source: Caselaw Access Project

author: Justice Scalia

license: Public Domain

text:
    HARTFORD UNDERWRITERS INSURANCE CO. v. UNION PLANTERS BANK, N. A.
    No. 99-409.
    Argued March 20, 2000 —
    Decided May 30, 2000

      Scaua, J., delivered the opinion for a unanimous Court.

      G. Eric Brunstad, Jr., argued the cause for petitioner. With him on the briefs were Patrick J. Trostle and Wendi Alper-Pressman.

      Robert H. Brownlee argued the cause for respondent. With him on the brief was David D. Farrell.

        Mark F. Homing, Sidney P. Levinson, Craig A Berrington, and Phillip L. Schwartz filed a brief for the American Insurance Association et al. as amici curiae urging reversal.

        Carter G. Phillips and Shalom L. Kohn filed a brief for the Commercial Finance Association as amicus curiae urging affirmance.

   Justice Scalia

delivered the opinion of the Court.

In this ease, we consider whether 11U. S. C. § 506(e) allows an administrative claimant of a bankruptcy estate to seek payment of its claim from property encumbered by a secured creditor’s lien.

I

This case arises out of the bankruptcy proceedings of Hen House Interstate, Inc., which at one time owned or operated several restaurants and service stations, as well as an outdoor-advertising firm. On September 5,1991, Hen House filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Missouri. As a Chapter 11 debtor-in-possession, Hen House retained possession of its assets and continued operating its business.

Respondent had been Hen House’s primary lender. At the time the Chapter 11 petition was filed, it held a security interest in essentially all of Hen House’s real and personal property, securing an indebtedness of over $4 million. After the Chapter 11 proceedings were commenced, it agreed to lend Hen House an additional $300,000 to help finance the reorganization. The Bankruptcy Court entered a financing order approving the loan agreement and authorizing Hen House to use loan proceeds and cash collateral to pay expenses, including workers’ compensation expenses.

During the attempted reorganization, Hen House obtained workers’ compensation insurance from petitioner Hartford Underwriters (which was unaware of the bankruptcy proceedings). Although the poliey required monthly premium payments, Hen House repeatedly failed to make them; Hartford continued to provide insurance nonetheless. The reorganization ultimately failed, and on January 20, 1993, the Bankruptcy Court converted the ease to a liquidation proceeding under Chapter 7 and appointed a trustee. At the time of the conversion, Hen House owed Hartford more than $50,000 in unpaid premiums. Hartford learned of Hen House’s bankruptcy proceedings after the conversion, in March 1993.

Recognizing that the estate lacked unencumbered funds to pay the premiums, Hartford attempted to charge the premiums to respondent, the secured creditor, by filing with the Bankruptcy Court an “Application for Allowance of Administrative Expense, Pursuant to 11 U. S. C. § 503 and Charge Against Collateral, Pursuant to 11 U. S. C. § 506(e).” The Bankruptcy Court ruled in favor of Hartford, and the District Court and an Eighth Circuit panel affirmed, In re Hen House Interstate, Inc., 150 F. 3d 868 (CA8 1998). The Eighth Circuit subsequently granted en bane review, however, and reversed, concluding that § 506(c) could not be invoked by an administrative claimant. In re Hen House Interstate, Inc., 177 F. 3d 719 (1999). We granted certiorari. 528 U. S. 985 (2000).

II

Petitioner’s effort to recover the unpaid premiums involves two provisions, 11 U. S. C. §§ 503(b) and 506(c). Section 503(b) provides that “the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the ease,” are treated as administrative expenses, which are, as a rule, entitled to priority over prepetition unsecured claims, see §§ 507(a)(1), 726(a)(1), 1129(a)(9)(A). Respondent does not dispute that the cost of the workers’ compensation insurance Hen House purchased from petitioner is an administrative expense within the meaning of this provision. Administrative expenses, however, do not have priority over secured claims, see §§506, 725-726, 1129(b)(2)(A); United Sav. Assn. of Tex. v. Timbers of Inwood Forest Associates, Ltd., 484 U. S. 365, 378-379 (1988), and because respondent held a security interest in essentially all of the estate’s assets, there were no unencumbered funds available to pay even administrative claimants.

Petitioner therefore looked to § 506(e), which constitutes an important exception to the rule that secured claims are superior to administrative claims. That section provides as follows:

“The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim.” § 506(c).

Petitioner argued that this provision entitled it to recover from the property subject to respondent’s security interest the unpaid premiums owed by Hen House, since its furnishing of workers’ compensation insurance benefited respondent by allowing continued operation of Hen House’s business, thereby preserving the value of respondent’s collateral; or alternatively, that such benefit could be presumed from respondent’s consent to the postpetition financing order. Although it was contested below whether, under either theory, the workers’ compensation insurance constituted a “benefit to the holder” within the meaning of § 506(e), that issue is not before us here; we assume for purposes of this decision that it did, and consider only whether petitioner — an administrative claimant — is a proper party to seek recovery under § 506(e).

In answering this question, we begin with the understanding that Congress “says in a statute what it means and means in a statute what it says there,” Connecticut Nat. Bank v. Germain, 503 U. S. 249, 254 (1992). As we have previously noted in construing another provision of §506, when “the statute’s language is plain, ‘the sole function of the courts’ ” — at least where the disposition required by the text is not absurd — “‘is to enforce it according to its terms.’ ” United States v. Ron Pair Enterprises, Inc., 489 U. S. 235, 241 (1989) (quoting Caminetti v. United States, 242 U. S. 470, 485 (1917)). Here, the statute appears quite plain in specifying who may use § 506(c) — “[t]he trustee.” It is true, however, as petitioner notes, that all this actually “says” is that the trustee may seek recovery under the section, not that others may not. The question thus becomes whether it is a proper inference that the trustee is the only party empowered to invoke the provision. We have little difficulty answering yes.

Several contextual features here support the conclusion that exclusivity is intended. First, a situation in which a statute authorizes specific action and designates a particular party empowered to take it is surely among the least appropriate in which to presume nonexclusivity. “Where a statute . .. names the parties granted [the] right to invoke its provisions,... such parties only may act.” 2A N. Singer, Sutherland on Statutory Construction §47.23, p. 217 (5th ed. 1992) (internal quotation marks omitted); see also Federal Election Comm’n v. National Conservative Political Action Comm., 470 U. S. 480, 486 (1985). Second, the fact that the sole party named — -the trustee — has a unique role in bankruptcy proceedings makes it entirely plausible that Congress would provide a power to him and not to others. Indeed, had no particular parties been specified — had § 506(c) read simply “ftjhere may be recovered from property securing an allowed secured claim the reasonable, necessary costs and expenses, etc.” — the trustee is the most obvious party who would have been thought empowered to use the provision. It is thus far more sensible to view the provision as answering the question “Who may use the provision?” with “only the trustee” than to view it as simply answering the question “May the trustee use the provision?” with “yes.”

Nor can it be argued that the point of the provision was simply to establish that certain costs may be recovered from collateral, and not to say anything about who may recover them. Had that been Congress’s intention, it could easily have used the formulation just suggested. Similarly, had Congress intended the provision to be broadly available, it could simply have said so, as it did in describing the parties who could act under other sections of the Code. Section 502(a), for example, provides that a claim is allowed unless “a party in interest” objects, and § 503(b)(4) allows “an entity’ to file a request for payment of an administrative expense. The broad phrasing of these sections, when contrasted with the use of “the trustee” in § 506(e), supports the conclusion that entities other than the trustee are not entitled to use § 506(c). Russello v. United States, 464 U. S. 16, 23 (1983).

Petitioner’s primary argument from the text of § 506(c) is that “what matters is that section 506(e) does not say that ‘only’ a trustee may enforce its provisions.” Brief for Petitioner 29. To bolster this argument, petitioner cites other provisions of the Bankruptcy Code that do use “only” or other expressly restrictive language in specifying the parties at issue. See, e. g., § 109(a) (“[Ojnly a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title”); § 707(b) (providing that a case may be dismissed for substantial abuse by “the court, on its own motion or on a motion by the United States trustee, but not at the request or suggestion of any party in interest”). Petitioner argues that in the absence of such restrictive language, no party in interest is excluded. This theory — that the expression of one thing indicates the inclusion of others unless exclusion is made explicit — is contrary to common sense and common usage. Many provisions of the Bankruptcy Code that do not contain an express exclusion cannot sensibly be read to extend to all parties in interest. See, e.g., § 863(b)(1) (providing that “[tjhe trustee, after notice and a hearing, may use, sell, or lease ... property of the estate”); § 364(a) (providing that “the trustee” may incur debt on behalf of the bankruptcy estate); § 554(a) (giving “the trustee” power to abandon property of the bankruptcy estate).

Petitioner further argues that § 1109 evidences the right of a nontrustee to recover under § 506(c). We are not persuaded. That section, which provides that a “party in interest” “may raise and may appear and be heard on any issue in a ease under [Chapter 11],” is by its terms inapplicable here, since petitioner’s attempt to use § 506(c) came after the bankruptcy proceeding was converted from Chapter 11 to Chapter 7. In any event, we do not read § 1109(b)’s general provision of a right to be heard as broadly allowing a creditor to pursue substantive remedies that other Code provisions make available only to other specific parties. Cf. 7 L. King, Collier on Bankruptcy ¶ 1109.05 (rev. 15th ed. 1999) (“In general, section 1109 does not bestow any right to usurp the trustee’s role as representative of the estate with respect to the initiation of certain types of litigation that belong exclusively to the estate”).

I-H ► — i H-I

Because we believe that by far the most natural reading of § 506(c) is that it extends only to the trustee, petitioner’s burden of persuading us that the section must be read to allow its use by other parties is “‘exceptionally heavy.’” Patterson v. Shumate, 504 U. S. 753, 760 (1992) (quoting Union Bank v. Wolas, 502 U. S. 151, 156 (1991)). To support its proffered reading, petitioner advances arguments based on pre-Code practice and policy considerations. We address these arguments in turn.

