105

To amend title 11, United States Code, to protect certain charitable contributions, and for other purposes.

To amend title 11, United States Code, provide for business bankruptcy reform, and for other purposes.
American Bankruptcy Institute

Analysis of S.1914 Business Reorganization Provisions

Written by:

Christian C. Onsager, Co-chair

ABI Business Reorganization Committee

Faegre & Benson LLP

Prepared by the American Bankruptcy Institute<

Web posted and Copyright ©

June 16, 1998, American Bankruptcy Institute.

The purpose of this paper to analyze the potential impact of S.1914 as it relates to business reorganizations. It is the product of the Business Reorganization Committee of the ABI. The ABI is the nation’s largest multidisciplinary organization of professionals devoted to research and education on issues related to insolvency. ABI’s more than 6,200 members represent both debtors and creditors in business and consumer cases. While ABI takes no advocacy positions on pending legislation, it regularly testifies before Congressional committees and provides analysis of the impact of such legislation.

Overall Comment

In 1994, Congress authorized and funded the National Bankruptcy Review Commission, which filed its report in October 1997. The Commission heard many hours of testimony by various interested parties and had the benefit of recommendations from its Working Groups. The ABI assisted the Commission by preparation of a survey on preference laws, a survey of ABI members’ impressions on various issues, and a series of symposia on nine different issues. The recommendations of the Commission are far-reaching and, in some instances, controversial.

The Commission’s final Report recognized that the Bankruptcy Code is a complicated and integrated system, composed of many pieces designed to balance the rights of the different interests. Since the adoption of the Code in 1978, there have been numerous amendments designed to address the concerns of a particular constituency. Such modifications to the system often have unintended consequences and provisions which appear to prefer a particular creditor group vis a vis a debtor may adversely affect the rights of other creditor groups. This often unintended effect can jeopardize potentially successful reorganizations. Successful cases preserve jobs and provide a source of continuing business for trade creditors.

Although the centerpiece of S.1914 relating to business reorganizations is the adoption of "small business bankruptcy" provisions, a number of other provisions of the Billcould significantly impact the business reorganization process and the rights of various constituencies.

Section by Section Analysis

Title IV

General Comment. One impetus for the creation of a separate procedure for small business cases is the perception that Chapter 11 in its current state is not "one size that fits all." The small business provisions may, however, not eliminate the perceived problems for small and medium size cases, if there is not sufficient flexibility to create exceptions when appropriate for the benefit of creditors and reorganizing businesses.

Section 401—Small Business Defined. S.1914 proposes to define small businesses in terms of a total noncontingent, liquidated, secured and unsecured debt of $5 million or less (excluding insider debt) or unlimited debt for single asset real estate debtors. Under these limits, approximately 86% of current Chapter 11 cases would be small business cases. The use of total unliquidated noncontingent debt has the advantage of relative certainty, and Bankruptcy Judges are generally familiar with this test.

The disadvantage of a binding debt limit test is that it is not always an accurate guide to the potential complexity of a reorganization case. Thus, many debtors with smaller amounts of liquidated debt, but large amounts of unliquidated potential liabilities, may be forced into a faster track Chapter 11 which is not necessarily in the best interests of thevarious creditors constituencies. Indeed, some of these constituencies may be holders of the unliquidated debt, such as tort claimants or holders of claims relating to environmental liabilities. For example, a Chapter 11 case in Maine involved a small independent power producer, which was a small town’s major employer. A flood disrupted its operations and created serious "downstream contamination" issues. Sorting out environmental claims (both potential and actual) and insurance coverage, as well as sale of the business, took over a year. A 150 day deadline would have caused the failure of the case to the detriment of the employees, the economy of the small town and the creditors.

Such cases are not unusual. At a minimum, some mechanism should be considered which would allow the court to "opt out" of the small business procedure in the appropriate case.

Section 402—Rules for Disclosure Statement and Plan. A disclosure statement is intended to contain such information as is necessary to allow creditors to cast an informed vote, but is often an item of considerable cost to even a small business debtor. Following a trend in the Bankruptcy Courts, Section 402 grants significant additional flexibility regarding the form, content and timing for approval of a disclosure statement in Chapter 11 cases. The ability to streamline a disclosure statement, especially in cases where the creditors are already familiar with the business, offers the advantage of expense reduction.

One concern is the language in proposed § 1125(f)(2)(B), which would allow a courtto eliminate a separate disclosure statement. The disclosure statement requires the debtor to set down in writing its forecasts and the assumptions on which such forecasts are based. The disclosure statement process serves as an important control on business debtors, as well as an important source of information for unsecured creditors who, as a body, are often not represented in smaller cases. If this section is read to permit the total elimination of the disclosure statement, it would shift the burden of discovering critical information to unrepresented creditors, who may be in the least favorable position to obtain and disseminate the information in a cost efficient manner. The court’s ability to streamline the disclosure statement to fit the case would provide beneficial flexibility.

Section 403—Standard Form Disclosure Statements and Plans. Section 403 proposes the development of standard form disclosure statements for small business cases. Such forms, particularly in very small cases, offers the potential advantage of reducing costs and providing often unsophisticated debtors with help as to the type of information to provide. Care should be taken so that any rule mandating the use of standard forms does not conflict with the flexibility of the court under proposed Section 402.

Section 404—Uniform National Reporting Requirements. Proposed section 404 would require periodic reports to be filed by the small business debtor with certain current and projected financials. The proposal requires basic information which virtually any debtor,including small business debtors, should be able to produce in order to allow the Court to evaluate their prospects for reorganization on an ongoing basis. In addition, the section would give the Bankruptcy Court flexibility to expand the reporting requirements if deemed appropriate.

Any increase in the cost or potential burden on management of the debtor should be deminiums as Section 404 would require only relatively simple and basic information.

Section 405—Uniform Reporting Rules and Forms. This section would require the development of Bankruptcy Rules regarding the uniform national reporting requirements mandated under section 404. Such rules would have the advantage of potentially reducing the cost of the reporting requirements and thus the cost of the overall reorganization effort. Standard forms would be disadvantageous only to the extent the rules do not provide sufficient flexibility to vary the forms when appropriate.

