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TITLE 11–BANKRUPTCY

CHAPTER 5–CREDITORS, THE DEBTOR, AND THE ESTATE

Sub Chapter – Creditors and Claims

Sec. 502. Allowance of claims or interests

  (a) A claim or interest, proof of which is filed under section 501 
of this title, is deemed allowed, unless a party in interest, including 
a creditor of a general partner in a partnership that is a debtor in a 
case under chapter 7 of this title, objects.
    (b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) 
of this section, if such objection to a claim is made, the court, after 
notice and a hearing, shall determine the amount of such claim in lawful 
currency of the United States as of the date of the filing of the 
petition, and shall allow such claim in such amount, except to the 
extent that--
        (1) such claim is unenforceable against the debtor and property 
    of the debtor, under any agreement or applicable law for a reason 
    other than because such claim is contingent or unmatured;
        (2) such claim is for unmatured interest;
        (3) if such claim is for a tax assessed against property of the 
    estate, such claim exceeds the value of the interest of the estate 
    in such property;
        (4) if such claim is for services of an insider or attorney of 
    the debtor, such claim exceeds the reasonable value of such 
    services;
        (5) such claim is for a debt that is unmatured on the date of 
    the filing of the petition and that is excepted from discharge under 
    section 523(a)(5) of this title;
        (6) if such claim is the claim of a lessor for damages resulting 
    from the termination of a lease of real property, such claim 
    exceeds--
            (A) the rent reserved by such lease, without acceleration, 
        for the greater of one year, or 15 percent, not to exceed three 
        years, of the remaining term of such lease, following the 
        earlier of--
                (i) the date of the filing of the petition; and
                (ii) the date on which such lessor repossessed, or the 
            lessee surrendered, the leased property; plus

            (B) any unpaid rent due under such lease, without 
        acceleration, on the earlier of such dates;

        (7) if such claim is the claim of an employee for damages 
    resulting from the termination of an employment contract, such claim 
    exceeds--
            (A) the compensation provided by such contract, without 
        acceleration, for one year following the earlier of--
                (i) the date of the filing of the petition; or
                (ii) the date on which the employer directed the 
            employee to terminate, or such employee terminated, 
            performance under such contract; plus

            (B) any unpaid compensation due under such contract, without 
        acceleration, on the earlier of such dates;

        (8) such claim results from a reduction, due to late payment, in 
    the amount of an otherwise applicable credit available to the debtor 
    in connection with an employment tax on wages, salaries, or 
    commissions earned from the debtor; or
        (9) proof of such claim is not timely filed, except to the 
    extent tardily filed as permitted under paragraph (1), (2), or (3) 
    of section 726(a) of this title or under the Federal Rules of 
    Bankruptcy Procedure, except that a claim of a governmental unit 
    shall be timely filed if it is filed before 180 days after the date 
    of the order for relief or such later time as the Federal Rules of 
    Bankruptcy Procedure may provide.

    (c) There shall be estimated for purpose of allowance under this 
section--
        (1) any contingent or unliquidated claim, the fixing or 
    liquidation of which, as the case may be, would unduly delay the 
    administration of the case; or
        (2) any right to payment arising from a right to an equitable 
    remedy for breach of performance.

    (d) Notwithstanding subsections (a) and (b) of this section, the 
court shall disallow any claim of any entity from which property is 
recoverable under section 542, 543, 550, or 553 of this title or that is 
a transferee of a transfer avoidable under section 522(f), 522(h), 544, 
545, 547, 548, 549, or 724(a) of this title, unless such entity or 
transferee has paid the amount, or turned over any such property, for 
which such entity or transferee is liable under section 522(i), 542, 
543, 550, or 553 of this title.
    (e)(1) Notwithstanding subsections (a), (b), and (c) of this section 
and paragraph (2) of this subsection, the court shall disallow any claim 
for reimbursement or contribution of an entity that is liable with the 
debtor on or has secured the claim of a creditor, to the extent that--
        (A) such creditor's claim against the estate is disallowed;
        (B) such claim for reimbursement or contribution is contingent 
    as of the time of allowance or disallowance of such claim for 
    reimbursement or contribution; or
        (C) such entity asserts a right of subrogation to the rights of 
    such creditor under section 509 of this title.

