Bankruptcy Forms: Filing Bankruptcy Chapter 7 Bankruptcy Software Chapter 13

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TITLE 11–BANKRUPTCY

CHAPTER 9– ADMINISTRATION

Sub Chapter II – General Provisions

Sec. 926. Avoiding powers

  (a) If the debtor refuses to pursue a cause of action under section 
544, 545, 547, 548, 549(a), or 550 of this title, then on request of a 
creditor, the court may appoint a trustee to pursue such cause of 
action.
    (b) A transfer of property of the debtor to or for the benefit of 
any holder of a bond or note, on account of such bond or note, may not 
be avoided under section 547 of this title.

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2623; Pub. L. 100-597, Sec. 6, 
Nov. 3, 1988, 102 Stat. 3029.)


                      Historical and Revision Notes

                         legislative statements

    Section 926 of the House amendment is derived from section 928 of 
the Senate bill. The provision enables creditors to request the court to 
appoint a trustee to pursue avoiding powers if the debtor refuses to 
exercise those powers. Section 901 of the House amendment makes a 
corresponding change to incorporate avoiding powers included in the 
Senate amendment, but excluded from the House bill.


                        senate report no. 95-989

    This section [928 (enacted as section 926)] adopts current section 
85(h) [section 405(h) of former title 11] which provides for a trustee 
to be appointed for the purpose of pursuing an action under an avoiding 
power, if the debtor refuses to do so. This section is necessary because 
a municipality might, by reason of political pressure or desire for 
future good relations with a particular creditor or class of creditors, 
make payments to such creditors in the days preceding the petition to 
the detriment of all other creditors. No change in the elected officials 
of such a city would automatically occur upon filing of the petition, 
and it might be very awkward for those same officials to turn around and 
demand the return of the payments following the filing of the petition. 
Hence, the need for a trustee for such purpose.
    The general avoiding powers are incorporated by reference in section 
901 and are broader than under current law. Preference, fraudulent 
conveyances, and other kinds of transfers will thus be voidable.
    Incorporated by reference also is the power to accept or reject 
executory contracts and leases (section 365). Within the definition of 
executory contracts are collective bargaining agreements between the 
city and its employees. Such contracts may be rejected despite contrary 
State laws. Courts should readily allow the rejection of such contracts 
where they are burdensome, the rejection will aid in the municipality's 
reorganization and in consideration of the equities of each case. On the 
last point, ``[e]quities in favor of the city in chapter 9 will be far 
more compelling than the equities in favor of the employer in chapter 
11. Onerous employment obligations may prevent a city from balancing its 
budget for some time. The prospect of an unbalanced budget may preclude 
judicial confirmation of the plan. Unless a city can reject its labor 
contracts, lack of funds may force cutbacks in police, fire, sanitation, 
and welfare services, imposing hardships on many citizens. In addition, 
because cities in the past have often seemed immune to the constraint of 
``profitability'' faced by private businesses, their wage contracts may 
be relatively more onerous than those in the private sector.'' Executory 
Contracts and Municipal Bankruptcy, 85 Yale L. J. 957, 965 (1976) 
(footnote omitted). Rejection of the contracts may require the 
municipalities to renegotiate such contracts by state collective 
bargaining laws. It is intended that the power to reject collective 
bargaining agreements will pre-empt state termination provisions, but 
not state collective bargaining laws. Thus, a city would not be required 
to maintain existing employment terms during the renegotiation period.


                               Amendments

    1988--Pub. L. 100-597 designated existing provisions as subsec. (a) 
and added subsec. (b).


                    Effective Date of 1988 Amendment

    Amendment by Pub. L. 100-597 effective Nov. 3, 1988, but not 
applicable to any case commenced under this title before that date, see 
section 12 of Pub. L. 100-597, set out as a note under section 101 of 
this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 106, 902 of this title.



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