Notes on 11 U.S.C. § 109 : US Code - Notes

Search Notes on 11 U.S.C. § 109 : US Code - Notes

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2557; Pub. L. 97-320, title
VII, Sec. 703(d), Oct. 15, 1982, 96 Stat. 1539; Pub. L. 98-353,
title III, Secs. 301, 425, July 10, 1984, 98 Stat. 352, 369; Pub.
L. 99-554, title II, Sec. 253, Oct. 27, 1986, 100 Stat. 3105; Pub.
L. 100-597, Sec. 2, Nov. 3, 1988, 102 Stat. 3028; Pub. L. 103-394,
title I, Sec. 108(a), title II, Sec. 220, title IV, Sec. 402, title
V, Sec. 501(d)(2), Oct. 22, 1994, 108 Stat. 4111, 4129, 4141, 4143;
Pub. L. 106-554, Sec. 1(a)(5) [title I, Sec. 112(c)(1), (2)], Sec.
1(a)(8) [Sec. 1(e)], Dec. 21, 2000, 114 Stat. 2763, 2763A-393,
2763A-665; Pub. L. 109-8, title I, Sec. 106(a), title VIII, Sec.
802(d)(1), title X, Sec. 1007(b), title XII, Sec. 1204(1), Apr. 20,
2005, 119 Stat. 37, 146, 188, 193.)
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 109(b) of the House amendment adopts a provision
contained in H.R. 8200 as passed by the House. Railroad
liquidations will occur under chapter 11, not chapter 7.
Section 109(c) contains a provision which tracks the Senate
amendment as to when a municipality may be a debtor under chapter
11 of title 11. As under the Bankruptcy Act [former title 11],
State law authorization and prepetition negotiation efforts are
required.
Section 109(e) represents a compromise between H.R. 8200 as
passed by the House and the Senate amendment relating to the dollar
amounts restricting eligibility to be a debtor under chapter 13 of
title 11. The House amendment adheres to the limit of $100,000
placed on unsecured debts in H.R. 8200 as passed by the House. It
adopts a midpoint of $350,000 as a limit on secured claims, a
compromise between the level of $500,000 in H.R. 8200 as passed by
the House and $200,000 as contained in the Senate amendment.
SENATE REPORT NO. 95-989
This section specifies eligibility to be a debtor under the
bankruptcy laws. The first criterion, found in the current
Bankruptcy Act section 2a(1) [section 11(a)(1) of former title 11]
requires that the debtor reside or have a domicile, a place of
business, or property in the United States.
Subsection (b) defines eligibility for liquidation under chapter
7. All persons are eligible except insurance companies, and certain
banking institutions. These exclusions are contained in current
law. However, the banking institution exception is expanded in
light of changes in various banking laws since the current law was
last amended on this point. A change is also made to clarify that
the bankruptcy laws cover foreign banks and insurance companies not
engaged in the banking or insurance business in the United States
but having assets in the United States. Banking institutions and
insurance companies engaged in business in this country are
excluded from liquidation under the bankruptcy laws because they
are bodies for which alternate provision is made for their
liquidation under various State or Federal regulatory laws.
Conversely, when a foreign bank or insurance company is not engaged
in the banking or insurance business in the United States, then
those regulatory laws do not apply, and the bankruptcy laws are the
only ones available for administration of any assets found in
United States.
The first clause of subsection (b) provides that a railroad is
not a debtor except where the requirements of section 1174 are met.
Subsection (c) [enacted as (d)] provides that only a person who
may be a debtor under chapter 7 and a railroad may also be a debtor
under chapter 11, but a stockbroker or commodity broker is eligible
for relief only under chapter 7. Subsection (d) [enacted as (e)]
establishes dollar limitations on the amount of indebtedness that
an individual with regular income can incur and yet file under
chapter 13.
HOUSE REPORT NO. 95-595
Subsection (c) defines eligibility for chapter 9. Only a
municipality that is unable to pay its debts as they mature, and
that is not prohibited by State law from proceeding under chapter
9, is permitted to be a chapter 9 debtor. The subsection is derived
from Bankruptcy Act Sec. 84 [section 404 of former title 11], with
two changes. First, section 84 requires that the municipality be
"generally authorized to file a petition under this chapter by the
legislature, or by a governmental officer or organization empowered
by State law to authorize the filing of a petition." The "generally
authorized" language is unclear, and has generated a problem for a
Colorado Metropolitan District that attempted to use chapter IX
[chapter 9 of former title 11] in 1976. The "not prohibited"
language provides flexibility for both the States and the
municipalities involved, while protecting State sovereignty as
required by Ashton v. Cameron County Water District No. 1, 298 U.S.
