Petitioner Toibb filed a voluntary petition for relief under
Chapter 7 of the Bankruptcy Code, disclosing,
inter alia,
assets that included stock in an electric power company. When he
discovered that the stock had substantial value, he decided to
avoid its liquidation by moving to convert his Chapter 7 case to
one under Chapter 11's reorganization provisions. After the
Bankruptcy Court granted his motion, and he filed his
reorganization plan, that court dismissed his petition, finding
that he did not qualify for relief under Chapter 11 because he was
not engaged in an ongoing business. The District Court and the
Court of Appeals affirmed.
Held: The Bankruptcy Code's plain language permits
individual debtors not engaged in business to file for relief under
Chapter 11. Toibb is a debtor within the meaning of § 109(d), which
provides that "a person who may be a debtor under chapter 7 . . .
except a stockbroker or a commodity broker, and a railroad may be a
debtor under chapter 11." He is a person who may be a Chapter 7
debtor, since only railroads and various financial and insurance
institutions are excluded from Chapter 7's coverage, and § 109(d)
makes Chapter 11 available to all entities eligible for Chapter 7
protection, other than stockbrokers and commodities brokers.
Although Chapter 11's structure and legislative history indicate
that it was intended primarily for the use of business debtors, the
Code contains no ongoing business requirement for Chapter 11
reorganization; and there is no basis, including underlying policy
considerations, for imposing one. Pp.
501 U. S.
160-166.
902 F.2d 14 (CA 8 1990), reversed.
BLACKMUN, J., delivered the opinion of the Court, in which
REHNQUIST, C.J., and WHITE, MARSHALL, O'CONNOR, SCALIA, KENNEDY,
and SOUTER, JJ., joined. STEVENS, J., filed a dissenting opinion,
post, p.
501 U. S.
166.
Page 501 U. S. 158
JUSTICE BLACKMUN delivered the opinion of the Court.
In this case, we must decide whether an individual debtor not
engaged in business is eligible to reorganize under Chapter 11 of
the Bankruptcy Code, 11 U.S.C. § 1101
et seq.
I
From March, 1983, until April, 1985, petitioner Sheldon Baruch
Toibb, a former staff attorney with the Federal Energy Regulatory
Commission, was employed as a consultant by Independence Electric
Corporation (IEC), a company he and two others organized to produce
and market electric power. Petitioner owns 24 percent of the
company's shares. After IEC terminated his employment, petitioner
was unable to find work as a consultant in the energy field; he has
been largely supported by his family and friends since that
time.
On November 18, 1986, petitioner filed in the United States
Bankruptcy Court for the Eastern District of Missouri a voluntary
petition for relief under Chapter 7 of the Code, 11 U.S.C. § 701
et seq. The Schedule of Assets and Liabilities
accompanying petitioner's filing disclosed no secured debts, a
disputed federal tax priority claim of $11,000, and unsecured debts
of $170,605. [
Footnote 1]
Petitioner listed as nonexempt assets his IEC shares and a possible
claim against his former business associates. He stated that the
market value of each of these assets was unknown.
On August 6, 1987, the Chapter 7 Trustee appointed to administer
petitioner's estate notified the creditors that the
Page 501 U. S. 159
Board of Directors of IEC had offered to purchase petitioner's
IEC shares for $25,000. When petitioner became aware that this
stock had such value, he decided to avoid its liquidation by moving
to convert his Chapter 7 case to one under the reorganization
provisions of Chapter 11.
The Bankruptcy Court granted petitioner's conversion motion,
App. 21, and on February 1, 1988, petitioner filed a plan of
reorganization.
Id. at 70. Under the plan, petitioner
proposed to pay his unsecured creditors $25,000 less administrative
expenses and priority tax claims, a proposal that would result in a
payment of approximately 11 cents on the dollar. He further
proposed to pay the unsecured creditors, for a period of six years,
50 percent of any dividends from IEC or of any proceeds from the
sale of the IEC stock, up to full payment of the debts.
On March 8, 1988, the Bankruptcy Court on its own motion ordered
petitioner to show cause why his petition should not be dismissed
because petitioner was not engaged in business and, therefore, did
not qualify as a Chapter 11 debtor. App. 121. At the ensuing
hearing, petitioner unsuccessfully attempted to demonstrate that he
had a business to reorganize. [
Footnote 2] Petitioner also argued that Chapter 11 should
be available to an individual debtor not engaged in an ongoing
business. On August 1, the Bankruptcy Court ruled that, under the
authority of
Wamsganz v. Boatmen's Bank of De Soto, 804
F.2d 503 (CA8 1986), petitioner failed to qualify for relief under
Chapter 11. App. to Pet. for Cert. A-17 and A-19.
The United States District Court for the Eastern District of
Missouri, also relying on
Wamsganz, upheld the Bankruptcy
Court's dismissal of petitioner's Chapter 11 case. App. to Pet. for
Cert. A-8 and A-9. The United States Court of Appeals for the
Eighth Circuit affirmed, holding that the Bankruptcy Court had the
authority to dismiss the
Page 501 U. S. 160
proceeding
sua sponte, and that the Circuit's earlier
Wamsganz decision was controlling.
In re Toibb,
902 F.2d 14 (1990). [
Footnote
3] Because the Court of Appeals' ruling that an individual
nonbusiness debtor may not reorganize under Chapter 11 clearly
conflicted with the holding of the Court of Appeals for the
Eleventh Circuit in
In re Moog, 774 F.2d 1073 (CA11 1985),
we granted certiorari to resolve the conflict. [
Footnote 4] 498 U.S. 1060 (1991).
II
A
In our view, the plain language of the Bankruptcy Code disposes
of the question before us. Section 109, 11 U.S.C. § 109, defines
who may be a debtor under the various chapters of the Code. Section
109(d) provides:
"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."
Section 109(b) states:
"A person may be a debtor under chapter 7 of this title only if
such person is not -- (1) a railroad; (2) a domestic insurance
company, bank, . . .; or (3) a foreign insurance company, bank, . .
. engaged in such business in the United States. "
Page 501 U. S. 161
The Code defines "person" as used in Title 11 to "includ[e] [an]
individual." § 101(35). Under the express terms of the Code,
therefore, petitioner is "a person who may be a debtor under
chapter 7," and satisfies the statutory requirements for a Chapter
11 debtor.
The Code contains no ongoing business requirement for
reorganization under Chapter 11, and we are loath to infer the
exclusion of certain classes of debtors from the protections of
Chapter 11, because Congress took care in § 109 to specify who
qualifies -- and who does not qualify -- as a debtor under the
various chapters of the Code. Section 109(b) expressly excludes
from the coverage of Chapter 7 railroads and various financial and
insurance institutions. Only municipalities are eligible for the
protection of Chapter 9. § 109(c). Most significantly, § 109(d)
makes stockbrokers and commodities brokers ineligible for Chapter
11 relief, but otherwise leaves that Chapter available to any other
entity eligible for the protection of Chapter 7. Congress knew how
to restrict recourse to the avenues of bankruptcy relief; it did
not place Chapter 11 reorganization beyond the reach of a
nonbusiness individual debtor.
B
The
Amicus Curiae in support of the Court of Appeals'
judgment acknowledges that Chapter 11 does not expressly exclude an
individual nonbusiness debtor from its reach. He echoes the
reasoning of those courts that have engrafted an ongoing business
requirement onto the plain language of § 109(a), and argues that
the statute's legislative history and structure make clear that
Chapter 11 was intended for business debtors alone.
See, e.g.,
Wamsganz v. Boatmen's Bank of De Soto, 804 F.2d at 505 ("The
legislative history of the Bankruptcy Code, taken as a whole, shows
that Congress meant for chapter 11 to be available to businesses
and persons engaged in business, and not to consumer debtors"). We
find these arguments unpersuasive for several reasons.
Page 501 U. S. 162
First, this Court has repeated with some frequency:
"Where, as here, the resolution of a question of federal law
turns on a statute and the intention of Congress, we look first to
the statutory language and then to the legislative history if the
statutory language is unclear."
Blum v. Stenson, 465 U. S. 886,
465 U. S. 896
(1984). The language of § 109 is not unclear. Thus, although a
court appropriately may refer to a statute's legislative history to
resolve statutory ambiguity, there is no need to do so here.
