11 U.S. Code § 109 - Who may be a debtor

Pub. L. 117–151, § 2(i)(1)(A), June 21, 2022, 136 Stat. 1300, provided that, effective 2 years after June 21, 2022, subsection (e) of this section is amended to read as such subsection read on the day before June 21, 2022. See 2022 Amendment note below.

Section 109(b) of the House amendment adopts a provision contained in H.R. 8200 as passed by the House. Railroad liquidations will occur under chapter 11, not chapter 7.

Section 109(c) contains a provision which tracks the Senate amendment as to when a municipality may be a debtor under chapter 11 of title 11. As under the Bankruptcy Act [former title 11], State law authorization and prepetition negotiation efforts are required.

Section 109(e) represents a compromise between H.R. 8200 as passed by the House and the Senate amendment relating to the dollar amounts restricting eligibility to be a debtor under chapter 13 of title 11. The House amendment adheres to the limit of $100,000 placed on unsecured debts in H.R. 8200 as passed by the House. It adopts a midpoint of $350,000 as a limit on secured claims, a compromise between the level of $500,000 in H.R. 8200 as passed by the House and $200,000 as contained in the Senate amendment.

This section specifies eligibility to be a debtor under the bankruptcy laws. The first criterion, found in the current Bankruptcy Act section 2a(1) [section 11(a)(1) of former title 11] requires that the debtor reside or have a domicile, a place of business, or property in the United States.

Subsection (b) defines eligibility for liquidation under chapter 7. All persons are eligible except insurance companies, and certain banking institutions. These exclusions are contained in current law. However, the banking institution exception is expanded in light of changes in various banking laws since the current law was last amended on this point. A change is also made to clarify that the bankruptcy laws cover foreign banks and insurance companies not engaged in the banking or insurance business in the United States but having assets in the United States. Banking institutions and insurance companies engaged in business in this country are excluded from liquidation under the bankruptcy laws because they are bodies for which alternate provision is made for their liquidation under various State or Federal regulatory laws. Conversely, when a foreign bank or insurance company is not engaged in the banking or insurance business in the United States, then those regulatory laws do not apply, and the bankruptcy laws are the only ones available for administration of any assets found in United States.

The first clause of subsection (b) provides that a railroad is not a debtor except where the requirements of section 1174 are met.

Subsection (c) [enacted as (d)] provides that only a person who may be a debtor under chapter 7 and a railroad may also be a debtor under chapter 11, but a stockbroker or commodity broker is eligible for relief only under chapter 7. Subsection (d) [enacted as (e)] establishes dollar limitations on the amount of indebtedness that an individual with regular income can incur and yet file under chapter 13.

Subsection (c) defines eligibility for chapter 9. Only a municipality that is unable to pay its debts as they mature, and that is not prohibited by State law from proceeding under chapter 9, is permitted to be a chapter 9 debtor. The subsection is derived from Bankruptcy Act § 84 [section 404 of former title 11], with two changes. First, section 84 requires that the municipality be “generally authorized to file a petition under this chapter by the legislature, or by a governmental officer or organization empowered by State law to authorize the filing of a petition.” The “generally authorized” language is unclear, and has generated a problem for a Colorado Metropolitan District that attempted to use chapter IX [chapter 9 of former title 11] in 1976. The “not prohibited” language provides flexibility for both the States and the municipalities involved, while protecting State sovereignty as required by Ashton v. Cameron County Water District No. 1, 298 U.S. 513 (1936) [56 S.Ct. 892, 80 L.Ed. 1309, 31 Am.Bankr.Rep.N.S. 96, rehearing denied 57 S.Ct. 5, 299 U.S. 619, 81 L.Ed. 457] and Bekins v. United States, 304 U.S. 27 (1938) [58 S.Ct. 811, 82 L.Ed. 1137, 36 Am.Bankr.Rep.N.S. 187, rehearing denied 58 S.Ct. 1043, 1044, 304 U.S. 589, 82 L.Ed. 1549].