513 (1936) [56 S.Ct. 892, 80 L.Ed. 1309, 31 Am.Bankr.Rep.N.S. 96,
rehearing denied 57 S.Ct. 5, 299 U.S. 619, 81 L.Ed. 457] and Bekins
v. United States, 304 U.S. 27 (1938) [58 S.Ct. 811, 82 L.Ed. 1137,
36 Am.Bankr.Rep.N.S. 187, rehearing denied 58 S.Ct. 1043, 1044, 304
U.S. 589, 82 L.Ed. 1549].
The second change deletes the four prerequisites to filing found
in section 84 [section 404 of former title 11]. The prerequisites
require the municipality to have worked out a plan in advance, to
have attempted to work out a plan without success, to fear that a
creditor will attempt to obtain a preference, or to allege that
prior negotiation is impracticable. The loopholes in those
prerequisites are larger than the requirement itself. It was a
compromise from pre-1976 chapter IX [chapter 9 of former title 11]
under which a municipality could file only if it had worked out an
adjustment plan in advance. In the meantime, chapter IX protection
was unavailable. There was some controversy at the time of the
enactment of current chapter IX concerning deletion of the pre-
negotiation requirement. It was argued that deletion would lead to
a rash of municipal bankruptcies. The prerequisites now contained
in section 84 were inserted to assuage that fear. They are largely
cosmetic and precatory, however, and do not offer any significant
deterrent to use of chapter IX. Instead, other factors, such as a
general reluctance on the part of any debtor, especially a
municipality, to use the bankruptcy laws, operates as a much more
effective deterrent against capricious use.
Subsection (d) permits a person that may proceed under chapter 7
to be a debtor under chapter 11, Reorganization, with two
exceptions. Railroads, which are excluded from chapter 7, are
permitted to proceed under chapter 11. Stockbrokers and commodity
brokers, which are permitted to be debtors under chapter 7, are
excluded from chapter 11. The special rules for treatment of
customer accounts that are the essence of stockbroker and commodity
broker liquidations are available only in chapter 7. Customers
would be unprotected under chapter 11. The special protective rules
are unavailable in chapter 11 because their complexity would make
reorganization very difficult at best, and unintelligible at worst.
The variety of options available in reorganization cases make it
extremely difficult to reorganize and continue to provide the
special customer protection necessary in these cases.
Subsection (e) specifies eligibility for chapter 13, Adjustment
of Debts of an Individual with Regular Income. An individual with
regular income, or an individual with regular income and the
individual's spouse, may proceed under chapter 13. As noted in
connection with the definition of the term "individual with regular
income", this represents a significant departure from current law.
The change might have been too great, however, without some
limitation. Thus, the debtor (or the debtor and spouse) must have
unsecured debts that aggregate less than $100,000, and secured
debts that aggregate less than $500,000. These figures will permit
the small sole proprietor, for whom a chapter 11 reorganization is
too cumbersome a procedure, to proceed under chapter 13. It does
not create a presumption that any sole proprietor within that range
is better off in chapter 13 than chapter 11. The conversion rules
found in section 1307 will govern the appropriateness of the two
chapters for any particular individual. The figures merely set
maximum limits.
Whether a small business operated by a husband and wife, the so-
called "mom and pop grocery store," will be a partnership and thus
excluded from chapter 13, or a business owned by an individual,
will have to be determined on the facts of each case. Even if
partnership papers have not been filed, for example, the issue will
be whether the assets of the grocery store are for the benefit of
all creditors of the debtor or only for business creditors, and
whether such assets may be the subject of a chapter 13 proceeding.
The intent of the section is to follow current law that a
partnership by estoppel may be adjudicated in bankruptcy and
therefore would not prevent a chapter 13 debtor from subjecting
assets in such a partnership to the reach of all creditors in a
chapter 13 case. However, if the partnership is found to be a
partnership by agreement, even informal agreement, than a separate
entity exists and the assets of that entity would be exempt from a
case under chapter 13.
REFERENCES IN TEXT
Section 351 of the Small Business Investment Act of 1958,
referred to in subsec. (b)(2), is classified to section 689 of
Title 15, Commerce and Trade.
Section 301 of the Small Business Investment Act of 1958,
referred to in subsec. (b)(2), is classified to section 681 of
Title 15, Commerce and Trade.
Section 3(h) of the Federal Deposit Insurance Act, referred to in
subsec. (b)(2), is classified to section 1813(h) of Title 12, Banks
and Banking.
Section 25A of the Federal Reserve Act, referred to in subsecs.
