Waiver of Discharge - Is It Ever Really Voluntary?

AuthorBartell, Laura B.

The ability of an individual debtor to discharge his or her debts has been called "the heart of the fresh start provisions of the bankruptcy law." (1) Yet since the time Congress enacted the first permanent bankruptcy law in this country, (2) the bankruptcy laws have, implicitly or explicitly, allowed a debtor to waive the right to receive a discharge. In the current Bankruptcy Code, a waiver of discharge is the tenth of twelve grounds for a court to deny discharge to a chapter 7 debtor. (3)

Why would an individual debtor ever voluntarily relinquish the right to receive a discharge of prepetition debts, which is in almost all cases the ultimate objective of filing for bankruptcy in the first place?

In this article I will look at the history of the discharge waiver. I will look at the when, how, and why individual chapter 7 debtors waive discharge, including the legal standards for court approval, and the consequences of waiver. Then I will examine actual cases in which debtors have sought to waive discharge and discuss the trends in the practice and the circumstances surrounding those waivers. I conclude with my answer to the question posed --the waiver to discharge is never "voluntary" in any real sense. Rather, it has become a means for the debtor to resolve an actual or threatened adversary proceeding to deny the debtor a discharge, a proceeding which the debtor often has no means to defend and fears (in most cases without cause) may lead to criminal prosecution for a bankruptcy crime. If courts took seriously their statutory obligation to approve waivers of discharge by considering whether such a waiver really was in the best interests of the debtor, using by analogy the requirements for reaffirmation of a debt under [section] 523(c), there would be far fewer debtors denied a discharge.


    The Bankruptcy Act did not include an explicit provision permitting a debtor to waive discharge, because a debtor was required to file an application to obtain a discharge. Such an application could be filed "after the expiration of one month and within the next twelve months subsequent to [the debtor] being adjudged a bankrupt" (unless the debtor was "unavoidably prevented from filing it within such time," in which event the time for filing would be extended for an additional six months). (4) If the debtor did not wish to receive a discharge, presumably the debtor would not apply for one.

    The Bankruptcy Act was revised in 1938 by the Chandler Act. (5) Among the modifications made were revisions to [section] 14a, dealing with the grant of discharges. Instead of requiring the debtor to apply for a discharge within a specified period, the amended language made the "adjudication of any person, except a corporation, [ ] operate as an application for a discharge." (6) It then included a proviso, stating that "the bankruptcy may, before the hearing on such application, waive by writing filed with the court his right to a discharge." (7) The Senate Judiciary Committee characterized this revision as intended "to make the discharge provisions of the act more effective. Certainly the object of filing a voluntary petition in bankruptcy is to obtain a discharge and the requiring of a separate application therefore is an unnecessary burden upon the bankrupt." (8) The House Judiciary Committee described the revision as follows:

    This provision will do two things; (1) Protect the bankruptcy against oversight in applying for his discharge; and (2) hasten the proceeding for discharge and prevent intentional delay by a fraudulent bankrupt until such time as the creditors have lost interest in the bankruptcy and are less likely to oppose a discharge. The provision for a waiver avoids the necessity of a formal hearing in cases where the bankrupt does not care for a discharge. (9) The provisions of Section 14a of the Chandler Act were codified at 11 U.S.C. [section] 32(a) and remained unchanged until the enactment of the Bankruptcy Code in 1978. (10)

    In 1964, Congress gave the Supreme Court statutory authority to "prescribe rules, the forms of process, writs, pleadings, and motions, and the practice and procedure in cases under title 11." (11) The initial set of rules and forms were approved by the Supreme Court in 1973 and became effective on Oct. 1, 1973. (12) Among the Federal Rules of Bankruptcy Procedure was Rule 405, entitled "Waiver of Discharge." Rule 405 provided that "[a]ny bankrupt may waive his right to discharge by a writing filed with the court." The Advisory Committee Note to the Rule stated:

    "This rule is an adaptation of the first sentence of the proviso of [section]14a of the Act. The rules [sic] eliminates the fiction that the adjudication operates as an application for a discharge, and no distinction is made between corporations and other persons in this regard. Accordingly the requirement of the Act that a waiver be filed before the hearing on the application for discharge is omitted." (13) Rule 404(d)(2) provided that "the court shall forthwith grant the discharge unless the bankrupt has filed a waiver under Rule 405." (14)

