Common use of HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Clause in Contracts

HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS. Section 726(a)(4) adopts a provision contained in the Senate amendment subordinating prepetition penalties and penalties arising in the involuntary gap period to the extent the penalties are not compensation for ac- tual pecuniary laws. The House amendment deletes a provision following section 726(a)(6) of the Senate amendment providing that the term ‘‘claim’’ includes interest due owed be- fore the date of the filing of the petition as unnecessary since a right to payment for interest due is a right to payment which is within the definition of ‘‘claim’’ in section 101(4) of the House amendment. SENATE REPORT NO. 95–989 This section is the general distribution section for liquidation cases. It dictates the order in which dis- tribution of property of the estate, which has usually been reduced to money by the trustee under the re- quirements of section 704(1). First, property is distributed among priority claim- ants, as determined by section 507, and in the order pre- scribed by section 507. Second, distribution is to gen- eral unsecured creditors. This class excludes priority creditors and the two classes of subordinated creditors specified below. The provision is written to permit dis- tribution to creditors that tardily file claims if their tardiness was due to lack of notice or knowledge of the case. Though it is in the interest of the estate to en- courage timely filing, when tardy filing is not the re- xxxx of a failure to act by the creditor, the normal sub- ordination penalty should not apply. Third distribution is to general unsecured creditors who tardily file. Fourth distribution is to holders of fine, penalty, for- feiture, or multiple, punitive, or exemplary damage claims. More of these claims are disallowed entirely under present law. They are simply subordinated here. Paragraph (4) provides that punitive penalties, in- cluding prepetition tax penalties, are subordinated to the payment of all other classes of claims, except claims for interest accruing during the case. In effect, these penalties are payable out of the estate’s assets only if and to the extent that a surplus of assets would otherwise remain at the close of the case for distribu- tion back to the debtor. Paragraph (5) provides that postpetition interest on prepetition claims is also to be paid to the creditor in a subordinated position. Like prepetition penalties, such interest will be paid from the estate only if and to the extent that a surplus of assets would otherwise re- main for return to the debtor at the close of the case. This section also specifies that interest accrued on all claims (including priority and nonpriority tax claims) which accrued before the date of the filing of the title 11 petition is to be paid in the same order of distribution of the estate’s assets as the principal amount of the related claims. Any surplus is paid to the debtor under paragraph (6). Subsection (b) follows current law. It specifies that claims within a particular class are to be paid pro rata. This provision will apply, of course, only when there are inadequate funds to pay the holders of claims of a particular class in full. The exception found in the sec- tion, which also follows current law, specifies that liq- uidation administrative expenses are to be paid ahead of reorganization administrative expenses if the case has been converted from a reorganization case to a liq- uidation case, or from an individual repayment plan case to a liquidation case.

HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS. Section 726(a)(4) adopts a provision contained in the Senate amendment subordinating prepetition penalties and penalties arising in the involuntary gap period to the extent the penalties are not compensation for ac- tual pecuniary laws. The House amendment deletes a provision following section 726(a)(6) of the Senate amendment providing that the term ‘‘claim’’ includes interest due owed be- fore the date of the filing of the petition as unnecessary since a right to payment for interest due is a right to payment which is within the definition of ‘‘claim’’ in section 101(4524(a) of the House amendment represents a compromise between the House bill and the Senate amendment. Section 524(b) of the House amendment is new, and represents standards clarifying the operation of section 524(a)(3) with respect to community prop- erty. Sections 524(c) and (d) represent a compromise be- tween the House bill and Senate amendment on the issue of reaffirmation of a debt discharged in bank- ruptcy. Every reaffirmation to be enforceable must be approved by the court, and any debtor may rescind a reaffirmation for 30 days from the time the reaffirma- tion becomes enforceable. If the debtor is an individual the court must advise the debtor of various effects of reaffirmation at a hearing. In addition, to any extent the debt is a consumer debt that is not secured by real property of the debtor reaffirmation is permitted only if the court approves the reaffirmation agreement, be- fore granting a