Section 406—Duties in Small Business Cases. This section would expand on the duties of a small business debtor. It would require the debtor either (i) to file its most recent "balance sheet," "statement of operations and cash flow statement" and its most recent federal income tax return, or (ii) to state that the financial statements and income tax returns are not available, all within three days of the filing of the petition. The apparent object of this expanded duty is to provide creditors and the U.S. Trustee with increased informationfrom the outset of the case, pending the filing of the schedules. The additional information would supplement the initial financial report already required to be filed with the U.S. Trustee, which is due fifteen days after filing of the petition.

There is an ambiguity regarding the contents of the statement of operations or a cash flow statement. Also, there is some question as to the utility of the information at the outset of the case, particularly for unsecured creditors. Much of the information will be contained in the schedules which, under the proposed statutory amendments, will have more stringent requirements. Accordingly, the additional burden on the debtor may add some cost while being of little use to creditors.

Section 406 would require either senior management or counsel to attend court scheduling conferences, initial debtor interviews, and the meeting of creditors. This statutory amendment does not appear to change current practice in most courts.

Section 406 would make it more difficult for a small business debtor to obtain an extension of the time to file schedules. There is limited flexibility given to the court to extend the deadline. The books and records of many small business debtors are in disarray and are often a contributing cause to a reorganization filing. Under the proposed language, it is unclear whether such disarray would constitute "extraordinary and compelling circumstances" that would merit an extension, and thus a case may fail unnecessarily to the potential detriment of unsecured creditors.

Section 406 would require timely filing of post-petition financial and other reports, the maintenance of insurance, and the timely filing of tax returns. This does not change existing practice in many courts.

Section 406 would require timely payment of all administrative expense tax claims, which is generally consistent with existing practice in many courts. The proposal is unclear as to whether a debtor is required to only make payment in the amount shown in a filed return even if the governmental taxing unit asserts a larger claim.

The proposed amendment would also require the debtor to establish separate accounts for the deposit of trust fund taxes. Segregation of such taxes is not required outside of bankruptcy and may result in some small increase in administrative expense.

Section 406 would also allow the U.S. Trustee, bankruptcy administrator or a designated representative to inspect the debtor’s business premises, books, and records after reasonable prior written notice. This provision would expand upon the existing rights of the U.S. Trustee or bankruptcy administrator, which are available only after notice to the debtor and opportunity for hearing in the event of any dispute. The provision raises due process concerns. Moreover, as a practical matter, the U.S. Trustee or bankruptcy administrator may not have the resources to conduct such inspections or the expertise to accurately analyze the information. The intent of "designated representative" is unclear, and could allow the designation of creditors or others whose interests are potentially adverse to the debtor. For example, provisions to preserve trade secrets are not included.

Section 407—Plan Filing and Confirmation Deadlines. Section 407 of the bill would set a statutory deadline of 90 days for the small business debtor to file a plan of reorganization and imposes stricter requirements on any extension. This section must be considered in connection with Sections 408 and 409 , which would require a court to confirm a plan within 150 days of the petition date and would only allow extension of confirmation on the same conditions. In some cases, these shortened deadlines may be appropriate to bring a measure of objective discipline to the process.

However, the use of deadlines presumes that speed equates with efficiency, lower cost, and the best interests of creditors. In many cases, the interests of the unsecured creditors are better served if confirmation is delayed. For example, a debtor may need additional time to carry out a changed marketing strategy; a turn-around expert may need additional time to actually accomplish the task of turning around the company’s business; or a company’s product may need additional development time. In many cases, it would appear the primary beneficiary of statutory deadlines for plan filing and confirmation are secured creditors. Thus, absent the ability of the Courts to grant extensions that would benefit unsecured creditors, sections 407, 408 and 409 appear to strengthen the protection of secured creditors at the expense of the often unrepresented unsecured creditors.

Further, Chapter 11 is often used to effectuate an asset sale of the company to a buyer who will continue some or all of the business. The proceeds of sale often significantly enhance the return to secured and unsecured creditors. As a practical matter, such casescannot be filed initially as Chapter 7 liquidation cases because a trustee does not have the ability to operate the business in order to maintain its going concern value. Once the sale has taken place, however, such cases are often converted to Chapter 7 as a more efficient mechanism for distributing the sale proceeds. The bidding and sale process may take longer than the proposed deadlines. Conditioning an extension of the statutory deadlines on a showing that a plan of reorganization can be confirmed may thus allow one creditor constituency to disrupt the sale process to the detriment of the other creditors.

The statutory deadlines also create practical mechanical and practical problems. Bankruptcy Rule 2002 requires at least 25 days’ notice of the hearing on approval of the disclosure statement and an additional 25 days’ notice for the hearing on confirmation. The statutes, however, leave only a 60-day gap between the time a plan may be filed and the time it must be confirmed (the difference between 90 and 150 days). There may also be an issue of availability on a court’s calendar.

Section 410—Duties of the United States Trustee and Bankruptcy Administrator. Section 410 of the bill would impose significant new duties on the office of the United States Trustee, including the obligation to investigate the debtor’s viability and to review and monitor the debtor’s activities throughout the case. There may be benefits from an institutionalized role for a bankruptcy examiner who could evaluate and monitor the debtor’s business for the benefit of creditors. In reality, however, this institutionalization may createmany problems. Chapter 11 filings encompass every conceivable kind of business with every conceivable kind of problem. A useful investigation of a debtor’s viability and business plan and monitoring of the debtor’s activities require numerous different types of expertise for each type of business. The U.S. Trustee’s office currently neither has this diverse expertise nor the funds with which to develop such expertise.

Moreover, there is the potential for a dramatic increase in the bureaucracy that would be required to implement these investigatory duties. The investigation and continuous monitoring of a debtor’s viability is not a process which takes one or two hours, if it is to be accurate and useful. In a strong economy, there are approximately 27,000 Chapter 11 filings a year. Of these, it is conservatively estimated that at least 80% will be small business cases as defined by the statute even if the average investigation and monitoring were only ten (10) hours per case, and the case load remained constant - it would take over five thousand full time employees. The resulting manpower needs could be significant.

Section 411—Scheduling Conferences. This proposed section would require the court to hold a status conference on its own motion or the request of any party. Generally, it reiterates a power which virtually all bankruptcy courts believe they can now exercise. Consideration should be given to changing the language "shall hold such status conferences" to "may hold such status conferences," so that each court will not be required to hold a conference at the whim of every creditor.

Section 412—Serial Filer Provisions. Generally, section 412 provides that the automatic stay will not be available to a small business debtor that files a new Chapter 11 case within two years of obtaining confirmation of a plan of reorganization in a prior case. Currently, whether and under what circumstances a debtor may file successive Chapter 11 cases differ from court to court. Courts either (a) allow a successive Chapter 11 filing subject to requirements of good faith; (b) allow a successive filing after a showing that the prior confirmed plan has failed for reasons that could not reasonably be foreseen or (c) prohibit all successive Chapter 11 filings. This provision provides certainty with regard to the ability to file sequential Chapter 11 cases.

However, rather than defining the requirements for a permissible second Chapter 11 filing, the proposal would remove the protections of the automatic stay in the second case unless the debtor makes certain evidentiary showings sufficient to justify a reimposition of the stay. This provides little relief for the unsecured creditors in the second filing. The proposal would benefit secured creditors at the potential expense of unsecured creditors.

However, the secured creditor may be allowed to foreclose before the debtor (and the potentially unsecured creditors) has obtained relief. This concern is reflected in the current Bankruptcy Code which provides for the stay to be automatic, subject to the right of a creditor to obtain an order "lifting" the stay in the appropriate circumstances.

The proposal would allow the debtor to obtain an order reimposing the stay in a second Chapter 11 case upon a showing that it could confirm a feasible plan, other than aliquidating plan. This appears to statutorily reverse the current assumption that a second Chapter 11 filed for the purpose of liquidation is presumptively in good faith. As noted, an liquidating Chapter 11 is often a useful vehicle to maximize the return for creditors by preserving the going concern value of all or some of the business pending a sale (i.e., pending a liquidation). For that reason, liquidating plans are often favored by both secured and unsecured creditors and the statute appears to eliminate this valuable use of Chapter 11 in serial filings for no apparent countervailing benefit. If, as a matter of policy, the reversal of burdens regarding the automatic stay is deemed the appropriate control mechanism for serial filings, it may be more appropriate to provide for automatic imposition of the stay as in all other bankruptcy cases, subject to reduction in burden of proof on the part of the secured creditor for its removal or a shift of the burden of proof to the debtor to support continuation of the stay.

Further we note that the proposed statute appears to be internally inconsistent. Subsection (1)(D) would appear to remove the stay in those circumstances in which subsection (3)(A) would impose it.

Section 413—Expanded Grounds for Dismissal or Conversion and Appointment of Trustee. Section 413 of the bill establishes additional grounds for dismissal or conversion of a Chapter 11 case. It also would set short deadlines within which the court must hold a hearing and rule on a motion to dismiss or convert. The list of new grounds are generallyduplicative of those currently examined by the courts and codification could provide uniformity.

Other language in the proposal warrants scrutiny. Currently, the bankruptcy court "may" dismiss a case upon the requisite showing, which generally relates to the "best interests" of creditors. The proposed section 413 appears to make dismissal mandatory if a creditor makes the requisite showing regardless of the best interests of the general creditor body. As a result a single creditor with its own agenda can cause a dismissal of the case to the disadvantage of the majority of other creditors, secured or unsecured. There appears to be little reason deprive the bankruptcy court to weigh the interests of all constituencies.

The proposed amendment would also impose specific deadlines by which the court must (a) hold a hearing and (b) decide the matter. The impetus for such deadlines appears to be a perception that certain courts defer or delay such decisions. Assuming this to be the case, the setting of mandatory deadlines for hearings can create problems for the court and creditors. The Bankruptcy Code already sets deadlines, with potentially severe consequences if such deadlines are not met (e.g.. relief from stay hearings). A full hearing on a motion to dismiss may take a half to a full day or more of court time. The Bankruptcy Courts may have difficulty fulfilling another statutory mandate to hold hearings in a relatively short period.

Section 414—Single Asset Real Estate Defined. Section 414 of the bill proposes three changes: (1) defining a single asset real estate as "a single development or project" ratherthan a "single property or project;" (2) excluding from the definition of single asset real estate property on which an affiliate of the debtor is conducting a substantial business (provided the affiliate is also in Chapter 11); and (3) eliminating the current $4 million dollar secured debt cap.

Clarification of the definition of "single asset real estate" would be beneficial, as the current statute is somewhat ambiguous. However, the suggested change does not appear to accomplish such a goal. Moreover, the change to "single development or project" combined with the elimination of any dollar cap on secured debt would expand the definition of single asset real estate cases to include many large real estate projects, (i.e. large residential developments and most shopping center developments would be included) even though these projects do not generally display the characteristics of the more traditional "single asset real estate" cases.

Section 415—Plan Confirmation. Proposed section 415 would impose certain requirements for confirming a reorganization plan involving single asset real estate over the objection of secured creditors holding unsecured deficiency claims. In general, the proposal would condition confirmation on the contribution of new capital sufficient to pay down secured claims to a 75% loan-to-value ratio. In general, this proposal seeks to bring certainty to the concept of the "new value" rule and, assuming new value is permissible, the amount of "new value" that is required to confirm a plan.

The language may create unintended consequences. First, it is not clear that the class of secured claims holding unsecured deficiency claims are creditors that are secured by the single asset real estate. Thus, it is possible that the beneficiaries of the 75% loan-to-value ratio test would not be creditors who are secured by the real estate. Third, the proposal as drafted may be unintentionally overinclusive. A manufacturing business (or other substantial business) that leases its site from an unrelated party would be subject to the requirements of section 415. The Section should be restricted to debtors that own single asset real estate.

The statute provides that new value that must be infused cannot be convertible into any form of debt. Such a restriction would eliminate the possibility of infusion through unsecured or secured subordinated debt or debt that is secured by some other asset of the debtor. The purpose of the provision is apparently to provide the secured creditor with an equity cushion for its secured claim. This restriction on the form of the capital infusion does not appear to be logically related. Fourth, the provision requires a 75% loan to value ratio, notwithstanding the fact that the original loan may have been a high risk venture that was only marginally or even partially secured. As a matter of policy, should the position of such creditors be improved in a Chapter 11 case at the expense other potential beneficiaries of any new value infusion?

Section 416—Payment of Interest. Current law requires a debtor to commence payments to secured creditors in a single asset real estate case within 90 days of the filingequal to current fair market interest rates. The new proposal would require the payments to be made only after the later of ninety days or when the court determines that the case is a single asset real estate case. The proposed language would allow the debtor to make the payments from rents generated by the property, whether or not the secured creditors consent. This change cures a potential ambiguity.

