securities association, a
securities clearing agency, a contract market designated under the
Commodity Exchange Act, a derivatives transaction execution
facility registered under the Commodity Exchange Act, or a board of
trade (as defined in the Commodity Exchange Act) or in a resolution
of the governing board thereof and a right,” for “As used in this
section, the term ‘contractual right’ includes a right set forth in
a rule or bylaw of a clearing organization or contract market or in
a resolution of the governing board thereof and a right,” in second
sentence.
1994 – Pub. L. 103-394 substituted “section 761 of this title”
for “section 761(4)”.
1990 – Pub. L. 101-311 inserted before period at end “and a
right, whether or not evidenced in writing, arising under common
law, under law merchant or by reason of normal business practice”.

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.

-End-

-CITE-
11 USC Sec. 557 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 557. Expedited determination of interests in, and abandonment
or other disposition of grain assets

-STATUTE-
(a) This section applies only in a case concerning a debtor that
owns or operates a grain storage facility and only with respect to
grain and the proceeds of grain. This section does not affect the
application of any other section of this title to property other
than grain and proceeds of grain.
(b) In this section –
(1) “grain” means wheat, corn, flaxseed, grain sorghum, barley,
oats, rye, soybeans, other dry edible beans, or rice;
(2) “grain storage facility” means a site or physical structure
regularly used to store grain for producers, or to store grain
acquired from producers for resale; and
(3) “producer” means an entity which engages in the growing of
grain.

(c)(1) Notwithstanding sections 362, 363, 365, and 554 of this
title, on the court’s own motion the court may, and on the request
of the trustee or an entity that claims an interest in grain or the
proceeds of grain the court shall, expedite the procedures for the
determination of interests in and the disposition of grain and the
proceeds of grain, by shortening to the greatest extent feasible
such time periods as are otherwise applicable for such procedures
and by establishing, by order, a timetable having a duration of not
to exceed 120 days for the completion of the applicable procedure
specified in subsection (d) of this section. Such time periods and
such timetable may be modified by the court, for cause, in
accordance with subsection (f) of this section.
(2) The court shall determine the extent to which such time
periods shall be shortened, based upon –
(A) any need of an entity claiming an interest in such grain or
the proceeds of grain for a prompt determination of such
interest;
(B) any need of such entity for a prompt disposition of such
grain;
(C) the market for such grain;
(D) the conditions under which such grain is stored;
(E) the costs of continued storage or disposition of such
grain;
(F) the orderly administration of the estate;
(G) the appropriate opportunity for an entity to assert an
interest in such grain; and
(H) such other considerations as are relevant to the need to
expedite such procedures in the case.

(d) The procedures that may be expedited under subsection (c) of
this section include –
(1) the filing of and response to –
(A) a claim of ownership;
(B) a proof of claim;
(C) a request for abandonment;
(D) a request for relief from the stay of action against
property under section 362(a) of this title;
(E) a request for determination of secured status;
(F) a request for determination of whether such grain or the
proceeds of grain –
(i) is property of the estate;
(ii) must be turned over to the estate; or
(iii) may be used, sold, or leased; and

(G) any other request for determination of an interest in
such grain or the proceeds of grain;

(2) the disposition of such grain or the proceeds of grain,
before or after determination of interests in such grain or the
proceeds of grain, by way of –
(A) sale of such grain;
(B) abandonment;
(C) distribution; or
(D) such other method as is equitable in the case;

(3) subject to sections 701, 702, 703, 1104, 1202, and 1302 of
this title, the appointment of a trustee or examiner and the
retention and compensation of any professional person required to
assist with respect to matters relevant to the determination of
interests in or disposition of such grain or the proceeds of
grain; and
(4) the determination of any dispute concerning a matter
specified in paragraph (1), (2), or (3) of this subsection.

(e)(1) Any governmental unit that has regulatory jurisdiction
over the operation or liquidation of the debtor or the debtor’s
business shall be given notice of any request made or order entered
under subsection (c) of this section.
(2) Any such governmental unit may raise, and may appear and be
heard on, any issue relating to grain or the proceeds of grain in a
case in which a request is made, or an order is entered, under
subsection (c) of this section.
(3) The trustee shall consult with such governmental unit before
taking any action relating to the disposition of grain in the
possession, custody, or control of the debtor or the estate.
(f) The court may extend the period for final disposition of
grain or the proceeds of grain under this section beyond 120 days
if the court finds that –
(1) the interests of justice so require in light of the
complexity of the case; and
(2) the interests of those claimants entitled to distribution
of grain or the proceeds of grain will not be materially injured
by such additional delay.

