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107th Congress                                              Rept. 107-3
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1
_______________________________________________________________________

                                     




    BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2001

                               __________

                              R E P O R T

                                 of the

                       COMMITTEE ON THE JUDICIARY

                        HOUSE OF REPRESENTATIVES

                              to accompany

                                H.R. 333

                             together with

                            DISSENTING VIEWS

<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>


 February 26, 2001.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed
                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
89-000                     WASHINGTON : 2001


107th Congress                                              Rept. 107-3
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1

======================================================================



 
    BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2001

                                _______
                                

 February 26, 2001.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

 Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 333]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 333) amending title 11, United States Code, and for 
other purposes, having considered the same, report favorably 
thereon with amendments and recommend that the bill as amended 
do pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     2
Purpose and Summary..............................................     2
Background and Need for the Legislation..........................     3
Hearings.........................................................    15
Committee Consideration..........................................    16
Votes of the Committee...........................................    16
Committee Oversight Findings.....................................    23
Performance Goals and Objectives.................................    24
New Budget Authority and Tax Expenditures........................    24
Committee Cost Estimate..........................................    24
Committee Jurisdiction Letters...................................    25
Constitutional Authority Statement...............................    26
Preemption of State Law..........................................    26
Section-by-Section Analysis and Discussion.......................    27
Changes in Existing Law Made by the Bill, as Reported............   118
Markup Transcript................................................   300
Dissenting Views.................................................   455
Additional Dissenting Views......................................   488

    The amendments (stated in terms of the page and line 
numbers of the introduced bill) are as follows:

    Page 174, line 5, strike ``30.76'' and insert ``33.87''.

    Page 316, strike line 16 and insert the following:

            (1) by redesignating section 407 as 407A;

    Beginning on page 330, strike line 19 and all that follows 
through line 10 on page 331 (and make such technical and 
conforming changes as may be appropriate).

    Page 356, beginning on line 5, strike ``and amended by this 
Act, is reenacted.'' and insert ``is hereby reenacted, and as 
here reenacted is amended by this Act.''.

    Page 356, line 20, strike ``2001'' and insert ``2004''.

    Page 368, line 4, strike ``and (38)'' and insert ``, (38), 
and (54A)''.

    Page 380, strike lines 19 through 21, and insert the 
following:

    (e) Effective Dates.--(1) Except as provided in paragraph 
(2), this section and the amendments made by this section shall 
take effect on the date of the enactment of this Act.
    (2) With respect to the temporary bankruptcy judgeship 
authorized for the district of South Carolina under paragraph 
(8) of the Bankruptcy Judgeship Act of 1992 (28 U.S.C. 152 
note), subsection (c)(1) as it applies to the extension 
specified in subparagraph (D) of such subsection shall take 
effect immediately before December 31, 2000.

                             The Amendment

    H.R. 333, the Bankruptcy Abuse Prevention and Consumer 
Protection Act of 2001, was ordered reported with an amendment. 
The amendment made conforming revisions to the bill.

                          Purpose and Summary

    H.R. 333, the Bankruptcy Abuse Prevention and Consumer 
Protection Act of 2001, is a comprehensive package of reform 
measures pertaining to both consumer and business bankruptcy 
cases. The purpose of the bill is to improve bankruptcy law and 
practice by restoring personal responsibility and integrity in 
the bankruptcy system and by ensuring that the system is fair 
for both debtors and creditors.
    The heart of H.R. 333's consumer bankruptcy reforms is the 
implementation of an income/expense screening mechanism 
(``needs-based bankruptcy relief'') to ensure that debtors 
repay creditors the maximum they can afford. In addition to 
implementing needs-based bankruptcy relief, H.R. 333 institutes 
a panoply of other consumer bankruptcy reforms. These include 
new eligibility standards for bankruptcy relief, additional 
financial disclosure requirements for consumer debtors, and 
enhanced responsibilities for those charged with administering 
consumer bankruptcy cases. H.R. 333, likewise, institutes 
significant consumer protection reforms, including mandatory 
credit counseling requirements, required disclosures in 
connection with certain credit transactions, and protections 
against abusive practices with respect to reaffirmation 
agreements.
    The bill also includes extensive reforms pertinent to 
business bankruptcies. Many of these provisions are intended to 
heighten administrative scrutiny and judicial oversight of 
small business bankruptcy cases. In addition, the bill includes 
provisions designed to reduce systemic risk in the financial 
marketplace and clarify the treatment of tax claims in 
bankruptcy cases. H.R. 333 also creates a new form of 
bankruptcy relief for transnational insolvencies and includes 
provisions regarding family farmer debtors and health care 
providers.

                Background and Need for the Legislation

    Congressman George W. Gekas (for himself and 56 original 
cosponsors) introduced H.R. 333 on January 31, 2001. H.R. 333 
is the product of more than 3 years of Congressional 
consideration of bankruptcy reform legislation. As introduced, 
H.R. 333 is virtually identical to the conference report on 
H.R. 2415,\1\ the Gekas-Grassley Bankruptcy Reform Act of 2000, 
which passed the House by voice vote on October 12, 2000,\2\ 
and passed the Senate on December 7, 2000 by a vote of 70 to 
28.\3\ On December 19, 2000, the conference report was pocket-
vetoed by President Clinton.
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    \1\ H. Rep. No. 106-970 (2000). The only differences are H.R. 333's 
title and the deletion of section 1224 (pertaining to the Bankruptcy 
Administrator Program) from the conference report, as this provision 
was enacted into law. Federal Courts Improvement Act of 2000, Pub. L. 
No. 106-518, Sec. 501, 114 Stat. 2410, 2422 (2000).
    \2\ 146 Cong. Rec. H9840 (daily ed. Oct. 12, 2000)
    \3\ 146 Cong. Rec. S11730 (daily ed. Dec. 7, 2000). On October 19, 
2000, the Senate, by a vote of 89 to 0, agreed to a motion to proceed 
to consideration of the conference report on H.R. 2415. 146 Cong. Rec. 
S10770 (daily ed. Oct. 19, 2000). A further motion to proceed was 
agreed to in the Senate on October 27, 2000 by a vote of 87 to 1. 146 
Cong. Rec. S11205 (daily ed. Oct. 27, 2000). After a cloture motion 
failed by a vote of 53 to 30 on November 1, 2000, Senate Majority 
Leader Trent Lott moved to reconsider the vote. 146 Cong. Rec. S11450 
(daily ed. Nov. 1, 2000). On December 5, 2000, the Senate agreed to a 
cloture motion by a vote of 67 to 31 and passed the conference report 2 
days later. 146 Cong. Rec. S11553 (daily ed. Dec. 5, 2000).
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    Support for bankruptcy reform legislation in the last two 
Congresses has been overwhelming and bipartisan. In the 105th 
Congress, for example, the House passed both H.R. 3150, the 
Bankruptcy Reform Act of 1998, and the conference report on 
that bill by a veto-proof margins.\4\ In the last Congress, the 
House passed H.R. 833, the predecessor to H.R. 2415, by a veto-
proof margin of 313 to 108.\5\ Bankruptcy reform legislation 
has also enjoyed broad bipartisan support in the Senate.\6\
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    \4\ 144 Cong. Rec. H4442 (daily ed. June 10, 1998) (vote on final 
passage of H.R. 3150 was 306 to 118); 144 Cong. Rec. H10239-40 (daily 
ed. Oct. 9, 1998) (vote on final passage of the conference report on 
H.R. 3150 was 300 to 125).
    \5\ 145 Cong. Rec. H2771 (daily ed. May 5, 1999).
    \6\ On February 2, 2000, H.R. 833 was laid before the Senate by 
unanimous consent. The Senate struck all of H.R. 833's language after 
its enacting clause and substituted the text of S. 625, as amended. 
H.R. 833, as amended, was then passed by the Senate in lieu of S. 625 
by a recorded vote of 83 to 14. 146 Cong. Rec. S255 (daily ed. Feb. 2, 
2000).
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    The Judiciary Committee commenced its consideration of 
bankruptcy reform early in 105th Congress. On April 16, 1997, 
the Subcommittee on Commercial and Administrative Law conducted 
a hearing on the operation of the bankruptcy system that was 
combined with a status report from the National Bankruptcy 
Review Commission.\7\ This would be the first of 17 hearings on 
bankruptcy reform over the ensuing 4 years.\8\ Ten of these 
hearings were devoted solely to consideration of H.R. 333 and 
its predecessors, H.R. 3150 (the Bankruptcy Reform Act of 1998) 
and H.R. 833 (the Bankruptcy Reform Act of 1999). Over the 
course of these hearings, nearly 130 witnesses, representing 
nearly every major constituency in the bankruptcy community, 
testified. With regard to H.R. 833 alone, testimony was 
received from 69 witnesses, representing 23 organizations, with 
additional material submitted by other groups. In fact, the 
subcommittee's inaugural hearing on H.R. 833 was held jointly 
with the Senate Subcommittee on Administrative Oversight and 
the Courts on March 11, 1999.\9\ This marked the first time in 
more than 60 years that a bicameral hearing was held on the 
subject of bankruptcy reform.\10\
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    \7\ Operation of the Bankruptcy System and Status Report from the 
National Bankruptcy Review Commission: Hearing Before the Subcomm. on 
Commercial and Administrative Law of the House Comm. on the Judiciary, 
105th Cong. (1997).
    \8\ The dates and subject matters of these hearings were as 
follows:

      April 16, 1997--Hearing on the operation of the bankruptcy 
      system and status report from the National Bankruptcy 
---------------------------------------------------------------------------
      Review Commission.

      April 30, 1997--Hearing on H.R. 764, ``Bankruptcy 
      Amendments of 1997,'' and H.R. 120, ``Bankruptcy Law 
      Technical Corrections Act of 1997.''

      October 9, 1997--Hearing on H.R. 2592, ``Private Trustee 
      Reform Act of 1997'' and review of post-confirmation fees 
      in chapter 11 cases.

      November 13, 1997--Hearing on the Report of the National 
      Bankruptcy Review Commission.

      February 12, 1998--Hearing on H.R. 2604, ``Religious 
      Liberty and Charitable Donation Protection Act of 1997.''

      March 10-11, 18-19, 1998--Hearings on H.R. 3150, 
      ``Bankruptcy Reform Act of 1998,'' H.R. 3146, ``Consumer 
      Lenders and Borrowers Bankruptcy Accountability Act of 
      1998,'' and H.R. 2500, ``Responsible Borrower Protection 
      Bankruptcy Act.''

      March 11-12, 18-19, 1999--Hearings on H.R. 833, 
      ``Bankruptcy Reform Act of 1999.''

      November 2, 1999--Joint oversight hearing on additional 
      bankruptcy judgeship needs.

      April 11, 2000--Oversight hearing on the limits on 
      regulatory powers under the Bankruptcy Code.''

