# Appendix — DeAtley v. Barnett, 127 S. Ct. 123 (2006) (No. 05-1569)

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 2006

## Text

i

APPENDIX A

Published opinion, Court of Appeals, State of
Wenetiattens, Bay 27, DOGG .......cccercccscscccosecsssovececseseveeee A-1

Order Granting Defendants’ Motion to Dismiss,
Superior Court of the State of Washington for

Yakima County, November 13, 2008 ....................000008 A-9
Order — Supreme Court of Washington, March 8,
RCRA Se ce ASM At NEP OO RD eC ER A-12
APPENDIX B
11 U.S.C., § 541 Property of the Estate ..................:ccce B-1
11 U.S.C., § 524 — Effect of Discharge .................:s000008 B-20
APPENDIX C
Petitioner’s Motion for Reconsideration filed March
EISELE RR Py oo ee Oe CC C-1

Petition for Review to Supreme Court of Washing-
SI TI oi ia csresrnstireiigunenacicinnetntsninbieeivbiovedieeeurias C-23

127 Wash. App. 478

IN THE COURT OF APPEALS
OF THE STATE OF WASHINGTON

ALAN DeATLEY and )

DEBRA DeATLEY, )

husband and wife, ) No. 22780-4-I1I cons.w/
Appellants, ) No. 22977-7-III

v. ) Division Three

LYNN BARNETT, ) Panel One

MARLENE BARNETT, ) PUBLISHED OPINION

rane hg POINT —_) (Filed May 17, 2005)
Respondents. )

BROWN, J. — This is a contract dispute to enforce a
first right of refusal brought by Alan and Debra DeAtley
against developers Lynn and Marlene Barnett and the
Barnetts’ partnership, Lookout Point Partners (the
Barnetts unless otherwise indicated). The Barnetts traded
land and the first right of refusal for road work to be done
by the DeAtleys. After the Barnetts discovered an inter-
vening DeAtley bankruptcy, the trial court granted sum-
mary dismissal of the complaint on the Barnetts’ theory
that the DeAtleys’ bankruptcy discharged the Barnetts’
first right of refusal obligations. The judge awarded the
Barnetts attorney fees under the contract relating solely to
the dismissal motion. The bankruptcy and judicial estop-
pel vitiate the DeAtleys’ claim. We affirm and grant the
Barnetts and Lookout Point their attorney fees here.

A-2

FACTS

In January 1986, the Barnetts purchased around 500
acres of undeveloped land in Yakima County by real estate
contract. In February 1986, the Barnetts entered into the
Lookout Point partnership with John and June Cotten to
develop the land.

In January 1988, the Barnetts contracted with the
DeAtleys for road work on the land in exchange for 86
acres and a first right of refusal. Mr. DeAtley agreed to
“pioneer” the road and later complete it. The parties
disputed if the 1988 pioneering work done was according
- to the contract, but agree the final road work was never
completed. The contract provided in the event Mr. Barnett
“desires to sell or assign his contract with Anderson or to
make any sales of property of three lots or tracts or more,
that he will grant to DeAtley the first right of refusal to
acquire same.” Clerks Papers (CP) at 806:

In 1990, Mr. DeAtley met with Mr. Cotten after Mr.
Cotten became ill and wanted to sell his partnership
interest, but Mr. DeAtley decided against it. The DeAtleys’
right of first refusal was not mentioned. In early 1991, the
Barnetts bought out the Cottens’ partnership interest. In
July 1991, George A. Lagerquist and Henry and Nova Van
Baalen joined the partnership, like the Cottens, to “own,
‘maintain, develop, sell and otherwise deal with” the land.
CP at 865.

In 1992, the DeAtleys petitioned for Chapter 7 bank-
ruptcy relief in New Mexico, listing Mr. Barnett as a
creditor for the road construction obligation. The DeAtleys
did not separately list their right of first refusal as an
asset. Mr. Barnett received notice of the bankruptcy, and
later said he had only “a vague recollection” of it. CP at

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518. The DeAtleys discharged the Barnett obligation in
the 1992 New Mexico Bankruptcy.

In May 1997, the DeAtleys sued the Barnetts, alleging
the 1991 transfers violated the DeAtleys’ right of first
refusal. The Barnetts denied the allegations, asserting
several affirmative defenses, including waiver, estoppel,
laches, and failure to perform conditions precedent regard-
ing the completion of the final road.

Just before the scheduled 2003 trial date, the
DeAtleys unsuccessfully moved to amend their complaint
to add specific performance. On the day of trial, after
expedited briefing, the DeAtleys’ successfully argued the
1991 transfers triggered the DeAtleys’ right of first re-
fusal. About this time, when deposing Mr. DeAtley’s father
the Barnetts learned of the New Mexico bankruptcy.
Investigating, the Barnetts learned the DeAtleys dis-
charged the underlying obligation in the New Mexico
bankruptcy. Immediately, the Barnetts’ requested dis-
missal, successfully arguing the bankruptcy vitiated the
first right of refusal. The DeAtleys’ motion for reconsidera-
tion, based partly on the DeAtleys’ alleged transfer of the
parties’ contract to a wholly-owned subsidiary, Wildones,
Inc., d/b/a AD3 Company, was denied.

The Barnetts were partially successful in asking for
attorney fees under the contract. The trial court limited
the fees and costs to those associated with the motion to
dismiss. The DeAtleys appeal the dismissal, the denial of
their request for partial summary judgment regarding the
final road issues, and the denial of their request to amend
their complaint. The Barnetts cross-appeal the initial
summary judgment order, regarding the DeAtleys’ breach

A-4

of contract claims and the partial award of attorney fees.
The appeals have been consolidated.

ANALYSIS
A. Impact of Bankruptcy

The dispositive issue is whether the trial court erred
in dismissing the DeAtleys’ complaint based upon its
conclusion that the bankruptcy discharge of the Barnett-
DeAtley contract obligation precluded the DeAtleys’ right
of first refusal claims. We review questions of law de novo.
Wolstein v. Yorkshire Ins. Co., 97 Wn. App. 201, 206, 985
P.2d 400 (1999).

The DeAtleys were required to disclose all assets,
including potential causes of action in their bankruptcy
petition. 11 U.S.C.A. § 521(1), Fed. R. Bankr. P. 1007. A
discharged debtor lacks legal capacity to pursue an un-
scheduled claim simply because the trustee, having no
knowledge of the claim, took no action with respect to the
claim. Linklater v. Johnson, 53 Wn. App. 567, 570, 768
P.2d 1020 (1989); Marks v. Benson, 62 Wn. App. 178, 184-
85, 813 P.2d 180 (1991). Even so, the DeAtleys contend
their contract right assignment to AD3 Company before
filing for bankruptcy effectively saved the first right of
refusal.

However, if the DeAtleys wanted to assume the
benefits of the allegedly triggered right of first refusal,
they would have to assume the underlying obligation, the
contract obligation to complete the road. Since the
DeAtleys chose to discharge the burdens of that contract
obligation and did not list their allegedly matured right of
first refusal as an asset, we reason they lost their right to

A-5

claim benefits under the right of first refusal. Accordingly,
we conclude the DeAtleys lacked standing to commence
their breach of contract complaint.

Moreover, judicial integrity, finality of judgments and
respect for the judicial process bar the DeAtleys’ claim.
Together these considerations are referred to as the
Washington doctrine of judicial estoppel. See, e.g., Markley
v. Markley, 31 Wn.2d 605, 614-15, 198 P.2d 486 (1948);
Johnson v. Si-Cor, Inc., 107 Wn. App. 902, 906, 28 P.3d 832
(2001).

Nonexclusive factors promote court discretion in
applying judicial estoppel: “(1) The inconsistent position
first asserted must have been successfully maintained; (2)
a judgment must have been rendered; (3) the positions
must be clearly inconsistent; (4) the parties and questions
must be the same; (5) the party claiming estoppel must
have been misled and have changed his position; (6) it
must appear unjust to one party to permit the other to
change.” Falkner v. Foshaug, 108 Wn. App. 113, 125 n.35,
29 P.3d 771 (2001) (quoting Raymond, 47 Wn. App. at 785.
The focus is upon the inconsistent position. Falkner, 108
Wn. App. at 125.

Judicial estoppel has been recently applied in a
similar bankruptcy context. Cunningham v. Reliable
Concrete Pumping, Inc. __ Wn. App. __, 108 P.3d 147
(2005). In Cunningham, Division One of this court invoked
judicial estoppel to approve the summary dismissal of a
personal injury claim when the plaintiffs had previously
petitioned for bankruptcy, but failed to list in their bank-
ruptcy schedules a third-party personal injury claim
arising out of a workplace injury.

A-6

On the federal level judicial estoppel is well en-
trenched. In New Hampshire v. Maine, 532 U.S. 742, 121
S. Ct. 1808, 149 L. Ed. 2d 968 (2001), the United States
Supreme Court invoked judicial estoppel, describing the
doctrine as preventing “‘perversion of the judicial proc-
ess’” by not allowing parties to “‘gain an advantage by
litigation on one theory, and then seek[ing] an inconsistent
advantage by pursuing an incompatible theory.’” Id. at 749
(quoting In re Cassidy, 892 F.2d 637, 641, cert. denied, 498
U.S. 812 (1990); 18B Charles A. Wright, Federal Practice
and Procedure § 4477, at 549 (2002)). ,

The DeAtleys inconsistently received bankruptcy
relief, and thereafter sought contradictory relief. Under
these facts, we conclude judicial estoppel applies here to
foreclose the DeAtleys’ claim.

In sum, the lack of standing and judicial estoppel
leads us to conclude the trial court did not err in dismiss-
ing the DeAtleys’ complaint or in denying reconsideration.
Therefore, it is unnecessary to analyze the parties other
issues and contentions except those related to the
Barnetts’ attorney fees.

B. Attorney Fees at the Superior Court

The issue is whether the trial court erred in limiting
the Barnetts’ award of attorney fees to those incurred to
bring their motion to dismiss. The Barnetts contend the
court erred as a matter of law in finding the Barnetts
delayed in bringing their motion to dismiss without just
cause because the delay was caused by the DeAtleys’ delay
in providing requested discovery.

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We review trial court’s attorney fees award for an
abuse of discretion. Mahler v. Szucs, 1385 Wn.2d 398, 435,
957 P.2d 632 (1998). Abuse of discretion occurs when the
trial court’s decision rests on untenable grounds or unten-
able reasons. State ex rel. Carroll v. Junkel, 79 Wn.2d 12,
26, 482 P. 775 (1971).

The trial court reasoned the bankruptcy issue was
known to the Barnetts well prior “to the end of 2003 and
now here in 2004, the motion was always available to the
defendants.” Report of Proceedings at 3. The record sup-
ports the trial court’s reasoning. For example, Mr. Barnett
admitted he received notice of the DeAtleys’ bankruptcy
proceeding in 1992. Mr. Barnett assumed the DeAtleys
abandoned the road building project so the bankruptcy
notice did not make “an impression” on him. CP at 519.
While the bankruptcy schedules were not received until
2003, the discharge of the road building obligation was
sufficiently known to him to charge him with notice of the
critical fact bearing upon the viability of the first right of
refusal.

We defer » the trial court’s personal and exhaustive
contact with the issue. We limit our review to whether the
judge’s exercise of his discretion was manifestly unreason-
able or based on untenable grounds or reasons. Mr. Bar-
nett’s recollection of the bankruptcy notice, while vague,
was a tenable basis for the trial court to find the motion to
dismiss could have been brought sooner. The trial court
did not abuse its discretion in limiting the award.

C. Attorney Fees on Appeal

The Barnetts and Lookout Point request fees and
costs on appeal pursuant to RAP 18.1. Attorney fees are

A-8

awarded pursuant to contract, statute, or a recognized
ground of equity. Wilkerson v. United Inv., Inc., 62 Wn.
App. 712, 716, 815 P.2d 293 (1991). By statute, attorney
fees are awarded to the prevailing party in an action on a
contract that specifically provides for attorney fees and
costs incurred to enforce its provisions. RCW 4.84.330.

The parties’ agreement provides, “In the event any
suit or action shall be instituted under this Agreement ...
the prevailing party in such suit or action shall be entitled
to reasonable attorney’s fees, together with such other
assessable costs.” CP at 807. A contract providing for the
payment of attorney fees “‘includes both fees necessary for
trial and those incurred on appeal as well.’” Boyd v. Davis,
127 Wn.2d 256, 264, 897 P.2d 1239 (1995) (quoting Granite
Equip. Leasing Corp. v. Hutton, 84 Wn.2d 320, 327, 525
P.2d 223 (1974)). As the prevailing parties on appeal, the
Barnetts and Lookout Point are entitled to their attorney
fees and costs here.

Affirmed.
/s/ Brown, J.
Brown, J.
WE CONCUR:
/s/ Kato C.J.
Kato, C.J.

/s/ Sweeney, J.

Sweeney, J.

A-9

SUPERIOR COURT OF THE STATE OF WASHINGTON

FOR YAKIMA COUNTY
ALAN DeATLEY and
DEBRA DeATLEY, husband | NO. 97-2-01023-2
and wife, ORDER GRANTING
_— DEFENDANTS’ MOTION
a TO DISMISS
is ASSIGNED TO THE
LYNN BARNETT and HONORABLE
ors pert ROBERT HACKETT
usband and wife, an
LOOKOUT POINT see DATE:
PARTNERS, a partnership, ovember 13, 2003
Defendants. (Filed Nov. 13, 2003)

THIS MATTER came before the Court upon Defen-
dants’ Motion to Dismiss, with defendants Barnett appear-
ing by and through their attorney of record. Annette
Fitzsimmons, defendant Lookout Point Partners appear-
ing by and through its attorney of record. Margaret Archer
of Gordon, Thomas, Honeywell, Malanca, Peterson and
Daheim, LLP and plaintiffs appearing by and through
their attorney of record, James Perkins of Larson &
Perkins, PLLC. The Court heard the argument of counsel
and examined the records and files herein, including the

following pleadings:
1. Defendants’ Motion to Dismiss

2. Defendants’ Memorandum in Support of
Motion to Dismiss

3. Declaration of Margaret Archer in Support
of Motion to Dismiss with attachments

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4. Declaration of Lynn Barnett in Support of
Motion to Dismiss

5. Declaration of Margaret Y. Archer Re: Fac-
simile Signature

6. Declaration of Donna Cratsenberg in Sup-
port of Motion to Dismiss

7. Declaration of Margaret Y. Archer Re: Fac-
simile Signature

8. Plaintiff's Memorandum in Opposition to
Dismiss and Cross-Motion to Dismiss Road
Claims

9. Alan DeAtley’s Declaration in Opposition to
Motion to Dismiss with attachments

10. Declaration of Jennie Deden Behles in Op-
position to Motion to Dismiss with attach-
ments

11. James A. Perkins’ Declaration Opposing
Motion to Dismiss with attachments

12. Supplemental Declaration of Margaret
Archer in Support of Motion to Dismiss with
attachments

IT IS HEREBY ORDERED, ADJUDGED AND DE-
CREED that Defendant’s Motion to dismiss is GRANTED
and plaintiffs’ claims are dismissed in their entirety with
prejudice. Defendants-may-present-a-motion fer -atterneys”
fees-unteeste at adaterdate [RN J.

DONE IN OPEN COURT this 13 day of Nov, 2003.

/s/ Robert N. Hackett, J.

THE HONORABLE
ROBERT HACKETT

A-11

Presented by:

GORDON, THOMAS, HONEYWELL,
MALANCA, PETERSON & DAHEIM, P.L.L.C.
Attorneys for Defendant Lookout Point Partners

By: /s/ Margaret Y. Archer
Margaret Y. Archer, WSBA #21224

ANNETTE T. FITZSIMMONS, P.S.
Attorney for Defendants Barnett

By: /s/ Margaret Y. Archer
(Mlegible] Annette T. Fitzsimmons,
WSBA #22295

Approved, Notice of Presentation Waived by:

LARSON & PERKINS, PLLC
Attorneys for Plaintiffs

By:

James A. Perkins, WSBA #13330

A-12

THE SUPREME COURT OF WASHINGTON

ALAN DeATLEY and +)
DEBRA DeATLEY, )
husband and wife, )

Petitioners, ‘ NO. 77442-1

v. ) _ ORDER

LYNN BARNETT and ?) (C/ANO. 22780-4-III
MARLENE BARNETT, ? & 22977-7-IIl
husband and wife, and ? (consolidated)
LOOKOUT POINT )
PARTNERS,

Respondents. )

Department II of the Court, composed of Chief Justice
Alexander and Justices Madsen, Bridge, Owens, and J.M.
Johnson (Justice Fairhurst sat for Justice Bridge), consid-
ered this matter at its March 7, 2006, Motion Calendar,
and unanimously agreed that the following order be
entered.

IT IS ORDERED:

That the Petition for Review is denied. The motion to
strike reply is granted.

DATED at Olympia, Washington this 8th day of
_ March, 2006.

For the Court
/s/ Gerry L. Alexander

CHIEF JUSTICE

B-1

11 USCS § 541 (1992) Property of the estate

(a) The commencement of a case under section 301, 302,
or 303 of this title [11 USCS § 301, 302, or 303] creates an
estate. Such estate is comprised of all the following prop-
erty, wherever located and by whomever held:

(1) Except as provided in subsections (b) and (c)(2) of
this section, all legal or equitable interests of the debtor in
property as of the commencement of the case.

(2) All interests of the debtor and the debtor’s spouse
in community property as of the commencement of the |
case that is —

(A) under the sole, equal, or joint managerient
and control of the debtor; or

(B) liable for an allowable claim against the
debtor, or for both an allowable claim against the debtor
and an allowable claim against the debtor’s spouse, to the
extent that such interest is so hable.

(3) Any interest in property that the trustee recovers
under section 329(b), 363(n), 543, 550, 553, or 723 of this
title [11 USCS § 329(b), 363(n), 543, 550, 553, or 723].

(4) My interest in property preserved for the benefit
of or ordered transferred to the estate under section 510(c)
or 551 of this title [11 USCS § 510(c) or 551].

(5) Any interest in property that would have been
property of the estate if such interest had been an interest
of the debtor on the date of the filing of the petition, and
that the debtor acquires or becomes entitled to acquire
within 180 days after such date —

(A) by bequest, devise, or inheritance;

B-2

(B) as a result of a property settlement agree-
ment with the debtor’s spouse, or of an interlocutory or
final divorce decree; or

(C) as a beneficiary of a life insurance policy or
of a death benefit plan.

(6) Proceeds, product, offspring, rents, or profits of or
from property of the estate, except such as are earnings
from services performed by an individual debtor after the
commencement of the case.

(7) Any interest in property that the estate acquires
after the commencement of the case.

(b) Property of the estate does not include —

(1) any power that the debtor may exercise solely for
the benefit of an entity other than the debtor;

_ (2) any interest of the debtor as a lessee under a
lease of nonresidential real property that has terminated
at the expiration of the stated term of such lease before
the commencement of the case under this title, and ceases
to include any interest of the debtor as a Iessee under a
lease of nonresidential real property that has terminated
at the expiration of the stated term of such lease during
the case;

(3) any eligibility of the debtor to participate in
programs authorized under the Higher Education Act of
1965 (20 U.S.C. 1001 et seq.; 42 U.S.C. 2751 et seq.), or
any accreditation status or State licensure of the debtor as
an educational institution;

(4) any interest of the debtor in liquid or gaseous
hydrocarbons to the extent that —

B-3

(A)

(i) the debtor has transferred or has agreed
to transfer such interest pursuant to a farmout agreement
or any written agreement directly related to a farmout
agreement; and

(ii) but for the operation of this paragraph,
the estate could include the interest referred to in clause
(i) only by virtue of section 365 or 544(a)(3) of this title [11
USCS § 365 or 544(a)(3)); or

(B)

(i) the debtor has transferred such interest
pursuant to a written conveyance of a production payment
to an entity that does not participate in the operation of

the property from which such production payment is
transferred; and

(ii) but for the operation of this paragraph,
the estate could include the interest referred to in clause
(i) only by virtue of section 365 or 542 of this title [11
USCS § 365 or 542);

(5) funds placed in an education individual retire-
ment account (as defined in section 530(b)(1) of the Inter-
nal Revenue Code of 1986 (26 USCS § 530(b)(1)]) not later
than 365 days before the date of the filing of the petition in
a case under this title, but —

(A) only if the designated beneficiary of such
account was a child, stepchild, grandchild, or stepgrand-
child of the debtor for the taxable year for which funds
were placed in such account;

(B) only to the extent that such funds —

B-4

(i) are not pledged or promised to any entity
in connection with any extension of credit; and

(ii) are not excess contributions (as de-
scribed in section 4973(e) of the Internal Revenue Code of
1986 [26 USCS § 4973(e)]); and

(C) in the case of funds placed in all such ac-
counts having the same designated beneficiary not earlier
than 720 days nor later than 365 days before such date,
only so much of such funds as does not exceed $5,000;

(6) funds used to purchase a tuition credit or certifi-
cate or contributed to an account in accordance with
section 529{b)(1)A) of the Internal Revenue Code of 1986
[26 USCS § 529(b)(1)(A)] under a qualified State tuition
program (as defined in section 529b)(1) of such Code [26
USCS § 529(b)(1)]) not later than 365 days before the date
of the filing of the petition in a case under this title, but —

(A) only if the designated beneficiary of the
amounts paid or contributed to such tuition program was a
child, stepchild, grandchild, or stepgrandchild of the
debtor for the taxable year for which funds were paid or
contributed;

(B) with respect to the aggregate amount paid or
¢ontributed to such program having the same designated
beneficiary, only so much of such amount as does not
exceed the total contributions permitted under section
529(b\(7) of such Code [26 USCS § 529(b)(7)] with respect
to such beneficiary, as adjusted beginning on the date of
the filing of the petition in a case under this title by the
annual increase or decrease (rounded to the nearest tenth
of 1 percent) in the education expenditure category of the

B-5

Consumer Price Index prepared by the Department of
Labor; and

(C) in the case of funds paid or contributed to
such program having the same designated beneficiary not
earlier than 720 days nor later than 365 days before such
date, only so much of such funds as does not exceed $5,000;

(7) any amount —

(A) withheld by an employer from the wages of
employees for payment as contributions —

(i) to—

(I) an employee benefit plan that is
subject to title I of the Employee Retirement Income
Security Act of 1974 [29 USCS §§ 1001 et seq.] or under an
employee benefit plan which is a governmental plan under
section 414(d) of the Internal Revenue Code of 1986 [26
USCS § 414(d)];

(II) a deferred compensation plan under
section 457 of the Internal Revenue Code of 1986 [26
USCS § 457]; or

(II) a tax-deferred annuity under
section 403(b) of the Internal Revenue Code of 1986 [26
USCS § 403(b)]; except that such amount under this
subparagraph shall not constitute disposable income as
defined in section 1325(b)(2) [11 USCS § 1325(b)(2)]; or

(ii) to a health insurance plan regulated by
State law whether or not subject to such title; or

(B) received by an employer from employees for
payment as contributions —

(i) to -

. (I) an employee benefit plan that is
subject to title I of the Employee Retirement Income
Security Act of 1974 [29 USCS §§ 1001 et seq.] or under an
employee benefit plan which is a governmental plan under
section 414(d) of the Internal Revenue Code of 1986 [26
USCS § 414(d));

(II) a deferred compensation plan under
section 457 of the Internal Revenue Code of 1986 [26
USCS § 457]; or

(III) a tax-deferred annuity under
section 403(b) of the Internal Revenue Code of 1986 [26
USCS § 403(b));

except that such amount under this subpara-
graph shall not constitute disposable income, as defined in
section 1325(b)(2) [11 USCS § 1325(b)(2)]; or

(ii) to a health insurance plan regulated by
State law whether or not subject to such title;

(8) subject to subchapter III of chapter 5 {11 USCS
§§ 541 et seq.], any interest of the debtor in property
where the debtor pledged or sold tangible personal prop-
erty (other than securities or written or printed evidences
of indebtedness or title) as collateral for a loan or advance
of money given by a person licensed under law to make
such loans or advances, where —

(A) the tangible personal property is in the
possession of the pledgee or transferee;

B-7

(B) the debtor has no obligation to repay the
money, redeem the collateral, or buy back the property at a
stipulated price; and

(C) neither the debtor nor the trustee have
exercised any right to redeem provided under the contract

or State law, in a timely manner as provided under State
law and section 108(b) [11 USCS § 108(b)]; or

(9) any interest in cash or cash equivalents that
constitute proceeds of a sale by the debtor of a money
order that is made —

(A) on or after the date that is 14 days prior to
the date on which the petition is filed; and

(B) under an agreement with a money order
issuer that prohibits the commingling of such proceeds
with property of the debtor (notwithstanding that, con-
trary to the agreement, the proceeds may have been
commingled with property of the debtor),

unless the money order issuer had not taken action,
prior to the filing of the petition, to require compliance
with the prohibition.

Paragraph (4) shall not be construed to exclude from the
estate any consideration the debtor retains, receives, or is
entitled to receive for transferring an interest in liquid or
gaseous hydrocarbons pursuant to a farmout agreement.

(c)

(1) Except as provided in paragraph (2) of this
subsection, an interest of the debtor in property becomes
property of the estate under subsection (a)(1), (a)(2), or
(a)(5) of this section notwithstanding any provision in an

B-8

agreement, transfer instrument, or applicable nonbank-
ruptcy law —

(A) that restricts or conditions transfer of such
interest by the debtor; or

(B) that is conditioned on the insolvency or
financial condition of the debtor, on the commencement of
a case under this title, or on the appointment of or taking
possession by a trustee in a case under this title or a
custodian before such commencement, and that effects or
gives an option to effect a forfeiture, modification, or
termination of the debtor’s interest in property.

(2) A restriction on the transfer of a_ beneficial
interest of the debtor in a trust that is enforceable under
applicable nonbankruptcy law is enforceable in a case
under this title.

(d) Property in which the debtor holds, as of the com-
mencement of the case, only legal title and not an equita-
ble interest, such as a mortgage secured by real property,
or an interest in such a mortgage, sold by the debtor but
as to which the debtor retains legal title to service or
supervise the servicing of such mortgage or interest,
becomes property of the estate under subsection (a)(1) or
(2) of this section only to the extent of the debtor’s legal
title to such property, but not to the extent of any equita-
ble interest in such property that the debtor does not hold.

(e) In determining whether any of the relationships
specified in paragraph (5)(A) or (6)(A) of subsection (b)
exists, a legally adopted child of an individual (and a child
who is a member of an individual’s household, if placed
with such individual by an authorized placement agency
for legal adoption by such individual), or a foster child of

B-9

an individual (if such child has as the child’s principal
place of abode the home of the debtor and is a member of
the debtor’s household) shall be treated as a child of such
individual by blood.

(f) Notwithstanding any other provision of this title,
property that is held by a debtor that is a corporation
described in section 501(c)(3) of the Internal Revenue Code
of 1986 [26 USCS § 501(c)(3)] and exempt from tax under
section 501(a) of such Code [26 USCS § 501(a)] may be
transferred to an entity that is not such a corporation, but
only under the same conditions as would apply if the
debtor had not ined a case under this title.

HISTORY:

(Nov. 6, 1978, P.L. 95-598, Title I, § 101, 92 Stat. 2594;
July 10, 1984, P.L. 98-353, Title III, Subtitle C, § 363(a),
Subtitle H, § 456, 98 Stat. 363, 376; Nov. 5, 1990, P.L. 101-
508, Title III, Subtitle A, § 3007(a)(2), 104 Stat. 1388-28;
Oct. 24, 1992, PL. 102-486, Title XXX, Subtitle B,
§ 3017(b), 106 Stat. 3130; Oct. 22, 1994, P.L. 103-394, Title
II, §§ 208(b), 223, 108 Stat. 4124, 4129.)

(As amended April 20, 2005, PL. 109-8, Title II,
Subtitle C, § 225(a), Title ITI, § 323, Title XII, §§ 1212,
1221(c), 1230, 119 Stat. 65, 97, 194, 196, 201.)

HISTORY; ANCILLARY LAWS AND DIRECTIVES

Prior law and revision:

Legislative Statements

Section 541(a)(7) is new. The provision clarifies that
any interest in property that the estate acquires after the

B-10

commencement of the case is property of the estate; for
example, if the estate enters into a contract, after the
commencement of the case, such a contract would be
property of the estate. The addition of this provision by the
House amendment merely clarifies that section 541(a) is
an all-embracing definition which includes charges on
property, such as liens held by the debtor on property of a
third party, or beneficial rights and interests that the
debtor may have in property of another. However, only the
debtor’s interest in such property becomes property of the
estate. If the debtor holds bare legal title or holds property
in trust for another, only those rights which the debtor
would have otherwise had emanating from such interest
pass to the estate under section 541. Neither this section
nor section 545 will affect various statutory provisions
that give a creditor a lien that is valid both inside and
outside bankruptcy against a bona fide purchaser of
property from the debtor, or that creates a trust fund for
the benefit of creditors meeting similar criteria. See
Packers and Stockyards Act § 206, 7 U.S.C. 196 (1976).

Section 541(c)(2) follows the position taken in the
House bill and rejects the position taken in the Senate
amendment with respect to income limitations on a spend-
thrift trust.

Section 541(d) of the House amendment is derived
from section 541(e) of the Senate amendment and reiter-
ates the general principle that where the debtor holds bare
legal title without any equitable interest, that the estate
acquires bare legal title without any equitable interest in
the property. The purpose of section 541(d) as applied to
the secondary mortgage market is identical to the purpose
of section 541(e) of the Senate amendment and section
541(d) will accomplish the same result as would have been

B-11

accomplished by section 541(e). Even if a mortgage seller
retains for purposes of servicing legal title to mortgages or
interests in mortgages sold in the secondary mortgage
market, the trustee would be required by section 541(d) to
turn over the mortgages or interests in mortgages to the
purchaser of those mortgages.

The seller of mortgages in the secondary mortgage
market will often retain the original mortgage notes and
related documents and the seller will not endorse the
notes to reflect the sale to the purchaser. Similarly, the
purchaser will often not record the purchaser’s ownership
of the mortgages or interests in mortgages under State
recording statutes. These facts are irrelevant and the
seller’s retention of the mortgage documents and the
purchaser’s decision not to record do not change the
trustee’s obligation to turn the mortgages or interests in
mortgages over to the purchaser. The application of section
541(d) to secondary mortgage market transactions will not
be affected by the terms of the servicing agreement be-
tween the mortgage servicer and the purchaser of the
mortgages. Under section 541(d), the trustee is required to
recognize the purchaser’s title to the mortgages or inter-
ests in mortgages and to turn this property over to the
purchaser. It makes no difference whether the servicer and
the purchaser characterize their relationship as one of
trust, agency, or independent contractor.

The purpose of section 541(d) as applied to the secon-
dary mortgage market is therefore to make certain that
secondary mortgage market sales as they are currently
structured are not subject to challenge by bankruptcy
trustees and that purchasers of mortgages will be able to
obtain the mortgages or interests in mortgages which they
have purchased from trustees without the trustees asserting

B-12

that a sale of mortgages is a loan from the purchaser to
the seller.

Thus, as section 541(a)(1) clearly states, the estate is
comprised of all legal or equitable interests of the debtor in
property as of the commencement of the case. To the
extent such an interest is limited in the hands of the
debtor, it is equally limited in the hands of the estate
except to the extent that defenses which are personal
against the debtor are not effective against the estate.

Property of the estate: The Senate amendment pro-
vided that property of the estate does not clude amounts
held by the debtor as trustee and any taxes withheld or
collected from others before the commencement of the
case. The House amendment removes these two provi-
sions. As to property held by the debtor as a trustee, the
House amendment provides that property of the estate
will include whatever interest the debtor held in the
property at the commencement of the case. Thus, where
the debtor held only legal title to the property and the
beneficial interest in that property belongs to another,
such as exists in the case of property held in trust, the
property of the estate includes the legal title, but not the
beneficial interest in the property.

As to withheld taxes, the House amendment deletes
the rule in the Senate bill as unnecessary since property of
the estate does not include the beneficial interest in
property held by the debtor as a trustee. Under the Inter-
nal Revenue Code of 1954 (section 7501) [26 U.S.C. 7501],
the amounts of withheld taxes are held to be a special fund
in trust for the United States. Where the Internal Revenue
Service can demonstrate that the amounts of taxes withheld
are still in the possession of the debtor at the commencement

B-13

of the case, then if a trust is created, those amounts are
not property of the estate. Compare In re Shakesteers
Coffee Shops, 546 F.2d 821 (9th Cir. 1976) with In re Glynn
Wholesale Building Materials, Inc. (S.D. Ga. 1978) and In re
Progress Tech Colleges, Inc., 42 Aftr 2d 78-5573 (S.D. Ohio
1977).

Where it is not possible for the Internal Revenue
Service to demonstrate that the amounts of taxes withheld
are still in the possession of the debtor at the commence-
ment of the case, present law generally includes amounts
of withheld taxes as property of the estate. See, e.g.,
United States v. Randall, 401 U.S. 513 (1973) [91 S. Ct.
991, 28 L.Ed.2d 273] and In re Tamasha Town and County
Club, 483 F.2d 1377 (9th Cir. 1973). Nonetheless, a serious
problem exists where “trust fund taxes” withheld from
others are held to be property of the estate where the
withheld amounts are commingled with other assets of the
debtor. The courts should permit the use of reasonable
assumptions under which the Internal Revenue Service,
and other tax authorities, can demonstrate that amounts
of withheld taxes are still in the possession of the debtor at
the commencement of the case. For example, where the
debtor had commingled that amount of withheld taxes in
his general checking account. it might be reasonable to
assume that any remaining ::mounts in that account on
the commencement of the case are the withheld taxes. In
addition, Congress may consider future amendments to
the Internal Revenue Code [title 26] making clear that
amounts of withheld taxes are held by the debtor in a
trust relationship and, consequently, that such amounts
are not property of the estate.

B-14

Senate Report No. 95-989

This section defines property of the estate, and speci-
fies what property becomes property of the estate. The
commencement of a bankruptcy case creates an estate.
Under paragraph (1) of subsection (a), the estate is com-
prised of all legal or equitable interest of the debtor in
property, wherever located as of the commencement of the
case. The scope of this paragraph is broad. It includes all
kinds of property, including tangible or intangible prop-
erty, causes of action (see Bankruptcy Act § 70a(6) [section
110(a)(6) of former title 11]), and all other forms of prop-
erty currently specified in section 70a of the Bankruptcy
Act § 70a [section 110(a) of former title 11], as well as
property recovered by the trustee under section 542 of
proposed title 11, if the property recovered was merely out
of the possession of the debtor, yet remained “property of
the debtor.” The debtor’s interest in property also includes
“title” to property, which is an interest, just as are a
possessory interest, or lease-hold interest, for example.
The result of Segal v. Rochelle, 382 U.S. 375 (1966), is
followed, and the right to a refund is property of the
estate.

Though this paragraph will include choses in action
and claims by the debtor against others, it is not intended
to expand the debtor’s rights against others more than
they exist at the commencement of the case. For example,
if the debtor has a claim that is barred at the time of the
commencement of the case by the statute of limitations,
then the trustee would not be able to pursue that claim,
because he too would be barred. He could take no greater
rights than the debtor himself had. But see proposed 11
U.S.C. 108, which would permit the trustee a tolling of the

B-15

statute of limitations if it had not run before the date of
the filing of the petition.

Paragraph (1) has the effect of overruling Lockwood v.
Exchange Bank, 190 U.S. 294 (1903), because it includes
as property of the estate all property of the debtor, even
that needed for a fresh start. After the property comes into
the estate, then the debtor is permitted to exempt it under
proposed 11 U.S.C. 522, and the court will have jurisdic-
tion to determine what property may be exempted and
what remains as property of the estate. The broad jurisdic-
tional grant in proposed 28 U.S.C. 1334 would have the
effect of overruling Lockwood independently of the change
made by this provision.

Paragraph (1) also has the effect of overruling Lines v.
Frederick, 400 U.S. 18 (1970).

Situations occasionally arise where property ostensi-
bly belonging to the debtor will actually not be property of
the debtor, but will be held in trust for another. For exam-
ple, if the debtor has incurred medical bills that were
covered by insurance, and the insurance, company had
sent the payment of the bills to the debtor before the
debtor had paid the bill for which the payment was reim-
bursement, the payment would actually be held in a
constructive trust for the person to whom the bill was
owed. This section and proposed 11 U.S.C. 545 also will
not affect various statutory provisions that give a creditor
of the debtor a lien that is valid outside as well as inside
bankruptcy, or that creates a trust fund for the benefit of a
creditor of the debtor. See Packers and Stockyards Act
§ 206, 7 U.S.C. 196.

Bankruptcy Act § 8 [section 26 of former title 11) has
been deleted as unnecessary. Once the estate is created, no

B-16

interests in property of the estate remain in the debtor.
Consequently, if the debtor dies during the case, only
property exempted from property of the estate or acquired
by the debtor after the commencement of the case and not
included as property of the estate will be available to the
representative of the debtor’s probate estate. The bank-
ruptcy proceeding will continue in rem with respect to
property of the state, and the discharge will apply in
personam to relieve the debtor, and thus his probate
representative, of liability for dischargeable debts.

The estate also includes the interests of the debtor
and the debtor’s spouse in community property, subject to
certain limitations; property that the trustee recovers
under the avoiding powers; property that the debtor
acquires by bequest, devise, inheritance, a property
settlement agreement with the debtor’s spouse, or as the
beneficiary of a life insurance policy within 180 days after
the petition; and proceeds, product, offspring, rents, and
profits of or from property of the estate, except such as are
earning from services performed by an individual debtor
after (ae commencement of the case. Proceeds here is not
used in a cvafining sense, as defined in the Uniform
Commercial Code, but is intended to be a broad term to
encompass all proceeds of property of the estate. The
conversion in form of property of the estate does not
change its character as property of the estate.

Subsection (b) excludes from property of the estate
any power, such as a power of appointment, that the
debtor may exercise solely for the benefit of an entity other
than the debtor [see the 1984 amendment of subsec. (b) of
this section]. This changes present law which excludes
powers solely benefiting other persons but not other
entities.

B-17

Subsection (c) invalidates restrictions on the transfer
of property of the debtor, in order that all of the interests
of the debtor in property will become property of the
estate. The provisions invalidated are those that restrict
or condition transfer of the debtor’s interest, and those
that are conditioned on the insolvency or financial condi-
tion of the debtor, on the commencement of a bankruptcy
case, or on the appointment of a custodian of the debtor’s
property. Paragraph (2) of subsection (c), however, pre-
serves restrictions on a transfer of a spendthrift trust that
the restriction is enforceable nonbankruptcy law to the
extent of the income reasonably necessary for the support
of a debtor and his dependents.

Subsection (d) [now (e)], derived from section 70c of
the Bankruptcy Act [section 110(c) of former title 11], gives
the estate the benefit of all defenses available to the
debtor as against an entity other than the estate, includ-
ing such defenses as statutes of limitations, statutes of
frauds, usury, and other personal defenses, and makes
waiver by the debtor after the commencement of the case
ineffective to bind the estate [this subsec. was repealed by
Act July 10, 1984; see the 1984 Amendments note to this
section].

Section 541(e) [now (d)] confirms the current status
under the Bankruptcy Act [former title 11] of bona fide
secondary mortgage market transactions as the purchase
and sale of assets. Mortgages or interests in mortgages
sold in the secondary market should not be considered as
part of the debtor’s estate. To permit the efficient servicing
of mortgages or interests in mortgages the seller often
retains the original mortgage notes and related docu-
ments, and the purchaser records under State recording
statutes the purchaser’s ownership of the mortgages or

B-18

interests in mortgages purchased. Section 541(e) [now (d)]
makes clear that the seller’s retention of the mortgage
documents and the purchaser’s decision not to record do
not impair the asset sale character of secondary mortgage
market transactions. The committee notes that in secon-
dary mortgage market transactions the parties may
characterize their relationship as one of trust, agency, or
independent contractor. The characterization adopted by
the parties should not affect the statutes in bankruptcy on
bona fide secondary mortgage market purchases and sales.

Effective date of section:

This section became effective on October 1, 1979,
pursuant to § 402(a) of Act Nov. 6, 1978, P.L. 95-598, which
appears as 11 USCS prec § 101 note.

Amendments:

1984. Act July 10, 1984, in subsec. (a), in the introduc-
tory matter, deleted “under” following “under” and in-
serted “and by whomever held”, in para. (3), inserted
“329(b), 363(n),” in para. (5), in the introductory matter,
substituted “Any” for “An”, and, in para. (6), substituted
“or” for “and” preceding “profits”; substituted subsec. (b)
for one which read: “Property of the estate does not include
any power that the debtor may only exercise solely for the
benefit of an entity other than the debtor.”; in subsec.
(c(1), in the introductory matter, inserted “in an agree-
ment, transfer instrument, or applicable nonbankruptcy
law”, and in sub para. (B), substituted “taking” for “the
taking” and inserted “before such commencement”, in
subsec. (d), inserted “(1) or (2)”; and deleted subsec. (e),
which read: “The estate shall have the benefit of any
defense available to the debtor as against an entity other
than the estate, including statutes of limitation, statutes

B-19

of frauds, usury, and other personal defenses. A waiver of
any such defense by the debtor after the commencement of
the case does not bind the estate.”.

1990. Act Nov. 5, 1990 (effective as provided by
§ 3007(a)(3) of such Act, which appears as 11 USCS § 362
note), in subsec. (b), in para. (1), deleted “or” after the
concluding semicolon, in para. (2), substituted “; or” for the
concluding period, and added para. (3).

1992. Act Oct. 24, 1992 (effective and applicable as
provided by § 3017(c) of such Act, which appears as 11
USCS § 101 note), in subsec. (b), in para. (2), deleted “or”
following the semicolon, in para. (3), substituted “or” for
the concluding period, added para. (4), and added the
concluding matter.

1994. Act Oct. 22, 1994 (effective on enactment and
inapplicable with respect to cases commenced before
enactment, as provided by § 702 of such Act, which ap-
pears as 11 USCS § 101 note), in subsec. (b), in para. (3),
substituted the concluding semicolon for “or”, in para. (4),
in subpara. (A), designated the existing provisions as cl.
(i), redesignated former subpara. (B) as subpara. (A), cl.
(ii), and in cl. (ii) as so designated, substituted “the inter-
est referred to in clause (i)” for “such interest” and substi-
tuted “; or” for a concluding period, and added a new
subpara. (B), and added para. (5).

Such Act further (effective as above) purported to
amend subsec. (b)(4) by striking a period at the end and
inserting “; or”; however, the amendment was executed by
substituting “; or” for a concluding semicolon in order to
effectuate the probable intent of Congress.

B-20

2005. Act April 20, 2005 (effective 180 days after
enactment and inapplicable to cases commenced before the
effective date, as provided by § 1501 of such Act, which
appears as 11 USCS § 101 note), in subsec. (b), in para. (4),
in subpara. (B)(ii), inserted “365 or”, and deleted “or”
following the concluding semicolon, redesignated para. (5)
as para. (9), and inserted paras. (5)-(8); and added subsec.
(e).

Such Act further (applicable as provided by § 1221(d) :
of such Act, which appears as 11 USCS § 363 note), added
subsec. (f).

11 USCS § 524 (1992) Effect of discharge

(a) Adischarge in a case under this title [11 USCS §§ 101
et seq.] —

(1) voids any judgment at any time obtained, to the
extent that such judgment is a determination of the
personal liability of the debtor with respect to any debt
discharged under section 727, 944, 1141, 1228, or 1328 of
this title [11 USCS § 727, 944, 1141, 1228, or 1328],
whether or not discharge of such debt is waived;

(2) operates as an injunction against the com-
mencement or continuation of an action, the employment
of process, or an act, to collect, recover or offset any such
debt as a personal liability of the debtor, whether or not
discharge of such debt is waived; and

(3) operates as an injunction against the com-
mencement or continuation of an action, the employment
of process, or an act, to collect or recover from, or offset
against, property of the debtor of the kind specified in

B-21

section 541(a)(2) of this title [11 USCS § 541(a)(2)] that is
acquired after the commencement of the case, on account of
any allowable community claim, except a community claim
that is excepted from discharge under section 523, 1228(a)(1),
or 1328(aX1) {11 USCS § 1228aX1), or 1328(a\X(1)], or that
would be so excepted, determined in accordance with the
provisions of sections 523(c) and 523(d) of this title [11
USCS §§ 523(c) and 523(d)], in a case concerning the
debtor’s spouse commenced on the date of the filing of the
petition in the case concerning the debtor, whether or not
discharge of the debt based on such community claim is
waived.

(b) Subsection (a)(3) of this section does not apply if -

(1) (A) the debtor’s spouse is a debtor in a case
under this title, or a bankrupt or a debtor in a case under
the Bankruptcy Act, commenced within six years of the
date of the filing of the petition in the case concerning the
debtor; and

(B) the court does not grant the debtor’s spouse
a discharge in such case concerning the debtor’s spouse; or

(2) (A) the court would not grant the debtor’s spouse
a discharge in a case under chapter 7 of this title [11
USCS §§ 701 et seq.] concerning such spouse commenced
on the date of the filing of the petition in the case concern-
ing the debtor; and

(B) a determination that the court would not so
grant such discharge is made by the bankruptcy court
within the time and in the manner provided for a determi-
nation under section 727 of this title [11 USCS § 727] of
whether a debtor is granted a discharge.

B-22

(c) An agreement between a holder of a claim and the
debtor, the consideration for which, in whole or in part, is
based on a debt that is dischargeable in a case under this
title is enforceable only to any extent enforceable under
applicable nonbankruptcy law, whether or not discharge of
such debt is waived, only if —

(1) such agreement was made before the granting of
the discharge under section 727, 1141, 1228, or 1328 of
this title [11 USCS § 727, 1141, 1228, or 1328];

(2) the debtor received the disclosures described in
subsection (k) at or before the time at which the debtor
signed the agreement;

(3) such agreement has been filed with the court
and, if applicable, accompanied by a declaration or an
affidavit of the attorney that represented the debtor
during the course of negotiating an agreement under this
subsection, which states that —

(A) such agreement represents a fully informed
and voluntary agreement by the debtor;

(B) such agreement does not impose an undue
hardship on the debtor or a dependent of the debtor; and

(C) the attorney fully advised the debtor of the
legal effect and consequences of —

(i) an agreement of the kind specified in this
subsection; and

(ii) any default under such an agreement;

(4) the debtor has not rescinded such agreement at
any time prior to discharge or within sixty days after such

B-23

agreement is filed with the court, whichever occurs later,
by giving notice of rescission to the holder of such claim;

(5) the provisions of subsection (d) of this section
have been complied with; and

(6) (A) in a case concerning an individual who was
not represented by an attorney during the course of
negotiating an agreement under this subsection, the court
approves such agreement as —

(i) not imposing an undue hardship on the
debtor or a dependent of the debtor; and

(ii) in the best interest of the debtor.

(B) Subparagraph (A) shall not apply to the
extent that such debt is a consumer debt secured by real

property.

(d) In a case concerning an individual, when the court
has determined whether to grant or not to grant a dis-
charge under section 727, 1141, 1228, or 1328 of this title
{11 USCS § 727, 1141, 1228, or 1328], the court may hold a
hearing at which the debtor shall appear in person. At any
such hearing, the court shall inform the debtor that a
discharge has been granted or the reason why a discharge
has not been granted. If a discharge has been granted and
if the debtor desires to make an agreement of the kind
specified in subsection (c) of this section and was not
represented by an attorney during the course of negotiat-
ing such agreement, then the court shall hold a hearing at
which the debtor shall appear in person and at such
hearing the court shall —

B-24

(1) inform the debtor —

(A) that such an agreement is not required
under this title, under nonbankruptcy law, or under any
agreement not made in accordance with the provisions of
subsection (c) of this section; and

(B) of the legal effect and consequences of —

(i) an agreement of the kind specified in
subsection (c) of this section; and

(ii) a default under such an agreement; and

(2) determine whether the agreement that the
debtor desires to make complies with the requirements of
subsection (c)(6) of this section, if the consideration for
such agreement is based in whole or in part on a consumer
debt that is not secured by real property of the debtor.

(e) Except as provided in subsection (a)(3) of this section,
discharge of a debt of the debtor does not affect the liabil-
ity of any other entity on, or the property of any other
entity for, such debt.

(f) Nothing contained in subsection (c) or (d) of this
section prevents a debtor from voluntarily repaying any
debt.

(g) (1) (A) After notice and hearing, a court that enters
an order confirming a plan of reorganization under chap-
ter 11 [11 USCS §§ 1101 et seq.] may issue, in connection
with such order, an injunction in accordance with this
subsection to supplement the injunctive effect of a dis-
charge under this section.

(B) An injunction may be issued under subpara-
graph (A) to enjoin entities from taking legal action for the

B-25

purpose of directly or indirectly collecting, recovering, or
receiving payment or recovery with respect to any claim or
demand that, under a plan of reorganization, is to be paid
in whole or in part by a trust described in paragraph
(2)(B)(i), except such legal actions as are expressly allowed
by the injunction, the confirmation order, or the plan of
reorganization.

(2) (A) Subject to subsection (h), if the requirements
of subparagraph (B) are met at the time an injunction
described in paragraph (1) is entered, then after entry of
such injunction, any proceeding that involves the validity,
application, construction, or modification of such injunc-
tion, or of this subsection with respect to such injunction,
may be commenced only in the district court in which such
injunction was entered, and such court shall have exclu-
sive jurisdiction over any such proceeding without regard
te the amount in controversy.

(B) The requirements of this subparagraph are
that -

(i) the injunction is to be implemented in
connection with a trust that, pursuant to the plan of
reorganization —

(I) is to assume the liabilities of a
debtor which at the time of entry of the order for relief has
been named as a defendant in personal injury, wrongful
death, or property-damage actions seeking recovery for
damages allegedly caused by the presence of, or exposure
to, asbestos or asbestos-containing products;

(II) is to be funded in whole or in part
by the securities of 1 or more debtors involved in such plan

B-26

and by the obligation of such debtor or debtors to make
future payments, including dividends;

(III) is to own, or by the exercise of
rights granted under such plan would be entitled to own if
specified contingencies occur, a majority of the voting
shares of —

(aa) each such debtor;

(bb) the parent corporation of each
such debtor; or

(cc) a subsidiary of each such
debtor that is also a debtor; and

(IV) is to use its assets or income to pay
claims and demands; and

(ii) subject to subsection (h), the court
determines that —

(I) the debtor is likely to be subject to
substantial future demands for payment arising out of the
same or similar conduct or events that gave rise to the
claims that are addressed by the injunction;

(II) the actual amounts, numbers, and
timing of such future demands cannot be determined;

(II) pursuit of such demands outside
the procedures prescribed by such plan is likely to
threaten the plan’s purpose to deal equitably with claims
and future demands;

(IV) as part of the process of seeking
confirmation of such plan —

B-27

(aa) the terms of the injunction
proposed to be issued under paragraph (1)(A), including
any provisions barring actions against third parties
pursuant to paragraph (4)(A), are set out in such plan and
in any disclosure statement supporting the plan; and

(bb) a separate class or classes of
the claimants whose claims are to be addressed by a trust
described in clause (i) is established and votes, by at least
75 percent of those voting, in favor of the plan; and

(V) subject to subsection (h), pursuant
to court orders or otherwise, the trust will operate through
mechanisms such as structured, periodic, or supplemental
payments, pro rata distributions, matrices, or periodic
review of estimates of the numbers and values of present
claims and future demands, or other comparable mecha-
nisms, that provide reasonable assurance that the trust
will value, and be in a financial position to pay, present
claims and future demands that involve similar claims in
substantially the same manner.

(3) (A) If the requirements of paragraph (2B) are
met and the order confirming the plan of reorganization
was issued or affirmed by the district court that has juris-
diction over the reorganization case, then after the time for
appeal of the order that issues or affirms the plan —

(i) the injunction shall be valid and enforce-
able and may not be revoked or modified by any court
except through appeal in accordance with paragraph (6);

(ii) no entity that pursuant to such plan or
thereafter becomes a direct or indirect transferee of, or
successor to any assets of, a debtor or trust that is the
subject of the injunction shall be liable with respect to any

B-28

claim or demand made against such entity by reason of its
becoming such a transferee or successor; and

(iii) no entity that pursuant to such plan or
thereafter makes a loan to such a debtor or trust or to
such a successor or transferee shall, by reason of making
the loan, be liable with respect to any claim or demand
made against such entity, nor shall any pledge of assets
made in connection with such a loan be upset or impaired
for that reason;

(B) Subparagraph (A) shall not be construed to —

(i) imply that an entity described in sub-
paragraph (A)(ii) or (iii) would, if this paragraph were not
applicable, necessarily be liable to any entity by reason of
any of the acts described in subparagraph (A);

(ii) relieve any such entity of the duty to
comply with, or of liability under, any Federal or State law
regarding the making of a fraudulent conveyance in a
transaction described in subparagraph (A)(ii) or (iii); or

(iii) relieve a debtor of the debtor’s obliga-
tion to comply with the terms of the plan of reorganiza-
tion, or affect the power of the court to exercise its
authority under sections 1141 and 1142 [11 USCS §§ 1141
and 1142) to compel the debtor to do so.

(4) (A) Gi) Subject to subparagraph (B), an injunc-
tion described in paragraph (1) shall be valid and enforce-
able against all entities that it addresses.

(ii) Notwithstanding the provisions of
section 524(e) [11 USCS § 524(e)], such an injunction may
bar any action directed against a third party who is
identifiable from the terms of such injunction (by name or

B-29

as part of an identifiable group) and is alleged to be
directly or indirectly liable for the conduct of, claims
against, or demands on the debtor to the extent such
alleged liability of such third party arises by reason of —

(I) the third party’s ownership of a
financial interest in the debtor, a past or present affiliate
of the debtor, or a predecessor in interest of the debtor;

(II) the third party's involvement in the
management of the debtor or a predecessor in interest of
the debtor, or service as an officer, director or employee of
the debtor or a related party;

(III) the third partys provision of
insurance to the debtor or a related party; or

(IV) the third party’s involvement in a
transaction changing the corporate structure, or in a loan
or other financial transaction affecting the financial
condition, of the debtor or a related party, including but
not limited to —

(aa) involvement in _ providing
financing (debt or equity), or advice to an entity involved
in such a transaction; or

(bb) acquiring or selling a financial
interest in an entity as part of such a transaction.