A

Section 506(c)’s provision for the charge of certain administrative expenses against lienholders continues a practice that existed under the Bankruptcy Act of 1898, see, e. g., In re Tyne, 257 F. 2d 310, 312 (CA7 1958); 4 Collier on Bankruptcy, supra, ¶ 506.05[1]. It was not to be found in the text of the Act, but traced its origin to early eases establishing an equitable principle that where a court has custody of property, costs of administering and preserving the property are a dominant charge, see, e.g., Bronson v. La Crosse & Milwaukee R. Co., 1 Wall. 405, 410 (1864); Atlantic Trust Co. v. Chapman, 208 U. S. 360, 376 (1908). It was the norm that recovery of costs from a secured creditor would be sought by the trustee, see, e. g., Textile Banking Co. v. Widener, 265 F. 2d 446, 453-454 (CA4 1959); Tyne, supra, at 312. Petitioner cites a number of lower court cases, however, in which — without meaningful discussion of the point— parties other than the trustee were permitted to pursue such charges under the Act, sometimes simultaneously with the trustee’s pursuit of his own expenses, see, e. g., First Western Savings and Loan Assn. v. Anderson, 252 F. 2d 544, 547-548 (CA9 1958); In re Louisville Storage Co., 21F. Supp. 897,898 (WD Ky. 1936), aff’d, 93 F. 2d 1008 (CA6 1938), but sometimes independently, see In re Chapman Coal Co., 196 F. 2d 779, 780 (CA7 1952); In re Rotary Tire & Rubber Co., 2 F. 2d 364 (CA6 1924). Petitioner also relies on early decisions of this Court allowing individual claimants to seek recovery from secured assets, see Louisville, E. & St. L. R. Co. v. Wilson, 138 U. S. 501, 506 (1891); Burnham, v. Bowen, 111 U. S. 776, 779, 783 (1884); New York Dock Co. v. S. S. Poznan, 274 U. S. 117, 121 (1927). Wilson and Burnham involved equity re-ceiverships, and were not only pre-Code, but predate the Bankruptcy Act of 1898 that the Code replaced; while New York Dock was a case arising in admiralty.

It is questionable whether these precedents establish a' bankruptcy practice sufficiently widespread and well recognized to justify the conclusion of implicit adoption by the Code. We have no confidence that the allowance of recovery from collateral by nontrustees is “the type of ‘rule’ that. . . Congress was aware of when enacting the Code.” United States v. Ron Pair Enterprises, Inc., 489 U. S., at 246. Cf. Dewsnup v. Timm, 502 U. S. 410, 418 (1992) (relying on “clearly established” pre-Code practice); Kelly v. Robinson, 479 U. S. 36, 46 (1986) (giving weight to pre-Code practice that was “widely accepted” and “established”). In any event, whole pre-Code practice “informs our understanding of the language of the Code,” id., at 44, it cannot overcome that language. It is a tool of construction, not an extratextual supplement. We have applied it to the construction of provisions which were “subject to interpretation,” id., at 50, or contained “ambiguity in the text,” Dewsnup, supra, at 417. “[Wlhere the meaning of the Bankruptcy Code’s text is itself clear ... its operation is unimpeded by contrary . . . prior practice,” BFP v. Resolution Trust Corporation, 511 U. S. 531, 546 (1994) (internal quotation marks omitted). See, e. g., Pennsylvania Dept. of Public Welfare v. Davenport, 495 U. S. 552, 563 (1990); United States v. Ron Pair Enterprises, Inc., supra, at 245-246.

In this ease, we think the language of the Code leaves no room for clarification by pre-Code practice. If § 506(e) provided only that certain costs and expenses could be recovered from property securing a secured claim, without specifying any particular party by whom the recovery could be pursued, the ease would be akin to those in which we used prior practice to fill in the details of a pre-Code concept that the Code had adopted without elaboration. See, e. g., United States v. Noland, 517 U. S. 535, 539 (1996) (looking to pre-Code practice in interpreting Code’s reference to “principles of equitable subordination”); Midlantic Nat. Bank v. New Jersey Dept. of Environmental Protection, 474 U. S. 494, 501 (1986) (codification of trustee’s abandonment power held to incorporate established exceptions). Here, however, it is not the unelaborated concept but only a specifically narrowed one that has been adopted: a rule allowing the charge of costs to secured assets by the trustee. Pre-Code practice cannot transform §506(c)’s reference to “the trustee” to “the trustee and other parties in interest.”

B

Finally, petitioner argues that its reading is necessary as a matter of policy, since in some cases the trustee may lack an incentive to pursue payment. Section 506(c) must be open to nontrustees, petitioner asserts, lest secured creditors enjoy the benefit of services without paying for them. Moreover, ensuring that administrative claimants are compensated may also serve purposes beyond the avoidance of unjust enrichment. To the extent that there are circumstances in which the trustee will not use the section although an individual creditor would, allowing suits by nontrustees could encourage the provision of postpetition services to debtors on more favorable terms, which would in turn further bankruptcy’s goals.

