11 U.S.C. § 502 — Allowance of claims or interests

Page 104 TITLE 11—BANKRUPTCY § 502 by section 1001(d)(3)(A) is effective on the date that is 1 year after Dec. 27, 2020. EFFECTIVE DATE OF 2005 AMENDMENT 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. EFFECTIVE DATE OF 1984 AMENDMENT 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. CHILD SUPPORT CREDITORS OR THEIR REPRESENTATIVES; APPEARANCE BEFORE COURT Pub. L. 103–394, title III, § 304(g), Oct. 22, 1994, 108 Stat. 4134, provided that: ‘‘Child support creditors or their representatives shall be permitted to appear and inter- vene without charge, and without meeting any special local court rule requirement for attorney appearances, in any bankruptcy case or proceeding in any bank- ruptcy court or district court of the United States if such creditors or representatives file a form in such court that contains information detailing the child support debt, its status, and other characteristics.’’ § 502. Allowance of claims or interests (a) A claim or interest, proof of which is filed under section 501 of this title, is deemed al- lowed, unless a party in interest, including a creditor of a general partner in a partnership that is a debtor in a case under chapter 7 of this title, objects. (b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) of this section, if such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that— (1) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured; (2) such claim is for unmatured interest; (3) if such claim is for a tax assessed against property of the estate, such claim exceeds the value of the interest of the estate in such property; (4) if such claim is for services of an insider or attorney of the debtor, such claim exceeds the reasonable value of such services; (5) such claim is for a debt that is unmatured on the date of the filing of the pe- tition and that is excepted from discharge under section 523(a)(5) of this title; (6) if such claim is the claim of a lessor for damages resulting from the termination of a lease of real property, such claim exceeds— (A) the rent reserved by such lease, with- out acceleration, for the greater of one year, or 15 percent, not to exceed three years, of the remaining term of such lease, following the earlier of— (i) the date of the filing of the petition; and (ii) the date on which such lessor repos- sessed, or the lessee surrendered, the leased property; plus (B) any unpaid rent due under such lease, without acceleration, on the earlier of such dates; (7) if such claim is the claim of an employee for damages resulting from the termination of an employment contract, such claim exceeds— (A) the compensation provided by such contract, without acceleration, for one year following the earlier of— (i) the date of the filing of the petition; or (ii) the date on which the employer di- rected the employee to terminate, or such employee terminated, performance under such contract; plus (B) any unpaid compensation due under such contract, without acceleration, on the earlier of such dates; (8) such claim results from a reduction, due to late payment, in the amount of an other- wise applicable credit available to the debtor in connection with an employment tax on wages, salaries, or commissions earned from the debtor; or (9) proof of such claim is not timely filed, ex- cept to the extent tardily filed as permitted under paragraph (1), (2), or (3) of section 726(a) or under the Federal Rules of Bankruptcy Pro- cedure, except that— (A) a claim of a governmental unit shall be timely filed if it is filed before 180 days after the date of the order for relief or such later time as the Federal Rules of Bankruptcy Procedure may provide; and (B) in a case under chapter 13, a claim of a governmental unit for a tax with respect to a return filed under section 1308 shall be timely if the claim is filed on or before the date that is 60 days after the date on which such return was filed as required. (c) There shall be estimated for purpose of al- lowance under this section— (1) any contingent or unliquidated claim, the fixing or liquidation of which, as the case may be, would unduly delay the administration of the case; or (2) any right to payment arising from a right to an equitable remedy for breach of perform- ance. (d) Notwithstanding subsections (a) and (b) of this section, the court shall disallow any claim of any entity from which property is recoverable under section 542, 543, 550, or 553 of this title or that is a transferee of a transfer avoidable under section 522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) of this title, unless such entity or trans- feree has paid the amount, or turned over any such property, for which such entity or trans- feree is liable under section 522(i), 542, 543, 550, or 553 of this title. (e)(1) Notwithstanding subsections (a), (b), and (c) of this section and paragraph (2) of this sub- section, the court shall disallow any claim for reimbursement or contribution of an entity that is liable with the debtor on or has secured the claim of a creditor, to the extent that— (A) such creditor’s claim against the estate is disallowed; (B) such claim for reimbursement or con- tribution is contingent as of the time of allow- Page 105 TITLE 11—BANKRUPTCY § 502 ance or disallowance of such claim for reim- bursement or contribution; or (C) such entity asserts a right of subrogation to the rights of such creditor under section 509 of this title. (2) A claim for reimbursement or contribution of such an entity that becomes fixed after the commencement of the case shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section, or disallowed under sub- section (d) of this section, the same as if such claim had become fixed before the date of the filing of the petition. (f) In an involuntary case, a claim arising in the ordinary course of the debtor’s business or financial affairs after the commencement of the case but before the earlier of the appointment of a trustee and the order for relief shall be deter- mined as of the date such claim arises, and shall be allowed under subsection (a), (b), or (c) of this section or disallowed under subsection (d) or (e) of this section, the same as if such claim had arisen before the date of the filing of the peti- tion. (g)(1) A claim arising from the rejection, under section 365 of this title or under a plan under chapter 9, 11, 12, or 13 of this title, of an execu- tory contract or unexpired lease of the debtor that has not been assumed shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section or disallowed under subsection (d) or (e) of this section, the same as if such claim had arisen before the date of the filing of the petition. (2) A claim for damages calculated in accord- ance with section 562 shall be allowed under sub- section (a), (b), or (c), or disallowed under sub- section (d) or (e), as if such claim had arisen be- fore the date of the filing of the petition. (h) A claim arising from the recovery of prop- erty under section 522, 550, or 553 of this title shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section, or dis- allowed under subsection (d) or (e) of this sec- tion, the same as if such claim had arisen before the date of the filing of the petition. (i) A claim that does not arise until after the commencement of the case for a tax entitled to priority under section 507(a)(8) of this title shall be determined, and shall be allowed under sub- section (a), (b), or (c) of this section, or dis- allowed under subsection (d) or (e) of this sec- tion, the same as if such claim had arisen before the date of the filing of the petition. (j) A claim that has been allowed or disallowed may be reconsidered for cause. A reconsidered claim may be allowed or disallowed according to the equities of the case. Reconsideration of a claim under this subsection does not affect the validity of any payment or transfer from the es- tate made to a holder of an allowed claim on ac- count of such allowed claim that is not reconsid- ered, but if a reconsidered claim is allowed and is of the same class as such holder’s claim, such holder may not receive any additional payment or transfer from the estate on account of such holder’s allowed claim until the holder of such reconsidered and allowed claim receives pay- ment on account of such claim proportionate in value to that already received by such other holder. This subsection does not alter or modify the trustee’s right to recover from a creditor any excess payment or transfer made to such creditor. (k)(1) The court, on the motion of the debtor and after a hearing, may reduce a claim filed under this section based in whole on an unse- cured consumer debt by not more than 20 per- cent of the claim, if— (A) the claim was filed by a creditor who un- reasonably refused to negotiate a reasonable alternative repayment schedule proposed on behalf of the debtor by an approved nonprofit budget and credit counseling agency described in section 111; (B) the offer of the debtor under subpara- graph (A)— (i) was made at least 60 days before the date of the filing of the petition; and (ii) provided for payment of at least 60 per- cent of the amount of the debt over a period not to exceed the repayment period of the loan, or a reasonable extension thereof; and (C) no part of the debt under the alternative repayment schedule is nondischargeable. (2) The debtor shall have the burden of prov- ing, by clear and convincing evidence, that— (A) the creditor unreasonably refused to con- sider the debtor’s proposal; and (B) the proposed alternative repayment schedule was made prior to expiration of the 60-day period specified in paragraph (1)(B)(i). (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2579; Pub. L. 98–353, title III, § 445, July 10, 1984, 98 Stat. 373; Pub. L. 99–554, title II, §§ 257(j), 283(f), Oct. 27, 1986, 100 Stat. 3115, 3117; Pub. L. 103–394, title II, § 213(a), title III, § 304(h)(1), Oct. 22, 1994, 108 Stat. 4125, 4134; Pub. L. 109–8, title II, § 201(a), title VII, § 716(d), title IX, § 910(b), Apr. 20, 2005, 119 Stat. 42, 130, 184; Pub. L. 116–260, div. FF, title X, § 1001(d)(2), (3)(B), Dec. 27, 2020, 134 Stat. 3218.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS The House amendment adopts a compromise position in section 502(a) between H.R. 8200, as passed by the House, and the Senate amendment. Section 502(a) has been modified to make clear that a party in interest in- cludes a creditor of a partner in a partnership that is a debtor under chapter 7. Since the trustee of the part- nership is given an absolute claim against the estate of each general partner under section 723(c), creditors of the partner must have standing to object to claims against the partnership at the partnership level be- cause no opportunity will be afforded at the partner’s level for such objection. The House amendment contains a provision in sec- tion 502(b)(1) that requires disallowance of a claim to the extent that such claim is unenforceable against the debtor and unenforceable against property of the debt- or. This is intended to result in the disallowance of any claim for deficiency by an undersecured creditor on a non-recourse loan or under a State antideficiency law, special provision for which is made in section 1111, since neither the debtor personally, nor the property of the debtor is liable for such a deficiency. Similarly claims for usurious interest or which could be barred by an agreement between the creditor and the debtor would be disallowed. Section 502(b)(7)(A) represents a compromise between the House bill and the Senate amendment. The House amendment takes the provision in H.R. 8200 as passed by the House of Representatives but increases the per- centage from 10 to 15 percent. Page 106 TITLE 11—BANKRUPTCY § 502 As used in section 502(b)(7), the phrase ‘‘lease of real property’’ applies only to a ‘‘true’’ or ‘‘bona fide’’ lease and does not apply to financing leases of real property or interests therein, or to leases of such property which are intended as security. Historically, the limitation on allowable claims of lessors of real property was based on two consider- ations. First, the amount of the lessor’s damages on breach of a real estate lease was considered contingent and difficult to prove. Partly for this reason, claims of a lessor of real estate were not provable prior to the 1934 amendments, to the Bankruptcy Act [former title 11]. Second, in a true lease of real property, the lessor retains all risks and benefits as to the value of the real estate at the termination of the lease. Historically, it was, therefore, considered equitable to limit the claims of real estate lessor. However, these considerations are not present in ‘‘lease financing’’ transactions where, in substance, the ‘‘lease’’ involves a sale of the real estate and the rental payments are in substance the payment of principal and interest on a secured loan or sale. In a financing lease the lessor is essentially a secured or unsecured creditor (depending upon whether his interest is per- fected or not) of the debtor, and the lessor’s claim should not be subject to the 502(b)(7) limitation. Fi- nancing ‘‘leases’’ are in substance installment sales or loans. The ‘‘lessors’’ are essentially sellers or lenders and should be treated as such for purposes of the bank- ruptcy law. Whether a ‘‘lease’’ is true or bona fide lease or, in the alternative a financing ‘‘lease’’ or a lease intended as security, depends upon the circumstances of each case. The distinction between a true lease and a financing transaction is based upon the economic substance of the transaction and not, for example, upon the locus of title, the form of the transaction or the fact that the transaction is denominated as a ‘‘lease.’’ The fact that the lessee, upon compliance with the terms of the lease, becomes or has the option to become the owner of the leased property for no additional consideration or for nominal consideration indicates that the transaction is a financing lease or lease intended as security. In such cases, the lessor has no substantial interest in the leased property at the expiration of the lease term. In addition, the fact that the lessee assumes and dis- charges substantially all the risks and obligations ordi- narily attributed to the outright ownership of the prop- erty is more indicative of a financing transaction than of a true lease. The rental payments in such cases are in substance payments of principal and interest either on a loan secured by the leased real property or on the purchase of the leased real property. See, e.g., Finan- cial Accounting Standards Board Statement No. 13 and SEC Reg. S–X, 17 C.F.R. sec. 210.3–16(q) (1977); cf. First National Bank of Chicago v. Irving Trust Co., 74 F.2d 263 (2nd Cir. 1934); and Albenda and Lief, ‘‘Net Lease Fi- nancing Transactions Under the Proposed Bankruptcy Act of 1973,’’ 30 Business Lawyer, 713 (1975). Section 502(c) of the House amendment presents a compromise between similar provisions contained in the House bill and the Senate amendment. The com- promise language is consistent with an amendment to the definition of ‘‘claim’’ in section 104(4)(B) of the House amendment and requires estimation of any right to an equitable remedy for breach of performance if such breach gives rise to a right to payment. To the ex- tent language in the House and Senate reports indicate otherwise, such language is expressly overruled. Section 502(e) of the House amendment contains lan- guage modifying a similar section in the House bill and Senate amendment. Section 502(e)(1) states the general rule requiring the court to disallow any claim for reim- bursement or contribution of an entity that is liable with the debtor on, or that has secured, the claim of a creditor to any extent that the creditor’s claim against the estate is disallowed. This adopts a policy that a surety’s claim for reimbursement or contribution is en- titled to no better status than the claim of the creditor assured by such surety. Section 502(e)(1)(B) alter- natively disallows any claim for reimbursement or con- tribution by a surety to the extent such claim is con- tingent as of the time of allowance. Section 502(e)(2) is clear that to the extent a claim for reimbursement or contribution becomes fixed after the commencement of the case that it is to be considered a prepetition claim for purposes of allowance. The combined effect of sec- tions 502(e)(1)(B) and 502(e)(2) is that a surety or co- debtor is generally permitted a claim for reimburse- ment or contribution to the extent the surety or co- debtor has paid the assured party at the time of allow- ance. Section 502(e)(1)(C) alternatively indicates that a claim for reimbursement or contribution of a surety or codebtor is disallowed to the extent the surety or co- debtor requests subrogation under section 509 with re- spect to the rights of the assured party. Thus, the sur- ety or codebtor has a choice; to the extent a claim for contribution or reimbursement would be advantageous, such as in the case where such a claim is secured, a sur- ety or codebtor may opt for reimbursement or con- tribution under section 502(e). On the other hand, to the extent the claim for such surety or codebtor by way of subrogation is more advantageous, such as where such claim is secured, the surety may elect subrogation under section 509. The section changes current law by making the elec- tion identical in all other respects. To the extent a creditor’s claim is satisfied by a surety or codebtor, other creditors should not benefit by the surety’s in- ability to file a claim against the estate merely be- cause such surety or codebtor has failed to pay such creditor’s claim in full. On the other hand, to the ex- tent the creditor’s claim against the estate is otherwise disallowed, the surety or codebtor should not be enti- tled to increased rights by way of reimbursement or contribution, to the detriment of competing claims of other unsecured creditors, than would be realized by way of subrogation. While the foregoing scheme is equitable with respect to other unsecured creditors of the debtor, it is desir- able to preserve present law to the extent that a surety or codebtor is not permitted to compete with the cred- itor he has assured until the assured party’s claim has paid in full. Accordingly, section 509(c) of the House amendment subordinates both a claim by way of sub- rogation or a claim for reimbursement or contribution of a surety or codebtor to the claim of the assured party until the assured party’s claim is paid in full. Section 502(h) of the House amendment expands simi- lar provisions contained in the House bill and the Sen- ate amendment to indicate that any claim arising from the recovery of property under section 522(i), 550, or 553 shall be determined as though it were a prepetition claim. Section 502(i) of the House amendment adopts a pro- vision contained in section 502(j) of H.R. 8200 as passed by the House but that was not contained in the Senate amendment. Section 502(i) of H.R. 8200 as passed by the House, but was not included in the Senate amendment, is deleted as a matter to be left to the bankruptcy tax bill next year. The House amendment deletes section 502(i) of the Senate bill but adopts the policy of that section to a limited extent for confirmation of a plan of reorganiza- tion in section 1111(b) of the House amendment. Section 502(j) of the House amendment is new. The provision codifies section 57k of the Bankruptcy Act [section 93(k) of former title 11]. Allowance of Claims or Interest: The House amend- ment adopts section 502(b)(9) of the House bill which disallows any tax claim resulting from a reduction of the Federal Unemployment Tax Act (FUTA) credit (sec. 3302 of the Internal Revenue Code [26 U.S.C. 3302]) on account of a tardy contribution to a State unem- ployment fund if the contribution is attributable to ways or other compensation paid by the debtor before bankruptcy. The Senate amendment allowed this re- duction, but would have subordinated it to other claims in the distribution of the estate’s assets by treating it Page 107 TITLE 11—BANKRUPTCY § 502 as a punitive (nonpecuniary loss) penalty. The House amendment would also not bar reduction of the FUTA credit on account of a trustee’s late payment of a con- tribution to a State unemployment fund if the con- tribution was attributable to a trustee’s payment of compensation earned from the estate. Section 511 of the Senate amendment is deleted. Its substance is adopted in section 502(b)(9) of the House amendment which reflects an identical provision con- tained in H.R. 8200 as passed by the House. SENATE REPORT NO. 95–989 A proof of claim or interest is prima facie evidence of the claim or interest. Thus, it is allowed under sub- section (a) unless a party in interest objects. The rules and case law will determine who is a party in interest for purposes of objection to allowance. The case law is well developed on this subject today. As a result of the change in the liability of a general partner’s estate for the debts of this partnership, see proposed 11 U.S.C. 723, the category of persons that are parties in interest in the partnership case will be expanded to include a cred- itor of a partner against whose estate the trustee of the partnership estate may proceed under proposed 11 U.S.C. 723(c). Subsection (b) prescribes the grounds on which a claim may be disallowed. The court will apply these standards if there is an objection to a proof of claim. The burden of proof on the issue of allowance is left to the Rules of Bankruptcy Procedure. Under the current chapter XIII rules, a creditor is required to prove that his claim is free from usury, rule 13–301. It is expected that the rules will make similar provision for both liq- uidation and individual repayment plan cases. See Bankruptcy Act § 656(b) [section 1056(b) of former title 11]; H.R. 31, 94th Cong., 1st sess., sec. 6–104(a) (1975). Paragraph (1) requires disallowance if the claim is unenforceable against the debtor for any reason (such as usury, unconscionability, or failure of consideration) other than because it is contingent or unmatured. All such contingent or unmatured claims are to be liq- uidated by the bankruptcy court in order to afford the debtor complete bankruptcy relief; these claims are generally not provable under present law. Paragraph (2) requires disallowance to the extent that the claim is for unmatured interest as of the date of the petition. Whether interest is matured or unmatured on the date of bankruptcy is to be deter- mined without reference to any ipso facto or bank- ruptcy clause in the agreement creating the claim. In- terest disallowed under this paragraph includes postpetition interest that is not yet due and payable, and any portion of prepaid interest that represents an original discounting of the claim, yet that would not have been earned on the date of bankruptcy. For exam- ple, a claim on a $1,000 note issued the day before bank- ruptcy would only be allowed to the extent of the cash actually advanced. If the original discount was 10 per- cent so that the cash advanced was only $900, then not- withstanding the face amount of note, only $900 would be allowed. If $900 was advanced under the note some time before bankruptcy, the interest component of the note would have to be prorated and disallowed to the extent it was for interest after the commencement of the case. Section 502(b) thus contains two principles of present law. First, interest stops accruing at the date of the fil- ing of the petition, because any claim for unmatured interest is disallowed under this paragraph. Second, bankruptcy operates as the acceleration of the prin- cipal amount of all claims against the debtor. One unarticulated reason for this is that the discounting factor for claims after the commencement of the case is equivalent to contractual interest rate on the claim. Thus, this paragraph does not cause disallowance of claims that have not been discounted to a present value because of the irrebuttable presumption that the dis- counting rate and the contractual interest rate (even a zero interest rate) are equivalent. Paragraph (3) requires disallowance of a claim to the extent that the creditor may offset the claim against a debt owing to the debtor. This will prevent double re- covery, and permit the claim to be filed only for the balance due. This follows section 68 of the Bankruptcy Act [section 108 of former title 11]. Paragraph (4) requires disallowance of a property tax claim to the extent that the tax due exceeds the value of the property. This too follows current law to the ex- tent the property tax is ad valorem. Paragraph (5) prevents overreaching by the debtor’s attorneys and concealing of assets by debtors. It per- mits the court to examine the claim of a debtor’s attor- ney independently of any other provision of this sub- section, and to disallow it to the extent that it exceeds the reasonable value of the attorneys’ services. Postpetition alimony, maintenance or support claims are disallowed under paragraph (6). They are to be paid from the debtor’s postpetition property, because the claims are nondischargeable. Paragraph (7), derived from current law, limits the damages allowable to a landlord of the debtor. The his- tory of this provision is set out at length in Oldden v. Tonto Realty Co., 143 F.2d 916 (2d Cir. 1944). It is designed to compensate the landlord for his loss while not per- mitting a claim so large (based on a long-term lease) as to prevent other general unsecured creditors from re- covering a dividend from the estate. The damages a landlord may assert from termination of a lease are limited to the rent reserved for the greater of one year or ten percent of the remaining lease term, not to ex- ceed three years, after the earlier of the date of the fil- ing of the petition and the date of surrender or repos- session in a chapter 7 case and 3 years lease payments in a chapter 9, 11, or 13 case. The sliding scale formula for chapter 7 cases is new and designed to protect the long-term lessor. This subsection does not apply to limit administrative expense claims for use of the leased premises to which the landlord is otherwise enti- tled. This paragraph will not overrule Oldden, or the prop- osition for which it has been read to stand: To the ex- tent that a landlord has a security deposit in excess of the amount of his claim allowed under this paragraph, the excess comes into the estate. Moreover, his allowed claim is for his total damages, as limited by this para- graph. By virtue of proposed 11 U.S.C. 506(a) and 506(d), the claim will be divided into a secured portion and an unsecured portion in those cases in which the deposit that the landlord holds is less than his damages. As under Oldden, he will not be permitted to offset his ac- tual damages against his security deposit and then claim for the balance under this paragraph. Rather, his security deposit will be applied in satisfaction of the claim that is allowed under this paragraph. As used in section 502(b)(7), the phrase ‘‘lease of real property’’ applies only to a ‘‘true’’ or ‘‘bona fide’’ lease and does not apply to financing leases of real property or interests therein, or to leases of such property which are intended as security. Historically, the limitation on allowable claims of lessors of real property was based on two consider- ations. First, the amount of the lessors damages on breach of a real estate lease was considered contingent and difficult to prove. Partly for this reason, claims of a lessor of real estate were not provable prior to the 1934 amendments to the Bankruptcy Act [former title 11]. Second, in a true lease of real property, the lessor retains all risk and benefits as to the value of the real estate at the termination of the lease. Historically, it was, therefore, considered equitable to limit the claims of a real estate lessor. However, these considerations are not present in ‘‘lease financing’’ transactions where, in substance, the ‘‘lease’’ involves a sale of the real estate and the rental payments are in substance the payment of principal and interest on a secured loan or sale. In a financing lease the lessor is essentially a secured or unsecured creditor (depending upon whether his interest is per- fected or not) of the debtor, and the lessor’s claim should not be subject to the 502(b)(7) limitation. Fi- nancing ‘‘leases’’ are in substance installment sales or Page 108 TITLE 11—BANKRUPTCY § 502 loans. The ‘‘lessors’’ are essentially sellers or lenders and should be treated as such for purposes of the bank- ruptcy law. Whether a ‘‘lease’’ is true or bona fide lease or, in the alternative, a financing ‘‘lease’’ or a lease intended as security, depends upon the circumstances of each case. The distinction between a true lease and a financing transaction is based upon the economic substance of the transaction and not, for example, upon the locus of title, the form of the transaction or the fact that the transaction is denominated as a ‘‘lease’’. The fact that the lessee, upon compliance with the terms of the lease, becomes or has the option to become the owner of the leased property for no additional consideration or for nominal consideration indicates that the transaction is a financing lease or lease intended as security. In such cases, the lessor has no substantial interest in the leased property at the expiration of the lease term. In addition, the fact that the lessee assumes and dis- charges substantially all the risks and obligations ordi- narily attributed to the outright ownership of the prop- erty is more indicative of a financing transaction than of a true lease. The rental payments in such cases are in substance payments of principal and interest either on a loan secured by the leased real property or on the purchase of the leased real property. See, e. g., Finan- cial Accounting Standards Board Statement No. 13 and SEC Reg. S–X, 17 C.F.R. sec. 210.3–16(q) (1977); cf. First National Bank of Chicago v. Irving Trust Co., 74 F.2d 263 (2nd Cir. 1934); and Albenda and Lief, ‘‘Net Lease Fi- nancing Transactions Under the Proposed Bankruptcy Act of 1973,’’ 30 Business Lawyer, 713 (1975). Paragraph (8) is new. It tracks the landlord limita- tion on damages provision in paragraph (7) for damages resulting from the breach by the debtor of an employ- ment contract, but limits the recovery to the com- pensation reserved under an employment contract for the year following the earlier of the date of the petition and the termination of employment. Subsection (c) requires the estimation of any claim liquidation of which would unduly delay the closing of the estate, such as a contingent claim, or any claim for which applicable law provides only an equitable rem- edy, such as specific performance. This subsection re- quires that all claims against the debtor be converted into dollar amounts. Subsection (d) is derived from present law. It requires disallowance of a claim of a transferee of a voidable transfer in toto if the transferee has not paid the amount or turned over the property received as re- quired under the sections under which the transferee’s liability arises. Subsection (e) also derived from present law, requires disallowance of the claim for reimbursement or con- tribution of a codebtor, surety or guarantor of an obli- gation of the debtor, unless the claim of the creditor on such obligation has been paid in full. The provision pre- vents competition between a creditor and his guarantor for the limited proceeds in the estate. Subsection (f) specifies that ‘‘involuntary gap’’ credi- tors receive the same treatment as prepetition credi- tors. Under the allowance provisions of this subsection, knowledge of the commencement of the case will be ir- relevant. The claim is to be allowed ‘‘the same as if such claim had arisen before the date of the filing of the petition.’’ Under voluntary petition, proposed 11 U.S.C. 303(f), creditors must be permitted to deal with the debtor and be assured that their claims will be paid. For purposes of this subsection, ‘‘creditors’’ in- clude governmental units holding claims for tax liabil- ities incurred during the period after the petition is filed and before the earlier of the order for relief or ap- pointment of a trustee. Subsection (g) gives entities injured by the rejection of an executory contract or unexpired lease, either under section 365 or under a plan or reorganization, a prepetition claim for any resulting damages, and re- quires that the injured entity be treated as a prepetition creditor with respect to that claim. Subsection (h) gives a transferee of a setoff that is re- covered by one trustee a prepetition claim for the amount recovered. Subsection (i) answers the nonrecourse loan problem and gives the creditor an unsecured claim for the dif- ference between the value of the collateral and the debt in response to the decision in Great National Life Ins. Co. v. Pine Gate Associates, Ltd., Bankruptcy Case No. B75–4345A (N.D.Ga. Sept. 16, 1977). The bill, as reported, deletes a provision in the bill as originally introduced (former sec. 502(i)) requiring a tax authority to file a proof of claim for recapture of an in- vestment credit where, during title 11 proceedings, the trustee sells or otherwise disposes of property before the title 11 case began. The tax authority should not be required to submit a formal claim for a taxable event (a sale or other disposition of the asset) of whose occur- rence the trustee necessarily knows better than the taxing authority. For procedural purposes, the recap- ture of investment credit is to be treated as an admin- istrative expense, as to which only a request for pay- ment is required. HOUSE REPORT NO. 95–595 Paragraph (9) [of subsec. (b)] requires disallowance of certain employment tax claims. These relate to a Fed- eral tax credit for State unemployment insurance taxes which is disallowed if the State tax is paid late. This paragraph disallows the Federal claim for the tax the same as if the credit had been allowed in full on the Federal return. Editorial Notes REFERENCES IN TEXT The Federal Rules of Bankruptcy Procedure, referred to in subsec. (b)(9), are set out in the Appendix to this title. AMENDMENTS 2020—Subsec. (b)(9). Pub. L. 116–260, § 1001(d)(2), amended par. (9) generally. Prior to amendment, par. (9) read as follows: ‘‘proof of such claim is not timely filed, except to the extent tardily filed as permitted under paragraph (1), (2), or (3) of section 726(a) of this title or under the Federal Rules of Bankruptcy Proce- dure, except that a claim of a governmental unit shall be timely filed if it is filed before 180 days after the date of the order for relief or such later time as the Federal Rules of Bankruptcy Procedure may provide, and except that in a case under chapter 13, a claim of a governmental unit for a tax with respect to a return filed under section 1308 shall be timely if the claim is filed on or before the date that is 60 days after the date on which such return was filed as required.’’ Subsec. (b)(9)(C). Pub. L. 116–260, § 1001(d)(3)(B), struck out subpar. (C) which read as follows: ‘‘a CARES for- bearance claim (as defined in section 501(f)(1)) shall be timely filed if the claim is filed before the date that is 120 days after the expiration of the forbearance period of a loan granted forbearance under section 4022 or 4023 of the CARES Act (15 U.S.C. 9056, 9057).’’ 2005—Subsec. (b)(9). Pub. L. 109–8, § 716(d), inserted ‘‘, and except that in a case under chapter 13, a claim of a governmental unit for a tax with respect to a re- turn filed under section 1308 shall be timely if the claim is filed on or before the date that is 60 days after the date on which such return was filed as required’’ before period at end. Subsec. (g). Pub. L. 109–8, § 910(b), designated existing provisions as par. (1) and added par. (2). Subsec. (k). Pub. L. 109–8, § 201(a), added subsec. (k). 1994—Subsec. (b)(9). Pub. L. 103–394, § 213(a), added par. (9). Subsec. (i). Pub. L. 103–394, § 304(h)(1), substituted ‘‘507(a)(8)’’ for ‘‘507(a)(7)’’. 1986—Subsec. (b)(6)(A)(ii). Pub. L. 99–554, § 283(f)(1), substituted ‘‘repossessed’’ for ‘‘reposessed’’. Subsec. (g). Pub. L. 99–554, § 257(j), inserted reference to chapter 12. Subsec. (i). Pub. L. 99–554, § 283(f)(2), substituted ‘‘507(a)(7)’’ for ‘‘507(a)(6)’’. Page 109 TITLE 11—BANKRUPTCY § 503 1984—Subsec. (a). Pub. L. 98–353, § 445(a), inserted ‘‘general’’ before ‘‘partner’’. Subsec. (b). Pub. L. 98–353, § 445(b)(1), (2), in provisions preceding par. (1), inserted ‘‘(e)(2),’’ after ‘‘subsections’’ and ‘‘in lawful currency of the United States’’ after ‘‘claim’’. Subsec. (b)(1). Pub. L. 98–353, § 445(b)(3), substituted ‘‘and’’ for ‘‘, and unenforceable against’’. Subsec. (b)(3). Pub. L. 98–353, § 445(b)(5), inserted ‘‘the’’ after ‘‘exceeds’’. Pub. L. 98–353, § 445(b)(4), struck out par. (3) ‘‘such claim may be offset under section 553 of this title against a debt owing to the debtor;’’, and redesignated par. (4) as (3). Subsec. (b)(4). Pub. L. 98–353, § 445(b)(4), redesignated par. (5) as (4). Former par. (4) redesignated (3). Subsec. (b)(5). Pub. L. 98–353, § 445(b)(6), substituted ‘‘such claim’’ for ‘‘the claim’’ and struck out the comma after ‘‘petition’’. Pub. L. 98–353, § 445(b)(4), redesignated par. (6) as (5). Former par. (5) redesignated (4). Subsec. (b)(6). Pub. L. 98–353, § 445(b)(4), redesignated par. (7) as (6). Former par. (6) redesignated (5). Subsec. (b)(7). Pub. L. 98–353, § 445(b)(7)(A), inserted ‘‘the claim of an employee’’ before ‘‘for damages’’. Pub. L. 98–353, § 445(b)(4), redesignated par. (8) as (7). Former par. (7) redesignated (6). Subsec. (b)(7)(A)(i). Pub. L. 98–353, § 445(b)(7)(B), sub- stituted ‘‘or’’ for ‘‘and’’. Subsec. (b)(7)(B). Pub. L. 98–353, § 445(b)(7)(C), (D), sub- stituted ‘‘any’’ for ‘‘the’’ and inserted a comma after ‘‘such contract’’. Subsec. (b)(8), (9). Pub. L. 98–353, § 445(b)(4), redesig- nated par. (9) as (8). Former par. (8) redesignated (7). Subsec. (c)(1). Pub. L. 98–353, § 445(c)(1), inserted ‘‘the’’ before ‘‘fixing’’ and substituted ‘‘administration’’ for ‘‘closing’’. Subsec. (c)(2). Pub. L. 98–353, § 445(c)(2), inserted ‘‘right to payment arising from a’’ after ‘‘any’’ and struck out ‘‘if such breach gives rise to a right to pay- ment’’ after ‘‘breach of performance’’. Subsec. (e)(1). Pub. L. 98–353, § 445(d)(1), (2), in provi- sions preceding subpar. (A) substituted ‘‘, (b), and (c)’’ for ‘‘and (b)’’ and substituted ‘‘or has secured’’ for ‘‘, or has secured,’’. Subsec. (e)(1)(B). Pub. L. 98–353, § 445(d)(3), inserted ‘‘or disallowance’’ after ‘‘allowance’’. Subsec. (e)(1)(C). Pub. L. 98–353, § 445(d)(4), substituted ‘‘asserts a right of subrogation to the rights of such creditor’’ for ‘‘requests subrogation’’ and struck out ‘‘to the rights of such creditor’’ after ‘‘of this title’’. Subsec. (h). Pub. L. 98–353, § 445(e), substituted ‘‘522’’ for ‘‘522(i)’’. Subsec. (j). Pub. L. 98–353, § 445(f), amended subsec. (j) generally, inserting provisions relating to reconsider- ation of a disallowed claim, and provisions relating to reconsideration of a claim under this subsection. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2020 AMENDMENT Amendment by section 1001(d)(3)(B) of Pub. L. 116–260 effective on the date that is 1 year after Dec. 27, 2020, see section 1001(d)(3) of div. FF of Pub. L. 116–260, set out as a note under section 501 of this title. EFFECTIVE DATE OF 2005 AMENDMENT 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. EFFECTIVE DATE OF 1994 AMENDMENT 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. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 257 of Pub. L. 99–554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see sec- tion 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 section 283 of Pub. L. 99–554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99–554. EFFECTIVE DATE OF 1984 AMENDMENT 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. § 503. Allowance of administrative expenses (a) An entity may timely file a request for payment of an administrative expense, or may tardily file such request if permitted by the court for cause. (b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, including— (1)(A) the actual, necessary costs and ex- penses of preserving the estate including— (i) wages, salaries, and commissions for services rendered after the commencement of the case; and (ii) wages and benefits awarded pursuant to a judicial proceeding or a proceeding of the National Labor Relations Board as back pay attributable to any period of time occur- ring after commencement of the case under this title, as a result of a violation of Fed- eral or State law by the debtor, without re- gard to the time of the occurrence of unlaw- ful conduct on which such award is based or to whether any services were rendered, if the court determines that payment of wages and benefits by reason of the operation of this clause will not substantially increase the probability of layoff or termination of cur- rent employees, or of nonpayment of domes- tic support obligations, during the case under this title; (B) any tax— (i) incurred by the estate, whether secured or unsecured, including property taxes for which liability is in rem, in personam, or both, except a tax of a kind specified in sec- tion 507(a)(8) of this title; or (ii) attributable to an excessive allowance of a tentative carryback adjustment that the estate received, whether the taxable year to which such adjustment relates ended before or after the commencement of the case; (C) any fine, penalty, or reduction in credit relating to a tax of a kind specified in sub- paragraph (B) of this paragraph; and (D) notwithstanding the requirements of subsection (a), a governmental unit shall not be required to file a request for the payment of an expense described in subparagraph (B) or (C), as a condition of its being an allowed ad- ministrative expense; (2) compensation and reimbursement award- ed under section 330(a) of this title;