    (2) A claim for reimbursement or contribution of such an entity that 
becomes fixed after the commencement of the case shall be determined, 
and shall be allowed under subsection (a), (b), or (c) of this section, 
or disallowed under subsection (d) of this section, the same as if such 
claim had become fixed before the date of the filing of the petition.
    (f) In an involuntary case, a claim arising in the ordinary course 
of the debtor's business or financial affairs after the commencement of 
the case but before the earlier of the appointment of a trustee and the 
order for relief shall be determined as of the date such claim arises, 
and shall be allowed under subsection (a), (b), or (c) of this section 
or disallowed under subsection (d) or (e) of this section, the same as 
if such claim had arisen before the date of the filing of the petition.
    (g) A claim arising from the rejection, under section 365 of this 
title or under a plan under chapter 9, 11, 12, or 13 of this title, of 
an executory contract or unexpired lease of the debtor that has not been 
assumed shall be determined, and shall be allowed under subsection (a), 
(b), or (c) of this section or disallowed under subsection (d) or (e) of 
this section, the same as if such claim had arisen before the date of 
the filing of the petition.
    (h) A claim arising from the recovery of property under section 522, 
550, or 553 of this title shall be determined, and shall be allowed 
under subsection (a), (b), or (c) of this section, or disallowed under 
subsection (d) or (e) of this section, the same as if such claim had 
arisen before the date of the filing of the petition.
    (i) A claim that does not arise until after the commencement of the 
case for a tax entitled to priority under section 507(a)(8) of this 
title shall be determined, and shall be allowed under subsection (a), 
(b), or (c) of this section, or disallowed under subsection (d) or (e) 
of this section, the same as if such claim had arisen before the date of 
the filing of the petition.
    (j) A claim that has been allowed or disallowed may be reconsidered 
for cause. A reconsidered claim may be allowed or disallowed according 
to the equities of the case. Reconsideration of a claim under this 
subsection does not affect the validity of any payment or transfer from 
the estate made to a holder of an allowed claim on account of such 
allowed claim that is not reconsidered, but if a reconsidered claim is 
allowed and is of the same class as such holder's claim, such holder may 
not receive any additional payment or transfer from the estate on 
account of such holder's allowed claim until the holder of such 
reconsidered and allowed claim receives payment on account of such claim 
proportionate in value to that already received by such other holder. 
This subsection does not alter or modify the trustee's right to recover 
from a creditor any excess payment or transfer made to such creditor.

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2579; Pub. L. 98-353, title III, 
Sec. 445, July 10, 1984, 98 Stat. 373; Pub. L. 99-554, title II, 
Secs. 257(j), 283(f), Oct. 27, 1986, 100 Stat. 3115, 3117; Pub. L. 103-
394, title II, Sec. 213(a), title III, Sec. 304(h)(1), Oct. 22, 1994, 
108 Stat. 4125, 4134.)