discharge under section 727, 1141, or 1328, as not imposing a hardship on the debtor or a de- pendent of the debtor and in the best interest of the debtor; alternatively, the court may approve an agree- ment entered into in good faith that is in settlement of litigation of a complaint to determine dischargeability or that is entered into in connection with redemption under section 722. The hearing on discharge under sec- tion 524(d) will be held whether or not the debtor xx- xxxxx to reaffirm any debts. SENATE REPORT NO. 95–989 This section Subsection (a) specifies that a discharge in a bank- ruptcy case voids any judgment to the extent that it is a determination of the general distribution section for liquidation cases. It dictates personal liability of the order in which dis- tribution debtor with respect to a prepetition debt, and operates as an injunction against the commencement or continuation of an action, the employment of process, or any act, in- cluding telephone calls, letters, and personal contacts, to collect, recover, or offset any discharged debt as a personal liability of the debtor, or from property of the estatedebtor, which whether or not the debtor has usually waived discharge of the debt involved. The injunction is to give complete effect to the discharge and to eliminate any doubt con- cerning the effect of the discharge as a total prohibi- tion on debt collection efforts. This paragraph has been reduced expanded over a comparable provision in Bankruptcy Act § 14f [section 32(f) of former title 11] to money cover any act to collect, such as xxxxxxx by the trustee under the re- quirements telephone or letter, or indirectly through friends, relatives, or employers, harassment, threats of section 704(1). First, property is distributed among priority claim- ants, as determined by section 507repossession, and in the order pre- scribed by section 507. Second, distribution is to gen- eral unsecured creditors. This class excludes priority creditors and the two classes of subordinated creditors specified belowlike. The provision change is written consonant with the new policy forbidding binding reaffirmation agreements under proposed 11 U.S.C. 524(b), and is intended to permit dis- tribution to creditors insure that tardily file claims if their tardiness was due to lack of notice or knowledge of the case. Though it once a debt is in the interest of the estate to en- courage timely filing, when tardy filing is not the re- xxxx of a failure to act by the creditordischarged, the normal sub- ordination penalty should debtor will not apply. Third distribution is be pressured in any way to general unsecured creditors who tardily file. Fourth distribution is to holders of fine, penalty, for- feiture, or multiple, punitive, or exemplary damage claims. More of these claims are disallowed entirely under present law. They are simply subordinated here. Paragraph (4) provides that punitive penalties, in- cluding prepetition tax penalties, are subordinated to the payment of all other classes of claims, except claims for interest accruing during the caserepay it. In effect, these penalties are payable out the discharge extinguishes the debt, and creditors may not attempt to avoid that. The language ‘‘whether or not discharge of such debt is waived’’ is intended to prevent waiver of discharge of a particular debt from defeating the estate’s assets only if and to the extent that purposes of this sec- tion. It is directed at waiver of discharge of a surplus particu- lar debt, not waiver of assets would otherwise remain at the close of the case for distribu- tion back to the debtor. Paragraph (5) provides that postpetition interest on prepetition claims is also to be paid to the creditor discharge in a subordinated position. Like prepetition penalties, such interest will be paid from the estate only if and to the extent that a surplus of assets would otherwise re- main for return to the debtor at the close of the case. This toto as permitted under section also specifies that interest accrued on all claims (including priority and nonpriority tax claims) which accrued before the date of the filing of the title 11 petition is to be paid in the same order of distribution of the estate’s assets as the principal amount of the related claims. Any surplus is paid to the debtor under paragraph (6727(a)(9). Subsection (ba) follows current lawalso codifies the split discharge for debtors in community property states. It specifies that claims within a particular class are to be paid pro rata. This provision will apply, of course, only when there are inadequate funds to pay the holders of claims of a particular class in full. The exception found If community property was in the sec- tionestate and community claims were discharged, which also follows current law, specifies that liq- uidation administrative expenses are to be paid ahead the discharge is effective against commu- nity creditors of reorganization administrative expenses if the case has been converted from a reorganization case to a liq- uidation case, or from an individual repayment plan case to a liquidation casenondebtor spouse as well as of the debtor spouse.