      February 7-8, 2001--Hearings on H.R. 333, the ``Bankruptcy 
      Abuse Prevention and Consumer Protection Act of 2001.''
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    \9\ Representatives on behalf of the Commercial Law League of 
America, the Credit Union National Association, MBNA America Bank, 
N.A., National Retail Federation, and the National Consumer Law Center 
also testified. Some of the nation's leading jurists and academics 
presented testimony as well. Bankruptcy Reform: Joint Hearing Before 
the Subcomm. on Commercial and Administrative Law of the House Comm. on 
the Judiciary and the Subcomm. on Administrative Oversight and the 
Courts of the Senate Comm. on the Judiciary, 106th Cong. (1999).
    \10\ Senators testifying at the hearing included Charles Grassley 
(R-Iowa), Joseph Biden (D-Del.) and Christopher Dodd (D-Conn.). House 
Members included Jim Moran (D-Va.), Pete Sessions (R-Texas) and Nick 
Smith (R-Mich.). Id. The March 16, 1999 hearing provided an opportunity 
for the subcommittee to hear divergent historical perspectives of 
consumer bankruptcy reform. Specific topics included an analysis of the 
history and significance of the ``fresh start'' discharge under 
American bankruptcy law, the impact of the Bankruptcy Reform Act of 
1978, the historical underpinnings of needs-based bankruptcy relief, 
and how bankruptcy affects the rights of creditors. Another panel 
examined the need for consumer bankruptcy reform from various 
perspectives. Bankruptcy Reform Act of 1999 (Pt. I): Hearing before the 
Subcomm. on Commercial and Administrative Law of the House Comm. on the 
Judiciary, 106th Cong. (1999).
    At its third hearing, on March 17, 1999, the subcommittee heard 
from many of the major organizations in the bankruptcy community, 
including the American Bankruptcy Institute, the American Financial 
Services Association, the National Association of Consumer Bankruptcy 
Attorneys, the National Bankruptcy Conference, the National Consumer 
Bankruptcy Coalition, the National Governors' Association, and the 
National Retail Federation, on the topic of consumer bankruptcy reform. 
A separate panel was devoted to judicial and administrative aspects of 
consumer bankruptcy reform. The hearing concluded with a statistical 
analysis of the needs-based reforms in H.R. 833. Bankruptcy Reform Act 
of 1999 (Pt. II): Hearing before the Subcomm. on Commercial and 
Administrative Law of the House Comm. on the Judiciary, 106th Cong. 
(1999).
    The fourth and final hearing on H.R. 833 was held on March 18, 
1999. One panel focused on the treatment of domestic support 
obligations under the bill. Another panel offered various perspectives 
on business bankruptcy reform provisions in the bill from some of the 
major organizations in the bankruptcy community, including the AFL-CIO, 
American Bankers Association, American Bar Association/Business 
Bankruptcy Section, Commercial Law League of America, National 
Association of Credit Managers, and the Office of Chief Counsel for 
Advocacy at the Small Business Administration. The final panel examined 
a variety of other provisions in H.R. 833, including the treatment of 
tax claims in bankruptcy cases, international insolvencies, financial 
contracts, and chapter 12 (family farmer bankruptcy relief). Bankruptcy 
Reform Act of 1999 (Pt. III): Hearing before the Subcomm. on Commercial 
and Administrative Law of the House Comm. on the Judiciary, 106th Cong. 
(1999).
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    It is also important to note that H.R. 333 is the product 
of extensive negotiation and compromise. Shortly after its 
predecessor, H.R. 833, was passed by the Senate last year, 
Members of the House and Senate, together with their staffs, 
spent nearly 7 months engaged in what was initially an informal 
conference to reconcile differences between the House and 
Senate passed versions of this bill. The product of these 
exhaustive efforts was the conference report on H.R. 2415, 
which is virtually identical to H.R. 333.
Consumer Bankruptcy
    Overview. With respect to its consumer provisions, H.R. 333 
responds to several significant developments. One of these 
developments was the exponential increase in consumer 
bankruptcy filings and the losses associated with these 
filings. Based on data released by the Administrative Office of 
the United States Courts, bankruptcy filings increased by more 
than 72 percent between 1994 and 1998.\11\ For the first time 
in our nation's history, bankruptcy filings exceeded one 
million in 1996.\12\ In calendar year 1997 alone, bankruptcy 
filings increased by more than 19 percent over the prior year. 
By 1998, the number of bankruptcy filings, according to the 
Administrative Office, reached an ``all-time high'' of more 
than 1.4 million cases.\13\ Although the most recent reporting 
periods indicate that filings have somewhat decreased, the 
Administrative Office states that they ``remain well above the 
one million mark.'' \14\ Paradoxically, this dramatic increase 
in bankruptcy filing rates has occurred during a period when 
the economy was generally robust, with relatively low 
unemployment and high consumer confidence.\15\
---------------------------------------------------------------------------
    \11\ Administrative Office for United States Courts News Release, 
Bankruptcy Filings Decrease in Fiscal Year 2000, at 1 (Nov. 21, 2000).
    \12\ Administrative Office for United States Courts News Release, 
Increase in Bankruptcy Filings Slowed in Calendar Year 1998, at 1 (Mar. 
1, 1999).
    \13\ Id.
    \14\ Administrative Office for United States Courts News Release, 
Bankruptcy Filings Decrease in Fiscal Year 2000, at 1 (Nov. 21, 2000). 
For example, the number of bankruptcy cases filed in fiscal year 2000 
exceeded 1.3 million. Id.
    \15\ See, e.g., Congressional Budget Office, Personal Bankruptcy: A 
Literature Review (Sept. 2000); Bankruptcy Reform: Joint Hearing Before 
the Subcomm. on Commercial and Administrative Law of the House Comm. on 
the Judiciary and the Subcomm. on Administrative Oversight and the 
Courts of the Senate Comm. on the Judiciary, 106th Cong. 97 (1999); 
Bankruptcy Reform Act of 1998: Hearings on H.R. 3150 Before the 
Subcomm. on Commercial and Administrative Law of the House Comm. on the 
Judiciary, 105th Cong. 141 (1998).
---------------------------------------------------------------------------
    Coupled with this development was the release of a study 
estimating that financial losses attributable to bankruptcy 
filings in 1997 exceeded $44 billion.\16\ The committee 
received testimony in the last Congress stating that this 
figure, when amortized on a daily basis, amounts to a loss of 
``at least $110 million every day.'' \17\ Various other 
studies, which thereafter became available, concluded that some 
bankruptcy debtors can, in fact, repay a significant portion of 
their debts.\18\
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    \16\ Bankruptcy Reform Act of 1998: Hearings on H.R. 3150 Before 
the Subcomm. on Commercial and Administrative Law of the House Comm. on 
the Judiciary, 105th Cong. 147 (1998).
    \17\ Bankruptcy Reform: Joint Hearing Before the Subcomm. on 
Commercial and Administrative Law of the House Comm. on the Judiciary 
and the Subcomm. on Administrative Oversight and the Courts of the 
Senate Comm. on the Judiciary, 106th Cong. 26 (1999). This estimated 
loss has been calculated to be $400 per household. Id.
    \18\ See, e.g., Bankruptcy Reform Act of 1999 (Part II): Hearing on 
H.R. 833 Before the Subcomm. on Commercial and Administrative Law of 
the House Comm. on the Judiciary, 106th Cong. 298 (1999) (statement of 
Thomas S. Neubig, Ernst & Young LLP--Policy Economics and Quantitative 
Analysis Group, concluding that ``large numbers of 1997 U.S. chapter 7 
filers had the ability to repay large portions of their debts''); Id. 
at 228-29 (statement of Michael E. Staten, Credit Research Center, 
concluding that ``about 25 percent of chapter 7 debtors could have 
repaid at least 30 percent of their non-housing debts over a 5-year 
repayment plan, after accounting for monthly expenses and housing 
payments'' and that ``[a]bout 5 percent of chapter 7 filers appeared 
capable of repaying all of their non-housing debt over a 5-year plan,'' 
although these ``calculations assumed income would remain unchanged 
relative to expenses over the 5 years''); Marianne B. Culhane & 
Michaela M. White, Taking the New Consumer Bankruptcy Model for a Test 
Drive: Means-Testing Real Chapter 7 Debtors, 7 Am. Bankr. L. J. 27, 31 
(1999) (concluding that 3.6% of sampled debtors ``emerged as apparent 
can-pays'').
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    The consumer bankruptcy provisions of H.R. 333 address the 
needs of creditors as well as debtors. With respect to the 
interests of creditors, this legislation responds to many of 
the factors contributing to the increase in consumer bankruptcy 
filings, such as lack of personal financial accountability,\19\ 
the proliferation of serial filings, and the absence of 
effective oversight to eliminate abuse in the system. The 
bill's debtor protections consist of provisions allowing 
debtors to exempt certain education IRA plans, fortifying the 
Bankruptcy Code's exemptions for certain retirement pension 
funds, enhancing the professionalism standards for attorneys 
and others who assist consumer debtors with their bankruptcy 
cases, ensuring that debtors receive notice of alternatives to 
bankruptcy relief, requiring debtors to participate in debt 
repayment programs, and instituting a pilot program to study 
the effectiveness of consumer financial management programs.
---------------------------------------------------------------------------
    \19\ As one academic explained:

      [S]hoplifting is wrong; bankruptcy is also a moral act. 
      Bankruptcy is a moral as well as an economic act. There is 
      a conscious decision not to keep one's promises. It is a 
      decision not to reciprocate a benefit received, a good deed 
      done on the promise that you will reciprocate. Promise-
      keeping and reciprocity are the foundation of an economy 
---------------------------------------------------------------------------
      and healthy civil society.

Bankruptcy Reform: Joint Hearing Before the Subcomm. on Commercial and 
Administrative Law of the House Comm. on the Judiciary and the Subcomm. 
on Administrative Oversight and the Courts of the Senate Comm. on the 
Judiciary, 106th Cong. (1999) 98 (statement of Prof. Todd Zywicki).
    Consumer creditor protections: needs-based reforms. Chapter 
7 is a form of bankruptcy relief where an individual debtor 
receives an immediate unconditional discharge of personal 
liability for certain debts in exchange for turning over his or 
her nonexempt assets to a bankruptcy trustee for liquidation 
and distribution to creditors.\20\ This ``unconditional 
discharge'' in chapter 7 contrasts with the ``conditional 
discharge'' provisions of chapter 13, under which a debtor 
commits to repay some portion of his or her financial 
obligations in exchange for retaining nonexempt assets and 
receiving a broader discharge of debt than is available under 
chapter 7.
---------------------------------------------------------------------------
    \20\ Under the Bankruptcy Code, only an individual may obtain a 
chapter 7 discharge. Thus, a corporation is not eligible to receive a 
discharge under chapter 7. 11 U.S.C. Sec. 727(a)(1).
---------------------------------------------------------------------------
    Allowing consumer debtors in financial distress to choose 
voluntarily an ``unconditional discharge'' has been a part of 
American bankruptcy law since the enactment of the Bankruptcy 
Act of 1898.\21\ The rationale of an unconditional discharge 
was explained by Congress more than 100 years ago:
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    \21\ Bankruptcy Act of 1898, 30 Stat. 544 (1898) (repealed 1978).

        [W]hen an honest man is hopelessly down financially, 
        nothing is gained for the public by keeping him down, 
        but, on the contrary, the public good will be promoted 
        by having his assets distributed ratably as far as they 
        will go among his creditors and letting him start 
        anew.\22\
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    \22\ H.R. Rep. No. 55-65, at 43 (1897).

    The heart of H.R. 333's consumer bankruptcy reforms is the 
implementation of a needs-based screening mechanism, which uses 
the debtor's income and expenses to assess repayment ability. 
The concept of needs-based bankruptcy relief has long been 
debated in the United States. In 1932, President Herbert 
Hoover, for instance, recommended to the Congress the 
---------------------------------------------------------------------------
following:

        The discretion of the courts in granting or refusing 
        discharges should be broadened, and they should be 
        authorized to postpone discharges for a time and 
        require bankrupts, during the period of suspension, to 
        make some satisfaction out of after-acquired property 
        as a condition to the granting of a full discharge.\23\
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    \23\ President's Special Message to the Congress on Reform of 
Judicial Procedure, 69 Pub. Papers 83, 90 (Feb. 29, 1932).

    Congressional recognition of needs-based relief has been 
gradual. In 1938, chapter XIII (the predecessor to chapter 13 
of the Bankruptcy Code) was enacted as a purely voluntary form 
of bankruptcy relief that allowed a debtor to voluntarily 
propose a plan to repay creditors out of future earnings.\24\ 
Over the ensuing years, there continued to be repeated 
expressions of support for and opposition to needs-based 
bankruptcy reform.\25\ The Bankruptcy Reform Act of 1978,\26\ 
however, retained the principle that a debtor's decision to 
choose relief premised on repayment to creditors had to be 
``completely voluntary.'' \27\
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    \24\ Chandler Act of 1938, 52 Stat. 840 (1938); Bankruptcy Reform 
Act of 1999 (Part II): Hearing on H.R. 833 Before the Subcomm. on 
Commercial and Administrative Law of the House Comm. on the Judiciary, 
106th Cong. 100 (1999) (statement of Prof. Lawrence P. King).
    \25\ See, e.g., Report of the Commission on the Bankruptcy Laws of 
the United States--July 1973, H.R. Doc. No. 93 137, pt. I, at 158 
(1973) (observing that ``proposals have been made to Congress from time 
to time that a debtor able to obtain relief under chapter XIII 
[predecessor of chapter 13] should be denied relief in straight 
bankruptcy''); Hearings on H.R. 1057 and H.R. 5771 Before the Subcomm. 
No. 4 of the House Committee on the Judiciary, 90th Cong. (1967). 
Organizations that testified before Congress in 1967 in support of such 
reform included the American Bar Association, the American Bankers 
Association, the Chamber of Commerce of the United States, Credit Union 
National Association, Inc., the National Federation of Independent 
Businesses, and the American Industrial Bankers Association. Id. The 
Commission on the Bankruptcy Laws of the United States, while 
supporting the concept that repayment plans should be ``fostered,'' 
nevertheless concluded in 1973 that ``forced participation by a debtor 
in a plan requiring contributions out of future income has so little 
prospect for success that it should not be adopted as a feature of the 
bankruptcy system.'' Id. at 159.
    \26\ Pub. L. No. 95-598, 92 Stat. 2549 (1978).
    \27\ H.R. Rep. No. 95-595, at 120 (1977) (observing that ``[t]he 
thirteenth amendment prohibits involuntary servitude'' and suggesting 
that ``a mandatory chapter 13, by forcing an individual to work for 
creditors, would violate this prohibition'').
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    Although as originally enacted, the Bankruptcy Code 
provided that a chapter 7 case could only be dismissed for 
``cause,'' the Code was in 1984 amended to permit the court to 
dismiss a chapter 7 case for ``substantial abuse.'' \28\ This 
provision, codified in section 707(b) of the Bankruptcy 
Code,\29\ was added ``as part of a package of consumer credit 
amendments designed to reduce perceived abuses in the use of 
chapter 7.'' \30\ It was intended to respond ``to concerns that 
some debtors who could easily pay their creditors might resort 
to chapter 7 to avoid their obligations.'' \31\ In 1986, 
section 707(b) was further amended to allow a United States 
trustee (a Department of Justice official) to move for 
dismissal.\32\
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    \28\ Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. 
L. No. 98-353, 98 Stat. 333.
    \29\ 11 U.S.C. Sec. 707(b).
    \30\ 6 Lawrence P. King et al., Collier on Bankruptcy para. 
707.LH[2], at 707-30 (15th ed. rev. 2000).
    \31\ Id. para. 707.04, at 707-15.
    \32\ Bankruptcy Judges, United States Trustees, and Family Farmer 
Bankruptcy Act of 1986, Pub. L. No. 99-554, 100 Stat. 3008.
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    Under current practice, section 707(b) motions are 
infrequently made for several reasons. First, neither the court 
nor the United States trustee is required to make these 
motions, even in cases evidencing obvious abuse of the 
bankruptcy system. Second, other parties in interest, such as 
chapter 7 trustees and creditors, are prohibited from filing 
these motions. In fact, section 707(b) provides that a motion 
under that provision may not even be made ``at the request or 
suggestion of any party in interest.'' \33\ Third, the standard 
for dismissal--substantial abuse--is inherently vague, which 
has lead to its disparate interpretation and application by the 
bankruptcy bench.\34\ Some courts, for example, hold that a 
debtor's ability to repay a significant portion of his or her 
debts out of future income constitutes substantial abuse and 
therefore is cause for dismissal; \35\ others require some 
evidence of moral turpitude.\36\ A fourth reason militating 
against filing section 707(b) motions is that the Bankruptcy 
Code codifies a presumption that favors granting a debtor a 
discharge.\37\
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    \33\ 11 U.S.C. Sec. 707(b).
    \34\ See, e.g., David White, Disorder in the Court: Section 707(b) 
of the Bankruptcy Code, 1995-96 Ann. Survey of Bankr. L. 333, 355 
(1996) (noting that the courts ``have taken divergent views in an 
attempt to define the term'' and have resorted to ``a variety of 
methods'' in applying it to specific cases).
    \35\ See, e.g., In re Kelly , 841 F.2d 908, 913-14 (9th Cir. 1988) 
(observing that the ``principal factor to be considered in determining 
substantial abuse is the debtor's ability to repay debts for which a 
discharge is sought'').
    \36\ See, e.g., In re Braley, 103 B.R. 758 (Bankr. E.D. Va. 1989), 
aff'd, 110 B.R. 211 (E.D. Va. 1990). Notwithstanding the fact that the 
debtors in Braley had disposable monthly income of nearly $2,700, the 
bankruptcy court did not dismiss the case for substantial abuse. Id. at 
760. The court concluded, ``Based upon this legislative history, we are 
persuaded that no future income tests exists in 707(b) and if it did, 
as a finding of fact, the Braley family has insufficient future income 
to merit barring the door in light of the circumstances of this Navy 
family.'' Id. at 762.
    \37\ Section 707(b) of the Bankruptcy Code mandates that ``[t]here 
shall be a presumption in favor of granting the relief requested by the 
debtor.'' 11 U.S.C. Sec. 707(b).
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    Over the course of its hearings in the last two Congresses, 
the committee received testimony explaining that if needs-based 
reforms and other measures were implemented, the rate of 
repayment to creditors would increase as more debtors are 
shifted into chapter 13 (a form of bankruptcy relief where the 
debtor commits to repay a portion or all of his debts in 
exchange for receiving a broad discharge of debt) as opposed to 
chapter 7 (a form of bankruptcy relief where the debtor 
receives an immediate discharge of personal liability on 
certain debts in exchange for turning over his or her nonexempt 
assets to the bankruptcy trustee for distribution to 
creditors).
    Section 102 implements the act's needs-based bankruptcy 
reforms. Subsection (a) amends section 707(b) of the Bankruptcy 
Code to permit a court, on its own motion, or on motion of the 
United States trustee, private trustee, bankruptcy 
administrator, or party in interest, to dismiss a chapter 7 
case for abuse if it was filed by an individual debtor whose 
debts are primarily consumer debts. Alternatively, section 
102(a) permits a chapter 7 case to be converted to a case under 
chapter 11 or chapter 13 on consent of the debtor.
    In addition, section 102(a) replaces the current law's 
presumption in favor of the debtor with a mandatory presumption 
of abuse that is triggered under certain conditions. Section 
102(a) requires a court to presume that abuse exists if the 
amount of the debtor's income remaining, after certain expenses 
and other specified amounts are deducted from the debtor's 
current monthly income (a defined term),\38\ when multiplied by 
60, exceeds the lower of the following: (1) 25 percent of the 
debtor's nonpriority unsecured claims, or $6000 (whichever is 
greater); or (2) $10,000. In addition to other specified 
expenses,\39\ the debtor's monthly expenses--exclusive of any 
payments for debts (unless otherwise permitted)--must be the 
applicable monthly amounts set forth in the Internal Revenue 
Service Financial Analysis Handbook as Necessary Expenses under 
the National and Local Standards categories and the debtor's 
actual monthly expenditures for items categorized as Other 
Necessary Expenses. For purposes of this provision, the 
expenses include those of the debtor, the debtor's dependents, 
and the debtor's spouse, if not otherwise a dependent. For 
purposes of determining whether the mandatory presumption of 
abuse applies under the needs-based test, section 102(a) 
permits the debtor to deduct certain other liabilities.
---------------------------------------------------------------------------
    \38\ Section 102(b) defines ``current monthly income'' as the 
average monthly income from all sources that the debtor receives (or, 
in a joint case, the debtor and the debtor's spouse receive), without 
regard to whether it is taxable income, in the 6-month period preceding 
the date of determination. It includes any amount paid on a regular 
basis by any entity (other than the debtor or, in a joint case, the 
debtor and the debtor's spouse) to the household expenses of the debtor 
or the debtor's dependents and, in a joint case, the debtor's spouse, 
if not otherwise a dependent. It excludes Social Security Act benefits 
and payments to victims of war crimes or crimes against humanity on 
account of their status as victims of such crimes.
    \39\ Section 102(a) mandates that the debtor's monthly expenses 
also include reasonably necessary expenses incurred to maintain the 
safety of the debtor and the debtor's family from family violence as 
identified in section 309 of the Family Violence Prevention and 
Services Act or other applicable law. In addition, the debtor may 
deduct up to an additional 5 percent of the food and clothing expense 
allowances under the National Standards category, if demonstrated to be 
reasonable and necessary.
    Other liabilities that may be deducted include the debtor's average 
monthly payments on account of secured debts, calculated as the total 
of all amounts scheduled as contractually due over the 60-month period 
following the filing of the bankruptcy, divided by 60 months. This 
amount may include any additional payments to secured creditors that a 
chapter 13 debtor must make to retain possession of a primary 
residence, motor vehicle, or other property necessary for the support 
of the debtor and the debtor's dependents. With respect to claims and 
expenses entitled to priority under section 507 of the Bankruptcy Code, 
section 102(a) specifies that the debtor may deduct payments for these 
obligations, calculated as the total amount of all priority debts, 
divided by 60. If applicable, the debtor may deduct the following 
additional expenses:

      (1) the continuation of actual expenses paid by the debtor 
      that are reasonable and necessary for the care and support 
      of an elderly, chronically ill, or disabled household 
      member or member of the debtor's immediate family who is 
---------------------------------------------------------------------------
      unable to pay such expenses;

      (2) the actual administrative expenses (including 
      reasonable attorneys' fees) of administering a chapter 13 
      plan for the district in which the debtor resides, up to 10 
      percent of projected plan payments, as determined under 
      schedules issued by the Executive Office for United States 
      Trustees; and

      (3) the actual expenses for each dependent child under the 
      age of 18 years up to $1,500 per year per child to attend a 
      private elementary or secondary school, if the debtor 
      documents these expenses and provides a detailed 
      explanation of why they are reasonable and necessary.
    The mandatory presumption of abuse may only be rebutted if: 
(1) the debtor demonstrates special circumstances that justify 
any additional expense or adjustment to the debtor's current 
monthly income for which there is no reasonable alternative; 
and (2) such additional expense or income adjustment causes the 
debtor's current monthly income (reduced by various amounts) 
when multiplied by 60 to be less than the lesser of either (i) 
25 percent of the debtor's nonpriority unsecured claims, or 
$6,000 (whichever is greater), or (ii) $10,000.\40\
---------------------------------------------------------------------------
    \40\ The debtor must itemize and provide documentation of each 
additional expense or income adjustment and an explanation of the 
special circumstances that make such expense or income adjustment 
reasonable and necessary. In addition, the debtor must attest under 
oath to the accuracy of any information provided to demonstrate that 
such additional expenses or adjustments to income are required.
---------------------------------------------------------------------------
    Where the mandatory presumption of abuse does not apply or 
has been rebutted, the court, in order to determine whether the 
granting of relief under chapter 7 would be an abuse of such 
chapter, must consider: (1) whether the debtor filed the 
chapter 7 case in bad faith; or (2) whether the totality of 
circumstances of the debtor's financial situation (including 
whether the debtor seeks to reject a personal services contract 
and the financial need for such rejection) demonstrates abuse.
    Should a court grant a section 707(b) motion made by a 
trustee and find that the action of debtor's counsel in filing 
the chapter 7 case violated Federal Rule of Bankruptcy 
Procedure 9011, section 102(a) mandates that the court order 
the attorney to reimburse the trustee for all reasonable costs 
in prosecuting the motion, including reasonable attorneys' 
fees. In addition, the court must assess an appropriate civil 
penalty, payable to the private trustee, bankruptcy 
administrator, or the United States trustee.\41\
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    \41\ Section 102(a) specifies that the signature of an attorney on 
a bankruptcy petition, pleading, or written motion constitutes a 
certification that the attorney has (1) performed a reasonable 
investigation into the circumstances giving rise to such petition, 
pleading or motion; and (2) determined that the document is well 
grounded in fact or 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 section 707(b)(1) of the Bankruptcy Code. 
Pursuant to section 102(a), the signature of an attorney on a 
bankruptcy petition constitutes a certification that the attorney has 
no knowledge after an inquiry that the information in the schedules 
filed with such petition is incorrect.
---------------------------------------------------------------------------
    Two types of ``safe harbors'' are recognized under section 
102(a). One provides that only a judge, United States trustee, 
bankruptcy administrator, or private trustee may bring a motion 
under section 707(b) of the Bankruptcy Code if the chapter 7 
debtor's income (or in a joint case, the income of debtor and 
the debtor's spouse) does not exceed the State median family 
income for a family of equal or lesser size (adjusted for 
larger sized families), or the State median family income for 
one earner in the case of a one-person household. The second 
safe harbor provides that no motion under section 707(b)(2) 
(dismissal based on the debtor's ability to repay) may be filed 
by a judge, United States trustee, bankruptcy administrator, 
private trustee, or other party in interest if the debtor and 
the debtor's spouse combined have income that does not exceed 
the State median family income for a family of equal or lesser 
size (adjusted for larger sized families), or the State median 
family income for one earner in the case of a one-person 
household.
    Provisions of the bill that are directed to other forms of 
abuse include Section 102(f), which amends section 707 of the 
Bankruptcy Code to provide that a court may dismiss a chapter 7 
case filed by an individual debtor convicted of a crime of 
violence (as defined in 18 U.S.C. Sec. 16), or a drug 
trafficking crime (as defined in 18 U.S.C. Sec. 924(c)(2)) on 
motion of the victim, under certain circumstances. Section 
102(g) amends section 1325(a) of the Bankruptcy Code to require 
the court to find, as a condition of confirmation, that the 
debtor filed the chapter 13 case in good faith.
    Protections for creditors--in general. H.R. 333 contains a 
broad range of reforms to provide greater protections for 
creditors, while ensuring that the claims of those creditors 
entitled to priority treatment, such as spousal and child 
support claims, are not adversely impacted. The bill 
accomplishes this goal by: (1) ensuring that creditors receive 
proper and timely notice of important events and proceedings in 
a bankruptcy case; (2) prohibiting abusive serial filings and 
extending the period between successive discharges; (3) 
implementing various provisions designed to improve the 
accuracy of the information contained in debtors' schedules, 
statements of financial affairs, and other documents; and (4) 
limiting abusive use of homestead exemptions. It also clarifies 
that creditors holding consumer debts may participate without 
counsel at the section 341 meeting of creditors (which provides 
an opportunity for creditors to examine the debtor under oath).
    Protection of family support obligations. Domestic support 
claimants receive a broad spectrum of special protections under 
H.R. 333. According to one law enforcement official who 
testified before this committee earlier this year:

        It is my opinion, and the opinion of every professional 
        support collector with whom I have discussed the issue, 
        that the support amendments contained in Sections 211 
        through 219 of H.R. 333 will enhance substantially the 
        enforcement of support obligations against debtors in 
        bankruptcy. These enhancements will also result in a 
        more efficient and economical use of attorney and court 
        resources.\42\
---------------------------------------------------------------------------
    \42\ Bankruptcy Abuse Prevention and Consumer Protection Act of 
2001: Hearing Before the Subcomm. on Commercial and Administrative Law 
of the House Comm. on the Judiciary, 107th Cong.____(2001) (statement 
of Philip L. Strauss on behalf of the California District Attorneys 
Association and the California Family Support Council).

    The bill creates a uniform and expanded definition of 
domestic support obligations to include debts that accrue both 
before or after a bankruptcy case is filed. H.R. 333 accords 
the highest payment priority for these debts and gives new 
priority treatment to certain claims assigned to governmental 
units by a spouse, former spouse, child of the debtor, or 
parent of a child. In addition, the bill mandates that a 
chapter 13 or chapter 11 debtor must be current on postpetition 
domestic support obligations to confirm a plan of 
reorganization. The same obligation is imposed as a 
prerequisite for a chapter 13 debtor to receive a discharge. To 
facilitate the domestic support collection efforts by 
governmental units, H.R. 333 creates various exceptions to 
automatic stay provisions of the Bankruptcy Code (which enjoin 
many forms of creditor collection activities). It also broadens 
the categories of nondischargeable family support obligations 
with the result that these debts will not be extinguished at 
the end of the bankruptcy process. H.R. 333, in addition, 
mandates that spousal and child support claimants as well as 
State child support agencies receive specified information and 
notices relevant to pending bankruptcy cases.
    Protections for secured creditors. H.R. 333 gives secured 
creditors a broad variety of enhanced protections. These 
include a prohibition against bifurcating a secured debt 
incurred within the 5-year period preceding the filing of a 
bankruptcy case if the debt is secured by a purchase money 
security interest in a motor vehicle acquired for the debtor's 
personal use. Where the collateral consists of any other type 
of property having value, H.R. 333 prohibits bifurcation of 
specified secured debts if incurred during the 1-year period 
preceding the filing of the bankruptcy case. The bill clarifies 
current law to specify that the value of a claim secured by 
personal property is the replacement value of such property 
without deduction for the secured creditor's costs of sale or 
marketing. In addition, the bill terminates the automatic stay 
with respect to personal property if the debtor does not timely 
reaffirm the underlying obligation or redeem the property. H.R. 
333 also specifies that a secured claimant retains its lien in 
a chapter 13 case until the underlying debt is paid or the 
debtor receives a discharge.
    Protections for unsecured creditors. H.R. 333 contains 
various reforms tailored to remedy certain types of fraud and 
abuse within the present bankruptcy system. For example, the 
bill substantially limits a debtor's ability to file successive 
bankruptcy cases. It also addresses abusive practices by 
consumer debtors who, for example, knowingly load up with 
credit card purchases or recklessly obtain cash advances and 
then file for bankruptcy relief. In addition, H.R. 333 prevents 
the discharge of debts based on fraud, embezzlement, and 
malicious injury in a chapter 13 case.
    Protections for lessors. With respect to the interests of 
lessors, H.R. 333 requires chapter 13 debtors to remain current 
on their personal property leases and provide proof of adequate 
insurance. The bill specifies that a lessor may condition 
assumption of a personal property lease on cure of any 
outstanding default and it provides that a lessor is not 
required to permit such assumption. The bill also addresses a 
problem faced by thousands of small landlords across the nation 
whose tenants file for bankruptcy relief solely for the purpose 
of staying pending eviction proceedings so that they can live 
``rent free.''
    Consumer debtor protections. The bill's consumer 
protections include provisions strengthening the 
professionalism standards for attorneys and others who assist 
consumer debtors with their bankruptcy cases. H.R. 333 mandates 
that certain services and specified notices be provided to 
consumers by professionals and others who render bankruptcy 
assistance. To ensure compliance with these provisions, the 
bill institutes various enforcement mechanisms.
    In addition, H.R. 333 amends the Truth in Lending Act to 
require certain credit card solicitations, monthly billing 
statements, and related materials to include important 
disclosures and explanatory statements regarding introductory 
interest rates and minimum payments, among other matters. These 
additional disclosures are intended to give debtors important 
information to enable them to better manage their financial 
affairs.
    Reforms aimed to help debtors understand their rights and 
obligations with respect to reaffirmation agreements are also 
included in the legislation. To enforce these protections, for 
example, H.R. 333 requires the Attorney General to designate a 
U.S. Attorney for each judicial district and a FBI agent for 
each field office to have primary law enforcement 
responsibility regarding abusive reaffirmation practices.
    In addition, the legislation substantially expands a 
debtor's ability to exempt certain tax-qualified retirement 
accounts and pensions. It also creates a new provision that 
allows a consumer debtor to exempt certain education IRA and 
State tuition plans for his or her child's postsecondary 
education from the claims of creditors.
    Most importantly, H.R. 333 requires debtors to participate 
in credit counseling programs before filing for bankruptcy 
relief (unless special circumstances do not permit such 
participation). The legislation's credit counseling provisions 
are intended to give consumers in financial distress an 
opportunity to learn about the consequences of bankruptcy--such 
as the potentially devastating effect it can have on their 
credit rating--and guidance about how to manage their finances, 
so that they can avoid future financial difficulties.
    Other debtor protections include expanded notice 
requirements for consumers. Under the bill, individuals with 
primarily consumer debts must receive notice of alternatives to 
bankruptcy relief before they file for bankruptcy and it 
requires them to be informed of other matters pertaining to the 
integrity of the bankruptcy system. The legislation also 
permits certain filing fees and related charges to be waived, 
in appropriate cases, for individuals who lack the ability to 
pay these costs.
    Business Bankruptcy. H.R. 333 contains a comprehensive set 
of reforms pertinent to business bankruptcies. They include 
provisions addressing the special problems presented by small 
business bankruptcies and single asset real estate debtors as 
well as provisions dealing with business bankruptcy cases in 
general. H.R. 333 establishes a new form of bankruptcy relief 
for transnational insolvencies that is intended to promote 
international comity and greater certainty. It also includes 
provisions concerning the treatment of certain financial 
contracts under the banking laws as well as under the 
Bankruptcy Code. H.R. 333 responds to the special needs of 
family farmers by making chapter 12 of the Bankruptcy Code (a 
form of bankruptcy relief available only to eligible family 
farmers) permanent.
    Small business/single asset real estate debtors. Most 
chapter 11 cases are filed by small business debtors. Although 
the Bankruptcy Code envisions that creditors should play a 
major role in the oversight of chapter 11 cases, this often 
does not occur with respect to small business debtors. The main 
reason is that creditors in these smaller cases do not have 
claims large enough to warrant the time and money to 
participate actively in these cases. The resulting lack of 
creditor oversight creates a greater need for the United States 
trustee to monitor these cases closely. Nevertheless, the 
monitoring of these debtors by United States trustees varies 
throughout the nation.
    H.R. 333 addresses the special problems presented by small 
business cases by instituting a variety of time frames and 
enforcement mechanisms designed to weed out small business 
debtors who are not likely to reorganize. It also requires 
these cases to be more actively monitored by United States 
trustees and the bankruptcy courts. The small business and 
single asset real estate provisions of H.R. 333 are largely 
derived from consensus recommendations of the National 
Bankruptcy Review Commission.\43\ These provisions have also 
received broad support from many in the business community.\44\
---------------------------------------------------------------------------
    \43\ See generally Report of the National Bankruptcy Review 
Commission, at 303-706 (Oct. 20, 1997).
    \44\ See, e.g., Bankruptcy Abuse Prevention and Consumer Protection 
Act of 2001: Hearing Before the Subcomm. on Commercial and 
Administrative Law of the House Comm. on the Judiciary, 107th 
Cong.____(2001) (statement of R. Bruce Josten on behalf of the U.S. 
Chamber of Commerce).
---------------------------------------------------------------------------
    With regard to the Bankruptcy Code's treatment of single 
asset real estate debtors, H.R. 333 makes several amendments. 
First, it eliminates the monetary cap from the single asset 
real estate debtor definition. Second, it makes these debtors 
subject to the bill's small business reforms. Third, H.R. 333 
amends the automatic stay provisions by permitting a single 
asset real estate debtor to make requisite interest payments 
out of rents or other proceeds generated by the real property.
    Financial contracts. H.R. 333 contains a series of 
provisions pertaining to the treatment of certain financial 
transactions under the Bankruptcy Code and relevant banking 
laws. These provisions are intended to reduce ``systemic risk'' 
in the banking system and financial marketplace. To minimize 
the risk of disruption when parties to these transactions 
become bankrupt or insolvent, the bill amends provisions of the 
banking and investment laws, as well as the Bankruptcy Code, 
applicable to certain types of financial transactions.\45\ In 
addition to the Bankruptcy Code, the bill amends the Federal 
Deposit Insurance Act; Financial Institutions Reform, Recovery 
and Enforcement Act of 1989; Federal Deposit Insurance 
Corporation Improvement Act of 1991; Federal Reserve Act; and 
Securities Investor Protection Act of 1971.
---------------------------------------------------------------------------
    \45\ The report on H.R. 4393, a bill substantially similar to title 
X of H.R. 833 that was introduced in the 106th Congress by Banking and 
Financial Services Committee Chair James Leach (R-Iowa), explained as 
follows:

      Systemic risk is the risk that the failure of a firm or 
      disruption of a market or settlement system will cause 
      widespread difficulties at other firms, in other market 
      segments or in the financial system as a whole. If 
      participants in certain financial activities are unable to 
      enforce their rights to terminate financial contracts with 
      an insolvent entity in a timely manner, or to offset or net 
      their various contractual obligations, the resulting 
      uncertainty and potential lack of liquidity could increase 
---------------------------------------------------------------------------
      the risk of an inter-market disruption.

H. Rep. No. 105-688, Part 1, at 2 (1998).
    Many of these provisions are derived from recommendations 
issued by a presidential interagency working group \46\ and 
revisions espoused by the financial industry. Other provisions 
would treat certain asset-backed securitizations as valid 
transfers and limit the authority of a court or administrative 
agency to enjoin certain actions.
---------------------------------------------------------------------------
    \46\ The Working Group's members included representatives from the 
Commodity Futures Trading Commission, the Federal Deposit Insurance 
Corporation, the Board of Governors of the Federal Reserve System, the 
Federal Reserve Bank of New York, the Securities and Exchange 
Commission, and the Department of the Treasury, including the Office of 
the Comptroller of the Currency. Id. at 1.
---------------------------------------------------------------------------
    Transnational insolvencies. In response to the increasing 
globalization of business dealings and operations, the bill 
establishes a separate chapter under the Bankruptcy Code 
devoted to transnational insolvencies. These provisions are 
intended to provide greater legal certainty for trade and 
investment as well as to provide for the fair and efficient 
administration of these cases.
    Health care providers. H.R. 333 adds a provision to the 
Bankruptcy Code specifying requirements for the disposal of 
patient records in a chapter 7, 9, or 11 case of a health care 
business where the trustee lacks sufficient funds to pay for 
the storage of such records in accordance with applicable 
Federal or State law. These requirements are intended to 
protect the privacy and confidentiality of a patient's medical 
records when they are in the custody of a health care business 
in bankruptcy.
    In addition, the bill includes a provision according 
administrative expense priority to the actual, necessary costs 
and expenses of closing a health care business (including the 
disposal of patient records or transferral of patients) 
incurred by a trustee, Federal agency, or a department or 
agency of a State. It also requires the court to order the 
appointment of an ombudsman within 30 days after the 
commencement of a chapter 7, 9 or 11 case by a health care 
provider, unless the court finds that such appointment is not 
necessary for the protection of patients under the specific 
facts of the case. The ombudsman is responsible for monitoring 
the quality of patient care and to represent the interests of 
the patients. Other provisions include the requirement that a 
bankruptcy trustee use all reasonable and best efforts to 
transfer patients from a health care business that is being 
closed to an appropriate alternative facility that meets 
certain specified criteria.
    Other Provisions Having General Impact. H.R. 333 contains 
several provisions having general impact with respect to 
bankruptcy law and practice. For example, it requires the 
Executive Office for United States Trustees to compile various 
statistics regarding chapter 7, 11 and 13 cases and to make 
these data available to the public. Other general provisions 
include allowing compensation to be shared with bona fide 
public service attorney referral programs, and mandating that a 
bankruptcy court conduct scheduling conferences in bankruptcy 
cases if necessary to further the expeditious and economical 
resolution of such cases.
    The bill makes several revisions to the Bankruptcy Code's 
preference provisions. Under H.R. 333, a defendant in a 
preference action may establish that the transfer was made in 
the ordinary course of the debtor's financial affairs or 
business, or that the transfer was made in accordance with 
ordinary business terms. The bill also establishes a threshold 
amount as a prerequisite to the commencement of a preferential 
transfer proceeding. In addition, H.R. 333 amends the venue 
provisions for preferential transfer actions. A preferential 
transfer action in the amount of $10,000 or less would have to 
be filed in the district where the defendant resides. 
Currently, this amount is fixed at $1,000.

                                Hearings

    The committee held 2 days of hearings on H.R. 333 on 
February 7 and 8, 2001. Testimony was received from eight 
witnesses, representing seven organizations. During the course 
of the first hearing, the committee received testimony from 
Kenneth Beine on behalf of the Credit Union National 
Association who explained how the current bankruptcy system 
impacts small businesses and non-profits. The committee also 
received testimony from R. Bruce Josten on behalf of the U.S. 
Chamber of Commerce who described the current consumer 
bankruptcy law's adverse impact on businesses. In addition, the 
committee heard from Phillip Strauss, a professional with more 
than 25 years of experience in child support enforcement. 
Speaking on behalf of the California District Attorneys 
Association and the California Family Support Council, Mr. 
Strauss described the ways in which H.R. 333 would help ensure 
payment of these obligations. George Wallace, the final witness 
appeared on behalf of The Coalition for Responsible Bankruptcy 
Laws. He explained the differences between the version of the 
bill as reported by the committee in the 106th Congress and 
H.R. 333.
    The second day of hearings provided a different 
perspective. The witnesses included Charles Trapp, who was a 
former chapter 7 debtor. He was joined by Ralph Mabey, who 
appeared on behalf of the National Bankruptcy Conference and 
Professor Karen Gross of New York Law School. The final witness 
was Damon Silvers, who testified on behalf of the AFL-CIO. 
Although each of these witnesses acknowledged that H.R. 333 did 
make needed improvements to current bankruptcy law, they 
questioned the efficacy of certain provisions of the bill.

                        Committee Consideration

    On February 14, 2001, the committee met in open session and 
ordered favorably reported the bill H.R. 333 with amendment by 
a recorded vote of 19 to 8, a quorum being present.

                         Votes of the Committee

    1. An amendment offered by Mr. Conyers and Ms. Waters to 
create an exception to the nondischargeability of certain 
specified debts if the debtor's ability to pay domestic support 
obligations is impaired by such limitation on the debtor's 
discharge. Defeated 10 to 14.

        AYES                          NAYS
Mr. Conyers                         Mr. Sensenbrenner
Mr. Nadler                          Mr. Gekas
Mr. Watt                            Mr. Smith (TX)
Mr. Lofgren                         Mr. Goodlatte
Ms. Jackson Lee                     Mr. Chabot
Ms. Waters                          Mr. Barr
Mr. Meehan                          Mr. Hutchinson
Mr. Delahunt                        Mr. Cannon
Mr. Baldwin                         Mr. Graham
Mr. Weiner                          Mr. Bachus
                                    Mr. Hostettler
                                    Mr. Green
                                    Mr. Keller
                                    Ms. Hart

    2. An amendment offered by Mr. Watt to specify that the 
terms ``cash advances'' and ``extensions of consumer credit 
under an open end credit plan'' do not include expenditures 
reasonably necessary for the support or maintenance of the 
debtor or a dependent of the debtor with respect to determining 
the dischargeability of these debts. Defeated 8 to 15.

        AYES                          NAYS
Mr. Conyers                         Mr. Sensenbrenner
Mr. Nadler                          Mr. Gekas
Mr. Watt                            Mr. Smith (TX)
Mr. Lofgren                         Mr. Gallegly
Ms. Jackson Lee                     Mr. Goodlatte
Ms. Waters                          Mr. Chabot
Mr. Weiner                          Mr. Barr
Mr. Schiff                          Mr. Hutchinson
                                    Mr. Cannon
                                    Mr. Graham
                                    Mr. Bachus
                                    Mr. Hostettler
                                    Mr. Green
                                    Mr. Keller
                                    Ms. Hart

    3. An amendment offered by Mr. Conyers (1) to permit the 
extension of certain time periods pertaining to the assumption 
and rejection of unexpired leases of nonresidential real 
property, the filing of chapter 11 plans of reorganization and 
the obtaining of acceptances, the provision of adequate 
assurance of payment for utility service in a chapter 11 case, 
the performance of specified duties of trustees and debtors in 
possession in small business cases, and plan filing and 
confirmation in small business cases; and (2) to create an 
exception to the exclusion of asset-backed securitizations as 
property of the estate in section 912. Defeated 6 to 18.

        AYES                          NAYS
Mr. Nadler                          Mr. Sensenbrenner
Mr. Watt                            Mr. Gekas
Ms. Jackson Lee                     Mr. Smith (TX)
Ms. Waters                          Mr. Gallegly
Mr. Weiner                          Mr. Goodlatte
Mr. Schiff                          Mr. Barr
                                    Mr. Jenkins
                                    Mr. Hutchinson
                                    Mr. Cannon
                                    Mr. Graham
                                    Mr. Bachus
                                    Mr. Scarborough
                                    Mr. Hostettler
                                    Mr. Green
                                    Mr. Keller
                                    Mr. Issa
                                    Ms. Hart
                                    Mr. Flake

    4. An amendment offered by Mr. Nadler to make specified 
debts relating to violations of law concerning certain health 
care facilities and the provision of health services 
nondischargeable. Defeated 9 to 20.

        AYES                          NAYS
Mr. Nadler                          Mr. Sensenbrenner
Mr. Scott                           Mr. Gekas
Mr. Watt                            Mr. Coble
Mr. Lofgren                         Mr. Smith (TX)
Ms. Jackson Lee                     Mr. Gallegly
Ms. Waters                          Mr. Goodlatte
Ms. Baldwin                         Mr. Chabot
Mr. Weiner                          Mr. Barr
Mr. Schiff                          Mr. Jenkins
                                    Mr. Hutchinson
                                    Mr. Cannon
                                    Mr. Graham
                                    Mr. Bachus
                                    Mr. Scarborough
                                    Mr. Hostettler
                                    Mr. Green
                                    Mr. Keller
                                    Mr. Issa
                                    Ms. Hart
                                    Mr. Flake

    5. An amendment offered by Ms. Jackson Lee to prohibit a 
creditor in a bankruptcy case from asserting any claim if the 
creditor failed to comply with certain requirements of the 
Consumer Credit Protection Act for the amount of the debt that 
a debtor incurred on a credit card issued in violation of such 
requirements. Defeated 6 to 18.

        AYES                          NAYS
Mr. Scott                           Mr. Sensenbrenner
Mr. Watt                            Mr. Gekas
Ms. Jackson Lee                     Mr. Coble
Ms. Waters                          Mr. Smith (TX)
Ms. Baldwin                         Mr. Gallegly
Mr. Schiff                          Mr. Chabot
                                    Mr. Barr
                                    Mr. Jenkins
                                    Mr. Hutchinson
                                    Mr. Cannon
                                    Mr. Graham
                                    Mr. Bachus
                                    Mr. Scarborough
                                    Mr. Hostettler
                                    Mr. Green
                                    Mr. Keller
                                    Ms. Hart
                                    Mr. Flake

    6. An amendment offered by Mr. Watt to an amendment by Ms. 
Waters to exempt certain debtors from specified filing 
requirements. Defeated 9 to 13.

        AYES                          NAYS
Mr. Scarborough                     Mr. Sensenbrenner
Mr. Conyers                         Mr. Gekas
Mr. Frank                           Mr. Coble
Mr. Scott                           Mr. Goodlatte
Mr. Watt                            Mr. Chabot
Ms. Waters                          Mr. Hutchinson
Mr. Delahunt                        Mr. Bachus
Ms. Baldwin                         Mr. Hostettler
Mr. Schiff                          Mr. Green
                                    Mr. Keller
                                    Mr. Issa
                                    Ms. Hart
                                    Mr. Flake

    7. An amendment offered by Ms. Waters to provide that the 
exceptions to the automatic stay do not apply to certain types 
of debtors. Defeated 9 to 13.

        AYES                          NAYS
Mr. Conyers                         Mr. Sensenbrenner
Mr. Frank                           Mr. Gekas
Mr. Scott                           Mr. Smith (TX)
Ms. Jackson Lee                     Mr. Chabot
Ms. Waters                          Mr. Barr
Mr. Meehan                          Mr. Hutchinson
Ms. Baldwin                         Mr. Graham
Mr. Weiner                          Mr. Bachus
Mr. Schiff                          Mr. Hostettler
                                    Mr. Green
                                    Mr. Keller
                                    Mr. Issa
                                    Ms. Hart

    8. An amendment offered by Mr. Meehan to require the 
applicable State median income amount specified in sections 102 
(needs-based reforms) and 318 (duration of chapter 13 plans) to 
be adjusted, under certain circumstances, to reflect the 
percentage change in the Consumer Price Index for All Urban 
Consumers for each subsequent year during which median income 
is not reported by the Bureau of the Census. Defeated 9 to 13.

        AYES                          NAYS
Mr. Conyers                         Mr. Sensenbrenner
Mr. Frank                           Mr. Gekas
Mr. Scott                           Mr. Smith (TX)
Mr. Watt                            Mr. Barr
Ms. Jackson Lee                     Mr. Hutchinson
Mr. Meehan                          Mr. Graham
Mr. Delahunt                        Mr. Bachus
Ms. Baldwin                         Mr. Scarborough
Mr. Schiff                          Mr. Hostettler
                                    Mr. Green
                                    Mr. Keller
                                    Ms. Hart
                                    Mr. Flake

    9. An amendment offered by Mr. Delahunt to eliminate the 2-
year reachback period applicable to the exemption limitation in 
section 322 and to increase the exemption amount to $500,000. 
Defeated 6 to 18.

        AYES                          NAYS
Mr. Scott                           Mr. Sensenbrenner
Mr. Watt                            Mr. Gekas
Ms. Waters                          Mr. Coble
Mr. Delahunt                        Mr. Smith (TX)
Ms. Baldwin                         Mr. Chabot
Mr. Schiff                          Mr. Barr
                                    Mr. Hutchinson
                                    Mr. Graham
                                    Mr. Bachus
                                    Mr. Scarborough
                                    Mr. Hostettler
                                    Mr. Green
                                    Mr. Keller
                                    Mr. Issa
                                    Ms. Hart
                                    Mr. Flake
                                    Ms. Jackson Lee
                                    Mr. Wexler

    10. An amendment offered by Ms. Baldwin to accord 
administrative expense priority under section 503(b)(1)(A) of 
the Bankruptcy Code to wages and benefits attributable to any 
period of time after a bankruptcy case is filed as a result of 
the debtor's violation of Federal or State law, without regard 
to when the original unlawful act occurred or to whether any 
services were rendered. Defeated 3 to 15.

        AYES                          NAYS
Mr. Watt                            Mr. Sensenbrenner
Ms. Baldwin                         Mr. Gekas
Mr. Schiff                          Mr. Coble
                                    Mr. Smith (TX)
                                    Mr. Chabot
                                    Mr. Barr
                                    Mr. Hutchinson
                                    Mr. Graham
                                    Mr. Bachus
                                    Mr. Hostettler
                                    Mr. Green
                                    Mr. Keller
                                    Mr. Issa
                                    Ms. Hart
                                    Mr. Flake

    11. An amendment offered by Ms. Baldwin to expand the 
Bankruptcy Code's definition of ``family farmer''. Defeated 4 
to 13.

        AYES                          NAYS
Mr. Scott                           Mr. Sensenbrenner
Mr. Watt                            Mr. Gekas
Ms. Baldwin                         Mr. Coble
Mr. Schiff                          Mr. Smith (TX)
                                    Mr. Chabot
                                    Mr. Barr
                                    Mr. Hutchinson
                                    Mr. Graham
                                    Mr. Bachus
                                    Mr. Keller
                                    Mr. Issa
                                    Ms. Hart
                                    Mr. Flake

    12. An amendment offered by Mr. Schiff to amend a safe 
harbor provision in section 102 with respect to the treatment 
of spousal income. Defeated 5 to 13.

        AYES                          NAYS
Mr. Scott                           Mr. Sensenbrenner
Mr. Watt                            Mr. Gekas
Ms. Waters                          Mr. Coble
Ms. Baldwin                         Mr. Chabot
Mr. Schiff                          Mr. Barr
                                    Mr. Hutchinson
                                    Mr. Graham
                                    Mr. Bachus
                                    Mr. Hostettler
                                    Mr. Green
                                    Mr. Issa
                                    Ms. Hart
                                    Mr. Flake

    13. An amendment offered by Mr. Schiff to require the 
Comptroller General of the United States to study and file a 
report containing the results of the study to determine any 
effect that H.R. 333 has on the ability of a parent to pay 
child support or the ability of a parent to collect child 
support. Defeated 5 to 16.

        AYES                          NAYS
Mr. Scott                           Mr. Sensenbrenner
Mr. Watt                            Mr. Gekas
Ms. Waters                          Mr. Coble
Ms. Baldwin                         Mr. Smith (TX)
Mr. Schiff                          Mr. Chabot
                                    Mr. Barr
                                    Mr. Hutchinson
                                    Mr. Cannon
                                    Mr. Graham
                                    Mr. Bachus
                                    Mr. Hostettler
                                    Mr. Green
                                    Mr. Keller
                                    Mr. Issa
                                    Ms. Hart
                                    Mr. Flake

    14. Part one of an amendment offered by Mr. Sensenbrenner, 
which conforms the fee allocation percentage in section 325 
with that specified under Section 406(b) of the Judiciary 
Appropriations Act, as amended. Passed 22 to 0.

        AYES                          NAYS
Mr. Sensenbrenner
Mr. Gekas
Mr. Smith (TX)
Mr. Goodlatte
Mr. Chabot
Mr. Barr
Mr. Hutchinson
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Scarborough
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
Mr. Nadler
Mr. Scott
Mr. Watt
Ms. Baldwin
Mr. Schiff

    15. Part two of an amendment by Mr. Sensenbrenner to 
conform a statutory cross reference necessitated by the 
enactment of the Commodity Futures Modernization Act of 2000. 
Passed 21 to 0.

        AYES                          NAYS
Mr. Sensenbrenner
Mr. Gekas
Mr. Goodlatte
Mr. Chabot
Mr. Barr
Mr. Hutchinson
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Scarborough
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
Mr. Nadler
Mr. Scott
Mr. Watt
Ms. Baldwin
Mr. Schiff

    16. Motion to move the previous question. Passed 18 to 5.

        AYES                          NAYS
Mr. Sensenbrenner                   Mr. Conyers
Mr. Gekas                           Mr. Scott
Mr. Coble                           Mr. Watt
Mr. Goodlatte                       Ms. Baldwin
Mr. Chabot                          Mr. Schiff
Mr. Barr
Mr. Hutchinson
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Scarborough
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
Mr. Nadler

    17. Motion to table the motion to reconsider the vote 
ordering the previous question. Passed 18 to 7.

        AYES                          NAYS
Mr. Sensenbrenner                   Mr. Conyers
Mr. Gekas                           Mr. Nadler
Mr. Coble                           Mr. Scott
Mr. Smith (TX)                      Mr. Watt
Mr. Goodlatte                       Ms. Jackson Lee
Mr. Chabot                          Ms. Baldwin
Mr. Barr                            Mr. Schiff
Mr. Hutchinson
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Scarborough
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake

    18. Motion to report favorably H.R. 333, as amended. Passed 
19 to 8.

        AYES                          NAYS
Mr. Sensenbrenner                   Mr. Conyers
Mr. Gekas                           Mr. Nadler
Mr. Coble                           Mr. Scott
Mr. Smith (TX)                      Mr. Watt
Mr. Goodlatte                       Ms. Jackson Lee
Mr. Chabot                          Ms. Waters
Mr. Barr                            Ms. Baldwin
Mr. Hutchinson                      Mr. Schiff
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Scarborough
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
Mr. Boucher

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the committee reports that the 
findings and recommendations of the committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

                    Performance Goals and Objectives

    The bill is intended to improve the bankruptcy system by 
deterring abuse, setting enhanced standards for bankruptcy 
professionals, and streamlining case administration.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of House Rule XIII is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

                        Committee Cost Estimate

    The estimate of the Congressional Budget Office (CBO) was 
not available at the time of the filing of this report. In 
compliance with clause 3(d)(2) of rule XIII of the Rules of the 
House of Representatives, the committee believes that the bill 
will have a budget effect for fiscal year 2001 and subsequent 
years comparable to that projected by the CBO for H.R. 833, the 
Bankruptcy Reform Act of 1999, a bill substantively similar to 
H.R. 333 that was passed by the House during the 106th 
Congress, with some differences. Although H.R. 333 and H.R. 833 
both authorize the extension of five existing temporary 
bankruptcy judgeships, H.R. 333 authorizes 23 new temporary 
bankruptcy judges (five more than H.R. 833). With salaries and 
benefits considered as mandatory costs, the committee estimates 
that these costs may approximate $ 14 million a year over 5 
years. The committee believes that this provision is necessary 
to facilitate the improvements proposed by the legislation and 
will enhance the efficiency of the system.
    As indicated, H.R. 333 is substantially similar to H.R. 
833. In a letter dated May 5, 1999, the CBO prepared an initial 
Federal cost estimate and an assessment of H.R. 833's impact on 
state, local, and tribal governments. \1\ In that cost 
estimate, the CBO stated that implementing H.R. 833 would 
``cost $333 million over the 2000-2004 period--$322 million in 
discretionary spending, subject to appropriation of the 
necessary funds''. In addition, the CBO observed that because 
H.R. 833 would have decreased ``receipts by about $4 million 
over the next 5 years,'' the bill would have affected direct 
spending and governmental receipts and pay-as-you-go procedures 
would apply. With regard to the Unfunded Mandates Reform Act 
(UMRA), the CBO noted that H.R. 833 contained an 
intergovernmental mandate, but that the bill's ``costs would be 
insignificant and would not exceed the threshold established in 
that act ($50 million in 1996, adjusted annually for 
inflation).'' As to new private-sector mandates (as defined in 
UMRA) that H.R. 833 would impose on bankruptcy attorneys, 
creditors, and credit and charge-card companies, CBO estimated 
that the costs of these mandates would exceed the $100 million 
(in 1996 dollars) threshold established in UMRA. ``Overall,'' 
the CBO expected that ``enacting this bill would benefit state 
and local governments by enhancing their ability to collect 
outstanding obligations in bankruptcy cases.''
---------------------------------------------------------------------------
    \1\ 145 Cong. Rec. H2656 (daily ed. May 5, 1999).
---------------------------------------------------------------------------
    The committee notes that H.R. 333 could result in some 
increased discretionary expenditures with regard to such 
matters integral to the reforms proposed as: a debtor financial 
management training test program; mandatory case auditing; and 
the compilation and publication of bankruptcy data and 
statistics as well as other provisions. However, costs related 
to some of these expenditures, such as increased auditing, are 
subject to appropriations and likely to be offset by enhanced 
collections resulting from greater protections accorded to 
Federal taxing authorities in Title VII of H.R. 333, as 
amended.

                     Committee Jurisdiction Letters

                     House Committee on Financial Services,
                                 Washington, DC, February 21, 2001.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Jim: On February 14, 2001, the Committee on the 
Judiciary ordered reported H.R. 333, the Bankruptcy Abuse 
Prevention and Consumer Protection Act of 2001. As you know, 
the Committee on Financial Services was granted an additional 
referral upon the bill's introduction pursuant to the 
Committee's jurisdiction under Rule X of the Rules of the House 
of Representatives over banks and banking, credit, and 
securities and exchanges.
    Because of your willingness to consult with the Committee 
on Financial Services regarding this matter, your continuing 
support for our requested changes, and the need to move this 
legislation expeditiously, I will waive consideration of the 
bill by the Financial Services Committee. By agreeing to waive 
its consideration of the bill, the Financial Services Committee 
does not waive its jurisdiction over H.R. 333. In addition, the 
Committee on Financial Services reserves its authority to seek 
conferees on any provisions of the bill that are within the 
Financial Services Committee's jurisdiction during any House-
Senate conference that may be convened on this legislation. I 
ask your commitment to support any request by the Committee on 
Financial Services for conferees on H.R. 333 or related 
legislation.
    I request that you include this letter and your response as 
part of your committee's report on the bill and the 
Congressional Record during consideration of the legislation on 
the House floor.
    Thank you for your attention to these matters.
            Sincerely,
                                Michael G. Oxley, Chairman.

MGO/hnh

cc:
        The Honorable J. Dennis Hastert, Speaker
        The Honorable John J. LaFalce
        The Honorable Spencer Baccus
        The Honorable Richard H. Baker
        The Honorable Charles W. Johnson, III, Parliamentarian

                        Committee on the Judiciary,
                                  House of Representatives,
                                 Washington, DC, February 22, 2001.
Hon. Michael G. Oxley, Chairman,
House Committee on Financial Services,
Washington, DC.
    Dear Mike: This letter responds to your letter dated 
February 21, 2001, concerning H.R. 333, the ``Bankruptcy Abuse 
Prevention and Consumer Protection Act of 2001'' which was 
favorably reported by the House Committee on the Judiciary on 
February 14, 2001.
    I agree that the bill contains matters within the Financial 
Services Committee's jurisdiction and appreciate your 
willingness to be discharged from further consideration of H.R. 
333 so that we may proceed to the floor.
    Pursuant to your request, a copy of your letter and this 
letter will be included in the report of the Committee on the 
Judiciary on H.R. 333.
            Sincerely,
                     F. James Sensenbrenner, Jr., Chairman.

cc:
        The Honorable J. Dennis Hastert
        The Honorable John Conyers, Jr.
        The Honorable John J. LaFalce
        The Honorable Charles W. Johnson, III

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the committee finds the authority for 
this legislation in Article I, section 8, clauses 3 and 4 of 
the Constitution.

                        Preemption of State Law

    Pursuant to section 423(e) of the Congressional Budget and 
Impoundment Act, the committee states that the following 
provisions of H.R. 333 may preempt state law to the extent 
described herein.
    Section 219(b) provides that, notwithstanding any other 
provision of law, a creditor who discloses a debtor's last 
known address in connection with such request is not liable to 
the debtor or any other person by reason of making that 
disclosure.
    Section 227 contains provisions delineating the 
responsibilities that a ``debt relief agency'' must perform 
with respect to an ``assisted person'' and specifies the 
procedures for their enforcement. Section 227(a), in pertinent 
part, states that ``[n]o provision of this section, section 
527, or section 528 shall . . . annul, alter, affect, or exempt 
any person subject to such sections from complying with any law 
of any State except to the extent that such law is inconsistent 
with those sections, and then only to the extent of the 
inconsistency[.]''
    Section 417 permits a utility to recover or set off against 
a security deposit provided prepetition by the debtor to the 
utility without notice or court order, notwithstanding any 
other provision of law.
    Section 906 includes a number of provisions pertaining to 
the enforceability of certain bilateral netting contracts and 
clearing organization netting contracts, notwithstanding any 
other provision of state law.
    Section 1310(a) provides that notwithstanding any other 
provision of law or contract, a court within the United States 
shall not recognize or enforce certain judgments rendered by 
foreign courts under specified circumstances.

               Section-by-Section Analysis and Discussion

Section 1. Short Title; References; Table of Contents
    The title of the bill is the Bankruptcy Abuse Prevention 
and Consumer Protection Act of 2001 (hereinafter the ``Act'').

                    TITLE I. NEEDS-BASED BANKRUPTCY

Section 101. Conversion
    Section 101 amends section 706(c) of the Bankruptcy Code to 
allow a chapter 7 case to be converted to a case under chapter 
12 or chapter 13 on consent of the debtor.
Section 102. Dismissal or conversion
    Section 102 implements the Act's needs-based bankruptcy 
reforms. Subsection (a) amends section 707(b) of the Bankruptcy 
Code to permit a court, on its own motion, or on motion of the 
United States trustee, trustee, bankruptcy administrator, or 
party in interest, to dismiss on the basis of abuse a chapter 7 
case filed by an individual debtor whose debts are primarily 
consumer debts. Alternatively, it permits the United States 
trustee, trustee, bankruptcy administrator, or party in 
interest to seek conversion of a chapter 7 case to a case under 
chapter 11 or chapter 13 on consent of the debtor. Under 
current law, only the court or the United States Trustee may 
seek dismissal of a chapter 7 case under section 707(b) for 
substantial abuse.
    In addition, section 102(a) replaces the current law's 
presumption in favor of the debtor with a mandatory presumption 
of abuse that is triggered under certain conditions. Section 
102(a) requires a court to presume that abuse exists if the 
amount remaining, after certain expenses and other specified 
amounts are deducted from the debtor's current monthly income 
(a defined term), when multiplied by 60, exceeds (1) 25 percent 
of the debtor's nonpriority unsecured claims, or $6000 
(whichever is greater); or (2) $10,000, whichever is lower. 
Under section 102(a), the debtor's monthly expenses--exclusive 
of any payments for debts (unless otherwise permitted)--must be 
the applicable monthly amounts set forth in the Internal 
Revenue Service Financial Analysis Handbook as Necessary 
Expenses under the National and Local Standards categories and 
the debtor's actual monthly expenditures for items categorized 
as Other Necessary Expenses in the Internal Revenue Service 
Financial Analysis Handbook. For purposes of this provision, 
the expenses include those of the debtor, the debtor's 
dependents, and the debtor's spouse, if not otherwise a 
dependent.
    Section 102(a) mandates that the debtor's monthly expenses 
include reasonably necessary expenses incurred to maintain the 
safety of the debtor and the debtor's family from family 
violence as identified in section 309 of the Family Violence 
Prevention and Services Act or other applicable law. In 
addition, the debtor may deduct up to an additional 5 percent 
of the food and clothing expense allowances under the National 
Standards category, if demonstrated to be reasonable and 
necessary.
    For purposes of determining whether the mandatory 
presumption of abuse applies under the needs-based test, 
section 102(a) permits the debtor to deduct certain other 
liabilities. These include the debtor's average monthly 
payments on account of secured debts, calculated as the total 
of all amounts scheduled as contractually due over the 60-month 
period following the filing of the bankruptcy, divided by 60 
months. This amount may include any additional payments to 
secured creditors that a chapter 13 debtor must make to retain 
possession of a primary residence, motor vehicle, or other 
property necessary for the support of the debtor and the 
debtor's dependents. With respect to claims and expenses 
entitled to priority under section 507 of the Bankruptcy Code, 
section 102(a) specifies that the debtor may deduct payments 
for these obligations, calculated as the total amount of all 
priority debts, divided by 60. If applicable, the debtor may 
deduct the following additional expenses:

        (1) the continuation of actual expenses paid by the 
        debtor that are reasonable and necessary for the care 
        and support of an elderly, chronically ill, or disabled 
        household member or member of the debtor's immediate 
        family who is unable to pay such expenses;
        (2) the actual administrative expenses (including 
        reasonable attorneys' fees) of administering a chapter 
        13 plan for the district in which the debtor resides, 
        up to 10 percent of projected plan payments, as 
        determined under schedules issued by the Executive 
        Office for United States Trustees; and
        (3) the actual expenses for each dependent child under 
        the age of 18 years up to $1,500 per year per child to 
        attend a private elementary or secondary school, if the 
        debtor documents these expenses and provides a detailed 
        explanation of why they are reasonable and necessary.

    The mandatory presumption of abuse may only be rebutted if 
(1) the debtor demonstrates special circumstances that justify 
any additional expense or adjustment to the debtor's current 
monthly income for which there is no reasonable alternative; 
and (2) such additional expense or income adjustment causes the 
debtor's current monthly income (reduced by various amounts) 
when multiplied by 60 to be less than the lesser of either (i) 
25 percent of the debtor's nonpriority unsecured claims, or 
$6,000 (whichever is greater), or (ii) $10,000. The debtor must 
itemize and provide documentation of each additional expense or 
income adjustment and an explanation of the special 
circumstances that make such expense or income adjustment 
reasonable and necessary. In addition, the debtor must attest 
under oath to the accuracy of any information provided to 
demonstrate that such additional expenses or adjustments to 
income are required.
    Section 102(a) specifies that the debtor file a statement 
of current monthly income and the calculations that determine 
whether a presumption arises under this provision as part of 
the schedules that the debtor must file pursuant to section 521 
of the Bankruptcy Code. The statement must also explain how 
each amount is calculated.
    Where the mandatory presumption of abuse does not apply or 
has been rebutted, the court, in order to determine whether the 
granting of relief under chapter 7 would be an abuse of such 
chapter, must consider (1) whether the debtor filed the chapter 
7 case in bad faith; or (2) whether the totality of 
circumstances of the debtor's financial situation (including 
whether the debtor seeks to reject a personal services contract 
and the financial need for such rejection) demonstrates abuse.
    Should a court grant a section 707(b) motion made by a 
trustee and find that the action of debtor's counsel in filing 
the chapter 7 case violated Federal Rule of Bankruptcy 
Procedure 9011, section 102(a) mandates that the court order 
the attorney to reimburse the trustee for all reasonable costs 
in prosecuting the motion, including reasonable attorneys' 
fees. In addition, if the court finds that the debtor's 
attorney violated rule 9011, the court, at a minimum, must 
assess an appropriate civil penalty, payable to the trustee, 
bankruptcy administrator, or the United States trustee.
    Section 102(a) specifies that the signature of an attorney 
on a bankruptcy petition, pleading, or written motion 
constitutes a certification that the attorney has (1) performed 
a reasonable investigation into the circumstances giving rise 
to such petition, pleading or motion; and (2) determined that 
the document is well grounded in fact or 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 section 707(b)(1) of the Bankruptcy Code. Pursuant to 
section 102(a), the signature of an attorney on a bankruptcy 
petition constitutes a certification that the attorney has no 
knowledge after an inquiry that the information in the 
schedules filed with such petition is incorrect.
    A court may award a debtor all reasonable costs, including 
reasonable attorneys' fees, incurred by the debtor in 
successfully contesting a section 707(b) motion brought by a 
party in interest (other than a trustee, United States trustee 
or bankruptcy administrator) if the court finds that either (1) 
the action of the party in filing the motion violated rule 9011 
or (2) the party filed the motion solely for the purpose of 
coercing the debtor into waiving a right guaranteed to the 
debtor under the Bankruptcy Code. An exception with respect to 
the rule 9011 ground applies to a small business having an 
aggregate claim of less than $1,000. For purposes of this 
provision, a small business is defined as an unincorporated 
business, partnership, corporation, association, or 
organization with less than 25 full-time employees that is 
engaged in commercial or business activity. The number of 
employees of a wholly-owned subsidiary of a corporation 
includes the employees of the subsidiary's parent corporation 
and any other subsidiary corporation of the parent corporation.
    Two forms of ``safe harbors'' are recognized under section 
102(a). One provides that only a judge, United States trustee, 
bankruptcy administrator, or trustee may bring a motion under 
section 707(b) of the Bankruptcy Code if the chapter 7 debtor's 
income (or in a joint case, the income of debtor and the 
debtor's spouse) does not exceed the State median family income 
for a family of equal or lesser size (adjusted for larger sized 
families), or the State median family income for one earner in 
the case of a one-person household. The second safe harbor 
provides that no motion under section 707(b)(2) may be filed by 
a judge, United States trustee, bankruptcy administrator, 
trustee, or other party in interest if the debtor and the 
debtor's spouse combined have income that does not exceed the 
State median family income for a family of equal or lesser size 
(adjusted for larger sized families), or the State median 
family income for one earner in the case of a one-person 
household.
    Section 102(b) defines ``current monthly income'' as the 
average monthly income from all sources that the debtor 
receives (or, in a joint case, the debtor and the debtor's 
spouse receive), without regard to whether it is taxable 
income, in the 6-month period preceding the date of 
determination. It includes any amount paid on a regular basis 
by any entity (other than the debtor or, in a joint case, the 
debtor and the debtor's spouse) to the household expenses of 
the debtor or the debtor's dependents and, in a joint case, the 
debtor's spouse, if not otherwise a dependent. It excludes 
Social Security Act benefits and payments to victims of war 
crimes or crimes against humanity on account of their status as 
victims of such crimes.
    Section 102(c) amends section 704 to require the United 
States trustee or bankruptcy administrator to review all 
materials filed by an individual chapter 7 debtor and to file 
with the court not later than 10 days after the date of the 
first meeting of creditors a statement as to whether or not the 
case should be presumed to be an abuse under section 707(b). 
The court, in turn, must provide a copy of such statement 
within 5 days of its filing to all creditors.
    If the United States trustee or bankruptcy administrator 
determines that the debtor's case should be presumed to be an 
abuse under section 707(b) and the debtor's current monthly 
income is not less than the applicable State median income, 
such United States trustee or bankruptcy administrator must 
file within 30 days after the filing of the statement 
(described in the preceding paragraph) either a (1) motion to 
dismiss or convert the case under section 707(b); or (2) a 
statement setting forth the reasons why such a motion is not 
appropriate. In a case where a motion to dismiss or convert or 
a statement is required to be filed under section 704(b)(2), 
the United States trustee or bankruptcy administrator may 
decline to file such a motion if (1) the debtor's current 
monthly income (when multiplied by 12) exceeds 100 percent, but 
does not exceed 150 percent of the applicable State median 
income; and (2) after subtracting certain deductions, the 
debtor's remaining income when multiplied by 60 is 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.
    Section 102(d) amends section 342 of the Bankruptcy Code to 
require the clerk to give written notice to all creditors not 
later than 10 days after the filing of a chapter 7 case in 
which the presumption of abuse applies. It is anticipated that 
the Judicial Conference of the United States will develop an 
official form to implement this provision.
    Section 102(e) specifies that no provision of the 
Bankruptcy Code shall limit the ability of a creditor to supply 
information to a judge (except for information communicated ex 
parte, unless otherwise permitted by applicable law), United 
States trustee, bankruptcy administrator, or trustee.
    Section 102(f) amends section 707 of the Bankruptcy Code to 
provide that a court may dismiss a chapter 7 case filed by an 
individual debtor convicted of a crime of violence (as defined 
in 18 U.S.C. Sec. 16), or a drug trafficking crime (as defined 
in 18 U.S.C. Sec. 924(c)(2)) on motion of the victim, if 
dismissal is in the best interest of such victim. The court, 
however, may not dismiss a case under this provision if the 
debtor establishes by a preponderance of the evidence that the 
filing of the chapter 7 case is necessary to satisfy a domestic 
support obligation.
    Section 102(g) amends section 1325(a) of the Bankruptcy 
Code to require the court to find, as a condition of 
confirmation, that the debtor filed the chapter 13 case in good 
faith.
    Section 102(h) amends section 1325(b) of the Bankruptcy 
Code to revise the definition of disposable income. As revised, 
the term means current monthly income received by the debtor 
(exclusive of child support payments, foster care payments, or 
disability payments for a dependent child made in accordance 
with applicable nonbankruptcy law to the extent reasonably 
necessary to be expended for such child), less amounts 
reasonably necessary to be expended for (1) the maintenance or 
support of the debtor or dependent of the debtor; (2) a 
domestic support obligation that first becomes due after the 
petition is filed; (3) certain charitable contributions; and 
(4) if the debtor is engaged in business, the payment of 
expenditures necessary for the continuation, preservation, and 
operation of such business. If the debtor's income exceeds the 
applicable State median income threshold, then the expenses of 
the debtor under this provision are determined in accordance 
with section 707(b)(2)(A) and (B), which specifies what monthly 
expenses a debtor may claim.
    Section 102(i) makes a clerical amendment to the table of 
sections.
Section 103. Sense of Congress and study
    Section 103(a) states that it is the sense of Congress that 
the Secretary of the Treasury has the authority to alter the 
Internal Revenue Service expense standards established to set 
guidelines for repayment plans as needed to accommodate their 
use under section 707(b) of the Bankruptcy Code.
    Section 103(b) requires the Director of the Executive 
Office for United States Trustees to submit a report, not later 
than 2 years from the enactment date of the Act, containing 
findings with regard to the use of the Internal Revenue Service 
expense standards for determining a debtor's current monthly 
expenses under section 707(b) of the Bankruptcy Code and the 
impact that these standards have on debtors and the bankruptcy 
courts. The report may include recommendations for amendments 
to the Bankruptcy Code consistent with the Director's findings.
Section 104. Notice of alternatives
    Section 104 amends section 342(b) of the Bankruptcy Code to 
require the clerk to give an individual with primarily consumer 
debts--before he or she files for bankruptcy relief--notice of 
the following:

        (1) a brief description of the various forms of 
        bankruptcy relief, including an explanation of the 
        general purpose, benefits, and costs of proceeding 
        under each form of relief;
        (2) a brief description of the services available from 
        credit counseling agencies;
        (3) a statement explaining that a person who knowingly 
        and fraudulently conceals assets or makes a false oath 
        or statement under penalty of perjury shall be subject 
        to fine, imprisonment, or both; and
        (4) a statement explaining that all information 
        supplied by a debtor in connection with the case is 
        subject to examination by the Attorney General.
Section 105. Debtor financial management training test program
    Section 105(a) requires the Director of the Executive 
Office for United States trustees to (1) consult with debtor 
education experts and others who operate financial management 
education programs; and (2) develop a financial management 
training curriculum and materials to teach individual debtors 
how to manage their personal finances better.
    Section 105(b) requires the Director to select six judicial 
districts to test the effectiveness of such curriculum and 
materials for an 18-month period beginning not later than 270 
days after the Act's enactment date. The curriculum and 
materials shall be used in these six districts as the personal 
financial management instructional course required by section 
111 of the Bankruptcy Code, as added by the Act.
    Section 105(c) requires the Director to evaluate the 
effectiveness of the curriculum and materials as well as to 
assess the effectiveness of a sample of existing consumer 
education programs (such as those described in the Report of 
the National Bankruptcy Review Commission) that are 
representative of consumer education programs sponsored by the 
credit industry, chapter 13 trustees, and consumer counseling 
groups. Not later than 3 months after concluding such 
evaluation, the Director must submit a report on the 
effectiveness and cost of such curriculum, materials, and 
programs.
Section 106. Credit counseling
    Section 106(a) amends section 109 of the Bankruptcy Code to 
require, as a condition for eligibility to be a debtor, that an 
individual receive credit counseling within the 180-day period 
preceding the filing of a bankruptcy case by such individual. 
The credit counseling must be provided by an approved nonprofit 
budget and credit counseling agency consisting of either an 
individual or group briefing (which may include a briefing 
conducted telephonically or via the Internet) that outlines 
opportunities for available credit counseling and assists the 
individual in performing a budget analysis.
    The determination by the United States trustee or 
bankruptcy administrator with regard to whether approved 
nonprofit budget and credit counseling agencies in that 
district are not reasonably able to provide adequate services 
must be reviewed annually. The United States trustee or 
bankruptcy administrator, however, may disapprove a nonprofit 
budget and credit counseling service at any time.
    The mandatory credit counseling requirement does not apply 
if the debtor resides in a district where the United States 
trustee or bankruptcy administrator determines that the 
approved nonprofit budget and credit counseling agencies in 
that district are not reasonably able to provide adequate 
services.
    In addition, this requirement does not apply if the debtor 
files a certification that: (1) describes exigent circumstances 
meriting a waiver of this requirement; (2) states that the 
debtor requested credit counseling services from an approved 
nonprofit budget and credit counseling agency, but was unable 
to obtain such services within the 5-day period beginning on 
the date the debtor made the request; and (3) is satisfactory 
to the court. This exemption terminates when the debtor meets 
the requirements for credit counseling participation, but not 
longer than 30 days after the case is filed, unless the court, 
for cause, extends this period for an additional 15 days.
    Section 106(b) amends section 727(a) of the Bankruptcy Code 
to provide that a chapter 7 debtor's discharge must be denied 
if the debtor fails to complete a personal financial management 
instructional course after the filing of the bankruptcy case. 
This provision, however, does not apply if the debtor resides 
in a district where the United States trustee or bankruptcy 
administrator has determined that the approved instructional 
courses in that district are not adequate. Such determination 
must be reviewed annually by the United States trustee or 
bankruptcy administrator.
    Section 106(c) amends section 1328 of the Bankruptcy Code 
to add a chapter 13 debtor's failure to complete an 
instructional course concerning personal financial management 
as a ground for denying a discharge, unless the debtor resides 
in a district where the United States trustee or bankruptcy 
administrator has determined that the approved instructional 
courses in that district are not adequate. Such determination 
must be reviewed annually by the United States trustee or 
bankruptcy administrator.
    Section 106(d) amends section 521 of the Bankruptcy Code to 
mandate that an individual debtor file with the court a 
certificate from the approved nonprofit budget and credit 
counseling agency that rendered the requisite services 
described under section 109(h), as added by this act. The 
debtor must file a copy of the repayment plan, if any, that was 
developed by the agency together with the certificate, which 
must describe the services rendered.
    Section 106(e) adds a new provision to the Bankruptcy Code 
requiring the clerk for each district to maintain for the 
public's use a list of approved (1) credit counseling agencies 
that provide the services described in section 109(h) of the 
Bankruptcy Code, as added by this Act; and (2) personal 
financial management instructional courses. Under this 
provision, the United States trustee or bankruptcy 
administrator may only approve a credit counseling agency or 
personal financial management instructional course that 
satisfies certain specified criteria. If such agency or 
instruction course is approved, the approval may only be for a 
probationary period of up to 6 months. At the conclusion of the 
probationary period, the United States trustee or bankruptcy 
administrator may only approve such agency or instructional 
course for an additional 1-year period and thereafter for 
successive 1-year periods. Within 30 days after any final 
decision occurring after the expiration of the initial 
probationary period or after any 2-year period thereafter, an 
interested person may seek judicial review of such decision in 
the appropriate United States district court.
    In addition, section 106(e) provides that the United States 
district court may, at any time, investigate the qualifications 
of a credit counseling agency and request it to produce 
documents to ensure the agency's integrity and effectiveness. 
The district court may remove a credit counseling agency from 
the approved list that does not meet the specified 
qualifications. Section 106(e) prohibits a credit counseling 
agency from providing information as to whether an individual 
debtor has received or sought personal financial management 
instruction from such agency to a credit reporting entity.
    A credit counseling agency that willfully or negligently 
fails to comply with any requirement under the Bankruptcy Code 
with respect to a debtor shall be liable to the debtor for 
damages in an amount equal to (1) actual damages sustained by 
the debtor as a result of the violation and (2) any court costs 
or reasonable attorneys' fees incurred to recover such damages.
    Section 106(f) amends section 362 of the Bankruptcy Code in 
two respects. First, it provides that if a chapter 7, 11, or 13 
case is dismissed due to the creation of a debt repayment plan, 
the presumption under section 362(c)(2) shall not apply to any 
subsequent bankruptcy case commenced by the debtor. Second, it 
directs that the court, on request of a party in interest, must 
issue an order under section 362(c) confirming that the 
automatic stay has terminated.
Section 107. Schedules of reasonable and necessary expenses
    Section 107 requires the Director of the Executive Office 
for United States Trustees to issue schedules of reasonable and 
necessary administrative expenses (including reasonable 
attorneys' fees) relating to the administration of a chapter 13 
plan for each judicial district.

