Legislative Update on Bankruptcy-Related Federal Legislation

Bankruptcy Venue Reform Act

Proposed Changes to Venue Provisions

• The bill proposes significant changes to the venue provisions for corporate bankruptcies.
• Companies filing under Title 11 will have to file in the district in which their principal place of business or where their principal assets were located.
• Parent companies will no longer be able to forum shop by relying upon the proper venue for a subsidiary’s bankruptcy. However, subsidiaries can file in the same venue as the parent.

Exceptions to Venue Determination

• For purposes of determining the proper venue, no effect is given to change in ownership or control of an entity that is the subject of a case or of an affiliate of the entity or to a transfer of the principal place of business or principal assets of the entity or of an affiliate of the entity that takes place within one year before the case was commenced or if done for the purpose of establishing venue.

Burden of Proof and Intervention by Governmental Units

• If an objection to or request to change venue is made, the party that commences the case bears the burden of establishing by clear and convincing evidence that the venue was proper where the case was commenced.
• The bill provides automatic admission for any attorney representing a governmental unit to appear and intervene in the case without charge and without meeting any requirement under any local court rule relating to attorney appearances or the use of local counsel before any bankruptcy court, district court or bankruptcy panel in connection with cases arising in or related to issues under Title 11.

Transfer of Case or Proceeding

• A district court may transfer the case or proceeding to a district court for another district or division in the interest of justice or for the convenience of the parties.
• If a case or proceeding under Title 11 or arising in or related to a case under Title 11 is filed in a division or district that is improper under section 1408(b) of Title 28, the district court is required to dismiss the case or proceeding immediately or, if in the interest of justice, immediately transfer the case or proceeding to any district court for any district or division in which the case or proceeding could have been brought.

Expedited Determination of Venue

• The bill requires that not later than 14 days after the filing of an objection to or request to change the venue of a case or proceeding under Title 11 or arising in or related to a case under Title 11, the court shall enter an order granting or denying the objection or request, thereby expediting the time for determination of venue for the matter.

The other bills of bankruptcy significance are as follows:

H.R. 138-Private Student Loan Bankruptcy Fairness Act of 2023 (proposes modifications to the language of section 523(a)(8) of the Bankruptcy Code to remove the discharge exemption for private student loans only).

H.R. 509 – the Debt Cancellation Accountability Act of 2023 (proposes to amend the Higher Education Act of 1965 to prohibit the Department of Education from cancelling, waiving, assuming, discharging, or reducing certain student loans on a class-wide basis).

H.R. 306 – Stopping Abusive Student Loan Collection Practices in Bankruptcy Act of 2023 (proposes to amend section 523(d) of the Bankruptcy Code to allow a debtor to be awarded its reasonable attorney fees and costs when the debtor requests that a student loan debt be discharged under section 523(a)(8) for undue hardship, the debt is discharged, and the court finds that the creditor’s position was not substantially justified).

H.R. 1453 – Customs Business Fairness Act of 2023 (would amend section 507(d) of the Bankruptcy Code to extend the priority treatment governmental units receive with respect to claims for certain customs duties to subrogees (i.e., customs brokers) as well)

H.R.962 – Protecting Gun Owners in Bankruptcy Act of 2023 (proposes to amend section 522(d) of the Bankruptcy Code to add a $3,000 exemption for firearms. The bill also proposes to add firearms up to $3,000 in value to the definition of “household goods” for which lien avoidance is available under section 522(f) of the Bankruptcy Code.

H.R. 1602 & S. 817- Secure Viable Banking Act (proposes to repeal title IV of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (Pub. L. No. 115-174). Title IV raised the standard asset threshold for a bank to be regulated as a “systemically important financial institution” to $250 billion. If the Secure Viable Banking Act is enacted, the threshold for a bank to be regulated as a “systemically important financial institution” would return to $50 billion).

H.R. 1167 / S.96 – Justice for Black Farmers Act of 2023 (would amend the definition of “family farmer” in section 101(18)(A) of the Bankruptcy Code that governs eligibility for relief under chapter 12 of the Bankruptcy Code. If passed, individuals would only need 30% or more of their debt to have arisen out of a farming operation and receive 30% or more of their gross income from farming operation. Under current law, individuals seeking relief under chapter 12 as a “family farmer” must have 50% or more of their debt to have arisen out of a farming operation and receive 50% or more of their gross income from farming operation).

S.136 - ISA Student Protection Act of 2023 (provides a consumer protection framework for income share agreements (or ISAs), which generally offer students up-front financial support and, in exchange, require them to pay back a portion of their future income for a set number of years. Among other things, the bill would amend section 523(a)(8) to provide that covered educational ISAs are dischargeable in bankruptcy and require disclosure of the same to borrowers).

H.R. 833 – the Save America’s Rural Hospitals Act (proposes to amend titles XVIII and XIX of the Social Security Act to provide for enhanced payments to rural health care providers under the Medicare and Medicaid programs, and for other purposes).

H.R.25 - FairTax Act of 2023- (imposes a national sales tax on the use or consumption in the United States of taxable property or services in lieu of the current income taxes, payroll taxes, and estate and gift taxes. The rate of the sales tax will be 23% in 2025, with adjustments to the rate in subsequent years. There are exemptions from the tax for used and intangible property; for property or services purchased for business, export, or investment purposes; and for state government functions).