The proposal would also change the applicable interest rate to the currently applicable contract rate rather than the current fair market rate. This change would prevent debtors with fixed rate mortgages from using Chapter 11 as a tool to force refinancing at a lower interest rate if the interest rates have dropped. However, the change is a departure from the rule that a secured creditor should be adequately protected only against the interest it would lose if it were entitled to foreclose and reinvest the funds realized from the foreclosure at current market rates. In all events, the proposal should follow that in H.R. 3150 by adding the words "non-default" between "then applicable" and "contract rate of interest" to prevent a creditor from obtaining an artificially high rate of interest at the expense of other creditors.

Title V

General Comment. In general, Sections 501 through 515 of the proposed bill clarify the rights of taxpayers in the government in bankruptcy cases. For the most part, these proposed changes would further clarify the law or fix minor but troublesome inconsistencies. A few provisions, however, have far-reaching consequences that should be evaluated carefully.

Section 501—Effective Notice to Government. Section 501 of the proposed bill would radically alter the current requirements for notice to governmental units. Any notice to a governmental unit would be required to include various items of information that might be helpful to the governmental unit, such as the taxpayer identification number, the account or contract number or real estate parcel number, a description of the nature of the debt and the particular subdivision, agency or entity of governmental unit that is concerned. The debtor would have the burden of proof regarding the issue of notice in any dispute. Governmental units could, at their election, file a "safe harbor address" with the clerk of the court and notice made to a safe harbor address would be presumed given.

In some instances, notices in bankruptcy cases are sent only to a general address for a state or municipality. Larger governmental units such as states and larger cities apparently encounter difficulties in routing these notices to their correct departments or agencies. Section 501 is an attempt to resolve this problem by requiring debtors to make their notices more specific when dealing with governmental units. The concept of a safe harbor address for each governmental unit would be very useful if governmental units uniformly elect to provide such addresses.

As proposed, however, the notice requirements are potentially very onerous and problematic. The proposed statute covers not only notice of the bankruptcy filing itself, but every motion or other notice sent by the debtor during a case. In a modest Chapter 11 case, such notices are numerous; in a large chapter 11 case, there may be hundreds of notices (which in turn would need to be sent to thousands of different governmental units). Under the proposed statute, the penalty for failing to give any one of these numerous notices in proper form would be to prevent discharge of the obligation to the governmental unit, regardless of the content of the notice.

The proposed notice procedure also treats governmental units significantly more favorably than private parties who may have similar notice difficulties, e.g., larger corporations with numerous divisions.

The mechanics of giving the required notices is likely to create practical difficulties for debtor and its counsel. In a typical Chapter 11 case, a debtor may be required to serve hundreds of parties at a time; the time and expense of giving special notice to governmental units is likely to be substantial. Even in a modest Chapter 11 case, the debtor may own numerous properties in different states or deal with numerous different governmental units in many different locales. In each notice to each of these local government units, the debtor would be required to provide the laundry list of particularized information. In a national retail case, the complexity is beyond comprehension.

Many chapter 11 filings are done on an emergency basis, with little opportunity to prepare. At the outset of many filings, however, a debtor needs emergency relief on matters such as use of cash collateral, financing, authority to pay employees, etc. In such circumstances, it is often impossible as a practical matter to give notice to all non-government creditors, much less all governmental units with the special information particularized for each unit. Yet the penalty for failing to do so even in such exigent circumstances would be the non-dischargeability of the governmental units’ claims, to the potential detriment of the other creditors, as well as to the debtor.

Determining the correct contact person for notices to a governmental unit can be a frustrating and difficult task, even for sophisticated debtors. For example, it is often difficult to determine exactly which governmental department may handle a particular kind of claim. Moreover, notice must often be sent to creditors who the debtor believes may have a claim, but who have yet to assert it. Ascertaining the correct department is difficult enough for debtors who are aware of actual claims by governmental units. The proposed legislation would shift the consequences of this confusion to the debtor and require nothing in return from the governmental units.

It should be noted that the statute imposes the potentially burdensome notice requirements on the debtor, but not on any other party to the case. Thus, notices of actions by other parties that may affect the interests of one or more governmental units will be given in a manner different than is required for notice by the debtor.

Most tax claims are already nondischargeable. In chapter 11 cases, a plan must provide to pay virtually all tax claims in full in order for the plan to be confirmed. The proposed notice requirements therefore are not necessary to ensure payment of tax claims. With regard to other debts, no other creditor is entitled to the same kind of detailed notice. Moreover, making government claims nondischargeable (if the notice is for any reason erroneous) leaves governmental units in competition with other creditors whose debts are automatically not dischargeable, e.g., mothers owed child support. Indeed, the effect of the notice statute may be to elevate the government’s general unsecured claims to nondischarged status while priority tax claims remain dischargeable.

Finally, the proposal as drafted is internally inconsistent regarding proof of notice. The proposed §342(f)(1) states that to take advantage of the statute, the governmental unit must demonstrate "by a preponderance of the evidence, that the governmental unit did not receive timely actual notice as required..." The proposed §342(f)(2) states that the "debtor shall have the burden of proof in refuting an assertion by a governmental unit under paragraph (1) that the governmental unit did not receive the timely actual notice referred to in that paragraph." Thus, each party appears to have the same burden. Further, it is unclear whether the statute is intended to alter the presumption that notice is received by a party if deposited into the U.S. mail, postage prepaid (known as the "mailbox rule") since the statute addresses timely "actual" notice.

Although the provision allowing the government to supply a safe harbor address may be of some assistance, it is effective only to the extent the governmental units voluntarily provide such addresses. Further, many chapter 11 debtors do business in numerous different states other than the district in which the bankruptcy case is filed. Unless every governmental unit files its safe harbor address in every bankruptcy court in the country, the notice of safe harbor addresses will not be effective.

Other less disruptive mechanism may be more effective. For example, the presumption in the statute might be reversed: notice would be ineffective if a governmental unit has filed a safe harbor address, but that address is not used. This would induce governmental units to file safe harbor addresses. The issue of where the addresses would be filed and how debtors and counsel could access them immediately from any jurisdiction would need to be addressed. Governmental units could establish a single central address for bankruptcy notices, e.g. city attorneys and Attorneys General.