                      Historical and Revision Notes

                         legislative statements

    The House amendment adopts a compromise position in section 502(a) 
between H.R. 8200, as passed by the House, and the Senate amendment. 
Section 502(a) has been modified to make clear that a party in interest 
includes a creditor of a partner in a partnership that is a debtor under 
chapter 7. Since the trustee of the partnership is given an absolute 
claim against the estate of each general partner under section 723(c), 
creditors of the partner must have standing to object to claims against 
the partnership at the partnership level because no opportunity will be 
afforded at the partner's level for such objection.
    The House amendment contains a provision in section 502(b)(1) that 
requires disallowance of a claim to the extent that such claim is 
unenforceable against the debtor and unenforceable against property of 
the debtor. This is intended to result in the disallowance of any claim 
for deficiency by an undersecured creditor on a non-recourse loan or 
under a State antideficiency law, special provision for which is made in 
section 1111, since neither the debtor personally, nor the property of 
the debtor is liable for such a deficiency. Similarly claims for 
usurious interest or which could be barred by an agreement between the 
creditor and the debtor would be disallowed.
    Section 502(b)(7)(A) represents a compromise between the House bill 
and the Senate amendment. The House amendment takes the provision in 
H.R. 8200 as passed by the House of Representatives but increases the 
percentage from 10 to 15 percent.
    As used in section 502(b)(7), the phrase ``lease of real property'' 
applies only to a ``true'' or ``bona fide'' lease and does not apply to 
financing leases of real property or interests therein, or to leases of 
such property which are intended as security.
    Historically, the limitation on allowable claims of lessors of real 
property was based on two considerations. First, the amount of the 
lessor's damages on breach of a real estate lease was considered 
contingent and difficult to prove. Partly for this reason, claims of a 
lessor of real estate were not provable prior to the 1934 amendments, to 
the Bankruptcy Act [former title 11]. Second, in a true lease of real 
property, the lessor retains all risks and benefits as to the value of 
the real estate at the termination of the lease. Historically, it was, 
therefore, considered equitable to limit the claims of real estate 
lessor.
    However, these considerations are not present in ``lease financing'' 
transactions where, in substance, the ``lease'' involves a sale of the 
real estate and the rental payments are in substance the payment of 
principal and interest on a secured loan or sale. In a financing lease 
the lessor is essentially a secured or unsecured creditor (depending 
upon whether his interest is perfected or not) of the debtor, and the 
lessor's claim should not be subject to the 502(b)(7) limitation. 
Financing ``leases'' are in substance installment sales or loans. The 
``lessors'' are essentially sellers or lenders and should be treated as 
such for purposes of the bankruptcy law.
    Whether a ``lease'' is true or bona fide lease or, in the 
alternative a financing ``lease'' or a lease intended as security, 
depends upon the circumstances of each case. The distinction between a 
true lease and a financing transaction is based upon the economic 
substance of the transaction and not, for example, upon the locus of 
title, the form of the transaction or the fact that the transaction is 
denominated as a ``lease.'' The fact that the lessee, upon compliance 
with the terms of the lease, becomes or has the option to become the 
owner of the leased property for no additional consideration or for 
nominal consideration indicates that the transaction is a financing 
lease or lease intended as security. In such cases, the lessor has no 
substantial interest in the leased property at the expiration of the 
lease term. In addition, the fact that the lessee assumes and discharges 
substantially all the risks and obligations ordinarily attributed to the 
outright ownership of the property is more indicative of a financing 
transaction than of a true lease. The rental payments in such cases are 
in substance payments of principal and interest either on a loan secured 
by the leased real property or on the purchase of the leased real 
property. See, e.g., Financial Accounting Standards Board Statement No. 
13 and SEC Reg. S-X, 17 C.F.R. sec. 210.3-16(q) (1977); cf. First 
National Bank of Chicago v. Irving Trust Co., 74 F.2d 263 (2nd Cir. 
1934); and Albenda and Lief, ``Net Lease Financing Transactions Under 
the Proposed Bankruptcy Act of 1973,'' 30 Business Lawyer, 713 (1975).
    Section 502(c) of the House amendment presents a compromise between 
similar provisions contained in the House bill and the Senate amendment. 
The compromise language is consistent with an amendment to the 
definition of ``claim'' in section 104(4)(B) of the House amendment and 
requires estimation of any right to an equitable remedy for breach of 
performance if such breach gives rise to a right to payment. To the 
extent language in the House and Senate reports indicate otherwise, such 