(iii) As used in this subparagraph, the term
“related party” means —

(I) a past or present affiliate of the
debtor;

(II) a predecessor in interest of the
debtor; or

B-30

(IIT) any entity that owned a financial

interest in —

(aa) the debtor;

(bb) a past or present affiliate of
the debtor; or

(cc) a predecessor in interest of the
debtor.

(B) Subject to subsection (h), if, under a plan of
reorganization, a kind of demand described in such plan is
to be paid in whole or in part by a trust described in
paragraph (2)(B)i) in connection with which an injunction
described in paragraph (1) is to be implemented, then such
injunction shall be valid «nd enforceable with respect to a
demand of such kind made, after such plan is confirmed,
against the debtor or debtors involved, or against a third
party described in subparagraph (A)(ii), if —

(i) as part of the proceedings leading to
issuance of such injunction, the court appoints a legal
representative for the purpose of protecting the rights of
persons that might subsequently assert demands of such
kind, and

(ii) the court determines, before entering
the order confirming such plan, that identifying such
debtor or debtors, or such third party (by name or as part
of an identifiable group), in such injunction with respect to
such demands for purposes of this subparagraph is fair
and equitable with respect te the persons that might
subsequently assert such demands, in light of the benefits
provided, or to be provided, to such trust on behalf of such
debtor or debtors or such third party.

B-31

(5) In this subsection, the term “demand” means a
demand for payment, present or future, that —

(A) was not a claim during the proceedings
leading to the confirmation of a plan of reorganization;

(B) arises out of the same or similar conduct or
events that gave rise to the claims addressed by the
injunction issued under paragraph (1); and

(C) pursuant to the plan, is to be paid by a trust
described in paragraph (2)(B)i).

(6) Paragraph (3)A)(i) does not bar an action taken
by or at the direction of an appellate court on appeal of an
injunction issued under paragraph (1) or of the order of
confirmation that relates to the injunction.

(7) This subsection does not affect the operation of
section 1144 [11 USCS § 1141] or the power of the district
court to refer a proceeding under section 157 of title 28 or
any reference of a proceeding made prior to the date of the
enactment of this subsection [enacted Oct. 22, 1994].

(h) Application to existing injunctions. — For purposes of
subsection (g) —

(1) subject to paragraph (2), if an injunction of the
kind described in subsection (g)(1)(B) was issued before
the date of the enactment of this Act, as part of a plan of
reorganization confirmed by an order entered before such
date, then the injunction shall be considered to meet the
requirements of subsection (g)(2)(B) for purposes of sub-
section (g)(2)(A), and to satisfy subsection (g)(4A)(ii), if —

(A) the court determined at the time the plan
was confirmed that the plan was fair and equitable in

B-32

accordance with the requirements of section 1129(b) [11
USCS § 1129(b)];

(B) as part of the proceedings leading to issu-
ance of such injunction and confirmation of such plan, the
court had appointed a legal representative for the purpose
of protecting the rights of persons that might subsequently
assert demands described in subsection (g)(4)(B) with
respect to such plan; and

(C) such legal representative did not object to
confirmation of such plan or issuance of such injunction;
and

(2) for purposes of paragraph (1), if a trust described
~ in subsection (g\(2)(B)(i) is subject to a court order on the
date of the enactment of this Act staying such trust from
settling or paying further claims —

(A) the requirements of subsection (g)(2\B)(jiXV)
shall not apply with respect to such trust until such stay is
lifted or dissolved; and

(B) if such trust meets such requirements on the
date such stay is lifted or dissolved, such trust shall be
considered to have met such requirements continuously
from the date of the enactment of this Act.

(i) The willful failure of a creditor to credit payments
received under a plan confirmed under this title, unless
the order confirming the plan is revoked, the plan is in
default, or the creditor has not received payments required
to be made under the plan in the manner required by the
plan (including crediting the amounts required under the
plan), shall constitute a violation of an injunction under
subsection (a)(2) if the act of the creditor to collect and

B-33

failure to credit payments in the manner required by the
plan caused material injury to the debtor.

(j) Subsection (a2) does not operate as an injunction
against an act by a creditor that is the holder of a secured
claim, if —

(1) such creditor retains a security interest in real
property that is the principal residence of the debtor;

(2) such act is in the ordinary course of business
between the creditor and the debtor; and

(3) such act is limited to seeking or obtaining peri-
odic payments associated with a valid security interest in
lieu of pursuit of in rem relief to enforce the lien.

(k) (1) The disclosures required under subsection (c)(2)
shall consist of the disclosure statement described in
paragraph (3), completed as required in that paragraph,
together with the agreement specified in subsection (c),
statement, declaration, motion and order described,
respectively, in paragraphs (4) through (8), and shall be
the only disclosures required in connection with entering
into such agreement.

(2) Disclosures made under paragraph (1) shall be
made clearly and conspicuously and in writing. The terms
“Amount Reaffirmed” and “Annual Percentage Rate” shall
be disclosed more conspicuously than other terms, data or
information provided in connection with this disclosure,
except that the phrases “Before agreeing to reaffirm a
debt, review these important disclosures” and “Summary
of Reaffirmation Agreement” may be equally conspicuous.
Disclosures may be made in a different order and may use
terminology different from that set forth in paragraphs (2)
through (8), except that the terms “Amount Reaffirmed”

B-34

and “Annual Percentage Rate” must be used where indi-
cated.

(3) The disclosure statement required under this
paragraph shall consist of the following:

(A) The statement: “Part A: Before agreeing to
reaffirm a debt, review these important disclosures:”;

(B) Under the heading “Summary of Reaffirma-
tion Agreement”, the statement: “This Summary is made
pursuant to the requirements of the Bankruptcy Code”;

(C) The “Amount Reaffirmed”, using that term,
which shall be —

(i) the total amount of debt that the debtor
agrees to reaffirm by entering into an agreement of the
kind specified in subsection (c), and

(ii) the total of any fees and costs accrued as
of the date of the disclosure statement, related to such
total amount.

(D) In conjunction with the disclosure of the
“Amount Reaffirmed", the statements —

(i) “The exnount of debt you have agreed to
reaffirm”; and

(ii) “Your credit agreement may obligate you
to pay additional amounts which may come due after the
date of this disclosure. Consult your credit agreement.”

(E) The “Annual Percentage Rate”, using that
term, which shall be disclosed as —

(i) if, at the time the petition is filed, the
debt is an extension of credit under an open end credit

B-35

plan, as the terms “credit” and “open end credit plan” are
defined in section 103 of the Truth in Lending Act [15
USCS § 1602], then —

(I) the annual percentage rate deter-
mined under paragraphs (5) and (6) of section 127(b) of the
Truth in Lending Act [15 USCS § 1637(b)], as applicable,
as disclosed to the debtor in the most recent periodic
statement prior to entering into an agreement of the kind
specified in subsection (c) or, if no such periodic statement
has been given to the debtor during the prior 6 months,
the annual percentage rate as it would have been so
disclosed at the time the disclosure statement is given to
the debtor, or to the extent this annual percentage rate is
not readily available or not applicable, then

(If) the simple interest rate applicable
to the amount reaffirmed as of the date the disclosure
statement is given to the debtor, or if different simple
interest rates apply to different balances, the simple
interest rate applicable to each such balance, identifying
the amount of each such balance included in the amount
reaffirmed, or

(III) if the entity making the disclosure
elects, to disclose the annual percentage rate under
subclause (I) and the simple interest rate under subclause
(II); or

(ii) if, at the time the petition is filed, the
debt is an extension of credit other than under an open
end credit plan, as the terms “credit” and “open end credit
plan” are defined in section 103 of the Truth in Lending
Act [15 USCS § 1602], then —

B-36

(Tl the annual percentage rate under
section 128(a)(4) of the Truth in Lending Act [15 USCS
§ 1638(a)(4)], as disclosed to the debtor in the most recent
disclosure statement given to the debtor prior to the
entering into an agreement of the kind specified in subsec-
tion (c) with respect to the debt, or, if no such disclosure
statement was given to the debtor, the annual percentage
rate as it would have been so disclosed at the time the
disclosure statement is given to the debtor, or to the extent
this annual percentage rate is not readily available or not
applicable, then

(II) the simple interest rate applicable
to the amount reaffirmed as of the date the disclosure
statement is given to the debtor, or if different simple
interest rates apply to different balances, the simple
interest rate applicable to each such balance, identifying
the amount of such balance included in the amount reaf-
firmed, or

(II) if the entity making the disclosure
elects, to disclose the annual percentage rate under (I) and
the simple interest rate under (II).

(F) If the underlying debt transaction was
disclosed as a variable rate transaction on the most recent
disclosure given under the Truth in Lending Act, by
stating “The interest rate on your loan may be a variable
interest rate which changes from time to time, so that the
annual percentage rate disclosed here may be higher or
lower.”

(G) If the debt is secured by a security interest
which has not been waived in whole or in part or deter-
mined to be void by a final order of the court at the time of
the disclosure, by disclosing that a security interest or lien

B-37

in goods or property is asserted over some or all of the
debts the debtor is reaffirming and listing the items and
their original purchase price that are subject to the as-
serted security interest, or if not a purchase-money secu-
rity interest then listing by items or types and the original
amount of the loan.

(H) At the election of the creditor, a statement of
the repayment schedule using 1 or a combination of the

following —

(i) by making the statement: “Your first
payment in the amount of $__ is due on __ but the
future payment amount may be different. Consult your
reaffirmation agreement or credit agreement, as applica-
ble.”, and stating the amount of the first payment and the
due date of that payment in the places provided;

(ii) by making the statement: “Your pay-
ment schedule will be:”, and describing the repayment
schedule with the number, amount, and due dates or
period of payments scheduled to repay the debts reaf-
firmed to the extent then known by the disclosing party; or

(iii) by describing the debtor’s repayment
obligations with reasonable specificity to the extent then
known by the disclosing party.

(I) The following statement: “Note: When this
disclosure refers to what a creditor ‘may’ do, it does not use
the word ‘may’ to give the creditor specific permission. The
word ‘may’ is used to tell you what might occur if the law
permits the creditor to take the action. If you have ques-
tions about your reaffirming a debt or what the law
requires, consult with the attorney who helped you negoti-
ate this agreement reaffirming a debt. If you don’t have an

B-38

attorney helping you, the judge will explain the effect of

your reaffirming a debt when the hearing on the reaf-
firmation agreement is held.”.

(J)
(i) The following additional statements:

“Reaffirming a debt is a serious financial decision. The
law requires you to take certain steps to make sure the
decision is in your best interest. If these steps are not
completed, the reaffirmation agreement is not effective,
even though you have signed it.