Section 508—Periodic Payment of Taxes in Chapter 11 Cases. Section 508 would require payment of unsecured priority claims and tax claims secured by liens under a confirmed plan of reorganization in quarterly installments within six years of the petition date. This provision would resolve the perceived problem of irregular payment plans. Extending the requirement to secured tax claims, however, may have the effect of requiring non ad valorem tax liens to be paid more quickly than senior mortgages. This potentialrearranging of priorities of secured claims should be examined more closely.

Section 514—Standards for Tax Disclosure. Section 514 would require a disclosure statement to contain a full discussion of the potential federal and state tax consequences of a plan of reorganization, not only with respect to the debtor, but with regard to each class of claims or interests. The current practice in most courts is to require a discussion of the potential material federal and state tax consequences to the debtor. Requiring tax disclosures with regard to hypothetical claim holders may create significant problems for reorganizing debtors and their counsel, as well as significant increases in cost. The tax treatment of creditors’ claims very often depends upon the individual situation of the creditor and how the creditor already has treated the debt for tax purposes. Such disclosure would therefore require the debtor and its tax advisors to speculate on the possible ways in which distributions under a plan might be given different tax treatments in the hands of various creditors in different situations, even within a single class. In some instances, a creditor may be entitled to different or more favorable tax treatment than in another case, and the disclosure statement would be misleading if it did not cover that creditor’s special case. Taxing authorities who allow a potentially erroneous disclosure to go unopposed could be estopped from assessing taxes against creditors. The bankruptcy court and the office of the United States Trustee, which comments on disclosure statements (and, in some jurisdictions is required to preapprove disclosure statements before the court will set a hearing) would berequired to develop even more expertise in tax matters to cover this new disclosure. Further, the propenent plan might have to conduct discovery to ascertain the treatment of debts and, in some instances, the basis in such debt.

Title VI

Section 601—Executory Contracts and Unexpired Leases. Section 601 would require business leases of real property to be assumed or rejected on the earlier of 120 days from the filing of a case or confirmation of a plan. The deadline could be extended only upon motion of the landlord.

Assumption of a lease in a Chapter 11 case converts a landlord’s claim for future damages from a general unsecured claim to a first priority administrative expense. In the event the Chapter 11 case fails, courts have held that a landlord’s claim for future unearned rent under unassumed lease is senior to all priority and general unsecured creditors (including employee wage claims, tax claims and the like). For this reason, current law balances the rights of the landlord and the other creditors. By requiring a Chapter 11 debtor to commence making payments to the landlord within 60 days of the filing of the case , while allowing the Court to defer the assumption decision until confirmation of a plan when success of the case is relatively assured. The proposed change accords landlords more favorable treatment to the potential detriment of other creditors.

Moreover, since current law not only requires current payment, but also requires that leases be assumed or rejected no later than plan confirmation, the adoption of small business Chapter 11 provisions with their accelerated time lines for confirmation creates a questionable rationale to grant landlords more of an advantage over other creditor classes.

Section 602—Allowance of Claims or Interests. Section 602 of the proposed bill would change the method of calculating a landlord’s claim by allowing future estimated costs to be added to the calculation for future rent damages, while requiring that the claim be reduced by any mitigation of damages "that is required by law."

Traditionally, a landlord’s claim is calculated under applicable state law, subject to a cap imposed by the Bankruptcy Code. The proposed change would add a federally mandated element to the damage calculation which the law of a particular state may not allow. At the same time, reduction of the claim would apparently only be required if required by the applicable state law. The result is therefore a somewhat non-uniform approach to calculating lessor damages.

To amend title 11 of the United States Code, and for other purposes. The Gekas-Moran Bankruptcy Reform Act Of 1998

Web posted and Copyright © February 5, 1998 American Bankruptcy Institute
 

Title I -- Consumer Bankruptcy Provisions

Subtitle A -- Needs-Based Bankruptcy

Sec. 101. Needs-Based Bankruptcy.

This section of the Bill requires those who have a current monthly total income of at least seventy-five percent (75%) of the national median family income for a family of equal size (or, in the case of a household of one person, at least seventy-five percent (75%) of the national median household income for one earner) plus a monthly net income greater than fifty dollars ($50) and the ability to pay at least twenty percent (20%) of their unsecured, non-priority debts over five (5) years to enter into a repayment plan under Chapter 13.

Sec. 102. Adequate Income Shall be Committed to a Plan that Pays Unsecured Creditors.

This section amends the Code to substitute for "disposable income" a new concept, "monthly net income," which is determined based upon expenditure levels now set by the Internal Revenue Service and used extensively throughout the country to make similar determinations. Provision is also made in a new Code section 111 for the adjustment of monthly net income in extraordinary cases, for example when the debtor experiences loss of income or when the debtor has unusual expenses.

Sec. 103. Definitions of Inappropriate Use.

The Bill amends Code section 707(b) to permit any party in interest to move to dismiss a Chapter 7 bankruptcy case on the basis that the granting of relief would be an inappropriate use of the Bankruptcy Code. A court shall find that the granting of relief would be an inappropriate use of the Bankruptcy Code. A court shall find that the granting of relief would constitute an inappropriate use where the debtor is ineligible for Chapter 7 under the needs-based provisions of the Bill or where the totality of the circumstances demonstrates inappropriate use.

Subtitle B - Adequate Protections for Consumers

Sec. 111. Notice of Alternatives.

This section assures that, before filing for bankruptcy, debtors receive information about debt counseling services and different options under bankruptcy. Specifically, this section requires that each consumer debtor receive a notice containing a brief description of services that may be available from independent non-profit debt counseling services.

Sec. 112. Debtor Financial Management Training Test Program.

This section would require the Executive Officer for U.S. Trustees (EOUST) to develop and test a financial management training curriculum and materials that can be used to educate debtors on how to better manage their finances. The EOUST would be required to select three (3) judicial districts in which to test the effectiveness of the training program.

Subtitle C -- Adequate Protections for Secured Lenders

Sec. 121. Discouraging Bad Faith Repeat Filings.

The section provides that the automatic stay will terminate in a consumer bankruptcy case on the 30th day after the filing if, in the previous year, the same debtor filed a bankruptcy case that was dismissed. The Bill provides an exception to this provision in the event the subsequent filing is made in good faith.

Sec. 122. Definition of Household Goods and Antiques.

The Bill defines "household goods" by using the definition already used in a similar context by the Federal Trade Commission in the Trade Regulation Rule on Credit Practices, 16 C.F.R. Sec. 444.1(I).

Sec. 123. Debtor Retention of Personal Property Security.