The second change deletes the four prerequisites to filing found in section 84 [section 404 of former title 11]. The prerequisites require the municipality to have worked out a plan in advance, to have attempted to work out a plan without success, to fear that a creditor will attempt to obtain a preference, or to allege that prior negotiation is impracticable. The loopholes in those prerequisites are larger than the requirement itself. It was a compromise from pre-1976 chapter IX [chapter 9 of former title 11] under which a municipality could file only if it had worked out an adjustment plan in advance. In the meantime, chapter IX protection was unavailable. There was some controversy at the time of the enactment of current chapter IX concerning deletion of the pre-negotiation requirement. It was argued that deletion would lead to a rash of municipal bankruptcies. The prerequisites now contained in section 84 were inserted to assuage that fear. They are largely cosmetic and precatory, however, and do not offer any significant deterrent to use of chapter IX. Instead, other factors, such as a general reluctance on the part of any debtor, especially a municipality, to use the bankruptcy laws, operates as a much more effective deterrent against capricious use.

Subsection (d) permits a person that may proceed under chapter 7 to be a debtor under chapter 11, Reorganization, with two exceptions. Railroads, which are excluded from chapter 7, are permitted to proceed under chapter 11. Stockbrokers and commodity brokers, which are permitted to be debtors under chapter 7, are excluded from chapter 11. The special rules for treatment of customer accounts that are the essence of stockbroker and commodity broker liquidations are available only in chapter 7. Customers would be unprotected under chapter 11. The special protective rules are unavailable in chapter 11 because their complexity would make reorganization very difficult at best, and unintelligible at worst. The variety of options available in reorganization cases make it extremely difficult to reorganize and continue to provide the special customer protection necessary in these cases.

Subsection (e) specifies eligibility for chapter 13, Adjustment of Debts of an Individual with Regular Income. An individual with regular income, or an individual with regular income and the individual’s spouse, may proceed under chapter 13. As noted in connection with the definition of the term “individual with regular income”, this represents a significant departure from current law. The change might have been too great, however, without some limitation. Thus, the debtor (or the debtor and spouse) must have unsecured debts that aggregate less than $100,000, and secured debts that aggregate less than $500,000. These figures will permit the small sole proprietor, for whom a chapter 11 reorganization is too cumbersome a procedure, to proceed under chapter 13. It does not create a presumption that any sole proprietor within that range is better off in chapter 13 than chapter 11. The conversion rules found in section 1307 will govern the appropriateness of the two chapters for any particular individual. The figures merely set maximum limits.

Whether a small business operated by a husband and wife, the so-called “mom and pop grocery store,” will be a partnership and thus excluded from chapter 13, or a business owned by an individual, will have to be determined on the facts of each case. Even if partnership papers have not been filed, for example, the issue will be whether the assets of the grocery store are for the benefit of all creditors of the debtor or only for business creditors, and whether such assets may be the subject of a chapter 13 proceeding. The intent of the section is to follow current law that a partnership by estoppel may be adjudicated in bankruptcy and therefore would not prevent a chapter 13 debtor from subjecting assets in such a partnership to the reach of all creditors in a chapter 13 case. However, if the partnership is found to be a partnership by agreement, even informal agreement, than a separate entity exists and the assets of that entity would be exempt from a case under chapter 13.

Section 351 of the Small Business Investment Act of 1958, referred to in subsec. (b)(2), is classified to section 689 of Title 15, Commerce and Trade.

Section 301 of the Small Business Investment Act of 1958, referred to in subsec. (b)(2), is classified to section 681 of Title 15, Commerce and Trade.

Section 3(h) of the Federal Deposit Insurance Act, referred to in subsec. (b)(2), is classified to section 1813(h) of Title 12, Banks and Banking.

Section 25A of the Federal Reserve Act, referred to in subsecs. (b)(2) and (d), popularly known as the Edge Act, is classified to subchapter II (§ 611 et seq.) of chapter 6 of Title 12, Banks and Banking. For complete classification of this Act to the Code, see Short Title note set out under section 611 of Title 12 and Tables.

Section 409 of the Federal Deposit Insurance Corporation Improvement Act of 1991, referred to in subsecs. (b)(2) and (d), was classified to section 4422 of Title 12, Banks and Banking, prior to repeal by Pub. L. 111–203, title VII, § 740, July 21, 2010, 124 Stat. 1729.

Section 1(b) of the International Banking Act of 1978, referred to in subsec. (b)(3)(B), is classified to section 3101 of Title 12, Banks and Banking.

2022—Subsec. (e). Pub. L. 117–151, § 2(i)(1)(A), amended subsec. (e) to read as it read on the day before the date of enactment of Pub. L. 117–151, which is June 21, 2022. See note below. Prior to reversion, subsec. (e), as amended by section 2(c) of Pub. L. 117–151, read as follows: “Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated debts of less than $2,750,000 or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated debts that aggregate less than $2,750,000 may be a debtor under chapter 13 of this title.”

Pub. L. 117–151, § 2(c), added subsec. (e) and struck out former subsec. (e) which read as follows: “Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000, or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000 may be a debtor under chapter 13 of this title.” For adjustments to dollar amounts in quoted text, see Adjustment of Dollar Amounts notes below.

2010—Subsec. (b)(3)(B). Pub. L. 111–327, § 2(a)(6)(A), inserted closing parenthesis after “1978”.

Subsec. (h)(1). Pub. L. 111–327, § 2(a)(6)(B), inserted “other than paragraph (4) of this subsection” after “this section” and substituted “ending on” for “preceding”.

2009—Subsec. (h)(3)(A)(ii). Pub. L. 111–16 substituted “7-day” for “5-day”.

2005—Subsec. (b)(2). Pub. L. 109–8, § 1204(1), struck out “subsection (c) or (d) of” before “section 301”.

Subsec. (b)(3). Pub. L. 109–8, § 802(d)(1), added par. (3) and struck out former par. (3) which read as follows: “a foreign insurance company, bank, savings bank, cooperative bank, savings and loan association, building and loan association, homestead association, or credit union, engaged in such business in the United States.”

Subsec. (f). Pub. L. 109–8, § 1007(b), inserted “or family fisherman” after “family farmer”.

Subsec. (h). Pub. L. 109–8, § 106(a), added subsec. (h).

2000—Subsec. (b)(2). Pub. L. 106–554, § 1(a)(8) [§ 1(e)], inserted “a New Markets Venture Capital company as defined in section 351 of the Small Business Investment Act of 1958,” after “homestead association,”.

Pub. L. 106–554, § 1(a)(5) [title I, § 112(c)(1)], substituted “, except that an uninsured State member bank, or a corporation organized under section 25A of the Federal Reserve Act, which operates, or operates as, a multilateral clearing organization pursuant to section 409 of the Federal Deposit Insurance Corporation Improvement Act of 1991 may be a debtor if a petition is filed at the direction of the Board of Governors of the Federal Reserve System; or” for “; or”.

Subsec. (d). Pub. L. 106–554, § 1(a)(5) [title I, § 112(c)(2)], amended subsec. (d) generally. Prior to amendment, subsec. (d) read as follows: “Only a person that may be a debtor under chapter 7 of this title, except a stockbroker or a commodity broker, and a railroad may be a debtor under chapter 11 of this title.”

1994—Subsec. (b)(2). Pub. L. 103–394, §§ 220, 501(d)(2), inserted “a small business investment company licensed by the Small Business Administration under subsection (c) or (d) of section 301 of the Small Business Investment Act of 1958,” after “homestead association,” and struck out “(12 U.S.C. 1813(h))” after “Insurance Act”.

Subsec. (c)(2). Pub. L. 103–394, § 402, substituted “specifically authorized, in its capacity as a municipality or by name,” for “generally authorized”.

Subsec. (e). Pub. L. 103–394, § 108(a), substituted “$250,000” and “$750,000” for “$100,000” and “$350,000”, respectively, in two places.

1988—Subsec. (c)(3). Pub. L. 100–597 struck out “or unable to meet such entity’s debts as such debts mature” after “insolvent”.

1986—Subsec. (f). Pub. L. 99–554, § 253(1)(B), (2), added subsec. (f) and redesignated former subsec. (f) as (g).

Subsec. (g). Pub. L. 99–554, § 253(1), redesignated former subsec. (f) as (g) and inserted reference to family farmer.

1984—Subsec. (a). Pub. L. 98–353, § 425(a), struck out “in the United States,” after “only a person that resides”.

Subsec. (c)(5)(D). Pub. L. 98–353, § 425(b), substituted “transfer that is avoidable under section 547 of this title” for “preference”.

Subsec. (d). Pub. L. 98–353, § 425(c), substituted “stockbroker” for “stockholder”.

Subsec. (f). Pub. L. 98–353, § 301, added subsec. (f).

1982—Subsec. (b)(2). Pub. L. 97–320 inserted reference to industrial banks or similar institutions which are insured banks as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h)).

Amendment by section 2(c) of Pub. L. 117–151 effective June 21, 2022, see section 2(h)(1) of Pub. L. 117–151, set out as a note under section 104 of this title.

Pub. L. 117–151, § 2(i)(1), June 21, 2022, 136 Stat. 1300, provided in part that the amendment made by section 2(i)(1)(A) is effective on the date that is 2 years after June 21, 2022.

Pub. L. 111–16, § 7, May 7, 2009, 123 Stat. 1609, provided that:

Amendment by Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109–8, set out as a note under section 101 of this title.

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.

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.

Amendment by 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 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.

Pub. L. 117–151, § 2(i)(2), June 21, 2022, 136 Stat. 1300, provided that:

The dollar amounts specified in this section, prior to the amendment made by Pub. L. 117–151, § 2(c), were adjusted by notices of the Judicial Conference of the United States pursuant to section 104 of this title as follows:

By notice dated Jan. 31, 2022, 87 F.R. 6625, effective Apr. 1, 2022, in subsec. (e), dollar amounts “419,275” and “1,257,850” were adjusted to “465,275” and “1,395,875”, respectively, each time they appeared. See notice of the Judicial Conference of the United States set out as a note under section 104 of this title.

By notice dated Feb. 5, 2019, 84 F.R. 3488, effective Apr. 1, 2019, in subsec. (e), dollar amounts “394,725” and “1,184,200” were adjusted to “419,275” and “1,257,850”, respectively, each time they appeared.

By notice dated Feb. 16, 2016, 81 F.R. 8748, effective Apr. 1, 2016, in subsec. (e), dollar amounts “383,175” and “1,149,525” were adjusted to “394,725” and “1,184,200”, respectively, each time they appeared.

By notice dated Feb. 12, 2013, 78 F.R. 12089, effective Apr. 1, 2013, in subsec. (e), dollar amounts “360,475” and “1,081,400” were adjusted to “383,175” and “1,149,525”, respectively, each time they appeared.

By notice dated Feb. 19, 2010, 75 F.R. 8747, effective Apr. 1, 2010, in subsec. (e), dollar amounts “336,900” and “1,010,650” were adjusted to “360,475” and “1,081,400”, respectively, each time they appeared.

By notice dated Feb. 7, 2007, 72 F.R. 7082, effective Apr. 1, 2007, in subsec. (e), dollar amounts “307,675” and “922,975” were adjusted to “336,900” and “1,010,650”, respectively, each time they appeared.

By notice dated Feb. 18, 2004, 69 F.R. 8482, effective Apr. 1, 2004, in subsec. (e), dollar amounts “290,525” and “871,550” were adjusted to “307,675” and “922,975”, respectively, each time they appeared.

By notice dated Feb. 13, 2001, 66 F.R. 10910, effective Apr. 1, 2001, in subsec. (e), dollar amounts “269,250” and “807,750” were adjusted to “290,525” and “871,550”, respectively, each time they appeared.

By notice dated Feb. 3, 1998, 63 F.R. 7179, effective Apr. 1, 1998, in subsec. (e), dollar amounts “250,000” and “750,000” were adjusted to “269,250” and “807,750”, respectively, each time they appeared.