-CITE- 11 USC CHAPTER 7 - LIQUIDATION 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION -HEAD- CHAPTER 7 - LIQUIDATION -MISC1- SUBCHAPTER I - OFFICERS AND ADMINISTRATION Sec. 701. Interim trustee. 702. Election of trustee. 703. Successor trustee. 704. Duties of trustee. 705. Creditors' committee. 706. Conversion. 707. Dismissal of a case or conversion to a case under chapter 11 or 13. SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE 721. Authorization to operate business. 722. Redemption. 723. Rights of partnership trustee against general partners. 724. Treatment of certain liens. 725. Disposition of certain property. 726. Distribution of property of the estate. 727. Discharge. [728. Repealed.] SUBCHAPTER III - STOCKBROKER LIQUIDATION 741. Definitions for this subchapter. 742. Effect of section 362 of this title in this subchapter. 743. Notice. 744. Executory contracts. 745. Treatment of accounts. 746. Extent of customer claims. 747. Subordination of certain customer claims. 748. Reduction of securities to money. 749. Voidable transfers. 750. Distribution of securities. 751. Customer name securities. 752. Customer property. 753. Stockbroker liquidation and forward contract merchants, commodity brokers, stockbrokers, financial institutions, financial participants, securities clearing agencies, swap participants, repo participants, and master netting agreement participants. SUBCHAPTER IV - COMMODITY BROKER LIQUIDATION 761. Definitions for this subchapter. 762. Notice to the Commission and right to be heard. 763. Treatment of accounts. 764. Voidable transfers. 765. Customer instructions. 766. Treatment of customer property. 767. Commodity broker liquidation and forward contract merchants, commodity brokers, stockbrokers, financial institutions, financial participants, securities clearing agencies, swap participants, repo participants, and master netting agreement participants. SUBCHAPTER V - CLEARING BANK LIQUIDATION 781. Definitions. 782. Selection of trustee. 783. Additional powers of trustee. 784. Right to be heard. AMENDMENTS 2005 - Pub. L. 109-8, title I, Sec. 102(k), title VII, Sec. 719(b)(2), title IX, Sec. 907(p)(2), Apr. 20, 2005, 119 Stat. 35, 133, 182, added items 753 and 767, substituted "Dismissal of a case or conversion to a case under chapter 11 or 13" for "Dismissal" in item 707, and struck out item 728 "Special tax provisions". 2000 - Pub. L. 106-554, Sec. 1(a)(5) [title I, Sec. 112(d)], Dec. 21, 2000, 114 Stat. 2763, 2763A-396, added subchapter V heading and items 781 to 784. 1984 - Pub. L. 98-353, title III, Sec. 471, July 10, 1984, 98 Stat. 380, substituted "Successor" for "Succesor" in item 703. -End- -CITE- 11 USC SUBCHAPTER I - OFFICERS AND ADMINISTRATION 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER I - OFFICERS AND ADMINISTRATION -HEAD- SUBCHAPTER I - OFFICERS AND ADMINISTRATION -End- -CITE- 11 USC Sec. 701 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER I - OFFICERS AND ADMINISTRATION -HEAD- Sec. 701. Interim trustee -STATUTE- (a)(1) Promptly after the order for relief under this chapter, the United States trustee shall appoint one disinterested person that is a member of the panel of private trustees established under section 586(a)(1) of title 28 or that is serving as trustee in the case immediately before the order for relief under this chapter to serve as interim trustee in the case. (2) If none of the members of such panel is willing to serve as interim trustee in the case, then the United States trustee may serve as interim trustee in the case. (b) The service of an interim trustee under this section terminates when a trustee elected or designated under section 702 of this title to serve as trustee in the case qualifies under section 322 of this title. (c) An interim trustee serving under this section is a trustee in a case under this title. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2604; Pub. L. 99-554, title II, Sec. 215, Oct. 27, 1986, 100 Stat. 3100.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS The House amendment deletes section 701(d) of the Senate amendment. It is anticipated that the Rules of Bankruptcy Procedure will require the appointment of an interim trustee at the earliest practical moment in commodity broker bankruptcies, but no later than noon of the day after the date of the filing of the petition, due to the volatility of such cases. SENATE REPORT NO. 95-989 This section requires the court to appoint an interim trustee. The appointment must be made from the panel of private trustees established and maintained by the Director of the Administrative Office under proposed 28 U.S.C. 604(e). Subsection (a) requires the appointment of an interim trustee to be made promptly after the order for relief, unless a trustee is already serving in the case, such as before a conversion from a reorganization to a liquidation case. Subsection (b) specifies that the appointment of an interim trustee expires when the permanent trustee is elected or designated under section 702. Subsection (c) makes clear that an interim trustee is a trustee in a case under the bankruptcy code. Subsection (d) provides that in a commodity broker case where speed is essential the interim trustee must be appointed by noon of the business day immediately following the order for relief. AMENDMENTS 1986 - Subsec. (a). Pub. L. 99-554 designated existing provisions as par. (1), substituted "the United States trustee shall appoint" for "the court shall appoint", "586(a)(1)" for "604(f)", "that is serving" for "that was serving", and added par. (2). EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. -End- -CITE- 11 USC Sec. 702 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER I - OFFICERS AND ADMINISTRATION -HEAD- Sec. 702. Election of trustee -STATUTE- (a) A creditor may vote for a candidate for trustee only if such creditor - (1) holds an allowable, undisputed, fixed, liquidated, unsecured claim of a kind entitled to distribution under section 726(a)(2), 726(a)(3), 726(a)(4), 752(a), 766(h), or 766(i) of this title; (2) does not have an interest materially adverse, other than an equity interest that is not substantial in relation to such creditor's interest as a creditor, to the interest of creditors entitled to such distribution; and (3) is not an insider. (b) At the meeting of creditors held under section 341 of this title, creditors may elect one person to serve as trustee in the case if election of a trustee is requested by creditors that may vote under subsection (a) of this section, and that hold at least 20 percent in amount of the claims specified in subsection (a)(1) of this section that are held by creditors that may vote under subsection (a) of this section. (c) A candidate for trustee is elected trustee if - (1) creditors holding at least 20 percent in amount of the claims of a kind specified in subsection (a)(1) of this section that are held by creditors that may vote under subsection (a) of this section vote; and (2) such candidate receives the votes of creditors holding a majority in amount of claims specified in subsection (a)(1) of this section that are held by creditors that vote for a trustee. (d) If a trustee is not elected under this section, then the interim trustee shall serve as trustee in the case. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2604; Pub. L. 97-222, Sec. 7, July 27, 1982, 96 Stat. 237; Pub. L. 98-353, title III, Sec. 472, July 10, 1984, 98 Stat. 380.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS The House amendment adopts section 702(a)(2) of the Senate amendment. An insubstantial equity interest does not disqualify a creditor from voting for a candidate for trustee. SENATE REPORT NO. 95-989 Subsection (a) of this section specifies which creditors may vote for a trustee. Only a creditor that holds an allowable, undisputed, fixed, liquidated, unsecured claim that is not entitled to priority, that does not have an interest materially adverse to the interest of general unsecured creditors, and that is not an insider may vote for a trustee. The phrase "materially adverse" is currently used in the Rules of Bankruptcy Procedure, rule 207(d). The application of the standard requires a balancing of various factors, such as the nature of the adversity. A creditor with a very small equity position would not be excluded from voting solely because he holds a small equity in the debtor. The Rules of Bankruptcy Procedure also currently provide for temporary allowance of claims, and will continue to do so for the purposes of determining who is eligible to vote under this provision. Subsection (b) permits creditors at the meeting of creditors to elect one person to serve as trustee in the case. Creditors holding at least 20 percent in amount of the claims specified in the preceding paragraph must request election before creditors may elect a trustee. Subsection (c) specifies that a candidate for trustee is elected trustee if creditors holding at least 20 percent in amount of those claims actually vote, and if the candidate receives a majority in amount of votes actually cast. Subsection (d) specifies that if a trustee is not elected, then the interim trustee becomes the permanent trustee and serves in the case permanently. AMENDMENTS 1984 - Subsec. (b). Pub. L. 98-353, Sec. 472(a), inserted "held" after "meeting of creditors". Subsec. (c)(1). Pub. L. 98-353, Sec. 472(b)(1), inserted "of a kind" after "claims". Subsec. (c)(2). Pub. L. 98-353, Sec. 472(b)(2), substituted "for a trustee" for "for trustee". Subsec. (d). Pub. L. 98-353, Sec. 472(c), substituted "this section" for "subsection (c) of this section". 1982 - Subsec. (a)(1). Pub. L. 97-222 substituted "726(a)(4), 752(a), 766(h), or 766(i)" for "or 726(a)(4)". EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -End- -CITE- 11 USC Sec. 703 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER I - OFFICERS AND ADMINISTRATION -HEAD- Sec. 703. Successor trustee -STATUTE- (a) If a trustee dies or resigns during a case, fails to qualify under section 322 of this title, or is removed under section 324 of this title, creditors may elect, in the manner specified in section 702 of this title, a person to fill the vacancy in the office of trustee. (b) Pending election of a trustee under subsection (a) of this section, if necessary to preserve or prevent loss to the estate, the United States trustee may appoint an interim trustee in the manner specified in section 701(a). (c) If creditors do not elect a successor trustee under subsection (a) of this section or if a trustee is needed in a case reopened under section 350 of this title, then the United States trustee - (1) shall appoint one disinterested person that is a member of the panel of private trustees established under section 586(a)(1) of title 28 to serve as trustee in the case; or (2) may, if none of the disinterested members of such panel is willing to serve as trustee, serve as trustee in the case. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2605; Pub. L. 98-353, title III, Sec. 473, July 10, 1984, 98 Stat. 381; Pub. L. 99-554, title II, Sec. 216, Oct. 27, 1986, 100 Stat. 3100.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 If the office of trustee becomes vacant during the case, this section makes provision for the selection of a successor trustee. The office might become vacant through death, resignation, removal, failure to qualify under section 322 by posting bond, or the reopening of a case. If it does, creditors may elect a successor in the same manner as they may elect a trustee under the previous section. Pending the election of a successor, the court may appoint an interim trustee in the usual manner if necessary to preserve or prevent loss to the estate. If creditors do not elect a successor, or if a trustee is needed in a reopened case, then the court appoints a disinterested member of the panel of private trustees to serve. AMENDMENTS 1986 - Subsec. (b). Pub. L. 99-554 amended subsec. (b) generally, substituting "the United States trustee may appoint" for "the court may appoint" and "manner specified in section 701(a)" for "manner and subject to the provisions of section 701 of this title". Subsec. (c). Pub. L. 99-554 amended subsec. (c) generally, substituting "this section or" for "this section, or", "then the United States trustee" for "then the court", designating part of existing provisions as par. (1), and, as so designated, substituting "586(a)(1)" for "604(f)", "in the case; or" for "in the case.", and adding par. (2). 