    The Bankruptcy Code modified the provisions relating to waiver of discharge by removing them from a proviso and making them the tenth (of what were originally ten) grounds for a court to deny a debtor a discharge. But unlike the language of 11 U.S.C. [section] 32a, which allowed a waiver of discharge "by writing filed with the court," new 11 U.S.C. [section] 727(a)(10) specified that the court could not grant a waiver if "the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter." (15) Nothing in the legislative history of the Bankruptcy Code provides insight on why Congress modified the waiver provision from one requiring mere submission of a writing to the court to one requiring court approval of a written waiver.

    For many years after the enactment of the Code, few seemed to notice that any change had been made. In 1983, new bankruptcy rules of practice, proposed by the Advisory Committee on Bankruptcy Rules and prescribed by order of the Supreme Court, became effective. Rule 4004(c)(1) of those Rules, the successor to former Rule 404(d)(2), directs the court in a chapter 7 case, on expiration of the times fixed for objecting to discharge and for filing a motion to dismiss the case, to "forthwith grant the discharge" unless, among other grounds, "the debtor has filed a waiver under [section] 727(a)(10)." (16) Section 727(a)(10) does not refer to a "filed" waiver, as did former [section] 32a. Section 727(a)(1) refers to court approval of an "executed" waiver.

    Similarly, Rule 4006 of those rules provided that "[i]f an order is entered denying or revoking a discharge or if a waiver of discharge is filed, after the order becomes final or the waiver is filed the clerk shall promptly give notice thereof to all creditors in the manner provide in Rule 2002." (17) The 1983 Advisory Committee Note to Rule 4006 noted that the rule "requires the clerk to notify creditors if a debtor fails to obtain a discharge because a waiver of discharge was filed under [section] 727(a)(1) or as a result of an order denying or revoking the discharge under [section] 727(a) or (d)." (18)

    Only in 2008 was Rule 4006 amended to reflect the requirement of court approval. It now provides that "[i]f an order is entered: denying a discharge; revoking a discharge; approving a waiver of discharge; or, in the case of an individual debtor, closing the case without the entry of a discharge, the clerk shall promptly notify all parties in interest in the manner provided by Rule 2002." (19) The 2008 Advisory Committee Note comments only on the additional language reflecting the 2005 amendments to the Code requiring that individual debtors in chapter 7 or 13 cases complete a course in personal financial management as a condition to discharge. No mention was made of the changed language relating to waiver of discharge. No further changes have been made to the statutory provisions or rules governing waivers of discharge.



      An agreement between a debtor and creditor that the debtor will not file for bankruptcy violates public policy and is unenforceable. (20) Given the ceritrality of the individual debtor's ability to obtain a fresh start in a bankruptcy case, a prepetition waiver of discharge, like a prepetition promise not to file for bankruptcy protection, is also contrary to public policy and is unenforce' able. (21) The language of [section] 727(a)(10) makes clear that a waiver of discharge must be executed "after the order for relief under this chapter" to justify the court's denial of discharge in a chapter 7 case.

      Although the language of [section] 727(a)(10) does not include explicit language stating a time before which a waiver of discharge must be approved, the lead' in language at the beginning of [section] 727(a) implicitly imposes such a limitation. All clauses of [section] 727(a) are modified by the directive that "[t]he court shall grant the debtor a discharge, unless ...." Therefore, all the clauses that may justify denial of a discharge by the court, including approval of a written waiver of discharge executed by the debtor, must be established before the court grants a discharge and not thereafter. Courts have uniformly concluded that a waiver of discharge is ineffective if the debtor seeks to obtain approval for one after discharge has been granted. (22)

      Nor may the debtor seek to set aside the previously entered discharge order under 11 U.S.C. [section] 727(d) in order to comply with the requirement that the debtor file a waiver of discharge before discharge is granted. That provision allows the court to revoke a discharge only "[o]n request of the trustee, a creditor, or the United States...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT