One of the benefits of the Bankruptcy Code is that debtors are able to discharge certain debts, and have a fresh start. A discharged debt means that the debtor is no longer liable for that particular debt. When a debtor files for bankruptcy under Chapter 7, 11, and 13, certain debts are discharged either automatically, Chapter 7, or will be after the debtor follows a repayment plan, Chapters 11 and 13. However, not all debts can be discharged, and not all debtors are eligible for discharging their debts.
Generally, under Chapter 7 of the Bankruptcy Code, when the individual debtor files the bankruptcy petition, the Bankruptcy Court “shall grant the debtor a discharge.” 11 U.S.C. § 727(a). However, businesses are not eligible for discharging their debts under Chapter 7. 11 U.S.C. § 727(a)(1). The effect of this discharge under Chapter 7 is that it “discharges the debtor from all debts that arose before the date of the order for relief under this chapter.” 11 U.S.C. § 727(b).
Both Chapter 11 and 13 are distinguishable from Chapter 7, in that these Chapters’ main purpose is to reorganize the debtor and to have the debtor follow a payment plan for paying back their creditors. Under Chapter 11, both businesses and individual debtors are eligible for discharging their debts. Generally, upon a confirmation of a plan it “discharges the debtor from any debt that arose before the date of such confirmation [of the plan].” 11 U.S.C. § 1141(d)(1).
Chapter 13 operates similarly to Chapter 11, in that is a reorganization chapter as opposed to a liquidation of assets chapter, like Chapter 7. One main difference of Chapter 13 discharges from Chapter 11 is that only individuals are eligible under Chapter 13. 11 U.S.C. § 1328. Further, the plan under Chapter 13 usually requires the debtor to pay back all of its creditors within a 3 to 5 year window. However, most debtors end up failing to complete the plan and may have to renegotiate or convert their case to a Chapter 7.
There are certain debts that the Congress expressly excluded from dischargeability under the Bankruptcy Code. These explicit exceptions to bankruptcy discharging are codified under 11 U.S.C. § 523. Some of the items that a debtor cannot discharge are any debts for a tax or custom duty, or if the debtor used fraud, false pretenses, or false representations with regards to debtor’s financial condition, any debts arising from the debtor’s fraud or defalcation while acting in a fiduciary capacity, domestic support obligations, willful or malicious injury by the debtor to another entity or property of others. 11 U.S.C. § 523(a)(1),(2),(4),(5),(6).
Other targeted exceptions to discharge under the Bankruptcy include: debts that arose and the debtor that failed to list all the creditors (if known at the time of filing the petition), a debt arising out of a divorce, a debt as the result of a DWI that caused death or personal injury, and certain student loans. 11 U.S.C. § 523(a)(3),(15),(9),(8). Another unique targeted exception to discharge are certain “luxury goods” with a value of $650 or more that were bought 90 days before the order for relief was granted. 11 U.S.C. § 523(a)(2)(C)(I).
If one has bankruptcy issues they should immediately and without hesitation determine dischargeability in bankruptcy court. Because many of the exceptions to dischargeability are complex, intricate and cross reference other sections of the Bankruptcy Code and other federal statutes, a debtor should not attempt to file their own bankruptcy petition.
Julie Camden of Camden & Meridew, P.C. recently litigated Muirs v. McWilliams, 517 B.R. 132 (S.D. Ind. 2014), in state and bankruptcy court, and successfully prevailed on her appeal in the Southern District of Indiana. Julie would be happy to assist with all of your bankruptcy needs. For more information, or to schedule a consultation, call 317-770-0000 or complete our online contact form.
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 See Muirs v. McWilliams, 517 B.R. 132 (S.D. Ind. 2014).
 See Brunnerv. New York State Higher Educ. Services Corp., 831 F.2d 395 (2nd Cir. 1987).