1984 - Subsec. (b). Pub. L. 98-353 substituted "and subject to the provisions of section 701 of this title" for "specified in section 701(a) of this title. Sections 701(b) and 701(c) of this title apply to such interim trustee". EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -End- -CITE- 11 USC Sec. 704 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER I - OFFICERS AND ADMINISTRATION -HEAD- Sec. 704. Duties of trustee -STATUTE- (a) The trustee shall - (1) collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest; (2) be accountable for all property received; (3) ensure that the debtor shall perform his intention as specified in section 521(2)(B) of this title; (4) investigate the financial affairs of the debtor; (5) if a purpose would be served, examine proofs of claims and object to the allowance of any claim that is improper; (6) if advisable, oppose the discharge of the debtor; (7) unless the court orders otherwise, furnish such information concerning the estate and the estate's administration as is requested by a party in interest; (8) if the business of the debtor is authorized to be operated, file with the court, with the United States trustee, and with any governmental unit charged with responsibility for collection or determination of any tax arising out of such operation, periodic reports and summaries of the operation of such business, including a statement of receipts and disbursements, and such other information as the United States trustee or the court requires; (9) make a final report and file a final account of the administration of the estate with the court and with the United States trustee; (10) if with respect to the debtor there is a claim for a domestic support obligation, provide the applicable notice specified in subsection (c); (11) if, at the time of the commencement of the case, the debtor (or any entity designated by the debtor) served as the administrator (as defined in section 3 of the Employee Retirement Income Security Act of 1974) of an employee benefit plan, continue to perform the obligations required of the administrator; and (12) use all reasonable and best efforts to transfer patients from a health care business that is in the process of being closed to an appropriate health care business that - (A) is in the vicinity of the health care business that is closing; (B) provides the patient with services that are substantially similar to those provided by the health care business that is in the process of being closed; and (C) maintains a reasonable quality of care. (b)(1) With respect to a debtor who is an individual in a case under this chapter - (A) the United States trustee (or the bankruptcy administrator, if any) shall review all materials filed by the debtor and, not later than 10 days after the date of the first meeting of creditors, file with the court a statement as to whether the debtor's case would be presumed to be an abuse under section 707(b); and (B) not later than 5 days after receiving a statement under subparagraph (A), the court shall provide a copy of the statement to all creditors. (2) The United States trustee (or bankruptcy administrator, if any) shall, not later than 30 days after the date of filing a statement under paragraph (1), either file a motion to dismiss or convert under section 707(b) or file a statement setting forth the reasons the United States trustee (or the bankruptcy administrator, if any) does not consider such a motion to be appropriate, if the United States trustee (or the bankruptcy administrator, if any) determines that the debtor's case should be presumed to be an abuse under section 707(b) and the product of the debtor's current monthly income, multiplied by 12 is not less than - (A) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner; or (B) in the case of a debtor in a household of 2 or more individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals. (c)(1) In a case described in subsection (a)(10) to which subsection (a)(10) applies, the trustee shall - (A)(i) provide written notice to the holder of the claim described in subsection (a)(10) of such claim and of the right of such holder to use the services of the State child support enforcement agency established under sections 464 and 466 of the Social Security Act for the State in which such holder resides, for assistance in collecting child support during and after the case under this title; (ii) include in the notice provided under clause (i) the address and telephone number of such State child support enforcement agency; and (iii) include in the notice provided under clause (i) an explanation of the rights of such holder to payment of such claim under this chapter; (B)(i) provide written notice to such State child support enforcement agency of such claim; and (ii) include in the notice provided under clause (i) the name, address, and telephone number of such holder; and (C) at such time as the debtor is granted a discharge under section 727, provide written notice to such holder and to such State child support enforcement agency of - (i) the granting of the discharge; (ii) the last recent known address of the debtor; (iii) the last recent known name and address of the debtor's employer; and (iv) the name of each creditor that holds a claim that - (I) is not discharged under paragraph (2), (4), or (14A) of section 523(a); or (II) was reaffirmed by the debtor under section 524(c). (2)(A) The holder of a claim described in subsection (a)(10) or the State child support enforcement agency of the State in which such holder resides may request from a creditor described in paragraph (1)(C)(iv) the last known address of the debtor. (B) Notwithstanding any other provision of law, a creditor that makes a disclosure of a last known address of a debtor in connection with a request made under subparagraph (A) shall not be liable by reason of making such disclosure. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2605; Pub. L. 98-353, title III, Secs. 311(a), 474, July 10, 1984, 98 Stat. 355, 381; Pub. L. 99-554, title II, Sec. 217, Oct. 27, 1986, 100 Stat. 3100; Pub. L. 109-8, title I, Sec. 102(c), title II, Sec. 219(a), title IV, Sec. 446(b), title XI, Sec. 1105(a), Apr. 20, 2005, 119 Stat. 32, 55, 118, 192.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 704(8) of the Senate amendment is deleted in the House amendment. Trustees should give constructive notice of the commencement of the case in the manner specified under section 549(c) of title 11. SENATE REPORT NO. 95-989 The essential duties of the trustee are enumerated in this section. Others, or elaborations on these, may be prescribed by the Rules of Bankruptcy Procedure to the extent not inconsistent with those prescribed by this section. The duties are derived from section 47a of the Bankruptcy Act [section 75(a) of former title 11]. The trustee's principal duty is to collect and reduce to money the property of the estate for which he serves, and to close up the estate as expeditiously as is compatible with the best interests of parties in interest. He must be accountable for all property received, and must investigate the financial affairs of the debtor. If a purpose would be served (such as if there are assets that will be distributed), the trustee is required to examine proofs of claims and object to the allowance of any claim that is improper. If advisable, the trustee must oppose the discharge of the debtor, which is for the benefit of general unsecured creditors whom the trustee represents. The trustee is responsible to furnish such information concerning the estate and its administration as is requested by a party in interest. If the business of the debtor is authorized to be operated, then the trustee is required to file with governmental units charged with the responsibility for collection or determination of any tax arising out of the operation of the business periodic reports and summaries of the operation, including a statement of receipts and disbursements, and such other information as the court requires. He is required to give constructive notice of the commencement of the case in the manner specified under section 342(b). -REFTEXT- REFERENCES IN TEXT Section 3 of the Employee Retirement Income Security Act of 1974, referred to in subsec. (a)(11), is classified to section 1002 of Title 29, Labor. Sections 464 and 466 of the Social Security Act, referred to in subsec. (c)(1)(A)(i), are classified to sections 664 and 666, respectively, of Title 42, The Public Health and Welfare. -MISC2- AMENDMENTS 2005 - Pub. L. 109-8, Sec. 102(c)(1), designated existing provisions as subsec. (a). Subsec. (a)(10). Pub. L. 109-8, Sec. 219(a)(1), added par. (10). Subsec. (a)(11). Pub. L. 109-8, Sec. 446(b), added par. (11). Subsec. (a)(12). Pub. L. 109-8, Sec. 1105(a), added par. (12). Subsec. (b). Pub. L. 109-8, Sec. 102(c)(2), added subsec. (b). Subsec. (c). Pub. L. 109-8, Sec. 219(a)(2), added subsec. (c). 1986 - Par. (8). Pub. L. 99-554, Sec. 217(1), inserted ", with the United States trustee," after "with the court" and "the United States trustee or" after "information as". Par. (9). Pub. L. 99-554, Sec. 217(2), inserted "with the United States trustee" after "court". 1984 - Par. (1). Pub. L. 98-353, Sec. 474, substituted "close such estate" for "close up such estate". Pars. (3) to (9). Pub. L. 98-353, Sec. 311(a), added par. (3) and redesignated former pars. (3) to (8) as (4) to (9), respectively. EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109-8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109-8, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -End- -CITE- 11 USC Sec. 705 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER I - OFFICERS AND ADMINISTRATION -HEAD- Sec. 705. Creditors' committee -STATUTE- (a) At the meeting under section 341(a) of this title, creditors that may vote for a trustee under section 702(a) of this title may elect a committee of not fewer than three, and not more than eleven, creditors, each of whom holds an allowable unsecured claim of a kind entitled to distribution under section 726(a)(2) of this title. (b) A committee elected under subsection (a) of this section may consult with the trustee or the United States trustee in connection with the administration of the estate, make recommendations to the trustee or the United States trustee respecting the performance of the trustee's duties, and submit to the court or the United States trustee any question affecting the administration of the estate. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2605; Pub. L. 99-554, title II, Sec. 218, Oct. 27, 1986, 100 Stat. 3100.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 705(a) of the House amendment adopts a provision contained in the Senate amendment that limits a committee of creditors to not more than 11; the House bill contained no maximum limitation. SENATE REPORT NO. 95-989 This section is derived from section 44b of the Bankruptcy Act [section 72(b) of former title 11] without substantial change. It permits election by general unsecured creditors of a committee of not fewer than 3 members and not more than 11 members to consult with the trustee in connection with the administration of the estate, to make recommendations to the trustee respecting the performance of his duties, and to submit to the court any question affecting the administration of the estate. There is no provision for compensation or reimbursement of its counsel. AMENDMENTS 1986 - Subsec. (b). Pub. L. 99-554 inserted "or the United States trustee" in three places. EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. -End- -CITE- 11 USC Sec. 706 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER I - OFFICERS AND ADMINISTRATION -HEAD- Sec. 706. Conversion -STATUTE- (a) The debtor may convert a case under this chapter to a case under chapter 11, 12, or 13 of this title at any time, if the case has not been converted under section 1112, 1208, or 1307 of this title. Any waiver of the right to convert a case under this subsection is unenforceable. (b) On request of a party in interest and after notice and a hearing, the court may convert a case under this chapter to a case under chapter 11 of this title at any time. (c) The court may not convert a case under this chapter to a case under chapter 12 or 13 of this title unless the debtor requests or consents to such conversion. (d) Notwithstanding any other provision of this section, a case may not be converted to a case under another chapter of this title unless the debtor may be a debtor under such chapter. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606; Pub. L. 99-554, title II, Sec. 257(q), Oct. 27, 1986, 100 Stat. 3115; Pub. L. 103-394, title V, Sec. 501(d)(22), Oct. 22, 1994, 108 Stat. 4146; Pub. L. 109-8, title I, Sec. 101, Apr. 20, 2005, 119 Stat. 27.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 706(a) of the House amendment adopts a provision contained in the Senate amendment indicating that a waiver of the right to convert a case under section 706(a) is unenforceable. The explicit reference in title 11 forbidding the waiver of certain rights is not intended to imply that other rights, such as the right to file a voluntary bankruptcy case under section 301, may be waived. Section 706 of the House amendment adopts a similar provision contained in H.R. 8200 as passed by the House. Competing proposals contained in section 706(c) and section 706(d) of the Senate amendment are rejected. SENATE REPORT NO. 95-989 Subsection (a) of this section gives the debtor the one-time absolute right of conversion of a liquidation case to a reorganization or individual repayment plan case. If the case has already once been converted from chapter 11 or 13 to chapter 7, then the debtor does not have that right. The policy of the provision is that the debtor should always be given the opportunity to repay his debts, and a waiver of the right to convert a case is unenforceable. Subsection (b) permits the court, on request of a party in interest and after notice and a hearing, to convert the case to chapter 11 at any time. The decision whether to convert is left in the sound discretion of the court, based on what will most inure to the benefit of all parties in interest. Subsection (c) is part of the prohibition against involuntary chapter 13 cases, and prohibits the court from converting a case to chapter 13 without the debtor's consent. Subsection (d) reinforces section 109 by prohibiting conversion to a chapter unless the debtor is eligible to be a debtor under that chapter. AMENDMENTS 2005 - Subsec. (c). Pub. L. 109-8 inserted "or consents to" after "requests". 1994 - Subsec. (a). Pub. L. 103-394 substituted "1208, or 1307" for "1307, or 1208". 1986 - Subsec. (a). Pub. L. 99-554, Sec. 257(q)(1), inserted references to chapter 12 and section 1208 of this title. Subsec. (c). Pub. L. 99-554, Sec. 257(q)(2), inserted reference to chapter 12. EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109-8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109-8, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1994 AMENDMENT Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. -End- -CITE- 11 USC Sec. 707 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER I - OFFICERS AND ADMINISTRATION -HEAD- Sec. 707. Dismissal of a case or conversion to a case under chapter 11 or 13 -STATUTE- (a) The court may dismiss a case under this chapter only after notice and a hearing and only for cause, including - (1) unreasonable delay by the debtor that is prejudicial to creditors; (2) nonpayment of any fees or charges required under chapter 123 of title 28; and (3) failure of the debtor in a voluntary case to file, within fifteen days or such additional time as the court may allow after the filing of the petition commencing such case, the information required by paragraph (1) of section 521, but only on a motion by the United States trustee. (b)(1) After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor's consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter. In making a determination whether to dismiss a case under this section, the court may not take into consideration whether a debtor has made, or continues to make, charitable contributions (that meet the definition of "charitable contribution" under section 548(d)(3)) to any qualified religious or charitable entity or organization (as that term is defined in section 548(d)(4)). (2)(A)(i) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter, the court shall presume abuse exists if the debtor's current monthly income reduced by the amounts determined under clauses (ii), (iii), and (iv), and multiplied by 60 is not less than the lesser of - (I) 25 percent of the debtor's nonpriority unsecured claims in the case, or $6,000, whichever is greater; or (II) $10,000. (ii)(I) The debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides, as in effect on the date of the order for relief, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent. Such expenses shall include reasonably necessary health insurance, disability insurance, and health savings account expenses for the debtor, the spouse of the debtor, or the dependents of the debtor. Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts. In addition, the debtor's monthly expenses shall include the debtor's reasonably necessary expenses incurred to maintain the safety of the debtor and the family of the debtor from family violence as identified under section 309 of the Family Violence Prevention and Services Act,(!1) or other applicable Federal law. The expenses included in the debtor's monthly expenses described in the preceding sentence shall be kept confidential by the court. In addition, if it is demonstrated that it is reasonable and necessary, the debtor's monthly expenses may also include an additional allowance for food and clothing of up to 5 percent of the food and clothing categories as specified by the National Standards issued by the Internal Revenue Service. (II) In addition, the debtor's monthly expenses may include, if applicable, the continuation of actual expenses paid by the debtor that are reasonable and necessary for care and support of an elderly, chronically ill, or disabled household member or member of the debtor's immediate family (including parents, grandparents, siblings, children, and grandchildren of the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case who is not a dependent) and who is unable to pay for such reasonable and necessary expenses. (III) In addition, for a debtor eligible for chapter 13, the debtor's monthly expenses may include the actual administrative expenses of administering a chapter 13 plan for the district in which the debtor resides, up to an amount of 10 percent of the projected plan payments, as determined under schedules issued by the Executive Office for United States Trustees. (IV) In addition, the debtor's monthly expenses may include the actual expenses for each dependent child less than 18 years of age, not to exceed $1,500 per year per child, to attend a private or public elementary or secondary school if the debtor provides documentation of such expenses and a detailed explanation of why such expenses are reasonable and necessary, and why such expenses are not already accounted for in the National Standards, Local Standards, or Other Necessary Expenses referred to in subclause (I). (V) In addition, the debtor's monthly expenses may include an allowance for housing and utilities, in excess of the allowance specified by the Local Standards for housing and utilities issued by the Internal Revenue Service, based on the actual expenses for home energy costs if the debtor provides documentation of such actual expenses and demonstrates that such actual expenses are reasonable and necessary. (iii) The debtor's average monthly payments on account of secured debts shall be calculated as the sum of - (I) the total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the petition; and (II) any additional payments to secured creditors necessary for the debtor, in filing a plan under chapter 13 of this title, to maintain possession of the debtor's primary residence, motor vehicle, or other property necessary for the support of the debtor and the debtor's dependents, that serves as collateral for secured debts; divided by 60. (iv) The debtor's expenses for payment of all priority claims (including priority child support and alimony claims) shall be calculated as the total amount of debts entitled to priority, divided by 60. (B)(i) In any proceeding brought under this subsection, the presumption of abuse may only be rebutted by demonstrating special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative. (ii) In order to establish special circumstances, the debtor shall be required to itemize each additional expense or adjustment of income and to provide - (I) documentation for such expense or adjustment to income; and (II) a detailed explanation of the special circumstances that make such expenses or adjustment to income necessary and reasonable. (iii) The debtor shall attest under oath to the accuracy of any information provided to demonstrate that additional expenses or adjustments to income are required. (iv) The presumption of abuse may only be rebutted if the additional expenses or adjustments to income referred to in clause (i) cause the product of the debtor's current monthly income reduced by the amounts determined under clauses (ii), (iii), and (iv) of subparagraph (A) when multiplied by 60 to be less than the lesser of - (I) 25 percent of the debtor's nonpriority unsecured claims, or $6,000, whichever is greater; or (II) $10,000. (C) As part of the schedule of current income and expenditures required under section 521, the debtor shall include a statement of the debtor's current monthly income, and the calculations that determine whether a presumption arises under subparagraph (A)(i), that show how each such amount is calculated. (D) Subparagraphs (A) through (C) shall not apply, and the court may not dismiss or convert a case based on any form of means testing, if the debtor is a disabled veteran (as defined in section 3741(1) of title 38), and the indebtedness occurred primarily during a period during which he or she was - (i) on active duty (as defined in section 101(d)(1) of title 10); or (ii) performing a homeland defense activity (as defined in section 901(1) of title 32). (3) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter in a case in which the presumption in subparagraph (A)(i) of such paragraph does not arise or is rebutted, the court shall consider - (A) whether the debtor filed the petition in bad faith; or (B) the totality of the circumstances (including whether the debtor seeks to reject a personal services contract and the financial need for such rejection as sought by the debtor) of the debtor's financial situation demonstrates abuse. (4)(A) The court, on its own initiative or on the motion of a party in interest, in accordance with the procedures described in rule 9011 of the Federal Rules of Bankruptcy Procedure, may order the attorney for the debtor to reimburse the trustee for all reasonable costs in prosecuting a motion filed under section 707(b), including reasonable attorneys' fees, if - (i) a trustee files a motion for dismissal or conversion under this subsection; and (ii) the court - (I) grants such motion; and (II) finds that the action of the attorney for the debtor in filing a case under this chapter violated rule 9011 of the Federal Rules of Bankruptcy Procedure. (B) If the court finds that the attorney for the debtor violated rule 9011 of the Federal Rules of Bankruptcy Procedure, the court, on its own initiative or on the motion of a party in interest, in accordance with such procedures, may order - (i) the assessment of an appropriate civil penalty against the attorney for the debtor; and (ii) the payment of such civil penalty to the trustee, the United States trustee (or the bankruptcy administrator, if any). (C) The signature of an attorney on a petition, pleading, or written motion shall constitute a certification that the attorney has - (i) performed a reasonable investigation into the circumstances that gave rise to the petition, pleading, or written motion; and (ii) determined that the petition, pleading, or written motion - (I) is well grounded in fact; and (II) is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law and does not constitute an abuse under paragraph (1). (D) The signature of an attorney on the petition shall constitute a certification that the attorney has no knowledge after an inquiry that the information in the schedules filed with such petition is incorrect. (5)(A) Except as provided in subparagraph (B) and subject to paragraph (6), the court, on its own initiative or on the motion of a party in interest, in accordance with the procedures described in rule 9011 of the Federal Rules of Bankruptcy Procedure, may award a debtor all reasonable costs (including reasonable attorneys' fees) in contesting a motion filed by a party