Although these concerns may be valid, it is far from clear that the policy implications favor petitioner’s position. The class of eases in which § 506(c) would lie dormant without nontrustee use is limited by the fact that the trustee is obliged to seek recovery under the section whenever his fiduciary duties so require. And limiting § 506(c) to the trustee does not leave those who provide goods or services that benefit secured interests without other means of protecting themselves as against other creditors: They may insist on cash payment, or contract directly with the secured creditor, and may be able to obtain superpriority under § 364(c)(1) or a security interest under §§ 364(c)(2), (3), or § 364(d). And of course postpetition creditors can avoid unnecessary losses simply by paying attention to the status of their accounts, a protection which, by all appearances, petitioner neglected here.

On the other side of the ledger, petitioner’s reading would itself lead to results that seem undesirable as a matter of policy. In particular, expanding the number of parties who could use § 506(e) would create the possibility of multiple administrative claimants seeking recovery under the seetion. Eaeh such claim would require inquiry into the necessity of the services at issue and the degree of benefit to the secured creditor. Allowing recovery to be sought at the behest of parties other than the trustee could therefore impair the ability of the bankruptcy court to coordinate proceedings, as well as the ability of the trustee to manage the estate. Indeed, if administrative claimants were free to seek recovery on their own, they could proceed even where the trustee himself planned to do so. See, e. g., In re Bluffton Castings Corp., 224 B. R. 902, 904 (Bkrtcy. Ct. ND Ind. 1998). Further, where unencumbered assets were scarce, creditors might attempt to use § 506(e) even though their claim to have benefited the secured creditor was quite weak. The possibility of being targeted for such claims by various administrative claimants could make secured creditors less willing to provide postpetition financing.

In any event, we do not sit to assess the relative merits of different approaches to various bankruptcy problems. It suffices that the natural reading of the text produces the result we announce. Achieving a better policy outcome — if what petitioner urges is that — is a task for Congress, not the courts. Kawaauhau v. Geiger, 523 U. S. 57, 64 (1998); Noland, 517 U. S., at 541-542, n. 3; Wolas, 502 13. S., at 162.

* * *

We have considered the other points urged by petitioner and find them to be without merit. We conclude that 11 U. S. C. § 506(c) does not provide an administrative claimant an independent right to use the section to seek payment of its claim. The judgment of the Eighth Circuit is affirmed.

It is so ordered.

       Kespondent Union Planters Bank is the successor of Magna Bank, which is in turn the successor of Landmark Bank of Illinois. Hen House was originally indebted to Landmark Bank. For simplicity, we will not distinguish between the various entities.

       In addition to seeking recovery under § 506(c), petitioner argued to the Eighth Circuit en banc that it was entitled to recover under the terms of the postpetition financing order itself Petitioner sought to enforce that order under Federal Rule of Bankruptcy Procedure 7071, which incorporates Federal Rule of Civil Procedure 71 (“When an order is made in favor of a person who is not a party to the action, that person may enforce obedience to the order by the same process as if a party . ..”). The Eighth Circuit declined to address this issue, since it had not been raised until the rehearing en banc, In re Hen House Interstate, Inc., 177 F. 3d 719, 724 (1999). We similarly do not reach the issue here.

      Debtors-in-possession may also use the section, as they are expressly given the rights and powers of a trustee by 11 U. S. C. § 1107.

         The frequency with which such’circumstances arise may depend in part on who ultimately receives the recovery obtained by a trustee under § 506(c). Petitioner argues that it goes to the party who provided the services that benefited collateral (assuming that party has not already been compensated by the estate). Respondent argues that this reading, like a reading that allows creditors themselves to use § 506(c), upsets the Code's priority scheme by giving administrative claimants who benefit collateral an effective priority over others — allowing, for example, a Chapter 11 administrative creditor (like petitioner) to obtain payment via § 506(c) while Chapter 7 administrative creditors remain unpaid, despite §726(b)’s provision that Chapter 7 administrative claims have priority over Chapter 11 administrative claims. Thus, respondent asserts that a trustee’s recovery under § 506(c) simply goes into the estate to be distributed according to the Code’s priority provisions. Since this ease does not involve a trustee’s recovery under § 506(c), we do not address this question, or the related question whether the trustee may use the provision prior to paying the expenses for which reimbursement is sought, see In re K & L Lakeland, Inc., 128 F. Bd 203, 207, 212 (CA4 1997).

       We do not address whether a bankruptcy court can allow other interested parties to act in the trustee’s stead in pursuing recovery under § 506(e). Amici American Insurance Association and National Union Fire Insurance Co. draw our attention to the practice of some courts of allowing creditors or creditors’ committees a derivative right to bring avoidance actions when the trustee refuses to do so, even though the applicable Code provisions, see 11 U. S. C. §§544, 545, 547(b), 548(a), 549(a), mention only the trustee. See, e. g., In re Gibson Group, Inc., 66 F. 3d 1436, 1438 (CA6 1995). Whatever the validity of that practice, it has no analogous application here, since petitioner did not ask the trustee to pursue payment under § 506(c) and did not seek permission from the Bankruptcy Court to take such action in the trustee’s stead. Petitioner asserted an independent right to use § 506(c), which is what we reject today. Cf. In re Xonics Photochemical, Inc., 841 F. 2d 198, 202-203 (CA7 1988) (holding that creditor had no right to bring avoidance action independently, but noting that it might have been able to seek to bring derivative suit).


author: Justice Souter

text:
    RALEIGH, CHAPTER 7 TRUSTEE FOR THE ESTATE OF STOECKER v. ILLINOIS DEPARTMENT OF REVENUE
    No. 99-387.
    Argued April 17, 2000 —
    Decided May 30, 2000

      Souter, J., delivered the opinion for a unanimous Court.

      Robert Radasevich argued the cause for petitioner. With him on the briefs were Phil C. Neal, David A. Ride, and John W. Guarisco.

      A. Benjamín Goldgar, Assistant Attorney General of Illinois, argued the cause for respondent. With him on the brief were James R. Ryan, Attorney General, Joel D. Ber-tocchi, Solicitor General, and James D. Newbold, Assistant Attorney General.

      Deputy Solicitor General Wallace argued the cause for the United States as amicus curiae urging affirmance. With him on the brief were Solicitor General Waxman, Act

      ing Assistant Attorney General Junghans, Kent L. Jones, Kenneth L. Greene, and Steven W. Parks.

      Briefs of amici curiae urging affirmance were filed for the Pension Benefit Guaranty Corporation by James J. Keightley, William G. Beyer, Israel Goldowitz, Nathaniel Rayle, and Charles G. Cole; for the State of New Mexico et al. by Patricia A Madrid, Attorney General of New Mexico, Donald F. Harris, Special Assistant Attorney General, and James I. Shepard, joined by the Attorneys General for their respective States as follows: Janet Napolitano of Arizona, Bill Lochyer of California, Ken Salazar of Colorado, Richard Blumenthal of Connecticut, M. Jane Brady of Delaware, Robert A Butterworth of Florida, Thomas J. Miller of Iowa, Carla J. Stovall of Kansas, Richard P. Ieyoub of Louisiana, Andrew Ket-terer of Maine, J. Joseph Curran, Jr., of Maryland, Thomas F. Reilly of Massachusetts, Jennifer M. Granholm of Michigan, Mike Hatch of Minnesota, Jeremiah W. (Jay) Nixon of Missouri, Joseph P. Mazurek of Montana, Don Stenberg of Nebraska, Frankie Sue Del Papa of Nevada, John J. Farmer, Jr., of New Jersey, Heidi Heitkamp of North Dakota, Betty D. Montgome'ry of Ohio, Hardy Myers of Oregon, D. Michael Fisher of Pennsylvania, Sheldon Whitehouse of Rhode Island, Mark Barnett of South Dakota, Paul G. Summers of Tennessee, Jan Graham of Utah, William H. Sorrell of Vermont, Christine 0. Gregoire of Washington, and Gay Woodhouse of Wyoming; and for the Council of State Governments et al. by Richard Ruda, James I. Crowley, and Steven H. Goldblatt.

   Justice Souter

delivered the opinion of the Court.

The question raised here is who bears the burden of proof on a tax claim in bankruptcy court when the substantive law creating the tax obligation puts the burden on the taxpayer (in this ease, the trustee in bankruptcy). We hold that bankruptcy does not alter the burden imposed by the substantive law.

I

The issue of state tax liability in question had its genesis in the purchase of an airplane by Chandler Enterprises, Inc., a now-defunct Illinois company. William J. Stoeeker, for whom petitioner Raleigh is the trustee in bankruptcy, was president of Chandler in 1988, when Chandler entered into a lease-purchase agreement for the plane, moved it to Illinois, and ultimately took title under the agreement. See In re Stoecker, 179 F. 3d 546, 548 (CA7 1999).

According to respondent State Department of Revenue, the transaction was subject to the Illinois use tax, a sales-tax substitute imposed on Illinois residents such as Chandler who buy out of State. If the seller does not remit the tax, the buyer must, and, when buying a plane, must file a return and pay the tax within 30 days after the aircraft enters the State. Ill. Comp. Stat., ch. 35, §105/10 (1999). Chandler failed to do this.

When the State discovers a failure to file and pay taxes, its Department of Revenue (the respondent here) determines the amount of tax due and issues a Notice of Tax Liability to the taxpayer. §§ 105/12,120/4. Unless the taxpayer protests within the time provided, the assessment becomes final, though still subject to judicial review in the Illinois circuit court. §§120/4, 12.