The Bill would add a new subsection to Code section 521 to provide that a Chapter 7 individual debtor may not retain possession of personal property securing an allowed claim for the purchase price unless the debtor either (a) reaffirms the debt or (b) redeems the property within thirty (30) days after the first meeting of creditors.

Sec. 124. Relief From Stay When the Debtor Does Not Complete Intended Surrender of Consumer Debt Collateral.

This section amends Code section 362 to provide that if an individual debtor does not file a timely statement of intention with respect to property securing the creditors claim or act in accordance with that statement of intention, a secured creditor may seek relief from the stay.

Sec. 125. Giving Secured Creditors Fair Treatment in Chapter 13.

The Bill amends Code section 1325(a)(5)(B)(1) to provide that the holder of an allowed secured claim shall retain the lien securing the claim until payment of the underlying debt or the debtor receives a discharge, whichever occurs earlier.

Sec. 126. Prompt Relief From Stay in Individual Cases.

This section amends Code section 362(e) to provide that the stay shall automatically terminate sixty (60) days after a request for relief from it is made, unless the court decides the relief from stay request during the sixty-day period, the parties agree to take a longer time, or thecourt orders additional time.

Sec. 127. Stopping Abusive Conversions from Chapter 13.

This section provides that when a debtor converts from Chapter 13 to Chapter 7, the cram down is not retained except for the limited purpose of redemption under Code section 722.

Sec. 129. Fair Valuation of Collateral.

The Bill amends Code section 506(a) to set the value of personal property securing an individual debtor’s personal property as the replacement value of the property on the petition date (without deductions for marketing or sales costs). The provision also clarifies that "replacement value" means the price a retail merchant would charge for property of that kind, considering its age and condition.

Subtitle D -- Adequate Protection for Unsecured Lenders

Sec. 142. Credit Extensions on the Eve of a Bankruptcy Presumed Nondischargeable.

The Bill amends Bankruptcy Code section 523(a)(2)(C) to create a presumption that consumer debts incurred within ninety (90) days of bankruptcy are nondischargeable.

Sec. 144. Applying the Co-Debtor Stay Only When it Protects the Debtor.

The Bill amends section 1301 so that the co-debtor stay would continue to be available when the debtor who borrowed the money sought Chapter 13 relief, but if a guarantor or other co-debtor who did not receive the consideration for the creditor’s claim filed for relief, the debtor who borrowed the money would not be protected by a stay unless he or she also filed for bankruptcy protection.

Sec. 145. Credit Extensions Without a Reasonable Expectation of Repayment Made Nondischargeable.

This section amends the Bankruptcy Code to provide that debts incurred when the debtor had no reasonable expectation or ability to repay are nondischargeable.

Subtitle E -- Adequate Protections for Lessors

Sec. 161. Giving Debtors the Ability to Keep Leased Personal Property by Assumption.

If the debtor then notifies the lessor that the debtor wants to assume the lease, the lease remains enforceable according to its terms.

Sec. 163. Adequate Protection for Lessors.

This provision extends Code section 362(b)(10) to residential leases, clarifying that the automatic stay does not bar a property owner from recovering rental property due to the filing by a resident for bankruptcy.

Subtitle F -- Bankruptcy Relief Less Frequently Available for Repeat Filers

Sec. 171. Extend Period Between Bankruptcy Discharges.

The Bill would expand the amount of time that must pass before a debtor may receive another discharge. The time period would expand to ten (10) years for Chapter 7 individual cases and five (5) years for Chapter 13 cases.

Subtitle G -- Exemptions

Sec. 181. Exemptions.

The Bill amends section 522(b)(2)(A) of the Bankruptcy Code to require a debtor to be domiciled in a state for 365 days, or the majority of 365 days, before filing a petition in order for that state’s exemptions to apply. Currently, a debtor must be domiciled in a state only for 180 days, or the majority of 180 days, for a state’s exemptions to apply.

Title II -- Business Bankruptcy Provisions

Subtitle A -- General Provisions

Sec. 201. Limitation Relating to the Use of Fee Examiners.

This provision explicitly precludes the appointment of so-called "fee-examiners."

Sec. 203. Chapter 12 Made Permanent Law.

This provision makes Chapter 12, Adjustments of Debts of a Family Farmer With Regular Annual Income, permanent law.

Sec. 204. Meetings of Creditors and Equity Security Holders.

This section would give the court the discretion not to convene a meeting of creditors if there is a prepackaged plan of reorganization.

Sec. 205. Creditors’ and Equity Security Holders’ Committees.

The Bill gives the court the discretion to change the membership of any committee to assure that it adequately represents its constituency.

Sec. 207. Preferences.

This provision helps enable small creditors to mount effective defenses against preference actions. Proposed Code section 547(c)(9) increases the minimum aggregate transfer that must be sought in a case against a creditor to $5000. This section also clarifies the ordinary course of business exception for preferential transfers by disallowing a creditor from being sued for receipt of a preferential transfer if it has received a payment in the ordinary course of the debtor’s business or made according to ordinary business terms.

Sec. 208. Venue of Certain Proceedings.

This provision mandates that a preference recovery action against a noninsider seeking less than $10,000 must be brought in the bankruptcy court in the district where the creditor resides.

Sec. 209. Setting a Date Certain for Trustees to Accept or Reject Unexpired Leases on Nonresidential Property.

The Bill amends Code section 365(d)(4) to eliminate the current 60-day period for assumption or rejection of a lease of nonresidential real property and replaces it with a 120-day initial time period following the date of the order for relief.

Subtitle B -- Specific Provisions

Chapter 1 -- Small Business Bankruptcy

Sec. 231. Definition.

The section establishes a "bright line" definition to identify those cases that merit special rules which enhance the efficient use of judicial resources and which streamline the reorganization process for debtors with meritorious cases by fixing the threshold at the $5,000,000 debt level.

Sec. 234 & 235. Uniform National Reporting Requirements.

This section amends the Bankruptcy Code and Rules to expressly require the periodic filing of financial and other reports, such as monthly operating reports, and the filing of schedules and statements within thirty days postpetition.

Sec. 236. Debtor’s Duties in Small Business Cases.

This section requires all small business debtors to establish segregated bank accounts for timely deposit of tax funds withheld or collected from third parties after the commencement of the case to stop the abusive practice of debtors, suffering from cash shortages, using government money for unauthorized business loans by financing their day-to-day operations with cash withheld from employee paychecks or sales-tax revenues, or other like "trust fund" taxes.

Sec. 237, 238 & 239. Plan Filing and Confirmation Deadlines.

This section addresses the need to move small business Chapter 11 cases at a pace appropriate for those cases by (1) establishing presumptive plan-filing and plan-confirmation deadlines specially tailored to fit small business cases and, (2) directing bankruptcy judges to use modern case-management techniques in all small business cases to further reduce cost and delay.

Sec. 240. Duties of the United States Trustee.

This section directs the U.S. Trustee to play a more active role throughout the Chapter 11 proceeding and provides the necessary tools to effectively manage Chapter 11 cases, including the ability to recommend conversion or dismissal in appropriate cases.

Sec. 241. Scheduling Conferences.

To quicken the pace for disposition of a Chapter 11 plan, the Bill requires that judges promptly hold at least one on-the-record status conference, unless the debtor and U.S. Trustee file an agreed scheduling order with the court prior to the judicial scheduling conference.

Sec. 243. Expanded Grounds for Dismissal or Conversion and Appointment of Trustee.

To maintain the legitimacy and continued public acceptance of Chapter 11 by limiting its exceptional protections to those cases in which the public derives a benefit therefrom, this section establishes statutory indicia of cases which are likely to fail, those cases in which there is no real likelihood of rehabilitation, and provides a mechanism for moving such cases expeditiously through Chapter 11.

Chapter 2 -- Single Asset Real Estate

Sec. 251. Single Asset Real Estate Defined.

This section eliminates the dollar cap from the definition of a "single asset real estate" (SARE) debtor and defines the SARE debtor to include real estate investors and to exclude debtors who use real estate in an active business, viewed in terms of economic substance rather than the form of ownership, and eliminates several ambiguities found in the current definition.

Sec. 252. Plan Confirmation.

This section establishes a clear, objective standard for new-value plans in SARE cases -the exception would be satisfied only if the secured portion of the loan was paid down to 80 percent of the value of the property, permitting the debtor to "strip off" liens to the extent that they exceed the current value of the property, while providing the secured creditors conventional terms on the remaining portion of the lien. This section allows the debtor to reorganize overencumbered property in Chapter 11, over the objection of its secured creditor, by reducing the mortgage debt to the current value of the property and retaining the property through a new-value contribution.

Sec. 253. Payment of Interest.

Section 362(d)(3), which prescribes the conditions required to impose the stay in SARE cases, requires the SARE debtor, within 90 days after the order for relief, to: (1) file a confirmable plan; (2) commence postpetition mortgage payments; or (3) obtain an extension of the 90-day plan-or-payment deadline. If the SARE debtor fails to perform any of these three options, secured creditors are entitled to relief from the automatic stay.

Title IV -- Bankruptcy Administration

Subtitle A -- General Provisions

Sec. 402. Creditor Representation at First Meeting of Creditors.

This sections amends Code section 341(c) to provide that non-attorney representatives can attend and participate in the first meeting of creditors.

Sec. 404. Audit Procedures.

This section amends title 28 to delegate to the Attorney General the responsibility for establishing random audits of the accuracy and completeness of information filed in individual bankruptcy cases under title 11.

Sec. 405 Giving Creditors Fair Notice in Chapter 7 and 13 Cases.

This section provides that the debtor include in any notice to the creditor the debtor’s account number if it is reasonably available, and to send any notices to an address which the creditor has previously specified.

Sec. 410. Chapter 13 Plans to Have a 5-Year Duration in Certain Cases.

The Bill would amend Code sections 1322(d) and 1329(c) to allow confirmation of plans with a life span of five (5) years if the debtor’s current monthly income is at least seventy-five percent (75%) of the national median family income for a family of equal size (or at least seventy-five percent (75%) of the national median household income for one earner) or more on the date of confirmation. In such cases, it would also permit the court to approve a plan longer than five (5) years up to a maximum of seven (7) years.

Sec. 412. Jurisdiction of Appeals Relating to Bankruptcy.

This proposal would streamline and expedite the appeals process by eliminating the first step and allowing appeals to be taken directly to the U.S. Court of Appeals.

Subtitle B -- Data Provisions

Sec. 441. Improved Bankruptcy Statistics.

The Bill would create a new 28 U.S.C. Sec. 159 that would require the EOUST to compile statistics on bankruptcy cases involving individual debtors, and report these statistics annually to Congress.

Sec. 442. Bankruptcy Data.

This provision requires the Attorney General to establish uniform national reporting forms for final reports in Chapter 7, 11 and 13 cases.

Sec. 443. Sense of the Congress Regarding Availability of Bankruptcy Data.

This provision expresses the Sense of the Congress that all non-confidential data held in electronic form by clerks of bankruptcy courts should be released to the public on the Internet on demand.

Title V -- Tax Provisions

Sec. 501. Treatment of Certain Liens.

This section provides that ad valorem taxes protected by liens are paid ahead of other expenses, except wage claims and claims for contributions to employee benefit plans, increasing the likelihood that local jurisdictions receive revenues which they would have received absent the operation of the Code.

Sec. 508. Chapter 13 Discharge of Fraudulent and Other Taxes.

This section provides that tax obligations arising from fraudulent returns, willful attempts to evade, and late and unfiled returns shall be nondischargeable in Chapter 13 cases.

Sec. 517. Requirement to File Tax Returns to Confirm Chapter 13 Plans.

In a Chapter 13 plan, the debtor is required to provide for the full payment of all claims entitled to priority, including taxes which have not been assessed but are still assessable.

Sec. 519. Setoff of Tax Refunds.

After a consumer files a petition in bankruptcy, a taxing authority is required to seek relief from the automatic stay on a case-by-case basis if it wants to offset a refund of prepetition taxes against a claim for prepetition taxes, even if the claim is not disputed. The cost to the government of prosecuting often uncontested and routine motions as a prerequisite to enforcing an undisputed, mutual obligation is substantial. Thus this section grants taxing authorities theability to set off an income tax refund that arose prepetition against an undisputed income tax liability which similarly arose prepetition.

Sec. 602. Effective Date; Application of Amendments.

This section ensures that nothing in this Act will not have an effect on pending bankruptcy cases.