(g) Unless an order establishing an expedited procedure under
subsection (c) of this section, or determining any interest in or
approving any disposition of grain or the proceeds of grain, is
stayed pending appeal –
(1) the reversal or modification of such order on appeal does
not affect the validity of any procedure, determination, or
disposition that occurs before such reversal or modification,
whether or not any entity knew of the pendency of the appeal; and
(2) neither the court nor the trustee may delay, due to the
appeal of such order, any proceeding in the case in which such
order is issued.

(h)(1) The trustee may recover from grain and the proceeds of
grain the reasonable and necessary costs and expenses allowable
under section 503(b) of this title attributable to preserving or
disposing of grain or the proceeds of grain, but may not recover
from such grain or the proceeds of grain any other costs or
expenses.
(2) Notwithstanding section 326(a) of this title, the dollar
amounts of money specified in such section include the value, as of
the date of disposition, of any grain that the trustee distributes
in kind.
(i) In all cases where the quantity of a specific type of grain
held by a debtor operating a grain storage facility exceeds ten
thousand bushels, such grain shall be sold by the trustee and the
assets thereof distributed in accordance with the provisions of
this section.

-SOURCE-
(Added Pub. L. 98-353, title III, Sec. 352(a), July 10, 1984, 98
Stat. 359; amended Pub. L. 99-554, title II, Sec. 257(p), Oct. 27,
1986, 100 Stat. 3115.)

-MISC1-
AMENDMENTS
1986 – Subsec. (d)(3). Pub. L. 99-554 inserted reference to
section 1202 of this title.

EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-554 effective 30 days after Oct. 27,
1986, but not applicable to cases commenced under this title before
that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as
a note under section 581 of Title 28, Judiciary and Judicial
Procedure.

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

-End-

-CITE-
11 USC Sec. 558 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 558. Defenses of the estate

-STATUTE-
The estate shall have the benefit of any defense available to the
debtor as against any entity other than the estate, including
statutes of limitation, statutes of frauds, usury, and other
personal defenses. A waiver of any such defense by the debtor after
the commencement of the case does not bind the estate.

-SOURCE-
(Added Pub. L. 98-353, title III, Sec. 470(a), July 10, 1984, 98
Stat. 380.)

-MISC1-
EFFECTIVE DATE
Section effective with respect to cases filed 90 days after July
10, 1984, see section 552(a) of Pub. L. 98-353, set out as an
Effective Date of 1984 Amendment note under section 101 of this
title.

-End-

-CITE-
11 USC Sec. 559 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 559. Contractual right to liquidate, terminate, or accelerate
a repurchase agreement

-STATUTE-
The exercise of a contractual right of a repo participant or
financial participant to cause the liquidation, termination, or
acceleration of a repurchase agreement because of a condition of
the kind specified in section 365(e)(1) of this title shall not be
stayed, avoided, or otherwise limited by operation of any provision
of this title or by order of a court or administrative agency in
any proceeding under this title, unless, where the debtor is a
stockbroker or securities clearing agency, such order is authorized
under the provisions of the Securities Investor Protection Act of
1970 or any statute administered by the Securities and Exchange
Commission. In the event that a repo participant or financial
participant liquidates one or more repurchase agreements with a
debtor and under the terms of one or more such agreements has
agreed to deliver assets subject to repurchase agreements to the
debtor, any excess of the market prices received on liquidation of
such assets (or if any such assets are not disposed of on the date
of liquidation of such repurchase agreements, at the prices
available at the time of liquidation of such repurchase agreements
from a generally recognized source or the most recent closing bid
quotation from such a source) over the sum of the stated repurchase
prices and all expenses in connection with the liquidation of such
repurchase agreements shall be deemed property of the estate,
subject to the available rights of setoff. As used in this section,
the term “contractual right” includes a right set forth in a rule
or bylaw of a derivatives clearing organization (as defined in the
Commodity Exchange Act), a multilateral clearing organization (as
defined in the Federal Deposit Insurance Corporation Improvement
Act of 1991), a national securities exchange, a national securities
association, a securities clearing agency, a contract market
designated under the Commodity Exchange Act, a derivatives
transaction execution facility registered under the Commodity
Exchange Act, or a board of trade (as defined in the Commodity
Exchange Act) or in a resolution of the governing board thereof and
a right, whether or not evidenced in writing, arising under common
law, under law merchant or by reason of normal business practice.

-SOURCE-
(Added Pub. L. 98-353, title III, Sec. 396(a), July 10, 1984, 98
Stat. 366; amended Pub. L. 103-394, title V, Sec. 501(d)(21), Oct.
22, 1994, 108 Stat. 4146; Pub. L. 109-8, title IX, Sec. 907(i),
(o)(9), Apr. 20, 2005, 119 Stat. 178, 182.)

-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.
The Commodity Exchange Act, referred to in text, 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.
For complete classification of this Act to the Code, see section 1
of Title 7 and Tables.
The Federal Deposit Insurance Corporation Improvement Act of
1991, referred to in text, is Pub. L. 102-242, Dec. 19, 1991, 105
Stat. 2236, as amended. For complete classification of this Act to
the Code, see Short Title of 1991 Amendment note set out under
section 1811 of Title 12, Banks and Banking, and Tables.

-MISC1-
AMENDMENTS
2005 – Pub. L. 109-8, Sec. 907(o)(9), inserted “or financial
participant” after “repo participant” in two places.
Pub. L. 109-8, Sec. 907(i), substituted “Contractual right to
liquidate, terminate, or accelerate a repurchase agreement” for
“Contractual right to liquidate a repurchase agreement” in section
catchline, “liquidation, termination, or acceleration” for
“liquidation” in first sentence, and “As used in this section, the
term ‘contractual right’ includes a right set forth in a rule or
bylaw of a derivatives clearing organization (as defined in the
Commodity Exchange Act), a multilateral clearing organization (as
defined in the Federal Deposit Insurance Corporation Improvement
Act of 1991), a national securities exchange, a national securities
association, a securities clearing agency, a contract market
designated under the Commodity Exchange Act, a derivatives
transaction execution facility registered under the Commodity
Exchange Act, or a board of trade (as defined in the Commodity
Exchange Act) or in a resolution of the governing board thereof and
a right,” for “As used in this section, the term ‘contractual
right’ includes a right set forth in a rule or bylaw, applicable to
each party to the repurchase agreement, of a national securities
exchange, a national securities association, or a securities
clearing agency, and a right,” in third sentence.
1994 – Pub. L. 103-394 struck out “(15 U.S.C. 78aaa et seq.)”
after “Act of 1970″.

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
Section effective with respect to cases filed 90 days after July
10, 1984, see section 552(a) of Pub. L. 98-353, set out as an
Effective Date of 1984 Amendment note under section 101 of this
title.

-End-

-CITE-
11 USC Sec. 560 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 560. Contractual right to liquidate, terminate, or accelerate
a swap agreement

-STATUTE-
The exercise of any contractual right of any swap participant or
financial participant to cause the liquidation, termination, or
acceleration of one or more swap agreements because of a condition
of the kind specified in section 365(e)(1) of this title or to
offset or net out any termination values or payment amounts arising
under or in connection with the termination, liquidation, or
acceleration of one or more swap agreements shall not be stayed,
avoided, or otherwise limited by operation of any provision of this
title or by order of a court or administrative agency in any
proceeding under this title. As used in this section, the term
“contractual right” includes a right set forth in a rule or bylaw
of a derivatives clearing organization (as defined in the Commodity
Exchange Act), a multilateral clearing organization (as defined in
the Federal Deposit Insurance Corporation Improvement Act of 1991),
a national securities exchange, a national securities association,
a securities clearing agency, a contract market designated under
the Commodity Exchange Act, a derivatives transaction execution
facility registered under the Commodity Exchange Act, or a board of
trade (as defined in the Commodity Exchange Act) or in a resolution
of the governing board thereof and a right, whether or not
evidenced in writing, arising under common law, under law merchant,
or by reason of normal business practice.

-SOURCE-
(Added Pub. L. 101-311, title I, Sec. 106(a), June 25, 1990, 104
Stat. 268; amended Pub. L. 109-8, title IX, Sec. 907(j), (o)(10),
Apr. 20, 2005, 119 Stat. 178, 182.)

-REFTEXT-
REFERENCES IN TEXT
The Commodity Exchange Act, referred to in text, 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.
For complete classification of this Act to the Code, see section 1
of Title 7 and Tables.
The Federal Deposit Insurance Corporation Improvement Act of
1991, referred to in text, is Pub. L. 102-242, Dec. 19, 1991, 105
Stat. 2236, as amended. For complete classification of this Act to
the Code, see Short Title of 1991 Amendment note set out under
section 1811 of Title 12, Banks and Banking, and Tables.

-MISC1-
AMENDMENTS
2005 – Pub. L. 109-8, Sec. 907(o)(10), inserted “or financial
participant” after “swap participant” in first sentence.
Pub. L. 109-8, Sec. 907(j)(1), in section catchline, substituted
“Contractual right to liquidate, terminate, or accelerate a swap
agreement” for “Contractual right to terminate a swap agreement”,
in first sentence, substituted “liquidation, termination, or
acceleration of one or more swap agreements” for “termination of a
swap agreement” and “in connection with the termination,
liquidation, or acceleration of one or more swap agreements” for
“in connection with any swap agreement”, and in second sentence,
substituted “As used in this section, the term ‘contractual right’
includes a right set forth in a rule or bylaw of a derivatives
clearing organization (as defined in the Commodity Exchange Act), a
multilateral clearing organization (as defined in the Federal
Deposit Insurance Corporation Improvement Act of 1991), a national
securities exchange, a national securities association, a
securities clearing agency, a contract market designated under the
Commodity Exchange Act, a derivatives transaction execution
facility registered under the Commodity Exchange Act, or a board of
trade (as defined in the Commodity Exchange Act) or in a resolution
of the governing board thereof and a right,” for “As used in this
section, the term ‘contractual right’ includes a right,”.

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. 561 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 561. Contractual right to terminate, liquidate, accelerate, or
offset under a master netting agreement and across contracts;
proceedings under chapter 15

-STATUTE-
(a) Subject to subsection (b), the exercise of any contractual
right, because of a condition of the kind specified in section
365(e)(1), to cause the termination, liquidation, or acceleration
of or to offset or net termination values, payment amounts, or
other transfer obligations arising under or in connection with one
or more (or the termination, liquidation, or acceleration of one or
more) –
(1) securities contracts, as defined in section 741(7);
(2) commodity contracts, as defined in section 761(4);
(3) forward contracts;
(4) repurchase agreements;
(5) swap agreements; or
(6) master netting agreements,

shall not be stayed, avoided, or otherwise limited by operation of
any provision of this title or by any order of a court or
administrative agency in any proceeding under this title.
(b)(1) A party may exercise a contractual right described in
subsection (a) to terminate, liquidate, or accelerate only to the
extent that such party could exercise such a right under section
555, 556, 559, or 560 for each individual contract covered by the
master netting agreement in issue.
(2) If a debtor is a commodity broker subject to subchapter IV of
chapter 7 –
(A) a party may not net or offset an obligation to the debtor
arising under, or in connection with, a commodity contract traded
on or subject to the rules of a contract market designated under
the Commodity Exchange Act or a derivatives transaction execution
facility registered under the Commodity Exchange Act against any
claim arising under, or in connection with, other instruments,
contracts, or agreements listed in subsection (a) except to the
extent that the party has positive net equity in the commodity
accounts at the debtor, as calculated under such subchapter; and
(B) another commodity broker may not net or offset an
obligation to the debtor arising under, or in connection with, a
commodity contract entered into or held on behalf of a customer
of the debtor and traded on or subject to the rules of a contract
market designated under the Commodity Exchange Act or a
derivatives transaction execution facility registered under the
Commodity Exchange Act against any claim arising under, or in
connection with, other instruments, contracts, or agreements
listed in subsection (a).

(3) No provision of subparagraph (A) or (B) of paragraph (2)
shall prohibit the offset of claims and obligations that arise
under –
(A) a cross-margining agreement or similar arrangement that has
been approved by the Commodity Futures Trading Commission or
submitted to the Commodity Futures Trading Commission under
paragraph (1) or (2) of section 5c(c) of the Commodity Exchange
Act and has not been abrogated or rendered ineffective by the
Commodity Futures Trading Commission; or
(B) any other netting agreement between a clearing organization
(as defined in section 761) and another entity that has been
approved by the Commodity Futures Trading Commission.