Illinois law also provides that any corporate officer “who has the control, supervision or responsibility of filing returns and making payment of the amount of any ... tax ... who wilfully fails to file the return or make the payment . . . shall be personally liable for a penalty equal to the total amount of tax unpaid by the [corporation].” § 735/3-7. The department determines the amount, and its determination is “prima facie evidence of a penalty due,” ibid., though a Notice of Penalty Liability issued under this provision is open to challenge much like the antecedent Notice of Tax Liability.

By the time the department discovered the unpaid tax in this case, Chandler was defunct and Stoecker was in bankruptcy. The department issued both a Notice of Tax Liability against Chandler and a Notice of Penalty Liability against Stoecker. See 179 F. 3d, at 549.

The record evidence about Chandler’s operations is minimal. A person named Pluhar acted as its financial officer. There is no evidence directly addressing Stoeeker’s role in the filing of Chandler’s tax returns or the payment of any taxes, and so no affirmative proof that he either was responsible for or willfully evaded the payment of the use tax, see id., at 550. This evidentiary dearth is not necessarily dispositive, however, due to the provision of Illinois law shifting the burden of proof, on both production and persuasion, to the responsible officer once a Notice of Penalty Liability is issued, see Branson v. Department of Revenue, 168 Ill. 2d 247, 256-261, 659 N. E. 2d 961, 966-968 (1995). The Court of Appeals for the Seventh Circuit accordingly ruled for the Department of Revenue. 179 F. 3d, at 550.

The Court of Appeals thought the trustee may have satisfied his burden of production by identifying Pluhar as the financial officer but, in any event, had not satisfied his burden of persuasion. Because Stoecker was the president and, as far as the record showed, he and Pluhar were the only officers, each would have been involved in Chandler’s tax affairs. Ibid. While it is true that failure to pay must be willful (at least grossly negligent) to justify the penalty under Illinois law, see Branson, supra, at 254-255, 659 N. E. 2d, at 965, and true that Chandler had an opinion letter from a reputable lawyer that no tax was due because of certain details of the lease-purchase agreement, there was no evidence that Stoecker ever saw the letter or relied on it, and nothing else bearing on the issue of willfulness. See 179 F. 3d, at 550-551.

Obviously, the burden of proof was critical to the resolution of the case, which the Department of Revenue won because the Court of Appeals held that the burden remained on the trustee, just as it would have been on the taxpayer had the proceedings taken place outside of bankruptcy. The Courts of Appeals are divided on this point: the Seventh Circuit joined the Third and Fourth Circuits in leaving the burden on the taxpayer. See Resyn Corp. v. United States, 851 F. 2d 660, 663 (CA3 1988); In re Landbank Equity Corp., 973 F. 2d 265, 270-271 (CA4 1992). The Courts of Appeals for the Fifth, Eighth, Ninth, and Tenth Circuits have come out the other way. See In re Placid Oil Co., 988 F. 2d 554, 557 (CA5 1993); In re Brown, 82 F. 3d 801, 804-805 (CA8 1996); In re Macfarlane, 83 F. 3d 1041, 1044-1045 (CA91996), cert. denied, 520 U. S. 1115 (1997); In re Fullmer, 962 F. 2d 1468, 1466 (CA10 1992). We granted certiorari to resolve the issue, 528 U. S. 1068 (2000), and now affirm.

II

Creditors’ entitlements in bankruptcy arise in the first instance from the underlying substantive law creating the debtor’s obligation, subject to any qualifying or contrary provisions of the Bankruptcy Code. See Butner v. United States, 440 U. S. 48, 55 (1979); Vanston Bondholders Protective Comm. v. Green, 329 U. S. 156, 161-162 (1946). The “basic federal rule” in bankruptcy is that state law governs the substance of claims, Butner, supra, at 57, Congress having “generally left the determination of property rights in the assets of a bankrupt’s estate to state law,” 440 U. S., at 54 (footnote omitted). “Unless some federal interest requires a different result, there is no reason why [the state] interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.” Id., at 55. In this case, the bankruptcy estate’s obligation to the Illinois Department of Revenue is established by that State’s tax code, which puts the burden of proof on the responsible officer of the taxpayer, see Branson, supra, at 260-262, 659 N. E. 2d, at 968.

The scope of the obligation is the issue here. Do the State’s right and the taxpayer’s obligation include the burden of proof? Our eases point to an affirmative answer. Given its importance to the outcome of eases, we have long held the burden of proof to be a “substantive” aspect of a claim. See, e. g., Director, Office of Workers’ Compensation Programs v. Greenwich Collieries, 512 U. S. 267, 271 (1994); Dick v. New York Life Ins. Co., 359 U. S. 437, 446 (1959); Garrett v. Moore-McCormack Co., 317 U. S. 239, 249 (1942). That is, the burden of proof is an essential element of the claim itself; one who asserts a claim is entitled to the burden of proof that normally comes with it.

