74TH CONGRESS. SESS. I. CHS. 792, 793. AUGUST 28, 1935.

sioner; authority.

Fee.

tional costs to farmer.

945 "(4) The conciliation commissioner, appointed under subsection Conciliation commis (a) of section 75 of this Act, as amended, shall continue to act, and act as referee, when the farmer debtor amends his petition or answer, asking to be adjudged a bankrupt under the provisions of subsection (s) of section 75 of this Act, and continue so to act until the case has been finally disposed of. The conciliation commissioner, as such referee, shall receive such an additional fee for his services as may be allowed by the court, not to exceed $35 in any case, to be paid out of the bankrupt's estate. No additional fees or costs of Restriction on add administration or supervision of any kind shall be charged to the farmer debtor when or after he amends his petition or answer, asking to be adjudged a bankrupt, under subsection (s) of section 75 of this Act, but all such additional filing fees or costs of administration or supervision shall be charged against the bankrupt's estate. Con- Franking privilege. ciliation commissioners and referees appointed under section 75 of this Act shall be entitled to transmit in the mails, free of postage, under cover of a penalty envelope, all matters which relate exclusively to the business of the courts, including notices to creditors. If, at the time that the farmer debtor amends his petition or answer, asking to be adjudged a bankrupt, a receiver is in charge swer amended. of any of his property, such receiver shall be divested of possession, and the property returned to the possession of such farmer, under the provisions of this Act. The provisions of this Act shall be held sions. to apply also to partnerships, common, entirety, joint, community ownerships, or to farming corporations where at least 75 per centum of the stock is owned by actual farmers, and any such parties may join in one petition.

Status of receiver when petition of aa

Application of provi

Application of Act to

"(5) This Act shall be held to apply to all existing cases now pending in any Federal court, under this Act, as well as to future pending cases. cases; and all cases that have been dismissed by any conciliation commissioner, referee, or court because of the Supreme Court decision holding the former subsection (s) unconstitutional, shall be Vol. 48, p. 1279. promptly reinstated, without any additional filing fees or charges. Any farm debtor who has filed under the General Bankruptcy Act may take advantage of this section upon written request to the court; and a previous discharge of the debtor under any other section of this Act shall not be grounds for denying him the benefits of this section.

Act.

"(6) This Act is hereby declared to be an emergency measure and Emergency nature of if in the judgment of the court such emergency ceases to exist in its locality, then the court, in its discretion, may shorten the stay of proceedings herein provided for and proceed to liquidate the estate. Approved, August 28, 1935.

MAY 13 (calendar day, JULY 1), 1935.-Ordered to be printed

Mr. MCCARRAN, from the Committee on the Judiciary, submitted the

following

REPORT

[To accompany S. 3002]

The Committee on the Judiciary, to whom was referred the bill (S. 3002) to amend an act entitled "An act to establish a uniform system of bankruptcy throughout the United States", approved July 1, 1898, and acts amendatory thereof and supplementary thereto, after consideration thereof, report the bill favorably with amendments with the recommendation that it be passed.

Before we discuss S. 3002, as amended by the committee, we wish to bring to the attention of the Senate the fact that section 75 of the Bankruptcy Act has not been held unconstitutional by the Supreme Court, save and except subsection (s).

This bill has for its object the clarification of section 75, and the rewriting of subsection (s), which has been held unconstitutional, so as to conform to the decision of the Supreme Court. We shall first discuss the amendments to section 75, other than subsection (s). These amendments have become necessary because of the great confusion caused by the diverse rulings of the various United States district courts, in the construction of section 75. Some courts have held that the farmer debtor could not take advantage of the act after foreclosure sale, and during the period of redemption. Some of these courts have refused to permit the farmer in that position to file his petition, although under the law of the State, he was in possession and full control of the property, and could redeem it within the period allowed. Other courts have held that the farmer could not take advantage of the act during the period of a moratorium established by a State; while others have held that the debtor could not take advantage of the act after sale, but prior to confirmation of saie, although in all of these cases, if the debtor had the money, and were in a position to pay, he could redeem and save his property.

