Bankruptcy Forms: Filing Bankruptcy Chapter 7 Bankruptcy Software Chapter 13

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TITLE 11–BANKRUPTCY

CHAPTER 1–GENERAL PROVISIONS

Sec. 106. Waiver of sovereign immunity

   (a) Notwithstanding an assertion of sovereign immunity, sovereign 
immunity is abrogated as to a governmental unit to the extent set forth 
in this section with respect to the following:
        (1) Sections 105, 106, 107, 108, 303, 346, 362, 363, 364, 365, 
    366, 502, 503, 505, 506, 510, 522, 523, 524, 525, 542, 543, 544, 
    545, 546, 547, 548, 549, 550, 551, 552, 553, 722, 724, 726, 728, 
    744, 749, 764, 901, 922, 926, 928, 929, 944, 1107, 1141, 1142, 1143, 
    1146, 1201, 1203, 1205, 1206, 1227, 1231, 1301, 1303, 1305, and 1327 
    of this title.
        (2) The court may hear and determine any issue arising with 
    respect to the application of such sections to governmental units.
        (3) The court may issue against a governmental unit an order, 
    process, or judgment under such sections or the Federal Rules of 
    Bankruptcy Procedure, including an order or judgment awarding a 
    money recovery, but not including an award of punitive damages. Such 
    order or judgment for costs or fees under this title or the Federal 
    Rules of Bankruptcy Procedure against any governmental unit shall be 
    consistent with the provisions and limitations of section 
    2412(d)(2)(A) of title 28.
        (4) The enforcement of any such order, process, or judgment 
    against any governmental unit shall be consistent with appropriate 
    nonbankruptcy law applicable to such governmental unit and, in the 
    case of a money judgment against the United States, shall be paid as 
    if it is a judgment rendered by a district court of the United 
    States.
        (5) Nothing in this section shall create any substantive claim 
    for relief or cause of action not otherwise existing under this 
    title, the Federal Rules of Bankruptcy Procedure, or nonbankruptcy 
    law.

    (b) A governmental unit that has filed a proof of claim in the case 
is deemed to have waived sovereign immunity with respect to a claim 
against such governmental unit that is property of the estate and that 
arose out of the same transaction or occurrence out of which the claim 
of such governmental unit arose.
    (c) Notwithstanding any assertion of sovereign immunity by a 
governmental unit, there shall be offset against a claim or interest of 
a governmental unit any claim against such governmental unit that is 
property of the estate.

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2555; Pub. L. 103-394, title I, 
Sec. 113, Oct. 22, 1994, 108 Stat. 4117.)


                      Historical and Revision Notes

                         legislative statements

    Section 106(c) relating to sovereign immunity is new. The provision 
indicates that the use of the term ``creditor,'' ``entity,'' or 
``governmental unit'' in title 11 applies to governmental units 
notwithstanding any assertion of sovereign immunity and that an order of 
the court binds governmental units. The provision is included to comply 
with the requirement in case law that an express waiver of sovereign 
immunity is required in order to be effective. Section 106(c) codifies 
In re Gwilliam, 519 F.2d 407 (9th Cir., 1975), and In re Dolard, 519 
F.2d 282 (9th Cir., 1975), permitting the bankruptcy court to determine 
the amount and dischargeability of tax liabilities owing by the debtor 
or the estate prior to or during a bankruptcy case whether or not the 
governmental unit to which such taxes are owed files a proof of claim. 
Except as provided in sections 106(a) and (b), subsection (c) is not 
limited to those issues, but permits the bankruptcy court to bind 
governmental units on other matters as well. For example, section 106(c) 
permits a trustee or debtor in possession to assert avoiding powers 
under title 11 against a governmental unit; contrary language in the 
House report to H.R. 8200 is thereby overruled.


                        senate report no. 95-989

    Section 106 provides for a limited waiver of sovereign immunity in 
bankruptcy cases. Though Congress has the power to waive sovereign 
immunity for the Federal government completely in bankruptcy cases, the 
policy followed here is designed to achieve approximately the same 
result that would prevail outside of bankruptcy. Congress does not, 
however, have the power to waive sovereign immunity completely with 
respect to claims of a bankrupt estate against a State, though it may 
exercise its bankruptcy power through the supremacy clause to prevent or 
prohibit State action that is contrary to bankruptcy policy.
    There is, however, a limited change from the result that would 
prevail in the absence of bankruptcy; the change is two-fold and is 
within Congress' power vis-a-vis both the Federal Government and the 
States. First, the filing of a proof of claim against the estate by a 
governmental unit is a waiver by that governmental unit of sovereign 
immunity with respect to compulsory counterclaims, as defined in the 
Federal Rules of Civil Procedure [title 28, appendix], that is, 
counterclaims arising out of the same transaction or occurrence. The 
governmental unit cannot receive a distribution from the estate without 
subjecting itself to any liability it has to the estate within the 
confines of a compulsory counterclaim rule. Any other result would be 
one-sided. The counterclaim by the estate against the governmental unit 
is without limit.
    Second, the estate may offset against the allowed claim of a 
governmental unit, up to the amount of the governmental unit's claim, 
any claim that the debtor, and thus the estate, has against the 
governmental unit, without regard to whether the estate's claim arose 
out of the same transaction or occurrence as the government's claim. 
Under this provision, the setoff permitted is only to the extent of the 
governmental unit's claim. No affirmative recovery is permitted. 
Subsection (a) governs affirmative recovery.
    Though this subsection creates a partial waiver of immunity when the 
governmental unit files a proof of claim, it does not waive immunity if 
the debtor or trustee, and not the governmental unit, files proof of a 
governmental unit's claim under proposed 11 U.S.C. 501(c).
    This section does not confer sovereign immunity on any governmental 
unit that does not already have immunity. It simply recognizes any 
immunity that exists and prescribes the proper treatment of claims by 
and against that sovereign.

                       References in Text

    The Federal Rules of Bankruptcy Procedure, referred to in subsec. 

(a)(3), (5), are set out in the Appendix to this title.


                               Amendments

    1994--Pub. L. 103-394 amended section generally. Prior to amendment, 
section read as follows:
    ``(a) A governmental unit is deemed to have waived sovereign 
immunity with respect to any claim against such governmental unit that 
is property of the estate and that arose out of the same transaction or 
occurrence out of which such governmental unit's claim arose.
    ``(b) There shall be offset against an allowed claim or interest of 
a governmental unit any claim against such governmental unit that is 
property of the estate.
    ``(c) Except as provided in subsections (a) and (b) of this section 
and notwithstanding any assertion of sovereign immunity--
        ``(1) a provision of this title that contains `creditor', 
    `entity', or `governmental unit' applies to governmental units; and
        ``(2) a determination by the court of an issue arising under 
    such a provision binds governmental units.''


                    Effective Date of 1994 Amendment

    Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and applicable 
with respect to cases commenced under this title before, on, and after 
Oct. 22, 1994, see section 702(a), (b)(2)(B) of Pub. L. 103-394, set out 
as a note under section 101 of this title.

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Legal Resource Center: United States Code TITLE 11 Filing Bankruptcy Forms Software