Tax law is no candidate for exception from this general rule, for the very faet that the burden of proof has often been placed on the taxpayer indicates how critical the burden rule is, and reflects several compelling rationales: the vital interest of the government in acquiring its lifeblood, revenue, see Arkansas v. Farm Credit Servs. of Central Ark., 520 U. S. 821, 826 (1997); the taxpayer’s readier access to the relevant information, see United States v. Rexach, 482 F. 2d 10, 16 (CA1), cert. denied, 414 U. S. 1039 (1973); and the importance of encouraging voluntary compliance by giving taxpayers incentives to self-report and to keep adequate records in case of dispute, see United States v. Bisceglia, 420 U. S. 141, 145 (1975). These are powerful justifications not to be disregarded lightly.

Congress of course may do what it likes with entitlements in bankruptcy, but there is no sign that Congress meant to alter the burdens of production and persuasion on tax claims. The Code in several places, to be sure, establishes particular burdens of proof. See, e. g., 11 U. S. C. § 362(g) (relief from automatic stay), § 363(o) (adequate protection for creditors), § 364(d)(2) (same), § 547(g) (avoidability of preferential transfer), § 1129(d) (confirmation of plan for purpose of avoiding taxes). But the Code makes no provision for altering the burden on a tax claim, and its silence says that no change was intended.

Ill

The trustee looks for an advantage in the very silence of the Code, however, first by arguing that actual, historical practice favored trustees under the Bankruptcy Act of 1898 and various pre-Code revisions up to the current Code’s enactment in 1978. He says that courts operating in the days of the Bankruptcy Act, which was silent on the burden to prove the validity of claims, almost uniformly placed the burden on those seeking a share of the bankruptcy estate. Because the Code generally incorporates pre-Code practice in the absence of explicit revision, the argument goes, and because the Code is silent here, we should follow the pre-Code practice even when this would reverse the burden imposed outside bankruptcy. This tradition makes sense, petitioner urges, because in bankruptcy tax authorities are no longer opposed to the original taxpayer, and the choice is no longer merely whether the tax claim is paid but whether other innocent creditors must share the bankruptcy estate with the taxing government.

We, however, find history less availing to the trustee than he says. While some pre-Code cases put the burden of proof on taxing authorities, others put it on the trustee, and still others eannot he fathomed. This state of things is the end of the argument, for without the weight of solid authority on the trustee’s side, we cannot treat the Code as predicated on an alteration of the substantive law of obligations once a taxpayer enters bankruptcy. Cf. United Sav. Assn. of Tex. v. Timbers of Inwood Forest Associates, Ltd., 484 U. S. 865, 381-382 (1988) (“The at best divided [pre-Code] authority... removes all cause for wonder that the alleged departure from it should not have been commented upon in the legislative history”).

The trustee makes a different appeal to Code silence in pointing to language in Vanston Bondholders Protective Comm. v. Green, 329 U. S. 156 (1946), suggesting that “allowance” of claims is a federal matter. But “allowance” referred to the ordering of valid claims when that case was decided, see id., at 162-163, and Vanston, in fact, concerned distribution of assets, not the validity of claims in the first instance, see In re Highland Superstores, Inc., 154 F. 3d 573, 578 (CA6 1998); Fahs v. Martin, 224 F. 2d 387, 394-395 (CA5 1955). The burden of proof rule in question here bears only on validity, and as to that the Vanston opinion specifically states that “[wjhat claims of creditors are valid and subsisting obligations ... is to be determined by reference to state law.” 329 U. S., at 161 (footnote omitted). Nor is the trustee helped by City of New York v. Saper, 336 U. S. 328, 332 (1949), which mentions “proving]” government claims in the same manner as other debts; the reference was to the procedure by which proof of claim was submitted and not to the validity of the claim. While it is true that federal law has generally evolved to impose the same procedural requirements for claim submission on tax authorities as on other creditors, ibid., nothing in that evolution has touched the underlying laws on the elements sufficient to prove a valid state claim.

Finally, the trustee argues that the Code-mandated priority enjoyed by taxing authorities over other creditors, see 11 U. S. C. §§ 507(a), 503(b)(1)(B), requires a compensating equality of treatment when it comes to demonstrating validity of claims. But we think his argument distorts the legitimate powers of a bankruptcy court and begs the question about the relevant principle of equality.

Bankruptcy courts do indeed have some equitable powers to adjust rights between creditors. See, e. g., § 510(c) (equitable subordination). That is, within the limits of the Code, courts may reorder distributions from the bankruptcy estate, in whole or in part, for the sake of treating legitimate claimants to the estate equitably. But the scope of a bankruptcy court’s equitable power must be understood in the light of the principle of bankruptcy law discussed already, that the validity of a claim is generally a function of underlying substantive law. Bankruptcy courts are not authorized in the name of equity to make wholesale substitution of underlying law controlling the validity of creditors’ entitlements, but are limited to what the Bankruptcy Code itself provides. See United States v. Reorganized CF&I Fabricators of Utah, Inc., 518 U. S. 213, 228-229 (1996); United States v. Noland, 517 U. S. 535, 543 (1996).