in interest (other than a trustee or United States trustee (or bankruptcy administrator, if any)) under this subsection if - (i) the court does not grant the motion; and (ii) the court finds that - (I) the position of the party that filed the motion violated rule 9011 of the Federal Rules of Bankruptcy Procedure; or (II) the attorney (if any) who filed the motion did not comply with the requirements of clauses (i) and (ii) of paragraph (4)(C), and the motion was made solely for the purpose of coercing a debtor into waiving a right guaranteed to the debtor under this title. (B) A small business that has a claim of an aggregate amount less than $1,000 shall not be subject to subparagraph (A)(ii)(I). (C) For purposes of this paragraph - (i) the term "small business" means an unincorporated business, partnership, corporation, association, or organization that - (I) has fewer than 25 full-time employees as determined on the date on which the motion is filed; and (II) is engaged in commercial or business activity; and (ii) the number of employees of a wholly owned subsidiary of a corporation includes the employees of - (I) a parent corporation; and (II) any other subsidiary corporation of the parent corporation. (6) Only the judge or United States trustee (or bankruptcy administrator, if any) may file a motion under section 707(b), if the current monthly income of the debtor, or in a joint case, the debtor and the debtor's spouse, as of the date of the order for relief, when multiplied by 12, is equal to or less than - (A) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner; (B) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or (C) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $525 per month for each individual in excess of 4. (7)(A) No judge, United States trustee (or bankruptcy administrator, if any), trustee, or other party in interest may file a motion under paragraph (2) if the current monthly income of the debtor, including a veteran (as that term is defined in section 101 of title 38), and the debtor's spouse combined, as of the date of the order for relief when multiplied by 12, is equal to or less than - (i) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner; (ii) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or (iii) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $525 per month for each individual in excess of 4. (B) In a case that is not a joint case, current monthly income of the debtor's spouse shall not be considered for purposes of subparagraph (A) if - (i)(I) the debtor and the debtor's spouse are separated under applicable nonbankruptcy law; or (II) the debtor and the debtor's spouse are living separate and apart, other than for the purpose of evading subparagraph (A); and (ii) the debtor files a statement under penalty of perjury - (I) specifying that the debtor meets the requirement of subclause (I) or (II) of clause (i); and (II) disclosing the aggregate, or best estimate of the aggregate, amount of any cash or money payments received from the debtor's spouse attributed to the debtor's current monthly income. (c)(1) In this subsection - (A) the term "crime of violence" has the meaning given such term in section 16 of title 18; and (B) the term "drug trafficking crime" has the meaning given such term in section 924(c)(2) of title 18. (2) Except as provided in paragraph (3), after notice and a hearing, the court, on a motion by the victim of a crime of violence or a drug trafficking crime, may when it is in the best interest of the victim dismiss a voluntary case filed under this chapter by a debtor who is an individual if such individual was convicted of such crime. (3) The court may not dismiss a case under paragraph (2) if the debtor establishes by a preponderance of the evidence that the filing of a case under this chapter is necessary to satisfy a claim for a domestic support obligation. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606; Pub. L. 98-353, title III, Secs. 312, 475, July 10, 1984, 98 Stat. 355, 381; Pub. L. 99- 554, title II, Sec. 219, Oct. 27, 1986, 100 Stat. 3100; Pub. L. 105-183, Sec. 4(b), June 19, 1998, 112 Stat. 518; Pub. L. 109-8, title I, Sec. 102(a), (f), Apr. 20, 2005, 119 Stat. 27, 33.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 707 of the House amendment indicates that the court may dismiss a case only after notice and a hearing. SENATE REPORT NO. 95-989 This section authorizes the court to dismiss a liquidation case only for cause, such as unreasonable delay by the debtor that is prejudicial to creditors or nonpayment of any fees and charges required under chapter 123 [Sec. 1911 et seq.] of title 28. These causes are not exhaustive, but merely illustrative. The section does not contemplate, however, that the ability of the debtor to repay his debts in whole or in part constitutes adequate cause for dismissal. To permit dismissal on that ground would be to enact a non-uniform mandatory chapter 13, in lieu of the remedy of bankruptcy. -REFTEXT- REFERENCES IN TEXT Section 309 of the Family Violence Prevention and Services Act, referred to in subsec. (b)(2)(A)(ii)(I), was redesignated section 320 of the Act by Pub. L. 108-36, title IV, Sec. 415(5), June 25, 2003, 117 Stat. 830, and is classified to section 10421 of Title 42, The Public Health and Welfare. The Federal Rules of Bankruptcy Procedure, referred to in subsec. (b)(4)(A), (B), (5)(A), are set out in the Appendix to this title. -MISC2- AMENDMENTS 2005 - Pub. L. 109-8, Sec. 102(a)(1), substituted "Dismissal of a case or conversion to a case under chapter 11 or 13" for "Dismissal" in section catchline. Subsec. (b). Pub. L. 109-8, Sec. 102(a)(2), designated existing provisions as par. (1), substituted "trustee (or bankruptcy administrator, if any), or" for "but not at the request or suggestion of" and "an abuse" for "a substantial abuse", inserted ", or, with the debtor's consent, convert such a case to a case under chapter 11 or 13 of this title," after "consumer debts", struck out "There shall be a presumption in favor of granting the relief requested by the debtor." before "In making", and added pars. (2) to (7). Subsec. (c). Pub. L. 109-8, Sec. 102(f), added subsec. (c). 1998 - Subsec. (b). Pub. L. 105-183 inserted at end "In making a determination whether to dismiss a case under this section, the court may not take into consideration whether a debtor has made, or continues to make, charitable contributions (that meet the definition of 'charitable contribution' under section 548(d)(3)) to any qualified religious or charitable entity or organization (as that term is defined in section 548(d)(4))." 1986 - Subsec. (a)(3). Pub. L. 99-554, Sec. 219(a), added par. (3). Subsec. (b). Pub. L. 99-554, Sec. 219(b), substituted "motion or on a motion by the United States trustee, but" for "motion and". 1984 - Pub. L. 98-353 designated existing provisions as subsec. (a) and in pars. (1) and (2) substituted "or" for "and", and added subsec. (b). EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109-8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109-8, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1998 AMENDMENT Amendment by Pub. L. 105-183 applicable to any case brought under an applicable provision of this title that is pending or commenced on or after June 19, 1998, see section 5 of Pub. L. 105-183, set out as a note under section 544 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. SCHEDULES OF REASONABLE AND NECESSARY EXPENSES Pub. L. 109-8, title I, Sec. 107, Apr. 20, 2005, 119 Stat. 42, provided that: "For purposes of section 707(b) of title 11, United States Code, as amended by this Act, the Director of the Executive Office for United States Trustees shall, not later than 180 days after the date of enactment of this Act [Apr. 20, 2005], issue schedules of reasonable and necessary administrative expenses of administering a chapter 13 plan for each judicial district of the United States." ADJUSTMENT OF DOLLAR AMOUNTS For adjustment of dollar amounts specified in subsec. (b)(2)(A)(i), (ii)(IV), (5)(B), (6)(C), (7)(A) of this section by the Judicial Conference of the United States, see note set out under section 104 of this title. RULES PROMULGATED BY SUPREME COURT United States Supreme Court to prescribe general rules implementing the practice and procedure to be followed under subsec. (b) of this section, with section 2075 of Title 28, Judiciary and Judicial Procedure, to apply with respect to such general rules, see section 320 of Pub. L. 98-353, set out as a note under section 2075 of Title 28. -FOOTNOTE- (!1) See References in Text note below. -End- -CITE- 11 USC SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE -HEAD- SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE -End- -CITE- 11 USC Sec. 721 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE -HEAD- Sec. 721. Authorization to operate business -STATUTE- The court may authorize the trustee to operate the business of the debtor for a limited period, if such operation is in the best interest of the estate and consistent with the orderly liquidation of the estate. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 This section is derived from section 2a(5) of the Bankruptcy Act [section 11(a)(5) of former title 11]. It permits the court to authorize the operation of any business of the debtor for a limited period, if the operation is in the best interest of the estate and consistent with orderly liquidation of the estate. An example is the operation of a watch company to convert watch movements and cases into completed watches which will bring much higher prices than the component parts would have brought. -End- -CITE- 11 USC Sec. 722 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE -HEAD- Sec. 722. Redemption -STATUTE- An individual debtor may, whether or not the debtor has waived the right to redeem under this section, redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if such property is exempted under section 522 of this title or has been abandoned under section 554 of this title, by paying the holder of such lien the amount of the allowed secured claim of such holder that is secured by such lien in full at the time of redemption. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606; Pub. L. 109-8, title III, Sec. 304(2), Apr. 20, 2005, 119 Stat. 79.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 722 of the House amendment adopts the position taken in H.R. 8200 as passed by the House and rejects the alternative contained in section 722 of the Senate amendment. SENATE REPORT NO. 95-989 This section is new and is broader than rights of redemption under the Uniform Commercial Code. It authorizes an individual debtor to redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a nonpurchase money dischargeable consumer debt. It applies only if the debtor's interest in the property is exempt or has been abandoned. This right to redeem is a very substantial change from current law. To prevent abuses such as may occur when the debtor deliberately allows the property to depreciate in value, the debtor will be required to pay the fair market value of the goods or the amount of the claim if the claim is less. The right is personal to the debtor and not assignable. HOUSE REPORT NO. 95-595 This section is new and is broader than rights of redemption under the Uniform Commercial Code. It authorizes an individual debtor to redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt. It applies only if the debtor's interest in the property is exempt or has been abandoned. The right to redeem extends to the whole of the property, not just the debtor's exempt interest in it. Thus, for example, if a debtor owned a $2,000 car, subject to a $1,200 lien, the debtor could exempt his $800 interest in the car. The debtor is permitted a $1,500 exemption in a car, proposed 11 U.S.C. 522(d)(2). This section permits him to pay the holder of the lien $1,200 and redeem the entire car, not just the remaining $700 of his exemption. The redemption is accomplished by paying the holder of the lien the amount of the allowed claim secured by the lien. The provision amounts to a right of first refusal for the debtor in consumer goods that might otherwise be repossessed. The right of redemption under this section is not waivable. AMENDMENTS 2005 - Pub. L. 109-8 inserted "in full at the time of redemption" before period at end. EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109-8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109-8, set out as a note