language is expressly overruled.
    Section 502(e) of the House amendment contains language modifying a 
similar section in the House bill and Senate amendment. Section 
502(e)(1) states the general rule requiring the court to disallow any 
claim for reimbursement or contribution of an entity that is liable with 
the debtor on, or that has secured, the claim of a creditor to any 
extent that the creditor's claim against the estate is disallowed. This 
adopts a policy that a surety's claim for reimbursement or contribution 
is entitled to no better status than the claim of the creditor assured 
by such surety. Section 502(e)(1)(B) alternatively disallows any claim 
for reimbursement or contribution by a surety to the extent such claim 
is contingent as of the time of allowance. Section 502(e)(2) is clear 
that to the extent a claim for reimbursement or contribution becomes 
fixed after the commencement of the case that it is to be considered a 
prepetition claim for purposes of allowance. The combined effect of 
sections 502(e)(1)(B) and 502(e)(2) is that a surety or codebtor is 
generally permitted a claim for reimbursement or contribution to the 
extent the surety or codebtor has paid the assured party at the time of 
allowance. Section 502(e)(1)(C) alternatively indicates that a claim for 
reimbursement or contribution of a surety or codebtor is disallowed to 
the extent the surety or codebtor requests subrogation under section 509 
with respect to the rights of the assured party. Thus, the surety or 
codebtor has a choice; to the extent a claim for contribution or 
reimbursement would be advantageous, such as in the case where such a 
claim is secured, a surety or codebtor may opt for reimbursement or 
contribution under section 502(e). On the other hand, to the extent the 
claim for such surety or codebtor by way of subrogation is more 
advantageous, such as where such claim is secured, the surety may elect 
subrogation under section 509.
    The section changes current law by making the election identical in 
all other respects. To the extent a creditor's claim is satisfied by a 
surety or codebtor, other creditors should not benefit by the surety's 
inability to file a claim against the estate merely because such surety 
or codebtor has failed to pay such creditor's claim in full. On the 
other hand, to the extent the creditor's claim against the estate is 
otherwise disallowed, the surety or codebtor should not be entitled to 
increased rights by way of reimbursement or contribution, to the 
detriment of competing claims of other unsecured creditors, than would 
be realized by way of subrogation.
    While the foregoing scheme is equitable with respect to other 
unsecured creditors of the debtor, it is desirable to preserve present 
law to the extent that a surety or codebtor is not permitted to compete 
with the creditor he has assured until the assured party's claim has 
paid in full. Accordingly, section 509(c) of the House amendment 
subordinates both a claim by way of subrogation or a claim for 
reimbursement or contribution of a surety or codebtor to the claim of 
the assured party until the assured party's claim is paid in full.
    Section 502(h) of the House amendment expands similar provisions 
contained in the House bill and the Senate amendment to indicate that 
any claim arising from the recovery of property under section 522(i), 
550, or 553 shall be determined as though it were a prepetition claim.
    Section 502(i) of the House amendment adopts a provision contained 
in section 502(j) of H.R. 8200 as passed by the House but that was not 
contained in the Senate amendment.
    Section 502(i) of H.R. 8200 as passed by the House, but was not 
included in the Senate amendment, is deleted as a matter to be left to 
the bankruptcy tax bill next year.
    The House amendment deletes section 502(i) of the Senate bill but 
adopts the policy of that section to a limited extent for confirmation 
of a plan of reorganization in section 1111(b) of the House amendment.
    Section 502(j) of the House amendment is new. The provision codifies 
section 57k of the Bankruptcy Act [section 93(k) of former title 11].
    Allowance of Claims or Interest: The House amendment adopts section 
502(b)(9) of the House bill which disallows any tax claim resulting from 
a reduction of the Federal Unemployment Tax Act (FUTA) credit (sec. 3302 
of the Internal Revenue Code [26 U.S.C. 3302]) on account of a tardy 
contribution to a State unemployment fund if the contribution is 
attributable to ways or other compensation paid by the debtor before 
bankruptcy. The Senate amendment allowed this reduction, but would have 
subordinated it to other claims in the distribution of the estate's 
assets by treating it as a punitive (nonpecuniary loss) penalty. The 
House amendment would also not bar reduction of the FUTA credit on 
account of a trustee's late payment of a contribution to a State 
unemployment fund if the contribution was attributable to a trustee's 
payment of compensation earned from the estate.
    Section 511 of the Senate amendment is deleted. Its substance is 
adopted in section 502(b)(9) of the House amendment which reflects an 
identical provision contained in H.R. 8200 as passed by the House.