Second, even were we to consider the sundry legislative comments
urged in support of a congressional intent to exclude a nonbusiness
debtor from Chapter 11, the scant history on this precise issue
does not suggest a "clearly expressed legislative inten[t] . . .
contrary . . ." to the plain language of § 109(d).
See Consumer
Product Safety Comm'n v. GTE Sylvania, Inc., 447 U.
S. 102,
447 U. S. 108
(1980). The
Amicus does point to the following statement
in a House report:
"Some consumer debtors are unable to avail themselves of the
relief provided under chapter 13. For these debtors, straight
bankruptcy is the only remedy that will enable them to get out from
under the debilitating effects of too much debt."
H.R.Rep. No. 95-595, p. 125, U.S.Code Cong. & Admin.News
1978, p. 5787 (1977). Petitioner responds with the following
excerpt from a later Senate report:
"Chapter 11, Reorganization, is primarily designed for
businesses, although individuals are eligible for relief under the
chapter. The procedures of chapter 11, however, are sufficiently
complex that they will be used only in a business case, and not in
the consumer context."
S.Rep. No. 95-989, p. 3 (1978), U.S.Code Cong. & Admin.News
1978, p. 5789 (1978). These apparently conflicting views tend to
negate the suggestion that the Congress enacting the current Code
operated with a clear intent to deny Chapter 11 relief to an
individual nonbusiness debtor.
Page 501 U. S. 163
Finally, we are not persuaded by the contention that Chapter 11
is unavailable to a debtor without an ongoing business because many
of the Chapter's provisions do not apply to a nonbusiness debtor.
There is no doubt that Congress intended that a business debtor be
among those who might use Chapter 11. Code provisions like the ones
authorizing the appointment of an equity security holders'
committee, § 1102, and the appointment of a trustee "for cause,
including fraud, dishonesty, incompetence, or gross mismanagement
of the affairs of the debtor by current management . . . ," §
1104(a)(1), certainly are designed to aid in the rehabilitation of
a business. It does not follow, however, that a debtor whose
affairs do not warrant recourse to these provisions is ineligible
for Chapter 11 relief. Instead, these provisions -- like the
references to debtor businesses in the Chapter's legislative
history -- reflect an understandable expectation that Chapter 11
would be used primarily by debtors with ongoing businesses; they do
not constitute an additional prerequisite for Chapter 11
eligibility beyond those established in § 109(d).
III
Although the foregoing analysis is dispositive of the question
presented, we deal briefly with
Amicus' contention that
policy considerations underlying the Code support inferring a
congressional intent to preclude a nonbusiness debtor from
reorganizing under Chapter 11. First, it is said that bringing a
consumer debtor within the scope of Chapter 11 does not serve
Congress' purpose of permitting business debtors to reorganize and
restructure their debts in order to revive the debtors' businesses
and thereby preserve jobs and protect investors. This argument
assumes that Congress had a single purpose in enacting Chapter 11.
Petitioner suggests, however, and we agree, that Chapter 11 also
embodies the general Code policy of maximizing the value of the
bankruptcy estate.
See Commodity Futures Trading Comm'n v.
Weintraub, 471 U. S. 343,
471 U. S.
351-354 (1985). Under certain
Page 501 U. S. 164
circumstances, a consumer debtor's estate will be worth more if
reorganized under Chapter 11 than if liquidated under Chapter 7.
Allowing such a debtor to proceed under Chapter 11 serves the
congressional purpose of deriving as much value as possible from
the debtor's estate.
Second,
Amicus notes that allowing a consumer debtor to
proceed under Chapter 11 would permit the debtor to shield both
disposable income and nonexempt personal property. He argues that
the legislative history of Chapter 11 does not reflect an intent to
offer a consumer debtor more expansive protection than he would
find under Chapter 13, which does not protect disposable income, or
Chapter 7, which does not protect nonexempt personal assets. As an
initial matter, it makes no difference whether the legislative
history affirmatively reflects such an intent, because the plain
language of the statute allows a consumer debtor to proceed under
Chapter 11. Moreover, differences in the requirements and
protections of each Chapter reflect Congress' appreciation that
various approaches are necessary to address effectively the
disparate situations of debtors seeking protection under the
Code.
Amicus does not contend that allowing a consumer debtor
to reorganize under Chapter 11 will leave the debtor's creditors in
a worse position than if the debtor were required to liquidate.
See Tr. of Oral Arg. 29-31. Nor could he. Section
1129(a)(7) provides that a reorganization plan may not be confirmed
unless all the debtor's creditors accept the plan or will receive
not less than they would receive under a Chapter 7 liquidation.
Because creditors cannot be expected to approve a plan in which
they would receive less than they would from an immediate
liquidation of the debtor's assets, it follows that a Chapter 11
reorganization plan usually will be confirmed only when creditors
will receive at least as much as if the debtor were to file under
Chapter 7. Absent some showing of harm to the creditors of a
nonbusiness debtor allowed to reorganize under Chapter 11, we see
nothing in the
Page 501 U. S. 165
allocation of "burdens" and "benefits" of Chapter 11 that
warrants an inference that Congress intended to exclude a consumer
debtor from its coverage.
See Herbert, Consumer Chapter 11
Proceedings: Abuse or Alternative?, 91 Com.L.J. 234, 245-248
(1986).
Amicus also warns that allowing consumer debtors to
proceed under Chapter 11 will flood the bankruptcy courts with
plans of reorganization that ultimately will prove unworkable. We
think this fear is unfounded for two reasons. First, the greater
expense and complexity of filing under Chapter 11 likely will
dissuade most consumer debtors from seeking relief under this
Chapter.
See S.Rep. No. 95-989, at 3;
see also
Herbert,
supra, at 242-243. Second, the Code gives
bankruptcy courts substantial discretion to dismiss a Chapter 11
case in which the debtor files an untenable plan of reorganization.
See §§ 1112(b) and 1129(a).
Finally,
Amicus asserts that extending Chapter 11 to
consumer debtors creates the risk that these debtors will be forced
into Chapter 11 by their creditors under § 303(a), a result
contrary to the intent reflected in Congress' decision to prevent
involuntary bankruptcy proceedings under Chapter 13. In particular,
he suggests that it would be unwise to force a debtor into a
Chapter 11 reorganization, because an involuntary debtor would be
unlikely to cooperate in the plan of reorganization -- a point that
Congress noted in refusing to allow involuntary Chapter 13
proceedings.
See H.R.Rep. No. 95-595, at 120.
We find these concerns overstated in light of the Code's
provisions for dealing with recalcitrant Chapter 11 debtors. If an
involuntary Chapter 11 debtor fails to cooperate, this likely will
provide the requisite "cause" for the bankruptcy court to convert
the Chapter 11 case to one under Chapter 7.
See § 1112(b).
In any event, the argument overlooks Congress' primary concern
about a debtor's being forced into bankruptcy under Chapter 13:
that such a debtor, whose future wages are not exempt from the
bankruptcy estate,
Page 501 U. S. 166
§ 1322(a)(1), would be compelled to toil for the benefit of
creditors in violation of the Thirteenth Amendment's involuntary
servitude prohibition.
See H.R.Rep. No. 95-595, at 120.
Because there is no comparable provision in Chapter 11 requiring a
debtor to pay future wages to a creditor, Congress' concern about
imposing involuntary servitude on a Chapter 13 debtor is not
relevant to a Chapter 11 reorganization.
IV
The plain language of the Bankruptcy Code permits individual
debtors not engaged in business to file for relief under Chapter
11. Although the structure and legislative history of Chapter 11
indicate that this Chapter was intended primarily for the use of
business debtors, the Code contains no "ongoing business"
requirement for Chapter 11 reorganization, and we find no basis for
imposing one. Accordingly, the judgment of the Court of Appeals is
reversed.
It is so ordered.
[
Footnote 1]
Because petitioner's unsecured debts exceeded $100,000 and he
had no regular income, he was ineligible to proceed under Chapter
13 of the Code, 11 U.S.C. § 1301
et seq. See §
109(e).
[
Footnote 2]
Petitioner does not seek further review of the question whether
he is engaged in an ongoing business.
[
Footnote 3]
The Eighth Circuit also agreed with what it regarded as the
supporting precedent of
In re Little Creek Development
Co., 779 F.2d 1068 (CA5 1986), and
In re Winshall
Settlor's Trust, 758 F.2d 1136 (CA6 1985).
[
Footnote 4]
The named respondent, Stuart J. Radloff, was dismissed as
Chapter 7 Trustee when the Bankruptcy Court converted petitioner's
case to one under Chapter 11. Mr. Radloff did not participate in
the proceedings before the Court of Appeals, and refrained from
responding to Mr. Toibb's petition for certiorari filed with this
Court. We therefore specifically requested the United States
Trustee,
see 28 U.S.C. § 581(a)(13), to respond. In doing
so, the United States Trustee indicated his agreement with
petitioner's position, and suggested that, if this Court decided to
review the case, it might wish to appoint counsel to defend the
Eighth Circuit's judgment. We then invited James Hamilton, Esq., of
Washington, D.C. a member of the Bar of this Court, to serve as
amicus curiae in support of the judgment of the Court of
Appeals. 498 U.S. 1065 (1991). Mr. Hamilton accepted this
appointment, and has well fulfilled this assigned
responsibility.
JUSTICE STEVENS, dissenting.
The Court's reading of the statute is plausible. It is supported
by the omission of any prohibition against the use of Chapter 11 by
consumer debtors and by the excerpt from the introduction to the
Senate Report quoted
ante at
501 U. S. 162.
Nevertheless, I am persuaded that the Court's reading is incorrect.
Two chapters of the Bankruptcy Code -- Chapter 7, entitled
"Liquidation," 11 U.S.C. § 701
et seq., and Chapter 13,
entitled "Adjustment of Debts of an Individual With Regular
Income," § 1301
et seq. -- unquestionably and
unambiguously authorize relief for individual consumer debtors.
Chapter 11, entitled "Reorganization," § 1101
et seq., was
primarily designed to provide relief for corporate debtors, but
also unquestionably authorizes relief for individual proprietors of
business enterprises. When the statute is read as a whole, however,
it seems quite clear that Congress did not
Page 501 U. S. 167
intend to authorize a "reorganization" of the affairs of an
individual consumer debtor.
Section 109(d) places a limit on the class of persons who may be
a debtor under Chapter 11, but it does not state that all members
of that class are eligible for Chapter 11 relief. [
Footnote 2/1] It states that "
only a
person that may a debtor under Chapter 7 . . . may be a debtor
under Chapter 11. . . ." (Emphasis added.) It does not, however,
state that
every person entitled to relief under Chapter 7
is also entitled to relief under Chapter 11. In my judgment, the
word "only" introduces sufficient ambiguity to justify a careful
examination of other provisions of the Act, as well as the
legislative history.
This examination convinces me that consumer debtors may not
avail themselves of Chapter 11. The repeated references to the
debtor's "business," [
Footnote 2/2]
"the operation of the debtor's business," [
Footnote 2/3] and the "current or former management of
the debtor" [
Footnote 2/4] make it
abundantly clear that the principal focus of the chapter is upon
business reorganizations. This conclusion is confirmed by the
discussion of Chapter 11 in the Senate Report, which describes the
provision as a "chapter for business reorganization," and
repeatedly refers to a "business" as the subject of Chapter 11
relief. [
Footnote 2/5]
See
also 124
Page 501 U. S. 168
Cong.Rec. 34007 (1978) (Chapter 11 is a "consolidated approach
to business rehabilitation") (statement of Sen. DeConcini)
The House Report however, is more significant, because it
emphasizes the relationship between different chapters of the Code.
The Report unambiguously states that a Chapter 7 liquidation is
"the only remedy" for "consumer debtors [who] are unable to avail
themselves of the relief provided under chapter 13." H.R.Rep. No.
95-595, p. 125 (1977).
See also 124 Cong.Rec. at 32392,
32405 (Chapter 11 is "a consolidated approach to business
rehabilitation" and a "new commercial reorganization chapter")
(statement of Rep. Edwards). The accuracy of the statement in the
House Report
Page 501 U. S. 169
is confirmed by a comparison of the text of Chapter 11 with the
text of Chapter 13.
Above, I noted the striking difference between the chapter
titles -- "Reorganization" for Chapter 11, as opposed to
"Adjustment of Debts of an Individual With Regular Income" for
Chapter 13. Also significant is the conspicuous omission from
Chapter 11 of both an important limit and an important protection
included in Chapter 13. Chapter 13 relief is only available to
individuals whose unsecured debts amount to less than $100,000 and
whose secured debts are less than $350,000.
See 11 U.S.C.