79-956 O-77 - pt. 1-30

2

TO AMEND THE BANKRUPTCY ACT

Obviously, these courts are reasoning too technically, and have failed to carry out the intention of Congress, which was to protect the farmer's property and home. Other courts have just held the oppo site, and have given full protection, and carried out the intent of Congress. There should be uniformity. The amendment to sub section (n) remedies this situation. In addition, subsection (1) brings all of the bankrupt's property, wherever located, under the absolute jurisdiction of the bankruptcy court, where it ought to be. Any farmer who takes advantage of this act ought to be willing to surrender all his property to the jurisdiction of the court, for the purpose of paying his debts, and for the sake of uniformity.

The amended subsection (n) in fact construes, interprets, and clarifies both subsections (n) and (o) of section 75. By reading subsections (n) and (o) as now enacted, it becomes clear that it was the intention of Congress, when it passed section 75, that the debtor farmer and all of his property should come under the jurisdiction of the court of bankruptcy, and that the benefits of the act should extend to the farmer prior to confirmation of sale, and during the period of redemption; and that no proceedings after the filing of the petition should be instituted, or, if instituted prior to the filing of the petition, should not be maintained in any court, or otherwise. Yet there have been a multiplicity of different holdings and conclu sions reached by different courts on this subject. The amended subsection (n) clarifies, construes, and interprets the intent of Congress, so as to bring about uniform decisions and rulings by the courts in the future.

The amendment of the second sentence of subsection (b) simply eliminates the requirement that the conciliation commissioner pay the expenses out of his compensation fee of $25. In some cases, the expenses equaled or exceeded $25, and of course the conciliation commissioner cannot be expected to pay these expenses. They should be charged against the bankrupt's estate.

The amendment to subsection (g) simply eliminates that part of the section which requires the farmer debtor to deposit in court the money or security necessary to pay all debts which have priority. unless waived, in case of a composition or extension of time. Some courts have held that it was necessary for a farmer, before he could get a composition or extension of time, to pay all claims in cash into court, unless they were waived. Obviously, there should be no such limitation. The bankrupt farmer has no cash. The object of section 75 is to give him time within which to get cash. And, obviously, he has no security that is not already encumbered. A conciliation and getting together should not be blocked by such a requirement. The amendment to subsection (k) relates to the confirmation of composition or extension proposal. It provides that a majority of the secured creditors may agree to accept such a proposal, provided it does not reduce the amount of or impair the lien of any secured creditor below the fair market value of the property. A majority of the secured creditors may agree to accept a lower rate of future interest than the contract interest. It does not affect the accumulated o earned interest, nor reduce the lien below the value of the property. Section 77 of the Bankruptcy Act, in its requirements, is far more drastic than this, and section 77 has been held constitutional by the Supreme Court. See Rock Island & Pacific Ry. Co. case (294 U. S.-)

TO AMEND THE BANKRUPTCY ACT

3

The amendment to subsection (p) further carries out the amendinent to subsection (n), and places the sole jurisdiction of the bankrupt's estate and of his obligations all in the bankruptcy court, without exception.

This brings us, now, to subsection (s), rewritten to conform with the Supreme Court's decision. We feel that all the provisions in the rewritten subsection (s) have been approved in principle in numerous. decisions by the Supreme Court. We shall, therefore, set forth the various provisions of subsection (s), and follow them with citiations and decisions of the Supreme Court.

The opening paragraph of subsection (s) provides that if a farmer fails to obtain a composition or extension, or if he feels aggrieved by the composition or extension proposal, he may amend his petition or answer, asking to be adjudged a bankrupt. He may also ask the court that all his property, wherever located, be appraised, and that his exemptions as prescribed by State law be set aside to him, and that he be allowed to retain possession, under the supervision and control of the court, of all of the remainder of his property, including his encumbered exemptions, under the terms and conditions of section

75.

It provides that the referee, under the jurisdiction of the court, shall designate and appoint appraisers, to appraise all of the property of the debtor, at its then fair and reasonable market value. The appraisal is made in all other respects, with rights of objections, exceptions, and appeals, in accordance with the Bankruptcy Act; and either party may file objections, exceptions, or take such appeals within months. Surely there is no question of constitutionality up to this point.

Paragraph numbered (1) in the bill provides that after the property has been appraised, the referee shall set aside to the debtor his unencumbered exemptions, as prescribed by State law, and shall order that the possession, under the supervision and control of the court, of such part of the remainder of the debtor's property as he may select shall remain in the debtor, subject to all existing mortgages, liens, pledges, or encumbrances.

Paragraph numbered (2) provides that when the above conditions have been complied with, the court shall stay all judicial or official proceedings against the debtor, or that part of his property which he selects, for a period of 3 years, during which 3 years the debtor is permitted to retain possession of the property, under the supervision and control of the court, provided he pays a reasonable rental semiannually, fixed by the court. The rental is to be paid into court to be used, first, for the payment of taxes and upkeep, and the remainder to be distributed among secured and unsecured creditors, as their interests may appear. It provides further that if the annual net rental exceeds 5 percent of the value of the property, that then the excess shall be applied in the reduction of the bankrupt's indebtedness. The court, in its discretion, may order sold any unexempt perishable property, or any unexempt personal property not reasonably necessary for the farming operations of the debtor, and such sale may be at public or private sale, in the discretion of the court. In addition to the rental, the court may require the debtor to make quarterly, semiannual or annual payinents on the principal, not

4

TO AMEND THE BANKRUPTCY ACT

inconsistent with the protection of the rights of the creditors and the debtor's ability to pay.

Paragraph numbered (3) of subsection (s) provides that at the end of 3 years, or any time before, the debtor may pay into court the full amount of the appraisal of the property of which he retains possession, including the encumbrances on his exemptions, less the amount paid on principal, if any. Upon request of any secured or unsecured creditor, or the debtor, the court shall order a reappraisal, or in its discretion set a date for hearing, and after such hearing fix the value of the property. Then the debtor must pay the value so arrived at into court, less payments made, for distribution by the court to the secured and unsecured creditors. Or, upon request of any secured creditor, the court, in its discretion, may order the property sold at public auction, at which the secured creditors are allowed to bid, up to the appraised value or the principal that the property secures, whichever is the higher. The debtor has 90 days to redeem from such sale, and thereupon may apply for his discharge, as provided for by the Bankruptcy Act.

This section provides further that if the debtor fails to comply with any or all of the provisions set forth herein, at the end of 3 years, or if he is unable to refinance himself, the court may order the appointment of a trustee, and the property sold, or otherwise disposed of.

Paragraph numbered (4) simply provides that the conciliation commissioner shall continue to act as referee. This is to correct the confusion that existed among the courts. When he acts as such referce, he shall be paid such additional compensation as the court may allow, not to exceed $35 in any case; and all such additional fees or costs of administration shall be charged against the bankrupt's estate. The conciliation commissioner may transmit mail free of postage, under cover of a penalty envelop. It provides that if a receiver is in possession of the property, he shall be divested of pos session, and the property returned to the farmer. The act shall apply to partnership, common, joint, and entirety ownerships, and to farming corporations, where at least 75 percent of the stock is owned by actual farmers. Practically all of the provisions in this paragraph simply clarify different provisions of section 75 of the bankruptcy act, on which there was a great difference of opinion among the

district courts.

Paragraph numbered (5) provides that this amendment shall apply to all cases now pending in the Federal court, as well as to future cases, and that cases that have been dismissed by the conciliation commis sioner or referee, because of the Supreme Court's decision, shall be reinstated without additional filing fees.

Paragraph numbered (6) simply declares that an emergency exists, and gives the court the right to shorten the stay of proceedings if the situation has changed, or the emergency has ended.

It will thus be seen at a glance that the important parts of subsec tion (s) are numbered paragraphs (1), (2), and (3). It will also be seen that the resale provision of the original subsection (s), where & debtor was permitted to buy back his property at the appraised value, with 1 percent interest and on the installment plan of payment for 6 years, has been entirely omitted from the amended subsection (s).