To implement the obligations of the United States under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, known as `the Chemical Weapons Convention' and opened for signature and signed by the United States on January 13, 1993.
MEMORANDUM

In Further Response to Prof. Bruce Markell Re: Section 603 of Chemical Weapons
Convention Implementation
Act

Editor's Note:

Other Commentary on Section 603 of S. 610:

• Big Changes in Stay Exemptions
  Brewing: The Chemical Weapons Convention Implementation Act of 1997, a criticism of the
  proposal by Prof. Bruce A. Markell, June 25, 1997
• Brewing a Tempest in a
  Teapot: A Response to Professor Markell, in support of the proposal by Karen Cordry, July
  1, 1997
• Memorandum to Sen.
  Grassley in support of the proposal prepared by Heidi Heitkamp, June 23, 1997
• A response to Karen
  Cordry by Prof. Markell Includes proposed section

  addressing automatic stay concerns of S. 610

  , July 1997
• A response to Prof.
  Markell by Karen Cordry, July 18, 1997
• Memorandum prepared by
  the ABI, June 1997

Professor Markell has now responded to my comments on his article about the proposed
revisions to the automatic stay that are contained in S. 610, the implementing legislation for the
Chemical Weapons Bill. He attacks the process by which the language was included and disputes
whether the bill says what it means. What he conspicuously fails to do is engage the real issue
here: namely, what should be the proper scope of the police and regulatory exception. If
there is agreement on that point, then it matters little whether Congress arrived at that conclusion
on its own or whether it recognized and built on the work of the Commission. (In this regard, I
would reiterate the point I made previously — while NAAG is obviously in agreement with
this proposal, it did not contact the Senate or request that this issue be dealt with in this
bill. To the contrary, the government has raised these issues with the Commission from day one
and proposals have been presented to and debated extensively before the Government Working
Group and the Commission as a whole. Indeed, the Commissions's current working proposal
endorses much, albeit not all, of this proposal. That is all that the government did.) It
does little to advance the debate to engage in ad hominem references to "lobbyist-supported and lobbyist-drafted language" to describe actions that are no different from those of
every other participant in the process before the Commission (including, of course, the good
Professor himself.)

I also find offensive Professor Markell's statement, that the government's position that the
proposal excludes payment of monetary judgments is bad drafting, at best, and "dissembling," at
worst. The government has stated explicitly and unequivocally in every discussion there has been
of these issues that it does not seek to change the current system by which it may
liquidate, but not collect, monetary judgments obtained in police and regulatory actions.
Professor Markell can hardly deny that the proposed language, by incorporating the limitation that
is presently contained in §362(a)(5), at least evinces an effort to retain that distinction
— and Commissioner Edith Jones of the 5^th Circuit
has indicated that she reads the proposal in the same way that the government does. While
ambiguity in drafting is an ever-present hazard, accusing a proposal's proponents of undertaking
the effort in bad faith is unlikely to advance the dialogue. In any event, fighting over the current
language, I suggest, misses the point. If the debate would, instead, focus on reaching agreement
on what the scope of the exception should be, it should certainly then be possible for
persons of good will to ensure that the proposal does correctly state that understanding.

Turning to the merits of this debate, then, the government believes that there is a
great need to clarify the existing language in §362. Congress has already made clear that it
wishes to allow the normal police and regulatory processes to go on, even in situations where
enforcement of the regulatory decision would, inevitably, affect estate property. Having made the
policy judgment to allow the process to proceed to that point, it will only be in rare situations that
the bankruptcy court will have any power to bar the government from implementing the
order. This is not because government actions are unique; rather, it is simply an inescapable result
of the Full Faith and Credit Clause — like every other court, a bankruptcy court is not
authorized to relitigate the merits of determinations made by other courts with jurisdiction to hear
the case. If one accepts that simple principle of jurisprudence, then it follows logically that a
bankruptcy court can refuse to allow the enforcement of those governmental orders only

if it decides that it can disregard the finding that the debtor is violating the law and authorize that
lawbreaking if this is what is necessary to assist the debtor's reorganization. I challenged
Professor Markell in my initial response to find authority in the Bankruptcy Code for placing such
startling and far-ranging authority in the bankruptcy courts and I renew that challenge now.

I submit that there is no such general authority. (Congress clearly knows how to make the
Code govern, "notwithstanding applicable non-bankruptcy law" in treating matters such as
executory contracts — but there is no such statement with respect to police and regulatory
actions.) Yet, despite the fact that the court will have virtually no discretion, at that stage of
the proceedings, to deny the government's request to enforce its order, the current language
in §§362(a)(3) and (6) can be read to hold that the implementation of such orders is
barred until the court carries out the ministerial act of lifting the stay. The proposed language was
meant to eliminate the need for the government to take that additional step, because it is an
unnecessary source of cost and delay and encourages debtors to seek to relitigate matters which
have been finally adjudicated.

To amend title 28, United States Code, to divide the ninth judicial circuit of the United States into two circuits, and for other purposes.

To implement the obligations of the United States under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, known as `the Chemical Weapons Convention' and opened for signature and signed by the United States on January 13, 1993.

To amend title 28, United States Code, to authorize the appointment of additional bankruptcy judges, and for other purposes.

To improve the administration of the Fair Debt Collection Practices Act.

To amend title 11 of the United States Code to make nondischargeable a debt for death or injury caused by the debtor's operation of watercraft or aircraft while intoxicated.
Boating and Aviation Operation Safety Act of 1997 (Introduced in
House)

HR 30 IH

To amend title 11 of the United States Code to make
nondischargeable a debt for death or injury caused by the debtor's
operation of watercraft or aircraft while intoxicated.

January 7, 1997

Mr. EHLERS introduced the following bill; which was referred to the
Committee on the Judiciary

To amend title 11 of the United States Code to make
nondischargeable a debt for death or injury caused by the debtor's
operation of watercraft or aircraft while intoxicated.

Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Boating and Aviation Operation
Safety Act of 1997'.

SEC. 2. AMENDMENT.

Section 523(a)(9) of title 11, United States Code, is amended
by inserting `, watercraft, or aircraft' after `motor vehicle'.

SEC. 3. EFFECTIVE DATE; APPLICATION OF AMENDMENT.

(a) EFFECTIVE DATE- Except as provided in subsection (b), this
Act and the amendment made by section 2 shall take effect on the date of
the enactment of this Act.

(b) APPLICATION OF AMENDMENT- The amendment made by section 2
shall not apply with respect to cases commenced under title 11 of the
United States Code before the date of the enactment of this Act.

To provide for the appointment of additional Federal circuit and district judges, and for other purposes.