S 1054

112th CONGRESS
1st Session

S. 1054

To address remedies in bankruptcy for negligent, reckless, or fraudulent assertion of claim.

IN THE SENATE OF THE UNITED STATES

May 24, 2011

Mr. LEAHY (for himself, Mr. BLUMENTHAL, and Mr. WHITEHOUSE) introduced the following bill; which was read twice and referred to the Committee on the Judiciary


A BILL

To address remedies in bankruptcy for negligent, reckless, or fraudulent assertion of claim.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the `Fighting Fraud in Bankruptcy Act of 2011'.

SEC. 2. REMEDIES FOR NEGLIGENT, RECKLESS, OR FRAUDULENT ASSERTION OF CLAIM.

    Chapter 1 of title 11, United States Code, is amended by adding at the end the following:

`Sec. 113. Remedies for negligent, reckless, or fraudulent assertion of claim

    `(a) In this section--

      `(1) a person `asserts a claim' by, without limitation, preparing, signing, filing, submitting, or later advocating a proof of claim under section 501 of this title, a motion seeking relief from the stay imposed under section 362 of this title, or other paper, representing to the court that a claim is owed or that it is owed in a specific amount;

      `(2) a person who assists another person in asserting a claim shall also be deemed to have asserted the claim, including--

        `(A) any officer, director, employee, or agent of the person asserting a claim; and

        `(B) any attorney, accountant, or other professional person who is employed by or is assisting the person asserting a claim; and

      `(3) the term `relief' means, without limitation, and in addition to any legal, equitable, monetary or injunctive relief otherwise available under any provision of this title or other provision of law, or under a court's inherent powers--

        `(A) an order or judgment imposing upon a person in one or more cases, wherever situated, in which the person has asserted a claim or claims in violation of subsection (b) a civil penalty of not more than $5,000 for each such claim;

        `(B) an order or judgment requiring a person in one or more cases, wherever situated, in which the person has asserted a claim or claims in violation of subsection (b), to pay actual damages to an injured debtor, or trustee; and

        `(C) an order or judgment imposing upon a person in one or more cases, wherever situated, in which the person has asserted, or could assert, a claim or claims in violation of subsection (b) of this section, other prospective or retrospective relief, including but not limited to declaratory relief, injunctive relief, or an auditing requirement.

    `(b) Notwithstanding any other provision of Federal or State law, and in addition to any other remedy provided under Federal or State law, if a court, on its own motion or on the motion of the United States trustee (or bankruptcy administrator, if any), finds, based upon a preponderance of the evidence, that a person has, through negligence, recklessness, or fraud, improperly asserted a claim in any case under chapter 7 or chapter 13 of this title before the court, the court may--

      `(1) enter relief against the person in the case before the court; and

      `(2) enter relief against the person in any other case under chapter 7 or chapter 13 that is pending or might thereafter be filed under this title, wherever situated, to the extent the court deems it necessary--

        `(A) to rectify the person's negligent, reckless, or fraudulent assertion of a claim; or

        `(B) to prevent the person from asserting any negligent, reckless, or fraudulent claim.

    `(c)(1) Civil penalties imposed under this section in judicial districts served by United States trustees shall be paid to the United States trustees, who shall deposit an amount equal to such fines in the United States Trustee Fund.

    `(2) Civil penalties imposed under this section in judicial districts served by bankruptcy administrators shall be deposited as offsetting receipts to the fund established under section 1931 of title 28, and shall remain available until expended to reimburse any appropriation for the amount paid out of such appropriation for expenses of the operation and maintenance of the courts of the United States.'.

SEC. 3. DUTY OF THE UNITED STATES TRUSTEE TO ADDRESS CLAIMS.

    Section 586(a) of title 28, United States Code, is amended--

      (1) in paragraph (7)(C), by striking `and' at the end;

      (2) in paragraph (8), by striking the period at the end and inserting `; and'; and

      (3) by adding at the end the following:

      `(9) when the United States trustee deems it appropriate--

        `(A) monitor and investigate the conduct of other parties in interest with respect to claims; and

        `(B) take action that the United States trustee deems necessary to prevent or remedy any negligent, reckless, or fraudulent assertion of a claim, as defined in section 113(a) of title 11, by exercising any of the United States trustee's powers and authorities under this title and under title 11 respecting claims, including--

          `(i) filing, pursuing, or commenting upon any action brought under section 113 of title 11; and

          `(ii) filing, pursuing, or commenting upon any civil action, or upon any civil proceeding arising under title 11, or arising in or related to a case under title 11.'.

SEC. 4. PROCEDURES FOR THE AUDITING OF PROOFS OF CLAIM.

    (a) Title 28- Section 586 of title 28, United States Code, is amended by adding at the end the following:

    `(g)(1) Claims Audit Procedures-

      `(A) The Director of the Executive Office for United States Trustees shall establish audit procedures to determine the accuracy, veracity, and completeness of proofs of claim filed under section 501(a) of title 11, with respect to cases filed under chapter 7 or 13 of title 11, in which the debtor is an individual.

      `(B) The procedures established pursuant to subparagraph (A) shall--

        `(i) establish a method of selecting appropriate qualified persons to contract to perform audits;

        `(ii) establish a method of selecting proofs of claim to be audited, except that the number of audits to be performed shall be within the sole discretion of the Director of the Executive Office for United States Trustees; and

        `(iii) establish procedures for providing, not less frequently than annually, public information concerning the aggregate results of such audits, including the percentage of cases, by district, in which inaccurate, untrue, or incomplete proofs of claim were filed.

    `(2) The United States trustee for each district is authorized to contract with auditors to perform audits of proofs of claim designated by the United States trustee, in accordance with the procedures established under paragraph (1). An audit may, in the discretion of the United States trustee, encompass multiple proofs of claim filed by the same entity in one case or multiple cases, whether in the same district or multiple districts. The United States trustees from multiple regions may contract with a single auditor to audit proofs of claim filed by the same entity in districts within their regions.

    `(3)(A) The report of each audit performed pursuant to paragraph (2) shall be filed with the court where the case is pending and transmitted to the United States trustee and to any trustee serving in the case. Each such report shall clearly and conspicuously specify any findings that the claim asserted in the proof of claim is--

      `(i) not valid;

      `(ii) not owed in the amount claimed; or

      `(iii) not supported by adequate documentation.

    `(B) If a claims audit report identifies deficiencies in the proof of claim as described in paragraph (2)(A), the United States trustee shall--

      `(i) if appropriate, report the deficient filing to the United States Attorney pursuant to section 3057 of title 18; and

      `(ii) if advisable, take appropriate action, including objecting to the proof of claim under section 502(b) of title 11, or commencing an action under section 113(b) of title 11, against entities responsible for the deficiencies.'.

    (b) Title 11- Section 502(b) of title 11, United States Code, is amended--

      (1) in paragraph (8), by striking `or' at the end;

      (2) in paragraph (9), by striking the period at the end and inserting `; or'; and

      (3) by adding at the end the following:

      `(10) the court finds the entity filing a proof of claim that was selected for audit under section 586(g) of title 28 failed to make available to the auditor for inspection necessary accounts, papers, documents, financial records, files, or other papers, that were requested by the auditor.'.

SEC. 5. TREATMENT OF SERVICEMEMBERS IN FORECLOSURE.

    Section 362(d) of title 11, United States Code, is amended by adding at the end of the undesignated matter following paragraph (4) the following: `In any case under this title involving a servicemember, as defined in section 101 of the Servicemembers Civil Relief Act, to whom section 303 of that Act applies, no action may be taken under this subsection unless the party in interest certifies, under penalty of perjury, that the requirements of section 303 of the Servicemembers Civil Relief Act have been met.'.

SEC. 6. EFFECTIVE DATES.

    (a) Remedies; Duty To Address Claims- The provisions of section 113 and section 362(d) of title 11, United States Code, and paragraph (9) of section 586(a) of title 28, United States Code, added by this Act, shall become effective with respect to all cases filed or pending under title 11, United States Code, on or after the date of enactment of this Act.

    (b) Auditing of Proofs of Claim- Section 586(g) of title 28, United States Code, as added by this Act, shall become effective 18 months after the date of enactment of this Act for all cases filed or pending on or after that date of enactment, except that the Director of the Executive Office for United States Trustees may, in the sole discretion of the Director, establish an earlier effective date by publishing notice in the Federal Register at least 2 weeks before the proposed effective date.

END