§ 109(e). Chapter 11 contains no comparable limit. Congress would
have accomplished little in imposing this limit on the adjustment
of individual consumer debt through Chapter 13 if Congress at the
same time allowed the individual to avoid the limitation by filing
under Chapter 11. [
Footnote
2/6]
More important, the Code expressly provides that involuntary
proceedings can only be instituted under Chapter 7 and Chapter 11.
See 11 U.S.C. § 303(a). A creditor therefore may not force
an individual consumer debtor into an involuntary Chapter 13
proceeding. Under the Court's reading of the Act, however, a
creditor could institute an involuntary proceeding under Chapter 11
against any individual with regular income. It seems highly
unlikely that Congress intended to subject individual consumer
debtors, such as pensioners, to involuntary Chapter 11 proceedings
while at the same time prohibiting involuntary Chapter 13
proceedings against the same class of debtors
Page 501 U. S. 170
For these reasons, notwithstanding the excerpt from the Senate
Report on which the Court relies, I would, in accordance with the
clear statement in the House Report, read the statute as a whole to
limit Chapter 11 relief to business debtors. I therefore
respectfully dissent.
[
Footnote 2/1]
Section 109(d) provides:
"
Only a person that may be a debtor under chapter 7 of
this title, except a stockholder or a commodity broker, and a
railroad may be a debtor under Chapter 11 of this title."
11 U.S.C. § 109(d) (emphasis added).
[
Footnote 2/2]
See e.g, §§ 1101(2)(B), 1108.
[
Footnote 2/3]
See e.g., §§ 1103(c)(2), 1105, 1106(a)(3).
[
Footnote 2/4]
See § 1104(b).
[
Footnote 2/5]
The Senate Report contains the following explanation of Chapter
11 reorganizations:
"Chapter 11 deals with the reorganization of a financially
distressed business enterprise, providing for its rehabilitation by
adjustment of its debt obligations and equity interests. It should
be distinguished from the bankruptcy liquidation under chapter 7 or
the adjustment of the debts of an individual with regular income
under chapter 13."
"Chapter 11 replaces chapters X, XI and XII of the Bankruptcy
Act, Chapter 11 also includes special provisions for railroads in
view of the impact of regulatory laws on railroad debtors, and
replaces section 77 of the Bankruptcy Act. A single chapter for all
business reorganizations will simplify the law by eliminating
unnecessary differences in detail that are inevitable under
separately administered statutes."
"Business reorganizations have been governed principally by
chapters X and XI, both of which have been adopted by the Congress
as part of the bankruptcy reforms in 1938. These chapters were not
intended to be alternate paths of reorganization; they were to be
mutually exclusive. Chapter X was meant for the reorganization of
public companies and chapter XI for the rehabilitation of small and
privately owned businesses."
"That schematic design was well conceived, but flawed somewhat
by the failure to include a definition of a 'public company.' As a
result, considerable litigation developed, mostly on the initiative
of the Securities and Exchange Commission, over whether a case
belonged in chapter X or chapter XI. This issue came to the Supreme
Court in three cases, the last one in
SEC v. American Trailer
Rentals, Inc., 379 U. S. 594 (1965), but the
Court did not enunciate a hard-and-fast rule for all cases.
Although it announced some guidelines, management and creditors of
large public companies have continued to resort to chapter XI."
"The single chapter for business reorganization, which the bill
provides, will eliminate unprofitable litigation over the
preliminary issue as to which of the two chapters apply. . ."
"Reorganization, in its fundamental aspects, involves the
thankless task of determining who should share the losses incurred
by an unsuccessful business and how the values of the estate should
be apportioned among creditors and stockholders."
S.Rep. No. 95-989, pp. 9-10 (1978).
[
Footnote 2/6]
Although the Court believes that permitting consumer debtors to
avail themselves of Chapter 11 will not adversely affect their
creditors,
ante at
501 U. S.
164-165, I am not so sure. It takes time and money to
determine whether a plan will provide creditors with benefits equal
to those available through liquidation, and still more time and
money to find out whether such a predictive decision turns out to
be correct or incorrect. The "complex" Chapter 11 process,
see S.Rep. No. 95-989, p. 3 (1978), will almost certainly
consume more time and resources than the simpler Chapter 7
procedures.