                        senate report no. 95-989

    A proof of claim or interest is prima facie evidence of the claim or 
interest. Thus, it is allowed under subsection (a) unless a party in 
interest objects. The rules and case law will determine who is a party 
in interest for purposes of objection to allowance. The case law is well 
developed on this subject today. As a result of the change in the 
liability of a general partner's estate for the debts of this 
partnership, see proposed 11 U.S.C. 723, the category of persons that 
are parties in interest in the partnership case will be expanded to 
include a creditor of a partner against whose estate the trustee of the 
partnership estate may proceed under proposed 11 U.S.C. 723(c).
    Subsection (b) prescribes the grounds on which a claim may be 
disallowed. The court will apply these standards if there is an 
objection to a proof of claim. The burden of proof on the issue of 
allowance is left to the Rules of Bankruptcy Procedure. Under the 
current chapter XIII rules, a creditor is required to prove that his 
claim is free from usury, rule 13-301. It is expected that the rules 
will make similar provision for both liquidation and individual 
repayment plan cases. See Bankruptcy Act Sec. 656(b) [section 1056(b) of 
former title 11]; H.R. 31, 94th Cong., 1st sess., sec. 6-104(a) (1975).
    Paragraph (1) requires disallowance if the claim is unenforceable 
against the debtor for any reason (such as usury, unconscionability, or 
failure of consideration) other than because it is contingent or 
unmatured. All such contingent or unmatured claims are to be liquidated 
by the bankruptcy court in order to afford the debtor complete 
bankruptcy relief; these claims are generally not provable under present 
law.
    Paragraph (2) requires disallowance to the extent that the claim is 
for unmatured interest as of the date of the petition. Whether interest 
is matured or unmatured on the date of bankruptcy is to be determined 
without reference to any ipso facto or bankruptcy clause in the 
agreement creating the claim. Interest disallowed under this paragraph 
includes postpetition interest that is not yet due and payable, and any 
portion of prepaid interest that represents an original discounting of 
the claim, yet that would not have been earned on the date of 
bankruptcy. For example, a claim on a $1,000 note issued the day before 
bankruptcy would only be allowed to the extent of the cash actually 
advanced. If the original discount was 10 percent so that the cash 
advanced was only $900, then notwithstanding the face amount of note, 
only $900 would be allowed. If $900 was advanced under the note some 
time before bankruptcy, the interest component of the note would have to 
be prorated and disallowed to the extent it was for interest after the 
commencement of the case.
    Section 502(b) thus contains two principles of present law. First, 
interest stops accruing at the date of the filing of the petition, 
because any claim for unmatured interest is disallowed under this 
paragraph. Second, bankruptcy operates as the acceleration of the 
principal amount of all claims against the debtor. One unarticulated 
reason for this is that the discounting factor for claims after the 
commencement of the case is equivalent to contractual interest rate on 
the claim. Thus, this paragraph does not cause disallowance of claims 
that have not been discounted to a present value because of the 
irrebuttable presumption that the discounting rate and the contractual 
interest rate (even a zero interest rate) are equivalent.
    Paragraph (3) requires disallowance of a claim to the extent that 
the creditor may offset the claim against a debt owing to the debtor. 
This will prevent double recovery, and permit the claim to be filed only 
for the balance due. This follows section 68 of the Bankruptcy Act 
[section 108 of former title 11].
    Paragraph (4) requires disallowance of a property tax claim to the 
extent that the tax due exceeds the value of the property. This too 
follows current law to the extent the property tax is ad valorem.
    Paragraph (5) prevents overreaching by the debtor's attorneys and 
concealing of assets by debtors. It permits the court to examine the 
claim of a debtor's attorney independently of any other provision of 
this subsection, and to disallow it to the extent that it exceeds the 