                 TITLE II. ENHANCED CONSUMER PROTECTION

          SUBTITLE A. PENALTIES FOR ABUSIVE CREDITOR PRACTICES

Section 201. Promotion of alternative dispute resolution
    Section 201(a) amends section 502 of the Bankruptcy Code to 
permit the court, after a hearing on motion of the debtor, to 
reduce a wholly unsecured consumer claim by up to 20 percent if 
the debtor can establish by clear and convincing evidence that 
the claim was filed by a creditor who unreasonably refused to 
negotiate a reasonable alternative repayment schedule proposed 
by an approved credit counseling agency on behalf of the 
debtor. The debtor must also establish by clear and convincing 
evidence that the offer was made at least 60 days before the 
filing of the petition. In addition, the offer must have 
provided for payment of at least 60 percent of the amount of 
the claim over a period not exceeding the loan's repayment 
period, or a reasonable extension thereof. Further, no part of 
the claim under the alternative repayment schedule may be 
nondischargeable.
    Section 201(b) amends section 547 of the Bankruptcy Code to 
prohibit the avoidance as a preferential transfer a payment by 
a debtor to a creditor pursuant to an alternative repayment 
plan created by an approved credit counseling agency.
Section 202. Effect of discharge
    Section 202 amends section 524 of the Bankruptcy Code in 
two respects. First, it makes the willful failure of a creditor 
to credit payments received under a confirmed chapter 11, 12, 
or 13 plan a violation of the discharge injunction if the 
creditor's action to collect and failure to credit payments 
caused material injury to the debtor. This provision does not 
apply if the plan is dismissed or in default, or where the 
creditor did not receive payments pursuant to the plan.
    Second, section 202 amends section 524 of the Bankruptcy 
Code to provide that the discharge injunction does not apply to 
an act by a creditor having a claim secured by an interest in 
real property that is the debtor's principal residence if such 
act is (1) in the ordinary course of business between the 
creditor and the debtor; and (2) limited to seeking or 
obtaining periodic payments associated with a valid security 
interest in lieu of the creditor pursuing in rem relief to 
enforce the underlying lien.
Section 203. Discouraging abuse of reaffirmation practices
    Section 203 consists of a comprehensive overhaul of the law 
applicable to reaffirmation agreements. Section 203(a) mandates 
the provision of certain specified disclosures, which are the 
only disclosures required in connection with a reaffirmation 
agreement. These disclosures must be in written form and be 
made clearly and conspicuously. In addition, the disclosure 
statement must include certain advisories and explanations. At 
the election of the creditor, the disclosure statement may 
include a repayment schedule. If the debtor is represented by 
counsel, section 203(a) mandates that the attorney file a 
certification stating, inter alia, that the agreement 
represents a fully informed and voluntary agreement by the 
debtor, that the agreement does not impose an undue hardship on 
the debtor or any dependent of the debtor, and that the 
attorney advised the debtor of the legal effect and 
consequences of such agreement. Where the presumption of undue 
hardship applies, the attorney must also certify that it is his 
or her opinion that the debtor is able to make the payments 
required under the reaffirmation agreement. Further, the debtor 
must submit a statement setting forth the debtor's monthly 
income and expenditures. If the debtor is represented by 
counsel and the debt being reaffirmed is owed to a credit 
union, a modified version of this statement may be used.
    Notwithstanding any other provision of the Bankruptcy Code, 
section 203(a) permits a creditor to (1) accept payments from a 
debtor before and after the filing of a reaffirmation agreement 
with the court; and (2) accept payments from a debtor pursuant 
to a reaffirmation agreement that the creditor believes in good 
faith to be effective. It further provides that certain 
specified disclosure requirements shall be satisfied if such 
disclosures are given in good faith.
    If the amount of the scheduled payment due on the 
reaffirmed debt (as disclosed in the debtor's statement) is 
greater than the debtor's available income, it is presumed for 
60 days from the date on which the reaffirmation agreement is 
filed with the court that the agreement presents an undue 
hardship. Section 203(a) requires the court to review such 
presumption, which can be rebutted if the debtor identifies in 
writing additional sources of funds that would enable the 
debtor to make the required payments on the reaffirmed debt. If 
the presumption is not rebutted to the satisfaction of the 
court, the court may disapprove the reaffirmation agreement. No 
reaffirmation agreement may be disapproved without notice and 
hearing to the debtor and creditor. The hearing must be 
concluded before the entry of the debtor's discharge. The 
requirements set forth in this paragraph do not apply to 
reaffirmation agreements where the creditor is a credit union, 
as defined.
    Section 203(b) requires the Attorney General to designate a 
U.S. attorney for each judicial district and an Federal Bureau 
of Investigation agent for each field office to have primary 
law enforcement responsibility for violations of sections 152 
and 157 of title 18 of the United States Code with respect to 
abusive reaffirmation agreements and materially fraudulent 
statements in bankruptcy schedules that are intentionally false 
or misleading. The U.S. attorney designated under this 
provision has primary responsibility with respect to bankruptcy 
investigations under section 3057 of title 18, United States 
Code. The bankruptcy courts must establish procedures for 
referring any case in which a materially fraudulent bankruptcy 
schedule has been filed. The provision also makes a clerical 
amendment to the table of sections in title 18.

                   SUBTITLE B. PRIORITY CHILD SUPPORT

Section 211. Definition of domestic support obligation
    Section 211 amends section 101 of the Bankruptcy Code to 
define a domestic support obligation as a debt that accrues 
pre- or postpetition (including interest that accrues pursuant 
to applicable nonbankruptcy law) and is owed to or recoverable 
by a spouse, former spouse, or child of the debtor, or that 
child's parent or legal guardian, or a responsible relative. It 
also includes a debt owed to or recoverable by a governmental 
unit. To qualify as a domestic support obligation, the debt 
must be in the nature of alimony, maintenance, or support, 
without regard to whether such debt is expressly so designated. 
It must be established or subject to establishment either pre- 
or postpetition pursuant to a: (i) separation agreement, 
divorce decree, or property settlement agreement; (ii) an order 
of a court of record; or (iii) a determination made in 
accordance with applicable nonbankruptcy law by a governmental 
unit. It does not apply to a debt assigned to a nongovernmental 
entity, unless it was assigned voluntarily by the spouse, 
former spouse, child, or parent solely for the purpose of 
collecting the debt.
Section 212. Priorities for claims for domestic support obligations
    Section 212 amends 507(a) of the Bankruptcy Code to make 
domestic support obligations owed to or recoverable by a 
spouse, former spouse, or child of the debtor, or the parent, 
legal guardian, or responsible relative of such child or filed 
by a governmental unit on behalf of such person payable before 
all other expenses and claims, including expenses of 
administration from the assets of a bankruptcy estate. Within 
this priority, allowed claims for domestic support obligations 
filed by a governmental unit must be paid on the condition that 
funds received by such unit under this provision be applied and 
distributed in accordance with nonbankruptcy law. Remaining 
funds may be used to pay a domestic support obligation assigned 
to a governmental unit (unless such obligation is assigned 
voluntarily by a spouse, former spouse, child, parent, legal 
guardian, or responsible relative of the child for the purpose 
of collecting the debt) or owed directly to such entity if the 
funds are applied and distributed in accordance with applicable 
nonbankruptcy law.
Section 213. Requirements to obtain confirmation and discharge in cases 
        involving domestic support obligations
    Section 213(1) amends section 1129(a) of the Bankruptcy 
Code to mandate the payment of certain postpetition domestic 
support obligations as a condition of confirmation in a chapter 
11 case. Section 213(2) amends section 1208(c) of the 
Bankruptcy Code to provide that the failure of a chapter 12 
debtor to pay a postpetition domestic support obligation 
constitutes cause for conversion or dismissal of the debtor's 
case. Section 213(3) amends section 1222(a) of the Bankruptcy 
Code to permit a chapter 12 debtor to propose a plan that 
provides for less than full payment of all amounts owed for a 
claim entitled to priority under section 507(a)(1)(B) if all of 
the debtor's projected disposable income for a 5-year period is 
applied to make payments under the plan. Section 213(4) amends 
section 1222(b) of the Bankruptcy Code to permit a chapter 12 
debtor, pursuant to a plan, to pay postpetition interest on 
claims that are nondischargeable under Section 1328(a), but 
only to the extent that the debtor has disposable income 
available to pay such interest after payment of all allowed 
claims. Section 213(5) amends section 1225(a) of the Bankruptcy 
Code to require a chapter 12 debtor to be current with certain 
postpetition domestic support obligations as a condition of 
confirmation. Section 213(6) amends section 1228(a) to 
condition the granting of a chapter 12 discharge on the 
debtor's payment of certain postpetition domestic support 
obligations. Section 213(7) amends section 1307 of the 
Bankruptcy Code to add nonpayment of a postpetition domestic 
support obligation as a ground for conversion or dismissal of a 
chapter 13 case. Section 213(8) amends section 1322(a) to 
permit a chapter 13 debtor, pursuant to a plan, to pay less 
than the full amount of a claim entitled to priority under 
section 507(a)(1)(B) if the plan provides that all of the 
debtor's projected disposable income over a 5-year period will 
be applied to make payments under the plan. Section 213(9) 
amends section 1322(b) to permit a chapter 13 debtor, pursuant 
to a plan, to pay postpetition interest on claims that are 
nondischargeable under section 1328(a), but only to the extent 
that the debtor has disposable income available to pay such 
interest after payment of all allowed claims. Section 213(10) 
amends section 1325(a) of the Bankruptcy Code to require, as a 
condition of confirmation, that a chapter 13 debtor pay certain 
postpetition domestic support obligations. Section 213(11) 
amends section 1328(a) of the Bankruptcy Code to condition the 
granting of a chapter 13 discharge on the debtor's payment of 
certain postpetition domestic support obligations.
Section 214. Exceptions to automatic stay in domestic support 
        proceedings
    Section 214 amends section 362(b) of the Bankruptcy Code to 
except from the automatic stay actions or proceedings 
pertaining to child custody and visitation, domestic violence, 
and marriage dissolution to the extent that they do not pertain 
to property determinations concerning property of the estate. 
In addition, section 214 amends section 362(b) to except from 
the automatic stay the withholding, suspension, or restriction 
of a driver's license, or a professional, occupational or 
recreational license under State law pursuant to section 
466(a)(16) of the Social Security Act. Further, section 214 
excepts from the automatic stay the reporting of overdue 
support owed by a parent to any consumer reporting agency 
pursuant to section 466(a)(7) of the Social Security Act; the 
interception of tax refunds as authorized by sections 464 and 
466(a)(3) of the Social Security Act; and the enforcement of 
medical obligations as specified under title IV of the Social 
Security Act.
Section 215. Nondischargeability of certain debts for alimony, 
        maintenance, and support
    Section 215 amends section 523(a)(5) of the Bankruptcy Code 
to provide that a ``domestic support obligation'' (as defined 
in section 211 of the Act) is nondischargeable. With respect to 
obligations that are not domestic support obligations, but 
incurred in connection with a divorce or separation or related 
action, section 215 provides that these obligations are also 
nondischargeable irrespective of the debtor's inability to pay 
such debts. In addition, section 215 amends section 523(c) of 
the Bankruptcy Code to delete the reference to section 
523(a)(15).
Section 216. Continued liability of property
    Section 216 amends section 522(c) of the Bankruptcy Code to 
make exempt property liable for nondischargeable domestic 
support obligations notwithstanding any contrary provision of 
applicable nonbankruptcy law. It also makes a conforming 
amendment to section 522(f)(1)(A) of the Bankruptcy Code and 
corrects an erroneous statutory reference in section 522(g)(2).
Section 217. Protection of domestic support claims against preferential 
        transfer motions
    Section 217 makes a conforming amendment to section 
547(c)(7) of the Bankruptcy Code, which provides that a bona 
fide payment of a debt for a domestic support obligation may 
not be avoided as a preferential transfer.
Section 218. Disposable income defined
    Section 218(a) amends section 1225(b)(2)(A) of the 
Bankruptcy Code to provide that disposable income in a chapter 
12 case does not include payments for postpetition domestic 
support obligations.
    Section 218(b) amends section 1325(b)(2)(A) of the 
Bankruptcy Code to provide that disposable income in a chapter 
13 case does not include payments for postpetition domestic 
support obligations.
Section 219. Collection of child support
    Section 219 amends sections 704, 1106, 1202, and 1302 of 
the Bankruptcy Code to require trustees in chapter 7, 11, 12, 
and 13 cases to provide certain types of notices to child 
support claimants and governmental enforcement agencies. First, 
the trustee must notify the claimant in writing of the right to 
use the services of a State child support enforcement agency 
established under sections 464 and 466 of the Social Security 
Act in the State where the claimant resides and include the 
agency's address and telephone number. The notice must also 
explain the claimant's right to payment under the applicable 
chapter of the Bankruptcy Code. Second, the trustee must 
provide written notice to the governmental enforcement agency 
of the name, address, and telephone number of the child support 
claimant. Third, the trustee must notify both the child support 
claimant and the State agency that the debtor was granted a 
discharge as well as supply them with the debtor's last known 
address, the last known name and address of the debtor's 
employer, and the name of each creditor holding a debt that is 
not discharged under section 523(a)(2)