under section 101 of this title. -End- -CITE- 11 USC Sec. 723 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE -HEAD- Sec. 723. Rights of partnership trustee against general partners -STATUTE- (a) If there is a deficiency of property of the estate to pay in full all claims which are allowed in a case under this chapter concerning a partnership and with respect to which a general partner of the partnership is personally liable, the trustee shall have a claim against such general partner to the extent that under applicable nonbankruptcy law such general partner is personally liable for such deficiency. (b) To the extent practicable, the trustee shall first seek recovery of such deficiency from any general partner in such partnership that is not a debtor in a case under this title. Pending determination of such deficiency, the court may order any such partner to provide the estate with indemnity for, or assurance of payment of, any deficiency recoverable from such partner, or not to dispose of property. (c) Notwithstanding section 728(c) (!1) of this title, the trustee has a claim against the estate of each general partner in such partnership that is a debtor in a case under this title for the full amount of all claims of creditors allowed in the case concerning such partnership. Notwithstanding section 502 of this title, there shall not be allowed in such partner's case a claim against such partner on which both such partner and such partnership are liable, except to any extent that such claim is secured only by property of such partner and not by property of such partnership. The claim of the trustee under this subsection is entitled to distribution in such partner's case under section 726(a) of this title the same as any other claim of a kind specified in such section. (d) If the aggregate that the trustee recovers from the estates of general partners under subsection (c) of this section is greater than any deficiency not recovered under subsection (b) of this section, the court, after notice and a hearing, shall determine an equitable distribution of the surplus so recovered, and the trustee shall distribute such surplus to the estates of the general partners in such partnership according to such determination. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2606; Pub. L. 98-353, title III, Sec. 476, July 10, 1984, 98 Stat. 381; Pub. L. 103-394, title II, Sec. 212, Oct. 22, 1994, 108 Stat. 4125.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 723(c) of the House amendment is a compromise between similar provisions contained in the House bill and Senate amendment. The section makes clear that the trustee of a partnership has a claim against each general partner for the full amount of all claims of creditors allowed in the case concerning the partnership. By restricting the trustee's rights to claims of "creditors," the trustee of the partnership will not have a claim against the general partners for administrative expenses or claims allowed in the case concerning the partnership. As under present law, sections of the Bankruptcy Act [former title 11] applying to codebtors and sureties apply to the relationship of a partner with respect to a partnership debtor. See sections 501(b), 502(e), 506(d)(2), 509, 524(d), and 1301 of title 11. SENATE REPORT NO. 95-989 This section is a significant departure from present law. It repeals the jingle rule, which, for ease of administration, denied partnership creditors their rights against general partners by permitting general partners' individual creditors to share in their estates first to the exclusion of partnership creditors. The result under this section more closely tracks generally applicable partnership law, without a significant administrative burden. Subsection (a) specifies that each general partner in a partnership debtor is liable to the partnership's trustee for any deficiency of partnership property to pay in full all administrative expenses and all claims against the partnership. Subsection (b) requires the trustee to seek recovery of the deficiency from any general partner that is not a debtor in a bankruptcy case. The court is empowered to order that partner to indemnify the estate or not to dispose of property pending a determination of the deficiency. The language of the subsection is directed to cases under the bankruptcy code. However, if, during the early stages of the transition period, a partner in a partnership is proceeding under the Bankruptcy Act [former title 11] while the partnership is proceeding under the bankruptcy code, the trustee should not first seek recovery against the Bankruptcy Act partner. Rather, the Bankruptcy Act partner should be deemed for the purposes of this section and the rights of the trustee to be proceeding under title 11. Subsection (c) requires the partnership trustee to seek recovery of the full amount of the deficiency from the estate of each general partner that is a debtor in a bankruptcy case. The trustee will share equally with the partners' individual creditors in the assets of the partners' estates. Claims of partnership creditors who may have filed against the partner will be disallowed to avoid double counting. Subsection (d) provides for the case where the total recovery from all of the bankrupt general partners is greater than the deficiency of which the trustee sought recovery. This case would most likely occur for a partnership with a large number of general partners. If the situation arises, the court is required to determine an equitable redistribution of the surplus to the estate of the general partners. The determination will be based on factors such as the relative liability of each of the general partners under the partnership agreement and the relative rights of each of the general partners in the profits of the enterprise under the partnership agreement. -REFTEXT- REFERENCES IN TEXT Section 728(c) of this title, referred to in subsec. (c), was repealed by Pub. L. 109-8, title VII, Sec. 719(b)(1), Apr. 20, 2005, 119 Stat. 133. -MISC2- AMENDMENTS 1994 - Subsec. (a). Pub. L. 103-394 substituted "to the extent that under applicable nonbankruptcy law such general partner is personally liable for such deficiency" for "for the full amount of the deficiency". 1984 - Subsec. (a). Pub. L. 98-353, Sec. 476, substituted provisions that the trustee shall have a claim for the full amount of the deficiency against a general partner who is personally liable with respect to claims concerning partnerships which are allowed in a case under this chapter, for provisions that each general partner in the partnership would be liable to the trustee for the full amount of such deficiency. Subsec. (c). Pub. L. 98-353, Sec. 476(b), substituted "such partner's case" for "such case" in two places, "by property of such partnership" for "be property of such partnership", and "a kind specified in such section" for "the kind specified in such section". EFFECTIVE DATE OF 1994 AMENDMENT Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -FOOTNOTE- (!1) See References in Text note below. -End- -CITE- 11 USC Sec. 724 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE -HEAD- Sec. 724. Treatment of certain liens -STATUTE- (a) The trustee may avoid a lien that secures a claim of a kind specified in section 726(a)(4) of this title. (b) Property in which the estate has an interest and that is subject to a lien that is not avoidable under this title (other than to the extent that there is a properly perfected unavoidable tax lien arising in connection with an ad valorem tax on real or personal property of the estate) and that secures an allowed claim for a tax, or proceeds of such property, shall be distributed - (1) first, to any holder of an allowed claim secured by a lien on such property that is not avoidable under this title and that is senior to such tax lien; (2) second, to any holder of a claim of a kind specified in section 507(a)(1) (except that such expenses, other than claims for wages, salaries, or commissions that arise after the date of the filing of the petition, shall be limited to expenses incurred under chapter 7 of this title and shall not include expenses incurred under chapter 11 of this title), 507(a)(2), 507(a)(3), 507(a)(4), 507(a)(5), 507(a)(6), or 507(a)(7) of this title, to the extent of the amount of such allowed tax claim that is secured by such tax lien; (3) third, to the holder of such tax lien, to any extent that such holder's allowed tax claim that is secured by such tax lien exceeds any amount distributed under paragraph (2) of this subsection; (4) fourth, to any holder of an allowed claim secured by a lien on such property that is not avoidable under this title and that is junior to such tax lien; (5) fifth, to the holder of such tax lien, to the extent that such holder's allowed claim secured by such tax lien is not paid under paragraph (3) of this subsection; and (6) sixth, to the estate. (c) If more than one holder of a claim is entitled to distribution under a particular paragraph of subsection (b) of this section, distribution to such holders under such paragraph shall be in the same order as distribution to such holders would have been other than under this section. (d) A statutory lien the priority of which is determined in the same manner as the priority of a tax lien under section 6323 of the Internal Revenue Code of 1986 shall be treated under subsection (b) of this section the same as if such lien were a tax lien. (e) Before subordinating a tax lien on real or personal property of the estate, the trustee shall - (1) exhaust the unencumbered assets of the estate; and (2) in a manner consistent with section 506(c), recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving or disposing of such property. (f) Notwithstanding the exclusion of ad valorem tax liens under this section and subject to the requirements of subsection (e), the following may be paid from property of the estate which secures a tax lien, or the proceeds of such property: (1) Claims for wages, salaries, and commissions that are entitled to priority under section 507(a)(4). (2) Claims for contributions to an employee benefit plan entitled to priority under section 507(a)(5). -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2607; Pub. L. 98-353, title III, Sec. 477, July 10, 1984, 98 Stat. 381; Pub. L. 99-554, title II, Sec. 283(r), Oct. 27, 1986, 100 Stat. 3118; Pub. L. 103-394, title III, Sec. 304(h)(4), title V, Sec. 501(d)(23), Oct. 22, 1994, 108 Stat. 4134, 4146; Pub. L. 109-8, title VII, Sec. 701(a), Apr. 20, 2005, 119 Stat. 124.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 724 of the House amendment adopts the provision taken in the House bill and rejects the provision taken in the Senate amendment. In effect, a tax claim secured by a lien is treated as a claim between the fifth and sixth priority in a case under chapter 7 rather than as a secured claim. Treatment of certain liens: The House amendment modifies present law by requiring the subordination of tax liens on both real and personal property to the payment of claims having a priority. This means that assets are to be distributed from the debtor's estate to pay higher priority claims before the tax claims are paid, even though the tax claims are properly secured. Under present law and the Senate amendment only tax liens on personal property, but not on real property, are subordinated to the payment of claims having a priority above the priority for tax claims. SENATE REPORT NO. 95-989 Subsection (a) of section 724 permits the trustee to avoid a lien that secures a fine, penalty, forfeiture, or multiple, punitive, or exemplary damages claim to the extent that the claim is not compensation for actual pecuniary loss. The subsection follows the policy found in section 57j of the Bankruptcy Act [section 93(j) of former title 11] of protecting unsecured creditors from the debtor's wrongdoing, but expands the protection afforded. The lien is made voidable rather than void in chapter 7, in order to permit the lien to be revived if the case is converted to chapter 11 under which penalty liens are not voidable. To make the lien void would be to permit the filing of a chapter 7, the voiding of the lien, and the conversion to a chapter 11, simply to avoid a penalty lien, which should be valid in a reorganization case. Subsection (b) governs tax liens. This provision retains the rule of present bankruptcy law (Sec. 67(C)(3) of the Bankruptcy Act [section 107(c)(3) of former title 11]) that a tax lien on personal property, if not avoidable by the trustee, is subordinated in payment to unsecured claims having a higher priority than unsecured tax claims. Those other claims may be satisfied from the amount that would otherwise have been applied to the tax lien, and any excess of the amount of the lien is then applied to the tax. Any personal property (or sale proceeds) remaining is to be used to satisfy claims secured by liens which are junior to the tax lien. Any proceeds remaining are next applied to pay any unpaid balance of the tax lien. Subsection (d) specifies that any statutory lien whose priority is determined in the same manner as a tax lien is to be treated as a tax lien under this section, even if the lien does not secure a claim for taxes. An example is the ERISA [29 U.S.C. 1001 et seq.] lien. HOUSE REPORT NO. 95-595 Subsection (b) governs tax liens. It is derived from section 67c(3) of the Bankruptcy Act [section 107(c)(3) of former title 11], without substantial modification in result. It subordinates tax liens to administrative expense and wage claims, and solves certain circuity of liens problems that arise in connection with the subordination. The order of distribution of property subject to a tax lien is as follows: First, to holders of liens senior to the tax lien; second, to administrative expenses, wage claims, and consumer creditors that are granted priority, but only to the extent of the amount of the allowed tax claim secured by the lien. In other words, the priority claimants step into the shoes of the tax collector. Third, to the tax claimant, to the extent that priority claimants did not use up his entire claim. Fourth, to junior lien holders. Fifth, to the tax collector to the extent that he was not paid under paragraph (3). Finally, any remaining property goes to the estate. The result of these provisions are to leave senior and junior lienors and holders of unsecured claims undisturbed. If there are any liens that are equal in status to the tax lien, they share pari passu with the tax lien under the distribution provisions of this subsection. -REFTEXT- REFERENCES IN TEXT Section 6323 of the Internal Revenue Code of 1986, referred to in subsec. (d), is classified to section 6323 of Title 26, Internal Revenue Code. -MISC2- AMENDMENTS 2005 - Subsec. (b). Pub. L. 109-8, Sec. 701(a)(1), inserted "(other than to the extent that there is a properly perfected unavoidable tax lien arising in connection with an ad valorem tax on real or personal property of the estate)" after "under this title" in introductory provisions. Subsec. (b)(2). Pub. L. 109-8, Sec. 701(a)(2), inserted "(except that such expenses, other than claims for wages, salaries, or commissions that arise after the date of the filing of the petition, shall be limited to expenses incurred under chapter 7 of this title and shall not include expenses incurred under chapter 11 of this title)" after "section 507(a)(1)". Subsecs. (e), (f). Pub. L. 109-8, Sec. 701(a)(3), added subsecs. (e) and (f). 1994 - Subsec. (b)(2). Pub. L. 103-394, Sec. 304(h)(4), substituted "507(a)(6), or 507(a)(7)" for "or 507(a)(6)". Subsec. (d). Pub. L. 103-394, Sec. 501(d)(23), substituted "Internal Revenue Code of 1986" for "Internal Revenue Code of 1954 (26 U.S.C. 6323)". 1986 - Subsec. (b)(2). Pub. L. 99-554 inserted reference to section 507(a)(6) of this title. 1984 - Subsec. (b). Pub. L. 98-353, Sec. 477(a)(1), substituted "a tax" for "taxes" in provisions preceding par. (1). Subsec. (b)(2). Pub. L. 98-353, Sec. 477(a)(2), substituted "any holder of a claim of a kind specified" for "claims specified", "section 507(a)(1)" for "sections 507(a)(1)", and "or 507(a)(5) of this title" for "and 507(a)(5) of this title". Subsec. (b)(3). Pub. L. 98-353, Sec. 477(a)(3), substituted "allowed tax claim" for "allowed claim". Subsec. (c). Pub. L. 98-353, Sec. 477(b), substituted "holder of a claim is entitled" for "creditor is entitled" and "holders" for "creditors" in two places. Subsec. (d). Pub. L. 98-353, Sec. 477(c), substituted "the priority of which" for "whose priority" and "the same as if such lien were a tax lien" for "the same as a tax lien". EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109-8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109-8, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1994 AMENDMENT Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -End- -CITE- 11 USC Sec. 725 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE -HEAD- Sec. 725. Disposition of certain property -STATUTE- After the commencement of a case under this chapter, but before final distribution of property of the estate under section 726 of this title, the trustee, after notice and a hearing, shall dispose of any property in which an entity other than the estate has an interest, such as a lien, and that has not been disposed of under another section of this title. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2607; Pub. L. 98-353, title III, Sec. 478, July 10, 1984, 98 Stat. 381.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 725 of the House amendment adopts the substance contained in both the House bill and Senate amendment but transfers an administrative function to the trustee in accordance with the general thrust of this legislation to separate the administrative and the judicial functions where appropriate. SENATE REPORT NO. 95-989 This section requires the court to determine the appropriate disposition of property in which the estate and an entity other than the estate have an interest. It would apply, for example, to property subject to a lien or property co-owned by the estate and another entity. The court must make the determination with respect to property that is not disposed of under another section of the bankruptcy code, such as by abandonment under section 554, by sale or distribution under 363, or by allowing foreclosure by a secured creditor by lifting the stay under section 362. The purpose of the section is to give the court appropriate authority to ensure that collateral or its proceeds is returned to the proper secured creditor, that consigned or bailed goods are returned to the consignor or bailor and so on. Current law is curiously silent on this point, though case law has grown to fill the void. The section is in lieu of a section that would direct a certain distribution to secured creditors. It gives the court greater flexibility to meet the circumstances, and it is broader, permitting disposition of property subject to a co-ownership interest. AMENDMENTS 1984 - Pub. L. 98-353 substituted "distribution of property of the estate" for "distribution". EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -End- -CITE- 11 USC Sec. 726 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE -HEAD- Sec. 726. Distribution of property of the estate -STATUTE- (a) Except as provided in section 510 of this title, property of the estate shall be distributed - (1) first, in payment of claims of the kind specified in, and in the order specified in, section 507 of this title, proof of which is timely filed under section 501 of this title or tardily filed on or before the earlier of - (A) the date that is 10 days after the mailing to creditors of the summary of the trustee's final report; or (B) the date on which the trustee commences final distribution under this section; (2) second, in payment of any allowed unsecured claim, other than a claim of a kind specified in paragraph (1), (3), or (4) of this subsection, proof of which is - (A) timely filed under section 501(a) of this title; (B) timely filed under section 501(b) or 501(c) of this title; or (C) tardily filed under section 501(a) of this title, if - (i) the creditor that holds such claim did not have notice or actual knowledge of the case in time for timely filing of a proof of such claim under section 501(a) of this title; and (ii) proof of such claim is filed in time to permit payment of such claim; (3) third, in payment of any allowed unsecured claim proof of which is tardily filed under section 501(a) of this title, other than a claim of the kind specified in paragraph (2)(C) of this subsection; (4) fourth, in payment of any allowed claim, whether secured or unsecured, for any fine, penalty, or forfeiture, or for multiple, exemplary, or punitive damages, arising before the earlier of the order for relief or the appointment of a trustee, to the extent that such fine, penalty, forfeiture, or damages are not compensation for actual pecuniary loss suffered by the holder of such claim; (5) fifth, in payment of interest at the legal rate from the date of the filing of the petition, on any claim paid under paragraph (1), (2), (3), or (4) of this subsection; and (6) sixth, to the debtor. (b) Payment on claims of a kind specified in paragraph (1), (2), (3), (4), (5), (6), (7), or (8) of section 507(a) of this title, or in paragraph (2), (3), (4), or (5) of subsection (a) of this section, shall be made pro rata among claims of the kind specified in each such particular paragraph, except that in a case that has been converted to this chapter under section 1112, 1208, or 1307 of this title, a claim allowed under section 503(b) of this title incurred under this chapter after such conversion has priority over a claim allowed under section 503(b) of this title incurred under any other chapter of this title or under this chapter before such conversion and over any expenses of a custodian superseded under section 543 of this title. (c) Notwithstanding subsections (a) and (b) of this section, if there is property of the kind specified in section 541(a)(2) of this title, or proceeds of such property, in the estate, such property or proceeds shall be segregated from other property of the estate, and such property or proceeds and other property of the estate shall be distributed as follows: (1) Claims allowed under section 503 of this title shall be paid either from property of the kind specified in section 541(a)(2) of this title, or from other property of the estate, as the interest of justice requires. (2) Allowed claims, other than claims allowed under section 503 of this title, shall be paid in the order specified in subsection (a) of this section, and, with respect to claims of a kind specified in a particular paragraph of section 507 of this title or subsection (a) of this section, in the following order and manner: (A) First, community claims against the debtor or the debtor's spouse shall be paid from property of the kind specified in section 541(a)(2) of this title, except to the extent that such property is solely liable for debts of the debtor. (B) Second, to the extent that community claims against the debtor are not paid under subparagraph (A) of this paragraph, such community claims shall be paid from property of the kind specified in section 541(a)(2) of this title that is solely liable for debts of the debtor. (C) Third, to the extent that all claims against the debtor including community claims against the debtor are not paid under subparagraph (A) or (B) of this paragraph such claims shall be paid from property of the estate other than property of the kind specified in section 541(a)(2) of this title. (D) Fourth, to the extent that community claims against the debtor or the debtor's spouse are not paid under subparagraph (A), (B), or (C) of this paragraph, such claims shall be paid from all remaining property of the estate. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2608; Pub. L. 98-353, title III, Sec. 479, July 10, 1984, 98 Stat. 381; Pub. L. 99-554, title II, Secs. 257(r), 283(s), Oct. 27, 1986, 100 Stat. 3115, 3118; Pub. L. 103-394, title II, Sec. 213(b), title III, Sec. 304(h)(5), title V, Sec. 501(d)(24), Oct. 22, 1994, 108 Stat. 4126, 4134, 4146; Pub. L. 109-8, title VII, Sec. 713, title XII, Sec. 1215, Apr. 20, 2005, 119 Stat. 128, 195.