reasonable value of the attorneys' services.
    Postpetition alimony, maintenance or support claims are disallowed 
under paragraph (6). They are to be paid from the debtor's postpetition 
property, because the claims are nondischargeable.
    Paragraph (7), derived from current law, limits the damages 
allowable to a landlord of the debtor. The history of this provision is 
set out at length in Oldden v. Tonto Realty Co., 143 F.2d 916 (2d Cir. 
1944). It is designed to compensate the landlord for his loss while not 
permitting a claim so large (based on a long-term lease) as to prevent 
other general unsecured creditors from recovering a dividend from the 
estate. The damages a landlord may assert from termination of a lease 
are limited to the rent reserved for the greater of one year or ten 
percent of the remaining lease term, not to exceed three years, after 
the earlier of the date of the filing of the petition and the date of 
surrender or repossession in a chapter 7 case and 3 years lease payments 
in a chapter 9, 11, or 13 case. The sliding scale formula for chapter 7 
cases is new and designed to protect the long-term lessor. This 
subsection does not apply to limit administrative expense claims for use 
of the leased premises to which the landlord is otherwise entitled.
    This paragraph will not overrule Oldden, or the proposition for 
which it has been read to stand: To the extent that a landlord has a 
security deposit in excess of the amount of his claim allowed under this 
paragraph, the excess comes into the estate. Moreover, his allowed claim 
is for his total damages, as limited by this paragraph. By virtue of 
proposed 11 U.S.C. 506(a) and 506(d), the claim will be divided into a 
secured portion and an unsecured portion in those cases in which the 
deposit that the landlord holds is less than his damages. As under 
Oldden, he will not be permitted to offset his actual damages against 
his security deposit and then claim for the balance under this 
paragraph. Rather, his security deposit will be applied in satisfaction 
of the claim that is allowed under this paragraph.
    As used in section 502(b)(7), the phrase ``lease of real property'' 
applies only to a ``true'' or ``bona fide'' lease and does not apply to 
financing leases of real property or interests therein, or to leases of 
such property which are intended as security.
    Historically, the limitation on allowable claims of lessors of real 
property was based on two considerations. First, the amount of the 
lessors damages on breach of a real estate lease was considered 
contingent and difficult to prove. Partly for this reason, claims of a 
lessor of real estate were not provable prior to the 1934 amendments to 
the Bankruptcy Act [former title 11]. Second, in a true lease of real 
property, the lessor retains all risk and benefits as to the value of 
the real estate at the termination of the lease. Historically, it was, 
therefore, considered equitable to limit the claims of a real estate 
lessor.
    However, these considerations are not present in ``lease financing'' 
transactions where, in substance, the ``lease'' involves a sale of the 
real estate and the rental payments are in substance the payment of 
principal and interest on a secured loan or sale. In a financing lease 
the lessor is essentially a secured or unsecured creditor (depending 
upon whether his interest is perfected or not) of the debtor, and the 
lessor's claim should not be subject to the 502(b)(7) limitation. 
Financing ``leases'' are in substance installment sales or loans. The 
``lessors'' are essentially sellers or lenders and should be treated as 
such for purposes of the bankruptcy law.
    Whether a ``lease'' is true or bona fide lease or, in the 
alternative, a financing ``lease'' or a lease intended as security, 
depends upon the circumstances of each case. The distinction between a 
true lease and a financing transaction is based upon the economic 
substance of the transaction and not, for example, upon the locus of 
title, the form of the transaction or the fact that the transaction is 
denominated as a ``lease''. The fact that the lessee, upon compliance 
with the terms of the lease, becomes or has the option to become the 
owner of the leased property for no additional consideration or for 
nominal consideration indicates that the transaction is a financing 
lease or lease intended as security. In such cases, the lessor has no 
substantial interest in the leased property at the expiration of the 
lease term. In addition, the fact that the lessee assumes and discharges 
substantially all the risks and obligations ordinarily attributed to the 
outright ownership of the property is more indicative of a financing 
transaction than of a true lease. The rental payments in such cases are 
in substance payments of principal and interest either on a loan secured 
by the leased real property or on the purchase of the leased real 
property. See, e. g., Financial Accounting Standards Board Statement No. 
13 and SEC Reg. S-X, 17 C.F.R. sec. 210.3-16(q) (1977); cf. First 
National Bank of Chicago v. Irving Trust Co., 74 F.2d 263 (2nd Cir. 
1934); and Albenda and Lief, ``Net Lease Financing Transactions Under 
the Proposed Bankruptcy Act of 1973,'' 30 Business Lawyer, 713 (1975).
    Paragraph (8) is new. It tracks the landlord limitation on damages 
provision in paragraph (7) for damages resulting from the breach by the 
debtor of an employment contract, but limits the recovery to the 
compensation reserved under an employment contract for the year 
following the earlier of the date of the petition and the termination of 
employment.
    Subsection (c) requires the estimation of any claim liquidation of 
which would unduly delay the closing of the estate, such as a contingent 
claim, or any claim for which applicable law provides only an equitable 
remedy, such as specific performance. This subsection requires that all 
claims against the debtor be converted into dollar amounts.
    Subsection (d) is derived from present law. It requires disallowance 
of a claim of a transferee of a voidable transfer in toto if the 
transferee has not paid the amount or turned over the property received 
as required under the sections under which the transferee's liability 
arises.
    Subsection (e) also derived from present law, requires disallowance 
of the claim for reimbursement or contribution of a codebtor, surety or 
guarantor of an obligation of the debtor, unless the claim of the 
creditor on such obligation has been paid in full. The provision 
prevents competition between a creditor and his guarantor for the 
limited proceeds in the estate.
    Subsection (f) specifies that ``involuntary gap'' creditors receive 
the same treatment as prepetition creditors. Under the allowance 
provisions of this subsection, knowledge of the commencement of the case 
will be irrelevant. The claim is to be allowed ``the same as if such 
claim had arisen before the date of the filing of the petition.'' Under 
voluntary petition, proposed 11 U.S.C. 303(f), creditors must be 
permitted to deal with the debtor and be assured that their claims will 
be paid. For purposes of this subsection, ``creditors'' include 
governmental units holding claims for tax liabilities incurred during 
the period after the petition is filed and before the earlier of the 
order for relief or appointment of a trustee.
    Subsection (g) gives entities injured by the rejection of an 
executory contract or unexpired lease, either under section 365 or under 
a plan or reorganization, a prepetition claim for any resulting damages, 
and requires that the injured entity be treated as a prepetition 
creditor with respect to that claim.
    Subsection (h) gives a transferee of a setoff that is recovered by 
one trustee a prepetition claim for the amount recovered.
    Subsection (i) answers the nonrecourse loan problem and gives the 
creditor an unsecured claim for the difference between the value of the 
collateral and the debt in response to the decision in Great National 
Life Ins. Co. v. Pine Gate Associates, Ltd., Bankruptcy Case No. B75-
4345A (N.D.Ga. Sept. 16, 1977).
    The bill, as reported, deletes a provision in the bill as originally 
introduced (former sec. 502(i)) requiring a tax authority to file a 
proof of claim for recapture of an investment credit where, during title 
11 proceedings, the trustee sells or otherwise disposes of property 
before the title 11 case began. The tax authority should not be required 
to submit a formal claim for a taxable event (a sale or other 
disposition of the asset) of whose occurrence the trustee necessarily 
knows better than the taxing authority. For procedural purposes, the 
recapture of investment credit is to be treated as an administrative 
expense, as to which only a request for payment is required.


