Chapter V Discharge/Dischargeability

• Jurisdiction: United States

A. Chapter 7

Only an individual debtor is eligible for a discharge in a chapter 7 case.³¹⁹

1. Personal Financial Management Course

Before receiving a discharge, an individual debtor must complete an approved instructional course concerning personal financial management.³²⁰ This provision is not applicable to a debtor who, because of incapacity, disability or service in the armed forces in a combat zone, is unable to complete the requirements. The clerk of each court maintains a publicly available list of approved credit counseling agencies and financial management instructional courses.³²¹ This information is also available at https://www.justice.gov/ust/list-approved-providers-personal-financial-management-instructional-courses-debtor-education.

2. Discharged Debts

Discharge in chapter 7 discharges the debtor from most debts that arose before (1) the date of the order for relief or (2) the petition date in voluntary cases. The debtor is also discharged from any liability on any claim arising under 11 U.S.C. § 502. The scope of discharge extends to all claims whether allowed or allowable, and whether or not a proof of claim was filed.³²²

3. Nondischargeable Debts

Certain debts are excepted from discharge, including:

i. certain taxes and customs duties as follows: those entitled to priority,³²³ where the debtor did not file a re-turn,³²⁴where the debtor filed a late return (filed after its due date, including extensions) less than two years before the petition date,³²⁵ where the debtor filed a fraudulent return,³²⁶ or where the debtor "willfully attempted in any manner to evade or defeat" the tax;³²⁷
ii. a debt for money, property or services, or an extension, renewal or refinance of credit obtained by false pretenses, false representation or actual fraud, or by use of a written, intentionally deceptive statement that is materially false respecting a debtor's financial condition, on which a creditor reasonably relied;³²⁸
iii. a consumer debt for luxury goods or services exceeding $675 incurred within 90 days of the filing;³²⁹
iv. a cash advance on an open-end account exceeding $950 incurred within 70 days of the filing;³³⁰
v. an unlisted or unscheduled debt;³³¹
vi. a debt for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny;³³²
vii. a domestic support obligation;³³³
viii. a debt for willful or malicious injury to the person or property of another;³³⁴
ix. any debt that is a fine, penalty or forfeiture to a governmental unit;³³⁵
x. an education loan or obligation, except to the extent the debt will impose an undue hardship on the debtor or debtor's dependents, including:³³⁶ a "loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution"; an obligation to repay an educational benefit, scholarship or stipend; or any other qualified educational loan as defined in 26 U.S.C. § 221(d);
xi. a debt arising from death or personal injury where the liability was incurred as a result of the debtor's unlawful operation of a motor vehicle, vessel or aircraft due to the use of alcohol, drugs or another substance;³³⁷
xii. any debt from a prior bankruptcy case in which the debtor waived or was denied a discharge for a reason other than the time bars;³³⁸
xiii. a debt owed to a spouse, former spouse or child, other than a domestic support obligation, in connection with a property settlement or decree in the dissolution of a marriage;³³⁹
xiv. a debt for money borrowed to pay an otherwise nondischargeable federal, state or local tax liability;³⁴⁰
xv. post-petition dues and assessments by a membership association with respect to the debtor's interest in a condominium unit, a cooperative corporation share or a homeowners association lot;³⁴¹ and
xvi. a debt owed to an ERISA-qualified pension, stock bonus, profit-sharing or other plan.³⁴²

4. Determination of Dischargeability

a. Exclusive Bankruptcy Jurisdiction

A debtor is entitled to a discharge of a debt listed in 11 U.S.C. § 523(a)(2) (fraud), (4) (fiduciary defalcation, larceny or embezzlement) or (6) (willful and malicious injury), unless the creditor to whom the debt is owed obtains a determination from the bankruptcy court that the debt is nondischargeable.³⁴³An action to determine the dischargeability of those obligations is made by the filing of an adversary action in the bankruptcy court.³⁴⁴

b. Timing

A complaint to determine dischargeability of a debt on any grounds other than those specified in 11 U.S.C. § 523(c) may be brought in the bankruptcy court at any time, and a case may be reopened without payment of an additional filing fee for this purpose.³⁴⁵ A complaint to determine dischargeability of a debt pursuant to 11 U.S.C. § 523(c) must be filed within 60 days after the 11 U.S.C. § 341(a) meeting of creditors.³⁴⁶

5. Denial of Discharge

In addition to the potential nondischargeability of individual debts, a debtor's entire discharge can be denied under certain circumstances.

a. Fraud, Concealment, False Oath, Etc.

A chapter 7 discharge may be denied if a debtor:

i. with an intent to hinder, delay or defraud the creditor or officer of the estate, transferred, concealed or removed (1) property of the debtor within one year before the date of filing of the petition or (2) property of the estate after the filing of the petition;³⁴⁷
ii. has concealed, destroyed, mutilated or failed to preserve any record from which the debtor's financial condition might be ascertained;³⁴⁸
iii. knowingly and fraudulently, in or in connection with the case, made a false oath;³⁴⁹
iv. "has failed to explain satisfactorily ... any loss of assets or deficiency of assets to meet the debtor's liabilities;"³⁵⁰
v. has refused, by invoking the privilege against self-incrimination, to obey a court order to respond to a material question or to testify after being granted immunity; or, on a ground other than the privilege against self-incrimination, has refused to testify or respond to a material question;³⁵¹
vi. has been granted a discharge in a chapter 7 or chapter 11 case commenced within eight years before filing the petition;³⁵²
vii. has been granted a chapter 13 discharge in a case commenced within six years before the date the petition was filed, unless in the previous case the debtor satisfied (1) 100 percent of the allowed unsecured claims or (2) 70 percent of the allowed unsecured claims and where the debtor proposed the plan in good faith and it represented the debtor's best effort;³⁵³ or
viii. if the debtor waives the discharge in a post-petition writing, and the court approves the written waiver.³⁵⁴

b. Felonies and Criminal Acts

Entry of discharge may be delayed if the court finds reasonable cause to believe that in a case in which the homestead limitation of 11 U.S.C. § 522(q) applies there is pending a proceeding that falls within the scope of11 U.S.C. § 522(q)(1).³⁵⁵ Upon conclusion of the proceedings, discharge is entered. If the pending 11 U.S.C. § 522(q) proceeding results in a judgment adverse to the debtor, the homestead exemption of $160,375 applies.

6. Revocation of Discharge

a. Grounds

On request of any creditor or the trustee and after notice and hearing, the court shall revoke a discharge if the debtor:

i. obtained the discharge through fraud and the requesting party did not know of the fraud until after the court discharged the debtor;³⁵⁶
ii. knowingly and fraudulently retained property of the estate;³⁵⁷
iii. has refused, by invoking the privilege against self-incrimination, to obey a court order to respond to a material question or to testify after being granted immunity, or, on a ground other than the privilege against self-incrimination, to testify or respond to a material question;³⁵⁸
iv. fails

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