“1. Read the disclosures ia this Part A carefully.
Consider the decision to reaffirm carefully. Then, if you
want to reaffirm, sign the reaffirmation agreement in Part
B (or you may use a separate agreement you and your
creditor agree on).

“2. Complete and sign Part D and be sure you
can afford to make the payments you are agreeing to make
and have received a copy of the disclosure statement and a
completed and signed reaffirmation agreement.

“3. If you were represented by an attorney
during the negotiation of your reaffirmation agreement,
the attorney must have signed the certification in Part C.

“4. If you were not represented by an attorney
during the negotiation of your reaffirmation agreement,
you must have completed and signed Part =.

“5. The original of this disclosure must be filed
with the court by you or your creditor. If a separate reaf-
firmation agreement (other than the one in Part B) has
been signed, it must be attached.

—B-39

“6. If you were represented by an attorney
during the negotiation of your reaffirmation agreement,
your reaffirmation agreement becomes effective upon
filing with the court unless the reaffirmation is presumed
to be an undue hardship as explained in Part D.

“7. If you were not represented by an attorney
during the negotiation of your reaffirmation agreement, it
will not be effective unless the court approves it. The court
will notify you of the hearing on your reaffirmation
agreement. You must attend this hearing in bankruptcy
court where the judge will review your reaffirmation
agreement. The bankruptcy court must approve your
reaffirmation agreement as consistent with your best
interests, except that no court approval is required if your
reaffirmation agreement is for a consumer debt secured by
a mortgage, deed of trust, security deed, or other lien on
your real property, like your home.

“Your right to rescind (cancel) your reaffirmation
agreement. You may rescind (cancel) your reaffirmation
agreement at any time before the bankruptcy court enters
a discharge order, or before the expiration of the 60-day
period that begins on the date your reaffirmation agree-
ment is filed with the court, whichever occurs later. To
rescind (cancel) your reaffirmation agreement, you must
notify the creditor that your reaffirmation agreement is
rescinded (or canceled).

“What are your obligations if you reaffirm the debt? A
reaffirmed debt remains your personal, legal obligation. It
is not discharged in your bankruptcy case. That means
that if you default on your reaffirmed debt after your
bankruptcy case is over, your creditor may be able to take
your property or your wages. Otherwise, your obligations

B-40

will be determined by the reaffirmation agreement which
may have changed the terms of the original agreement.
For example, if you are reaffirming an open end credit
agreement, the creditor may be permitted by that agree-
ment or applicable law to change the terms of that agree-
ment in the future under certain conditions.

“Are you required to enter into a reaffirmation agree-
ment by any law? No, you are not required to reaffirm a
debt by any law. Only agree to reaffirm a debt if it is in
your best interest. Be sure you can afford the payments
you agree to make.

“What if your creditor has a security interest or lien?
Your bankruptcy discharge does not eliminate any lien on
your property. A ‘lien’ is often referred to as a security
interest, deed of trust, mortgage or security deed. Even if
you do not reaffirm and your personal liability on the debt
is discharged, because of the lien your creditor may still
have the right to take the security property if you do not
pay the debt or default on it. If the lien is on an item of
personal property that is exempt under your State’s law or
that the trustee has abandoned, you may be able to re-
deem the item rather than reaffirm the debt. To redeem,
you make a single payment to the creditor equal to the
current value of the security property, as agreed by the
parties or determined by the court.”

(ii) In the case of a reaffirmation under
subsection (m)(2), numbered paragraph 6 in the disclo-
sures required by clause (i) of this subparagraph shall
read as follows:

“6. If you were represented by an attorney
during the negotiation of your reaffirmation agreement,

B-41
your reaffirmation agreement becomes effective upon
filing with the court.”
(4) The form of such agreement required under this
paragraph shall consist of the following:

“Part B: Reaffirmation Agreement. I (we) agree to
reaffirm the debts arising under the credit agreement
described below.

“Brief description of credit agreement:

“Description of any changes to the credit agreement
made as part of this reaffirmation agreement:

“Signature: Date:

“Borrower:

“Co-borrower, if also reaffirming these debts:

“Accepted by creditor:

“Date of creditor acceptance:”.

(5) The declaration shall consist of the following:
(A) The following certification:

“Part C: Certification by Debtor’s Attorney (If Any).

“I hereby certify that (1) this agreement represents a
fully informed and voluntary agreement by the debtor; (2)
this agreement does not impose an undue hardship on the
debtor or any dependent of the debtor; and (3) I have fully
advised the debtor of the legal effect and consequences of
this agreement and any default under this agreement.

“Signature of Debtor’s Attorney: Date:”.

B-42

(B) Ifa presumption of undue hardship has been
established with respect to such agreement, such certifica-
tion shall state that in the opinion of the attorney, the
debtor is able to make the payment.

(C) In the case of a reaffirmation agreement
under subsection (m)(2), subparagraph (B) is not applica-
ble.

(6) (A) The statement in support of such agreement,
which the debtor shall sign and date prior to filing with
the court, shall consist of the following:

“Part D: Debtor’s Statement in Support of Reaf-
firmation Agreement.

“1. I believe this reaffirmation agreement
will not impose an undue hardship on my dependents or
me. I can afford to make the payments on the reaffirmed
debt because my monthly income (take home pay plus any
other income received) is $__, and my actual current
monthly expenses including monthly payments on post-
bankruptcy debt and other reaffirmation agreements total
$__, leaving $___ to make the required payments on this
reaffirmed debt. I understand that if my income less my
monthly expenses does not leave enough to make the
payments, this reaffirmation agreement is presumed to be
an undue hardship on me and must be reviewed by the
court. However, this presumption may be overcome if I
explain to the satisfaction of the court how I can afford to
make the payments here: ___.

“2. I received a copy of the Reaffirmation
Disclosure Statement in Part A and a completed and
signed reaffirmation agreement.”

B-43

(B) Where the debtor is represented by an
attorney and is reaffirming a debt owed to a creditor
defined in section 19(b)(1AXiv) of the Federal Reserve
Act [12 USCS § 461(b)(1)(A)(iv)], the statement of support
of the reaffirmation agreement, which the debtor shall
sign and date prior to filing with the court, shall consist of
the following:

“I believe this reaffirmation agreement is in my
financial interest. I can afford to make the payments on
the reaffirmed debt. I received a copy of the Reaffirmation
Disclosure Statement in Part A and a completed and
signed reaffirmation agreement.”

(7) The motion that may be used if approval of such
agreement by the court is required in order for it to be
effective, shall be signed and dated by the movant and
shall consist of the following:

“Part E: Motion for Court Approval (To be completed
only if the debtor is not represented by an attorney.). I
(we), the debtor(s), affirm the following to be true and
correct:

“I am not represented by an attorney in connection
with this reaffirmation agreement.

“I believe this reaffirmation agreement is in my best
interest based on the income and expenses I have dis-
closed in my Statement in Support of this reaffirmation
agreement, and because (provide any additional relevant
reasons the court should consider):

“Therefore, I ask the court for an order approving this
reaffirmation agreement.”

B-44

(8) The court order, which may be used to approve
such agreement, shall consist of the following:

“Court Order: The court grants the debtor’s motion
and approves the reaffirmation agreement described
above.”.

(1) Notwithstanding any other provision of this title the
following shall apply:

(1) A creditor may accept payments from a debtor
before and after the filing of an agreement of the kind
specified in subsection (c) with the court.

(2) A creditor may accept payments from a debtor
under such agreement that the creditor believes in good
faith to be effective.

(3) The requirements of subsections (cX2) and (k)
shall be satisfied if disclosures required under those
subsections are given in good faith.

(m) (1) Until 60 days after an agreement of the kind
specified in subsection (c) is filed with the court (or such
additional period as the court, after notice and a hearing
and for cause, orders before the expiration of such period),
it shall be presumed that such agreement is an undue
hardship on the debtor if the debtor’s monthly income less
the debtor’s monthly expenses as shown on the debtor’s
completed and signed statement in support of such agree-
ment required under subsection (k)(6)(A) is less than the
scheduled payments on the reaffirmed debt. This pre-
sumption shall be reviewed by the court. The presumption
may be rebutted in writing by the debtor if the statement
includes an explanation that identifies additional sources
of funds to make the payments as agreed upon under
the terms of such agreement. If the presumption is not

B-45

rebutted to the satisfaction of the court, the court may
disapprove such agreement. No agreement shall be disap-
proved without notice and a hearing to the debtor and
creditor, and such hearing shall be concluded before the

entry of the debtor’s discharge.

(2) This subsection does not apply to reaffirmation
agreements where the creditor is a credit union, as defined
in section 19(b)(1AXiv) of the Federal Reserve Act [12
USCS § 461(b)(1)(A)iv)].

HISTORY:

(Nov. 6, 1978, P.L. 95-598, Title I, § 101, 92 Stat. 2592;
July 10, 1984, P.L. 98-353, Title III, Subtitle A, § 308,
Subtitle H, § 455, 98 Stat. 354, 376; Oct. 27, 1986, P.L. 99-
554, Title II, Subtitles B, C, §§ 257(0), 282, 283(k), 100
Stat. 3115-3117; Oct. 22, 1994, P.L. 103-394, Title I, §§ 103,
111(a), Title V, § 501(d)(14), 108 Stat. 4108, 4113, 4145.)

(As amended April 20, 2005, PL. 109-8, Title II,
Subtitle A, §§ 202, 203(a), Title XII, § 1210, 119 Stat. 43,
194.)

HISTORY; ANCILLARY LAWS AND DIRECTIVES
Prior law and revision:

Legislative Statements

Section 524(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 property.

B-46

Sections 524(c) and (d) represent a compromise
between the House bill and Senate amendment on the
issue of reaffirmation of a debt discharged in bankruptcy.
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 reaffirmation becomes enforce-
able [see the 1984 amendment of subset. (c) of this sec-
tion]. 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, before granting a discharge under section 727,
1141, or 1328, as not imposing a hardship on the debtor or
a dependent of the debtor and in the best interest of the
debtor; alternatively, the court may approve an agreement
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 section 524(d) will be
held whether or not the debtor desires to reaffirm any
debts.

Senate Report No. 95-989

Subsection (a) specifies that a discharge in a bank-
ruptcy case voids any judgment to the extent that it is a
determination of the personal liability of the 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, including 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 debtor, whether or not the
debtor has waived discharge of the debt involved. The

B-47

injunction is to give complete effect to the discharge and to
eliminate any doubt concerning the effect of the discharge
as a total prohibition on debt collection efforts. This
paragraph has been expanded over a comparable provision
in Bankruptcy Act § 14f [section 32(f) of former title 11] to
cover any act to collect, such as dunning by telephone or
letter, or indirectly through friends, relatives, or employ-
ers, harassment, threats of repossession, and the like. The
change is consonant with the new policy forbidding bind-
ing reaffirmation agreements under proposed 11 U.S.C.
524(b), and is intended to insure that once a debt is
discharged, the debtor will not be pressured in any way to
repay it. In effect, 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 purposes of this section. It is
directed at waiver of discharge of a particular debt, not
waiver of discharge in toto as permitted under section
727(a)(9).