                         house report no. 95-595

    Paragraph (9) [of subsec. (b)] requires disallowance of certain 
employment tax claims. These relate to a Federal tax credit for State 
unemployment insurance taxes which is disallowed if the State tax is 
paid late. This paragraph disallows the Federal claim for the tax the 
same as if the credit had been allowed in full on the Federal return.

                       References in Text

    The Federal Rules of Bankruptcy Procedure, referred to in subsec. 
(b)(9), are set out in the Appendix to this title.


                               Amendments

    1994--Subsec. (b)(9). Pub. L. 103-394, Sec. 213(a), added par. (9).
    Subsec. (i). Pub. L. 103-394, Sec. 304(h)(1), substituted 
``507(a)(8)'' for ``507(a)(7)''.
    1986--Subsec. (b)(6)(A)(ii). Pub. L. 99-554, Sec. 283(f)(1), 
substituted ``repossessed'' for ``reposessed''.
    Subsec. (g). Pub. L. 99-554, Sec. 257(j), inserted reference to 
chapter 12.
    Subsec. (i). Pub. L. 99-554, Sec. 283(f)(2), substituted 
``507(a)(7)'' for ``507(a)(6)''.
    1984--Subsec. (a). Pub. L. 98-353, Sec. 445(a), inserted ``general'' 
before ``partner''.
    Subsec. (b). Pub. L. 98-353, Sec. 445(b)(1), (2), in provisions 
preceding par. (1), inserted ``(e)(2),'' after ``subsections'' and ``in 
lawful currency of the United States'' after ``claim''.
    Subsec. (b)(1). Pub. L. 98-353, Sec. 445(b)(3), substituted ``and'' 
for ``, and unenforceable against''.
    Subsec. (b)(3). Pub. L. 98-353, Sec. 445(b)(5), inserted ``the'' 
after ``exceeds''.
    Pub. L. 98-353, Sec. 445(b)(4), struck out par. (3) ``such claim may 
be offset under section 553 of this title against a debt owing to the 
debtor;'', and redesignated par. (4) as (3).
    Subsec. (b)(4). Pub. L. 98-353, Sec. 445(b)(4), redesignated par. 
(5) as (4). Former par. (4) redesignated (3).
    Subsec. (b)(5). Pub. L. 98-353, Sec. 445(b)(6), substituted ``such 
claim'' for ``the claim'' and struck out the comma after ``petition''.
    Pub. L. 98-353, Sec. 445(b)(4), redesignated par. (6) as (5). Former 
par. (5) redesignated (4).
    Subsec. (b)(6). Pub. L. 98-353, Sec. 445(b)(4), redesignated par. 
(7) as (6). Former par. (6) redesignated (5).
    Subsec. (b)(7). Pub. L. 98-353, Sec. 445(b)(7)(A), inserted ``the 
claim of an employee'' before ``for damages''.
    Pub. L. 98-353, Sec. 445(b)(4), redesignated par. (8) as (7). Former 
par. (7) redesignated (6).
    Subsec. (b)(7)(A)(i). Pub. L. 98-353, Sec. 445(b)(7)(B), substituted 
``or'' for ``and''.
    Subsec. (b)(7)(B). Pub. L. 98-353, Sec. 445(b)(7)(C), (D), 
substituted ``any'' for ``the'' and inserted a comma after ``such 
contract''.
    Subsec. (b)(8), (9). Pub. L. 98-353, Sec. 445(b)(4), redesignated 
par. (9) as (8). Former par. (8) redesignated (7).
    Subsec. (c)(1). Pub. L. 98-353, Sec. 445(c)(1), inserted ``the'' 
before ``fixing'' and substituted ``administration'' for ``closing''.
    Subsec. (c)(2). Pub. L. 98-353, Sec. 445(c)(2), inserted ``right to 
payment arising from a'' after ``any'' and struck out ``if such breach 
gives rise to a right to payment'' after ``breach of performance''.
    Subsec. (e)(1). Pub. L. 98-353, Sec. 445(d)(1), (2), in provisions 
preceding subpar. (A) substituted ``, (b), and (c)'' for ``and (b)'' and 
substituted ``or has secured'' for ``, or has secured,''.
    Subsec. (e)(1)(B). Pub. L. 98-353, Sec. 445(d)(3), inserted ``or 
disallowance'' after ``allowance''.
    Subsec. (e)(1)(C). Pub. L. 98-353, Sec. 445(d)(4), substituted 
``asserts a right of subrogation to the rights of such creditor'' for 
``requests subrogation'' and struck out ``to the rights of such 
creditor'' after ``of this title''.
    Subsec. (h). Pub. L. 98-353, Sec. 445(e), substituted ``522'' for 
``522(i)''.
    Subsec. (j). Pub. L. 98-353, Sec. 445(f), amended subsec. (j) 
generally, inserting provisions relating to reconsideration of a 
disallowed claim, and provisions relating to reconsideration of a claim 
under this subsection.


                    Effective Date of 1994 Amendment

    Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not 
applicable with respect to cases commenced under this title before Oct. 
22, 1994, see section 702 of Pub. L. 103-394, set out as a note under 
section 101 of this title.


                    Effective Date of 1986 Amendment

    Amendment by section 257 of Pub. L. 99-554 effective 30 days after 
Oct. 27, 1986, but not applicable to cases commenced under this title 
before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out 
as a note under section 581 of Title 28, Judiciary and Judicial 
Procedure.
    Amendment by section 283 of Pub. L. 99-554 effective 30 days after 
Oct. 27, 1986, see section 302(a) of Pub. L. 99-554.


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-353 effective with respect to cases filed 90 
days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out 
as a note under section 101 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 101, 106, 346, 501, 503, 
506, 507, 509, 510, 522, 544, 723, 727, 901, 929, 944, 1111, 1114, 1126, 
1141, 1228, 1305, 1328 of this title.



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