(b)(2) and (d), popularly known as the Edge Act, is classified to
subchapter II (Sec. 611 et seq.) of chapter 6 of Title 12, Banks
and Banking. For complete classification of this Act to the Code,
see Short Title note set out under section 611 of Title 12 and
Tables.
Section 409 of the Federal Deposit Insurance Corporation
Improvement Act of 1991, referred to in subsecs. (b)(2) and (d), is
classified to section 4422 of Title 12, Banks and Banking.
Section 1(b) of the International Banking Act of 1978, referred
to in subsec. (b)(3)(B), is classified to section 3101 of Title 12,
Banks and Banking.
AMENDMENTS
2005 - Subsec. (b)(2). Pub. L. 109-8, Sec. 1204(1), struck out
"subsection (c) or (d) of" before "section 301".
Subsec. (b)(3). Pub. L. 109-8, Sec. 802(d)(1), added par. (3) and
struck out former par. (3) which read as follows: "a foreign
insurance company, bank, savings bank, cooperative bank, savings
and loan association, building and loan association, homestead
association, or credit union, engaged in such business in the
United States."
Subsec. (f). Pub. L. 109-8, Sec. 1007(b), inserted "or family
fisherman" after "family farmer".
Subsec. (h). Pub. L. 109-8, Sec. 106(a), added subsec. (h).
2000 - Subsec. (b)(2). Pub. L. 106-554, Sec. 1(a)(8) [Sec. 1(e)],
inserted "a New Markets Venture Capital company as defined in
section 351 of the Small Business Investment Act of 1958," after
"homestead association,".
Pub. L. 106-554, Sec. 1(a)(5) [title I, Sec. 112(c)(1)],
substituted ", except that an uninsured State member bank, or a
corporation organized under section 25A of the Federal Reserve Act,
which operates, or operates as, a multilateral clearing
organization pursuant to section 409 of the Federal Deposit
Insurance Corporation Improvement Act of 1991 may be a debtor if a
petition is filed at the direction of the Board of Governors of the
Federal Reserve System; or" for "; or".
Subsec. (d). Pub. L. 106-554, Sec. 1(a)(5) [title I, Sec.
112(c)(2)], amended subsec. (d) generally. Prior to amendment,
subsec. (d) read as follows: "Only a person that may be a debtor
under chapter 7 of this title, except a stockbroker or a commodity
broker, and a railroad may be a debtor under chapter 11 of this
title."
1994 - Subsec. (b)(2). Pub. L. 103-394, Secs. 220, 501(d)(2),
inserted "a small business investment company licensed by the Small
Business Administration under subsection (c) or (d) of section 301
of the Small Business Investment Act of 1958," after "homestead
association," and struck out "(12 U.S.C. 1813(h))" after "Insurance
Act".
Subsec. (c)(2). Pub. L. 103-394, Sec. 402, substituted
"specifically authorized, in its capacity as a municipality or by
name," for "generally authorized".
Subsec. (e). Pub. L. 103-394, Sec. 108(a), substituted "$250,000"
and "$750,000" for "$100,000" and "$350,000", respectively, in two
places.
1988 - Subsec. (c)(3). Pub. L. 100-597 struck out "or unable to
meet such entity's debts as such debts mature" after "insolvent".
1986 - Subsec. (f). Pub. L. 99-554, Sec. 253(1)(B), (2), added
subsec. (f) and redesignated former subsec. (f) as (g).
Subsec. (g). Pub. L. 99-554, Sec. 253(1), redesignated former
subsec. (f) as (g) and inserted reference to family farmer.
1984 - Subsec. (a). Pub. L. 98-353, Sec. 425(a), struck out "in
the United States," after "only a person that resides".
Subsec. (c)(5)(D). Pub. L. 98-353, Sec. 425(b), substituted
"transfer that is avoidable under section 547 of this title" for
"preference".
Subsec. (d). Pub. L. 98-353, Sec. 425(c), substituted
"stockbroker" for "stockholder".
Subsec. (f). Pub. L. 98-353, Sec. 301, added subsec. (f).
1982 - Subsec. (b)(2). Pub. L. 97-320 inserted reference to
industrial banks or similar institutions which are insured banks as
defined in section 3(h) of the Federal Deposit Insurance Act (12
U.S.C. 1813(h)).
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 1988 AMENDMENT
Amendment by Pub. L. 100-597 effective Nov. 3, 1988, but not
applicable to any case commenced under this title before that date,
see section 12 of Pub. L. 100-597, 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.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
ADJUSTMENT OF DOLLAR AMOUNTS
For adjustment of dollar amounts specified in subsec. (e) of this
section by the Judicial Conference of the United States, see note
set out under section 104 of this title.
(!1) So in original. Probably should be followed by a closing
parenthesis.