Subsection (a) also codifies the split discharge for
debtors in community property states. If community
property was in the estate and community claims were
discharged, the discharge is effective against community
creditors of the nondebtor spouse as well as of the debtor
spouse.

Subsection (b) [subsec. (c) of this section] gives further
effect to the discharge. It prohibits reaffirmation agree-
ments after the commencement of the case with respect to
any dischargeable debt. The prohibition extends to agree-
ments the consideration for which in whole or in part is
based on a dischargeable debt, and it applies whether or
not discharge of the debt involved in the agreement has

B-48

been waived. Thus, the prohibition on reaffirmation
agreements extends to debts that are based on discharged
debts. Thus, “second generation” debts, which included all
or a part of a discharged debt could not be included in any
new agreement for new money. This subsection will not
have any effect on reaffirmations of debts discharged
under the Bankruptcy Act [former title 11]. It will only
apply to discharges granted if commenced under the new
title 11 bankruptcy code.

Subsection (c) [subsec. (d) of this section] grants an
exception to the anti-reaffirmation provision. It permits
reaffirmation in connection with the settlement of a
proceeding to determine the dischargeability of the debt
being reaffirmed, or in connection with a redemption
agreement permitted under section 722. In either case, the
reaffirmation agreement must be entered into in good
faith and must be approved by the court.

Subsection (d) [subsec. (e) of this section] provides the
discharge of the debtor does not affect co-debtors or guar-
antors. .

References in text:

The “Bankruptcy Act”, referred to in this section, is
Act July 1, 1898, ch 541, 30 Stat. 544, which appeared
generally as 11 USCS §§ 1 et seq., was repealed by Act
Nov. 6, 1978, P.L. 95-598, Title IV, § 401, 92 Stat. 2682,
effective Oct. 1, 1979, as provided by § 402(a) of Act Nov. 6,
1978. Such Act Nov. 6, 1978 also enacted the Bankruptcy
Code which generally appears as 11 USCS §§ 101, et seq.

As used in subsec. (h), the “date of the enactment of
this Act” probably means the date of enactment of Act Oct.
22, 1994, P.L. 103-394, which enacted subsec. (h).

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Effective date of section:

This section became effective on October 1, 1979,
pursuant to § 402(a) of Act Nov. 6, 1978, P.L. 95-598, which
appears as 11 USCS prec § 101 note.

Amendments:

1984. Act July 10, 1984 (applicable to cases filed 90
days after enactment, as provided by § 552(a) of such Act,
which appears as 11 USCS § 101 note), in subsec. (a), in
para. (2), substituted “an act” for “any act” and deleted “or
from property of the debtor,” following “liability of the
debtor,” and, in para. (3), substituted “an act” for “any act”;
in subsec. (c), substituted para. (2) for one which read: “the
debtor has not rescinded such agreement within 30 days
after such agreement becomes enforceable;”, redesignated
former para. (3) as para. (5), and added new part (3),
redesignated former para. (4) as para. (6) and added new
para. (4), and substituted new para. (6) for the redesig-
nated one which read:

“in a case concerning an individual, to the extent that
such debt is a consumer debt that is not secured by real
property of the debtor, the court approves such agreement
as —

“(A)

(i) not imposing an undue hardship on the
debtor or a dependent of the debtor; and

“(ii) in the best interest of the debtor; or
“

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RCW 23B.14.050
Effect of dissolution.

(1) A dissolved corporation continues its corporate
existence but may not carry on any business except that
appropriate to wind up and liquidate its business and
affairs, including:

(a) Collecting its assets;

(b) Disposing of its properties that will not be dis-
tributed in kind to its shareholders;

(c) Discharging or making provision for discharging
its liabilities;

(d) Distributing its remaining property among its
shareholders according to their interests; and

(e) Doing every other act necessary to wind up and
liquidate its business and affairs.

(2) Dissolution of a corporation does not:
(a) Transfer title to the corporation’s property;

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(b) Prevent transfer of its shares or securities,
although the authorization to dissolve may provide for
closing the corporation’s share transfer records;

(c) Subject its directors or officers to standards of
conduct different from those prescribed in chapter 23B.08
RCW;

(d) Change quorum or voting requirements for its
board of directors or shareholders; change provisions for
selection, resignation, or removal of its directors or officers
or both; or change provisions for amending its bylaws;

(e) Prevent commencement of a proceeding by or
against the corporation in its corporate name;

(f) Abate or suspend a proceeding pending by or
against the corporation on the effective date of dissolution;

or

(g) Terminate the authority of the registered agent of
the corporation.

[1989 c 165 § 158.]

11 U.S.C.A. § 548

United States Code Annotated Currentness

Title 11. Bankruptcy (Refs & Annos)
Chapter 5. Creditors, The Debtor, and the Estate

(Refs & Annos)
Subchapter III. The Estate (Refs & Annos)
§ 548. Fraudulent transfers and obligations

(a)(1) The trustee may avoid any transfer (including any
transfer to or for the benefit of an insider under an em-
ployment contract) of an interest of the debtor in property,

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or any obligation (including any obligation to or for the
benefit of an insider under an employment contract)
incurred by the debtor, that was made or incurred on or
within 2 years before the date of the filing of the petition,
if the debtor voluntarily or involuntarily —

(A) made such transfer or incurred such obligation
with actual intent to hinder, delay, or defraud any en-
tity to which the debtor was or became, on or after the
date that such transfer was made or such obligation
was incurred, indebted; or ;

(B)(i) received less than a reasonably equivalent
value in exchange for such transfer or obligation; and

(ii) was insolvent on the date that such transfer
was made or such obligation was incurred, or became
insolvent as a result of such transfer or obligation;

(II) was engaged in business or a transaction, or
was about to engage in business or a transaction, for
which any property remaining with the debtor was an
unreasonably small capital;

(III) intended to incur, or believed that the debtor
would incur, debts that would be beyond the debtor’s
ability to pay as such debts matured; or

(IV) made such transfer to or for the benefit of an
insider, or incurred such obligation to or for the bene-
fit of an insider, under an employment contract and
not in the ordinary course of business.

(2) A transfer of a charitable contribution to a qualified
religious or charitable entity or organization shall not be
considered to be a transfer covered under paragraph (1)(B)
in any case in which. —

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(A) the amount of that contribution does not exceed
15 percent of the gross annual income of the debtor
for the year in which the transfer of the contribution
is made; or

(B) the contribution made by a debtor exceeded the
percentage amount of gross annual income specified
in subparagraph (A), if the transfer was consistent
with the practices of the debtor in making charitable
contributions.

(b) The trustee of a partnership debtor may avoid any
transfer of an interest of the debtor in property, or any
obligation incurred by the debtor, that was made or
incurred on or within 2 years before the date of the filing
of the petition, to a general partner in the debtor, if the
debtor was insolvent on the date such transfer was made
or such obligation was incurred, or became insolvent as a
result of such transfer or obligation.

(c) Except to the extent that a transfer or obligation
voidable under this section is voidable under section 544,
545, or 547 of this title, a transferee or obligee of such a
transfer or obligation that takes for value and in good
faith has a lien on or may retain any interest transferred
or may enforce any obligation incurred, as the case may
be, to the extent that such transferee or obligee gave value
to the debtor in exchange for such transfer or obligation.

(d)(1) For the purposes of this section, a transfer is made
when such transfer is so perfected that a bona fide pur-
chaser from the debtor against whom applicable law
permits such transfer to be perfected cannot acquire an
interest in the property transferred that is superior to the
interest in such property of the transferee, but if such
transfer is not so perfected before the commencement of

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the case, such transfer is made immediately before the
date of the filing of the petition.

11 U.S.C.A. § 554

United States Code Annotated Currentness

Title 11. Bankruptcy (Refs & Annos)
Chapter 5. Creditors, The Debtor, and the Estate

(Refs & Annos)

Subchapter III. The Estate (Refs & Annos)
§ 554. Abandonment of property of the estate

(a) After notice and a hearing, the trustee may abandon
any property of the estate that is burdensome to the estate
or that is of inconsequential value and benefit to the
estate.

(b) On request of a party in interest and after notice and
a hearing, the court may order the trustee to abandon any
property of the estate that is burdensome to the estate or
that is of inconsequential value and benefit to the estate.

(c) Unless the court orders otherwise, any property
scheduled under section 521(1) of this title not otherwise
administered at the time of the closing of a case is aban-
doned to the debtor and administered for purposes of
section 350 of this title.

(d) Unless the court orders otherwise, property of the
estate that is not abandoned under this section and that is
not administered in the case remains property of the
estate.

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CREDIT(S)

(Pub.L. 95-598, Nov. 6, 1978, 92 Stat. 2603; Pub.L. 98-353,
Title III, § 468, July 10, 1984, 98 Stat. 380; Pub.L. 99-554,
Title II, $ 283(p), Oct. 27, 1986, 100 Stat. 3118.)

HISTORICAL AND STATUTORY NOTES
Revision Notes and Legislative Reports

1978 Acts. Under this section the court may authorize the
trustee to abandon any property of the estate that is
burdensome to the estate or that is of inconsequential
value to the estate. Abandonment may be to any party
with a possessory interest in the property abandoned. In
order to aid administration of the case, subsection (b)
deems the court to have authorized abandonment of any
property that is scheduled under section 521(1) and that is
not administered before the case is closed. That property is
deemed abandoned to the debtor. Subsection (c) specifies
that if property is neither abandoned nor administered it
remains property of the estate. Senate Report No. 95-989.

1984 Acts. Statements by Legislative Leaders, see 1984
U.S.Code Cong. and Adm.News, p. 576.

1986 Acts. House Report No. 99-764 and House Conference
Report No. 99-958, see 1986 U.S.Code Cong. and
Adm.News, p. 5227.

Legislative Statements

Section 554(b) is new and permits a party in interest to
request the court to order the trustee to abandon property
of the estate that is burdensome to the estate or that is of
inconsequential value to the estate.

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Amendments

1986 Amendments. Subsec. (c). Pub.L. 99-554 substituted
“521(1)” for “521(a)(1)”.

CERTIFICATE OF SERVICE

I hereby certify that on the 19th day of July, 2005, I
caused to be served by forwarding via Federal Express
Standard Overnight service, a true and correct copy of
Petition for Review to:

Margaret Archer Annette T. Fitzsimmons
Gordon, Thomas, Annette T. Fitzsimmons, PS.
Honeywell, et al. 3121 Soundview Drive West

1201 Pacific Avenue, #2200 Tacoma, WA 98466
Tacoma, WA 98401

LARSON & PERKINS P.L.L.C.

/s/ Dianne L. Puhrmann
Dianne L. Puhrmann,
Legal Assistant to
James A. Perkins,
WSBA #13330
Attorneys for Appellant

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386016_1016%3A2. Public record. Not legal advice.