Moreover, even on the assumption that a bankruptcy court were to have a free hand, the ease for a rule placing the burden of proof uniformly on all bankruptcy creditors is not self-evidently justified by the trustee’s invocation of equality. Certainly the trustee has not shown that equal treatment of all bankruptcy creditors in proving debts is more compelling than equal treatment of comparable creditors in and out of bankruptcy. The latter sort of equality can be provided by a bankruptcy court as a matter of course, whereas the trustee’s notion of equality could not be uniformly observed consistently with other bankruptcy principles. Consider the ease when tax litigation is pending at the time the taxpayer files for bankruptcy. The tax litigation will be subject to an automatic stay, but the stay can be lifted by the bankruptcy court for cause, see 11 U. S. C. § 362(d)(1), which could well include, among other things, a lack of good faith in attempting to avoid tax proceedings, or in attempting to favor private creditors who might escape the disadvantage of a priority tax claim under the trustee’s proposed rule. See generally 3 Collier on Bankruptcy ¶ 362.07[6][a], pp. 362-101 to 362-102 (rev. 15th ed. 2000) (noting that bad faith commencement of ease justifies lifting stay); Internal Revenue Service v. Bacha, 166 B. R. 611, 612 (Bkrtey. Ct. Md. 1993) (lifting automatic stay when bankruptcy filing was attempt to avoid tax proceedings). If the bankruptcy court exercises its discretion to lift the stay, the burden of proof will be on the taxpayer in the pre-existing tax litigation, and a tax liability determination will be final. See 11 U. S. C. § 505(a)(2)(A). We see no reason that Congress would have intended the burden of proof (and consequent vindication of this trustee’s vision of equality) to depend on whether tax authorities have initiated proceedings against a debtor before a bankruptcy filing. Thus, the uncertainty and increased complexity that would be generated by the trustee’s position is another reason to stick with the simpler rule, that in the absence of modification expressed in the Bankruptcy Code the burden of proof on a tax claim in bankruptcy remains where the substantive tax law puts it.

The judgment of the Court of Appeals is affirmed.

It is so ordered.

       It is true that a trustee may have less access to the facts than a taxpayer with personal knowledge, but the trustee takes custody of the taxpayer’s records, see 11 U.S. C. §521(4), and may have greater access to the taxpayer than a creditor. Even if the trustee’s advantage is somewhat less than the original taxpayer’s, the difference hardly overcomes the compelling justifications for shifting the burden of proof! The government, of course, is in no better position than it ever was, and remains without access to sources of proof when the taxpayer has not kept sufficient documentation.

       The legislative history indicates that the burden of proof on the issue of establishing claims was left to the Rules of Bankruptcy Procedure. See S. Rep. No. 95-989, p. 62 (1978); H. R. Rep. No. 95-595, p. 352 (1977). The Bankruptcy Rules are silent on the burden of proof for claims; while Federal Rule of Bankruptcy Procedure 3001(f) provides that a proof of claim (the name for the proper form for filing a claim against a debtor) is “prima facie evidence of the validity and amount of the claim,” this rule does not address the burden of proof when a trustee disputes a claim. The Rules thus provide no additional guidance.

       See, e. g., United, States v. Sampsell, 224 F. 2d 721,722-723 (GA91955); In re Avien, Inc., 390 F. Supp. 1335, 1341-1342 (EDNY 1975), aff’d, 532 F. 2d 273 (CA2 1976); In re Gorgeous Blouse Co., 106 F. Supp. 465 (SDNY 1952); see also In re Highway Constr. Co., 105 F. 2d 863, 866 (CA6 1939) (apparently accepting lower court’s placement of burden of proof on tax authority).

         See, e. g., In re Uneco, Inc., 532 F. 2d 1204, 1207 (CA8 1976); Paschal v. Blieden, 127 F. 2d 398, 401-402 (CA8 1942); In re Lang Body Co., 92 F. 2d 338, 341 (CA6 1937), cert. denied sub nom. Hipp v. Boyle, 303 U. S. 637 (1938); United States v. Knox-Powell-Stockton Co., 83 F. 2d 423, 425 (CA9), cert. denied, 299 U. S. 573 (1936). Some of these cases, such as Paschal and Lang Body Co., appear to confuse the burden of production (which ceases to be relevant upon presentation of a trustee’s case) with the burden of persuasion, under tax statutes that shift the entire burden of proof to the taxpayer. Whatever we make of their reasoning, these cases do not follow the rule whose pedigree petitioner wishes to establish.

       See, e. g., Fiori v. Rothensies, 99 F. 2d 922 (CA3 1938) (per curiam) (discussing prima facie value of tax authority’s claim, but failing to discuss burden of proof); Dickinson v. Riley, 86 F. 2d 385 (CA8 1936) (resolving claim without reference to burden of proof); In re Clayton Magazines, Inc., 77 F. 2d 852 (CA2 1935) (same).