(c) As used in this section, the term “contractual right”
includes a right set forth in a rule or bylaw of a derivatives
clearing organization (as defined in the Commodity Exchange Act), a
multilateral clearing organization (as defined in the Federal
Deposit Insurance Corporation Improvement Act of 1991), a national
securities exchange, a national securities association, a
securities clearing agency, a contract market designated under the
Commodity Exchange Act, a derivatives transaction execution
facility registered under the Commodity Exchange Act, or a board of
trade (as defined in the Commodity Exchange Act) or in a resolution
of the governing board thereof, and a right, whether or not
evidenced in writing, arising under common law, under law merchant,
or by reason of normal business practice.
(d) Any provisions of this title relating to securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements, or master netting agreements shall
apply in a case under chapter 15, so that enforcement of
contractual provisions of such contracts and agreements in
accordance with their terms will not be stayed or otherwise limited
by operation of any provision of this title or by order of a court
in any case under this title, and to limit avoidance powers to the
same extent as in a proceeding under chapter 7 or 11 of this title
(such enforcement not to be limited based on the presence or
absence of assets of the debtor in the United States).

-SOURCE-
(Added Pub. L. 109-8, title IX, Sec. 907(k)(1), Apr. 20, 2005, 119
Stat. 179.)

-REFTEXT-
REFERENCES IN TEXT
The Commodity Exchange Act, referred to in subsecs. (b)(2) and
(c), 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. Section 5c(c) of the Act is classified to
section 7a-2(c) of Title 7. For complete classification of this Act
to the Code, see section 1 of Title 7 and Tables.
The Federal Deposit Insurance Corporation Improvement Act of
1991, referred to in subsec. (c), is Pub. L. 102-242, Dec. 19,
1991, 105 Stat. 2236, as amended. For complete classification of
this Act to the Code, see Short Title of 1991 Amendment note set
out under section 1811 of Title 12, Banks and Banking, and Tables.

-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 Sec. 562 01/07/2011

-EXPCITE-
TITLE 11 – BANKRUPTCY
CHAPTER 5 – CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER III – THE ESTATE

-HEAD-
Sec. 562. Timing of damage measurement in connection with swap
agreements, securities contracts, forward contracts, commodity
contracts, repurchase agreements, and master netting agreements

-STATUTE-
(a) If the trustee rejects a swap agreement, securities contract
(as defined in section 741), forward contract, commodity contract
(as defined in section 761), repurchase agreement, or master
netting agreement pursuant to section 365(a), or if a forward
contract merchant, stockbroker, financial institution, securities
clearing agency, repo participant, financial participant, master
netting agreement participant, or swap participant liquidates,
terminates, or accelerates such contract or agreement, damages
shall be measured as of the earlier of –
(1) the date of such rejection; or
(2) the date or dates of such liquidation, termination, or
acceleration.

(b) If there are not any commercially reasonable determinants of
value as of any date referred to in paragraph (1) or (2) of
subsection (a), damages shall be measured as of the earliest
subsequent date or dates on which there are commercially reasonable
determinants of value.
(c) For the purposes of subsection (b), if damages are not
measured as of the date or dates of rejection, liquidation,
termination, or acceleration, and the forward contract merchant,
stockbroker, financial institution, securities clearing agency,
repo participant, financial participant, master netting agreement
participant, or swap participant or the trustee objects to the
timing of the measurement of damages –
(1) the trustee, in the case of an objection by a forward
contract merchant, stockbroker, financial institution, securities
clearing agency, repo participant, financial participant, master
netting agreement participant, or swap participant; or
(2) the forward contract merchant, stockbroker, financial
institution, securities clearing agency, repo participant,
financial participant, master netting agreement participant, or
swap participant, in the case of an objection by the trustee,

has the burden of proving that there were no commercially
reasonable determinants of value as of such date or dates.

-SOURCE-
(Added Pub. L. 109-8, title IX, Sec. 910(a)(1), Apr. 20, 2005, 119
Stat. 184.)

-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-

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