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 726(a)(4) adopts a provision contained in the Senate amendment subordinating prepetition penalties and penalties arising in the involuntary gap period to the extent the penalties are not compensation for actual pecuniary laws. The House amendment deletes a provision following section 726(a)(6) of the Senate amendment providing that the term "claim" includes interest due owed before the date of the filing of the petition as unnecessary since a right to payment for interest due is a right to payment which is within the definition of "claim" in section 101(4) of the House amendment. SENATE REPORT NO. 95-989 This section is the general distribution section for liquidation cases. It dictates the order in which distribution of property of the estate, which has usually been reduced to money by the trustee under the requirements of section 704(1). First, property is distributed among priority claimants, as determined by section 507, and in the order prescribed by section 507. Second, distribution is to general unsecured creditors. This class excludes priority creditors and the two classes of subordinated creditors specified below. The provision is written to permit distribution to creditors that tardily file claims if their tardiness was due to lack of notice or knowledge of the case. Though it is in the interest of the estate to encourage timely filing, when tardy filing is not the result of a failure to act by the creditor, the normal subordination penalty should not apply. Third distribution is to general unsecured creditors who tardily file. Fourth distribution is to holders of fine, penalty, forfeiture, or multiple, punitive, or exemplary damage claims. More of these claims are disallowed entirely under present law. They are simply subordinated here. Paragraph (4) provides that punitive penalties, including prepetition tax penalties, are subordinated to the payment of all other classes of claims, except claims for interest accruing during the case. In effect, these penalties are payable out of the estate's assets only if and to the extent that a surplus of assets would otherwise remain at the close of the case for distribution back to the debtor. Paragraph (5) provides that postpetition interest on prepetition claims is also to be paid to the creditor in a subordinated position. Like prepetition penalties, such interest will be paid from the estate only if and to the extent that a surplus of assets would otherwise remain for return to the debtor at the close of the case. This section also specifies that interest accrued on all claims (including priority and nonpriority tax claims) which accrued before the date of the filing of the title 11 petition is to be paid in the same order of distribution of the estate's assets as the principal amount of the related claims. Any surplus is paid to the debtor under paragraph (6). Subsection (b) follows current law. It specifies that claims within a particular class are to be paid pro rata. This provision will apply, of course, only when there are inadequate funds to pay the holders of claims of a particular class in full. The exception found in the section, which also follows current law, specifies that liquidation administrative expenses are to be paid ahead of reorganization administrative expenses if the case has been converted from a reorganization case to a liquidation case, or from an individual repayment plan case to a liquidation case. Subsection (c) governs distributions in cases in which there is community property and other property of the estate. The section requires the two kinds of property to be segregated. The distribution is as follows: First, administrative expenses are to be paid, as the court determines on any reasonable equitable basis, from both kinds of property. The court will divide administrative expenses according to such factors as the amount of each kind of property in the estate, the cost of preservation and liquidation of each kind of property, and whether any particular administrative expenses are attributable to one kind of property or the other. Second, claims are to be paid as provided under subsection (a) (the normal liquidation case distribution rules) in the following order and manner: First, community claims against the debtor or the debtor's spouse are paid from community property, except such as is liable solely for the debts of the debtor. Second, community claims against the debtor, to the extent not paid under the first provision, are paid from community property that is solely liable for the debts of the debtor. Third, community claims, to the extent they remain unpaid, and all other claims against the debtor, are paid from noncommunity property. Fourth, if any community claims against the debtor or the debtor's spouse remain unpaid, they are paid from whatever property remains in the estate. This would occur if community claims against the debtor's spouse are large in amount and most of the estate's property is property solely liable, under nonbankruptcy law, for debts of the debtor. The marshalling rules in this section apply only to property of the estate. However, they will provide a guide to the courts in the interpretation of proposed 11 U.S.C. 725, relating to distribution of collateral, in cases in which there is community property. If a secured creditor has a lien on both community and noncommunity property, the marshalling rules here - by analogy would dictate that the creditor be satisfied first out of community property, and then out of separate property. AMENDMENTS 2005 - Subsec. (a)(1). Pub. L. 109-8, Sec. 713, substituted "on or before the earlier of - " and subpars. (A) and (B) for "before the date on which the trustee commences distribution under this section;". Subsec. (b). Pub. L. 109-8, Sec. 1215, struck out "1009," before "1112". 1994 - Subsec. (a)(1). Pub. L. 103-394, Sec. 213(b), inserted before semicolon at end ", proof of which is timely filed under section 501 of this title or tardily filed before the date on which the trustee commences distribution under this section". Subsec. (b). Pub. L. 103-394, Secs. 304(h)(5), 501(d)(24), substituted ", (7), or (8)" for "or (7)" and "chapter under section 1009, 1112," for "chapter under section 1112". 1986 - Subsec. (b). Pub. L. 99-554, Sec. 283(s), inserted reference to par. (7) of section 507(a) of this title. Pub. L. 99-554, Sec. 257(r), inserted reference to section 1208 of this title. 1984 - Subsec. (b). Pub. L. 98-353, Sec. 479(a), substituted "each such particular paragraph" for "a particular paragraph", "a claim allowed under section 503(b) of this title" for "administrative expenses" in two places, and "has priority over" for "have priority over". Subsec. (c)(1). Pub. L. 98-353, Sec. 479(b)(1), substituted "Claims allowed under section 503 of this title" for "Administrative expenses". Subsec. (c)(2). Pub. L. 98-353, Sec. 479(b)(2), substituted "Allowed claims, other than claims allowed under section 503 of this title," for "Claims other than for administrative expenses". EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109-8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109-8, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1994 AMENDMENT Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by section 283 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -End- -CITE- 11 USC Sec. 727 01/03/2007 -EXPCITE- TITLE 11 - BANKRUPTCY CHAPTER 7 - LIQUIDATION SUBCHAPTER II - COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE -HEAD- Sec. 727. Discharge -STATUTE- (a) The court shall grant the debtor a discharge, unless - (1) the debtor is not an individual; (2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed - (A) property of the debtor, within one year before the date of the filing of the petition; or (B) property of the estate, after the date of the filing of the petition; (3) the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case; (4) the debtor knowingly and fraudulently, in or in connection with the case - (A) made a false oath or account; (B) presented or used a false claim; (C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act; or (D) withheld from an officer of the estate entitled to possession under this title, any recorded information, including books, documents, records, and papers, relating to the debtor's property or financial affairs; (5) the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor's liabilities; (6) the debtor has refused, in the case - (A) to obey any lawful order of the court, other than an order to respond to a material question or to testify; (B) on the ground of privilege against self-incrimination, to respond to a material question approved by the court or to testify, after the debtor has been granted immunity with respect to the matter concerning which such privilege was invoked; or (C) on a ground other than the properly invoked privilege against self-incrimination, to respond to a material question approved by the court or to testify; (7) the debtor has committed any act specified in paragraph (2), (3), (4), (5), or (6) of this subsection, on or within one year before the date of the filing of the petition, or during the case, in connection with another case, under this title or under the Bankruptcy Act, concerning an insider; (8) the debtor has been granted a discharge under this section, under section 1141 of this title, or under section 14, 371, or 476 of the Bankruptcy Act, in a case commenced within 8 years before the date of the filing of the petition; (9) the debtor has been granted a discharge under section 1228 or 1328 of this title, or under section 660 or 661 of the Bankruptcy Act, in a case commenced within six years before the date of the filing of the petition, unless payments under the plan in such case totaled at least - (A) 100 percent of the allowed unsecured claims in such case; or (B)(i) 70 percent of such claims; and (ii) the plan was proposed by the debtor in good faith, and was the debtor's best effort; (10) the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter; (11) after filing the petition, the debtor failed to complete an instructional course concerning personal financial management described in section 111, except that this paragraph shall not apply with respect to a debtor who is a person described in section 109(h)(4) or who resides in a district for which the United States trustee (or the bankruptcy administrator, if any) determines that the approved instructional courses are not adequate to service the additional individuals who would otherwise be required to complete such instructional courses under this section (The United States trustee (or the bankruptcy administrator, if any) who makes a determination described in this paragraph shall review such determination not later than 1 year after the date of such determination, and not less frequently than annually thereafter.); or (12) the court after notice and a hearing held not more than 10 days before the date of the entry of the order granting the discharge finds that there is reasonable cause to believe that - (A) section 522(q)(1) may be applicable to the debtor; and (B) there is pending any proceeding in which the debtor may be found guilty of a felony of the kind described in section 522(q)(1)(A) or liable for a debt of the kind described in section 522(q)(1)(B). (b) Except as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter, and any liability on a claim that is determined under section 502 of this title as if such claim had arisen before the commencement of the case, whether or not a proof of claim based on any such debt or liability is filed under section 501 of this title, and whether or not a claim based on any such debt or liability is allowed under section 502 of this title. (c)(1) The trustee, a creditor, or the United States trustee may object to the granting of a discharge under subsection (a) of this section. (2) On request of a party in interest, the court may order the trustee to examine the acts and conduct of the debtor to determine whether a ground exists for denial of discharge. (d) On request of the trustee, a creditor, or the United States trustee, and after notice and a hearing, the court shall revoke a discharge granted under subsection (a) of this section if - (1) such discharge was obtained through the fraud of the debtor, and the requesting party did not know of such fraud until after the granting of such discharge; (2) the debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to such property, or to deliver or surrender such property to the trustee; (3) the debtor committed an act specified in subsection (a)(6) of this section; or (4) the debtor has failed to explain satisfactorily - (A) a material misstatement in an audit referred to in section 586(f) of title 28; or (B) a failure to make available for inspection all necessary accounts, papers, documents, financial records, files, and all other papers, things, or property belonging to the debtor that are requested for an audit referred to in section 586(f) of title 28. (e) The trustee, a creditor, or the United States trustee may request a revocation of a discharge - (1) under subsection (d)(1) of this section within one year after such discharge is granted; or (2) under subsection (d)(2) or (d)(3) of this section before the later of - (A) one year after the granting of such discharge; and (B) the date the case is closed. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2609; Pub. L. 98-353, title III, Sec. 480, July 10, 1984, 98 Stat. 382; Pub. L. 99-554, title II, Secs. 220, 257(s), Oct. 27, 1986, 100 Stat. 3101, 3116; Pub. L. 109-8, title I, Sec. 106(b), title III, Secs. 312(1), 330(a), title VI, Sec. 603(d), Apr. 20, 2005, 119 Stat. 38, 86, 101, 123.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Sections 727(a) (8) and (9) of the House amendment represent a compromise between provisions contained in section 727(a)(8) of the House bill and Senate amendment. Section 727(a)(8) of the House amendment adopts section 727(a)(8) of the House bill. However, section 727(a)(9) of the House amendment contains a compromise based on section 727(a)(8) of the Senate amendment with respect to the circumstances under which a plan by way of composition under Chapter XIII of the Bankruptcy Act [chapter 13 of former title 11] should be a bar to discharge in a subsequent proceeding under title 11. The paragraph provides that a discharge under section 660 or 661 of the Bankruptcy Act [section 1060 or 1061 of former title 11] or section 1328 of title 11 in a case commenced within 6 years before the date of the filing of the petition in a subsequent case, operates as a bar to discharge unless, first, payments under the plan totaled at least 100 percent of the allowed unsecured claims in the case; or second, payments under the plan totaled at least 70 percent of the allowed unsecured claims in the case and the plan was proposed by the debtor in good faith and was the debtor's best effort. It is expected that the Rules of Bankruptcy Procedure will contain a provision permitting the debtor to request a determination of whether a plan is the debtor's "best effort" prior to confirmation of a plan in a case under chapter 13 of title 11. In determining whether a plan is the debtor's "best effort" the court will evaluate several factors. Different facts and circumstances in cases under chapter 13 operate to make any rule of thumb of limited usefulness. The court should balance the debtor's assets, including family income, health insurance, retirement benefits, and other wealth, a sum which is generally determinable, against the foreseeable necessary living expenses of the debtor and the debtor's dependents, which unfortunately is rarely quantifiable. In determining the expenses of the debtor and the debtor's dependents, the court should consider the stability of the debtor's employment, if any, the age of the debtor, the number of the debtor's dependents and their ages, the condition of equipment and tools necessary to the debtor's employment or to the operation of his business, and other foreseeable expenses that the debtor will be required to pay during the period of the plan, other than payments to be made to creditors under the plan. Section 727(a)(10) of the House amendment clarifies a provision contained in section 727(a)(9) of the House bill and Senate amendment indicating that a discharge may be barred if the court approves a waiver of discharge executed in writing by the debtor after the order for relief under chapter 7. Section 727(b) of the House amendment adopts a similar provision contained in the Senate amendment modifying the effect of discharge. The provision makes clear that the debtor is discharged from all debts that arose before the date of the order for relief under chapter 7 in addition to any debt which is determined under section 502 as if it were a prepetition claim. Thus, if a case is converted from chapter 11 or chapter 13 to a case under chapter 7, all debts prior to the time of conversion are discharged, in addition to debts determined after the date of conversion of a kind specified in section 502, that are to be determined as prepetition claims. This modification is particularly important with respect to an individual debtor who files a petition under chapter 11 or chapter 13 of title 11 if the case is converted to chapter 7. The logical result of the House amendment is to equate the result that obtains whether the case is converted from another chapter to chapter 7, or whether the other chapter proceeding is dismissed and a new case is commenced by filing a petition under chapter 7. SENATE REPORT NO. 95-989 This section is the heart of the fresh start provisions of the bankruptcy law. Subsection (a) requires the court to grant a debtor a discharge unless one of nine conditions is met. The first condition is that the debtor is not an individual. This is a change from present law, under which corporations and partnerships may be discharged in liquidation cases, though they rarely are. The change in policy will avoid trafficking in corporate shells and in bankrupt partnerships. "Individual" includes a deceased individual, so that if the debtor dies during the bankruptcy case, he will nevertheless be released from his debts, and his estate will not be liable for them. Creditors will be entitled to only one satisfaction - from the bankruptcy estate and not from the probate estate. The next three grounds for denial of discharge center on the debtor's wrongdoing in or in connection with the bankruptcy case. They are derived from Bankruptcy Act Sec. 14c [section 32(c) of former title 11]. If the debtor, with intent to hinder, delay, or defraud his creditors or an officer of the estate, has transferred, removed, destroyed, mutilated, or concealed, or has permitted any such action with respect to, property of the debtor within the year preceding the case, or property of the estate after the commencement of the case, then the debtor is denied discharge. The debtor is also denied discharge if he has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any books and records from which his financial condition might be ascertained, unless the act or failure to act was justified under all the circumstances of the case. The fourth ground for denial of discharge is the commission of a bankruptcy crime, although the standard of proof is preponderance of the evidence rather than proof beyond a reasonable doubt. These crimes include the making of a false oath or account, the use or presentation of a false claim, the giving or receiving of money for acting or forbearing to act, and the withholding from an officer of the estate entitled to possession of books and records relating to the debtor's financial affairs. The fifth ground for denial of discharge is the failure of the debtor to explain satisfactorily any loss of assets or deficiency of assets to meet the debtor's liabilities. The sixth ground concerns refusal to testify. It is a change from present law, under which the debtor may be denied discharge for legitimately exercising his right against self-incrimination. Under this provision, the debtor may be denied discharge if he refuses to obey any lawful order of the court, or if he refuses to testify after having been granted immunity or after improperly invoking the constitutional privilege against self-incrimination. The seventh ground for denial of discharge is the commission of an act specified in grounds two through six during the year before the debtor's case in connection with another bankruptcy case concerning an insider. The eighth ground for denial of discharge is derived from Sec. 14c(5) of the Bankruptcy Act [section 32(c)(5) of former title 11]. If the debtor has been granted a discharge in a case commenced within 6 years preceding the present bankruptcy case, he is denied discharge. This provision, which is no change from current law with respect to straight bankruptcy, is the 6-year bar to discharge. Discharge under chapter 11 will bar a discharge for 6 years. As under current law, confirmation of a composition wage earner plan under chapter 13 is a basis for invoking the 6-year bar. The ninth ground is approval by the court of a waiver of discharge. Subsection (b) specifies that the discharge granted under this section discharges the debtor from all debts that arose before the date of the order for relief. It is irrelevant whether or not a proof of claim was filed with respect to the debt, and whether or not the claim based on the debt was allowed. Subsection (c) permits the trustee, or a creditor, to object to discharge. It also permits the court, on request of a party in interest, to order the trustee to examine the acts and conduct of the debtor to determine whether a ground for denial of discharge exists. Subsection (d) requires the court to revoke a discharge already granted in certain circumstances. If the debtor obtained the discharge through fraud, if he acquired and concealed property of the estate, or if he refused to obey a court order or to testify, the discharge is to be revoked. Subsection (e) permits the trustee or a creditor to request revocation of a discharge within 1 year after the discharge is granted, on the grounds of fraud, and within one year of discharge or the date of the closing of the case, whichever is later, on other grounds. -REFTEXT- REFERENCES IN TEXT The Bankruptcy Act, referred to in subsec. (a)(7), is act July 1, 1898, ch. 541, 30 Stat. 544, as amended, which was classified generally to former Title 11. Sections 14, 371, and 476 of the Bankruptcy Act, referred to in subsec. (a)(8), are section 14 of act July 1, 1898, ch. 541, 30 Stat. 550, section 371 of act July 1, 1898, ch. 541, as added June 22, 1938, ch. 575, Sec. 1, 52 Stat. 912, and section 476 of act July 1, 1898, ch. 541, as added June 22, 1938, ch. 575, Sec. 1, 52 Stat. 924, which were classified to sections 32, 771, and 876 of former Title 11. Sections 660 and 661 of the Bankruptcy Act, referred to in subsec. (a)(9), are sections 660 and 661 of act July 1, 1898, ch. 541, as added June 22, 1938, ch. 575, Sec. 1, 52 Stat. 935, 936, which were classified to sections 1060 and 1061 of former Title 11. -MISC2- AMENDMENTS 2005 - Subsec. (a)(8). Pub. L. 109-8, Sec. 312(1), substituted "8 years" for "six years". Subsec. (a)(11). Pub. L. 109-8, Sec. 106(b), added par. (11). Subsec. (a)(12). Pub. L. 109-8, Sec. 330(a), added par. (12). Subsec. (d)(4). Pub. L. 109-8, Sec. 603(d), added par. (4). 1986 - Subsec. (a)(9). Pub. L. 99-554, Sec. 257(s), inserted reference to section 1228 of this title. Subsec. (c). Pub. L. 99-554, Sec. 220, amended subsec. (c) generally, substituting "The trustee, a creditor, or the United States trustee may object" for "The trustee or a creditor may object" in par. (1). Subsec. (d). Pub. L. 99-554, Sec. 220, amended subsec. (d) generally, substituting ", a creditor, or the United States trustee," for "or a creditor," in provisions preceding par. (1) and "acquisition of or entitlement to such property" for "acquisition of, or entitlement to, such property" in par. (2). Subsec. (e). Pub. L. 99-554, Sec. 220, amended subsec. (e) generally, substituting "The trustee, a creditor, or the United States trustee may" for "The trustee or a creditor may" in provisions preceding par. (1), "section within" for "section, within" and "discharge is granted" for "discharge was granted" in par. (1), "section before" for "section, before" in provisions of par. (2) preceding subpar. (A), and "discharge; and" for "discharge; or" in par. (2)(A). 1984 - Subsec. (a)(6)(C). Pub. L. 98-353, Sec. 480(a)(1), substituted "properly" for "property". Subsec. (a)(7). Pub. L. 98-353, Sec. 480(a)(2), inserted ", under this title or under the Bankruptcy Act," after "another case". Subsec. (a)(8). Pub. L. 98-353, Sec. 480(a)(3), substituted "371," for "371". Subsec. (c)(1). Pub. L. 98-353, Sec. 480(b), substituted "to the granting of a discharge" for "to discharge". Subsec. (e)(2)(A). Pub. L. 98-353, Sec. 480(c), substituted "or" for "and". EFFECTIVE DATE OF 2005 AMENDMENT Amendment by section 603(d) of Pub. L. 109-8 effective 18 months after Apr. 20, 2005, see section 603(e) of Pub. L. 109-8, set out as a note under section 521 of this title. Amendments by sections 106(b), 312(1), and 330(a) of Pub. L. 109- 8 effective 180 days after Apr. 20, 2005, with amendments by sections 106(b) and 312(1) of Pub. L. 109-8 not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, and amendment by section 330(a) of Pub. L. 109-8 applicable with respect to cases commenced under this title on or after Apr. 20, 2005, see section 1501 of Pub. L. 109-8, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure