§ 156.3     Time for Determining Dischargeability of Debt
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 156.3, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

Prior to BAPCPA, except at hardship discharge under § 1328(b),1 debts of the kind specified in § 523(c) were dischargeable at the completion of payments under a Chapter 13 plan.2 The debts addressed in § 523(c) are the so-called “fraud” exceptions to discharge in § 523(a)(2), (4) and (6).3 The Bankruptcy Code treats the debts that are nondischargeable under § 523(a)(2), (4) or (6) specially by requiring a request to the bankruptcy court to determine dischargeability, and only the bankruptcy court can make that determination.4 This special treatment is reflected in Bankruptcy Rule 4007, which has always fixed a strict time limit on complaints to determine the dischargeability of a debt under § 523(c): “[A] complaint to determine the dischargeability of a debt under § 523(c) shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a).”5

[2]

The strict 60-day time limit for filing a complaint to determine dischargeability under § 523(c) had no application in Chapter 13 cases at the completion of payments under a plan prior to BAPCPA. BAPCPA amended § 1328(a)(2) to except from the full-payment discharge any debt “of the kind specified in . . . paragraph . . . (2), . . . (4) . . . of section 523(a).”6 Section 523(a)(2) and (a)(4) are two of the kinds of debts specified in § 523(c). As a result, after BAPCPA, there are two kinds of debt that trigger the special treatment in § 523(c).

[3]

The rules drafters acted quickly to extend Bankruptcy Rule 4007(c) to Chapter 13 cases. Interim Rule 4007(c) provides that, in a Chapter 13 case, a complaint to determine the dischargeability of a debt under § 523(a)(2) or (a)(4) “shall be filed no later than 60 days after the first date set for the meeting of creditors under section 341(a).”7 The 60-day deadline for the filing of complaints familiar to Chapter 7 practitioners now applies in Chapter 13 cases with respect to debts of the kind specified in § 523(a)(2) and (a)(4).

[4]

These changes in the Code and Interim Rules will require adjustments in Chapter 13 practice. The time pressure to resolve allegations of prepetition financial misconduct will now be present in Chapter 13 cases for false pretenses, false representations and actual fraud under § 523(a)(2)8 and for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny under § 523(a)(4).9

[5]

In particular, § 523(a)(2)(C) contains presumptions of fraud with respect to luxury goods and cash advances immediate to a bankruptcy filing.10 These presumptions are routinely invoked by credit card lenders in dischargeability litigation. The addition of § 523(a)(2) as an exception to discharge at the completion of payments in a Chapter 13 case coupled with the strict time period for the filing of a complaint under § 523(a)(2) in Interim Rule 4007(c) means that there is likely to be significant credit card dischargeability litigation during the early stages of Chapter 13 cases.

[6]

If a complaint to determine the dischargeability of debt under § 523(a)(2) or (a)(4) is not timely filed in the Chapter 13 case, there is a new incentive for the debtor to complete payments under the plan. If the debtor completes payments, the putatively nondischargeable debt will be discharged under § 1328(a) without regard to whether the debt was paid in full through the confirmed plan. If a complaint to determine dischargeability is not timely filed, but the Chapter 13 case fails and converts to Chapter 7, Interim Rule 1019(2) provides that a new time period for filing a complaint to determine dischargeability commences under Bankruptcy Rule 4007.11 In other words, the strict time period for filing a complaint to determine dischargeability in Interim Rule 4007(c) will “trap” potentially nondischargeable debt in the Chapter 13 case if no timely complaint is filed and the debtor completes payments and receives a discharge under § 1328(a).

[7]

Nondischargeability litigation under § 523(a)(2) and (a)(4) can be disruptive at any stage of a Chapter 13 case but particularly problematic during the early phase as required by Interim Rule 4007(c). A creditor with a debt that may be nondischargeable under § 523(a)(2) or (a)(4) must timely file a complaint, probably before confirmation of a plan, or negotiate with the debtor an order that preserves the creditor’s right to file a complaint under § 523(c) on a schedule other than the strict deadline in Interim Rule 4007(c). The creditor with a debt that may be nondischargeable under § 523(a)(2) or (a)(4) should insist on a provision of any confirmed plan that preserves its right to assert the nondischargeability of its debt at modification after confirmation or conversion to another chapter.

[8]

It might be noted that § 523(a)(6) describes the third kind of debt that is specified in § 523(c) and that is subject to the strict complaint-filing deadlines in Interim Rule 4007. Section 523(a)(6) excepts from discharge debts for willful and malicious injury to an entity or to the property of an entity.12 BAPCPA did not add § 523(a)(6) to the debts that are excepted from discharge at the completion of payments under § 1328(a). Instead, BAPCPA added to § 1328(a)(4) a modified version of § 523(a)(6) that is only applicable at the completion of payments in a Chapter 13 case.13

[9]

Despite the similarities between new § 1328(a)(4) and § 523(a)(6), at this writing, there is no bankruptcy rule fixing a time by which a complaint to determine the dischargeability of a debt under § 1328(a)(4) must be filed in a Chapter 13 case. Under Bankruptcy Rule 7001(6), it has always been true that a proceeding to determine the dischargeability of a debt is an adversary proceeding that must be commenced by the filing of a complaint. There is no rule that fixes a time period for the filing of a complaint under any of the exceptions to discharge at the completion of payments in a Chapter 13 case except with respect to the new exceptions for debts of the kind specified in § 523(a)(2) and (a)(4).

[10]

It is not obvious whether the accelerated schedule for the hearing on confirmation will accommodate the 60-day deadline for the filing of a complaint objecting to the dischargeability of a debt under § 523(a)(2) or (a)(4). BAPCPA amended § 1324 to require that the confirmation hearing in a Chapter 13 case be held “not later than 45 days after the date of the meeting of creditors under section 341(a).”14 The 60-day deadline for the filing of a complaint objecting to the dischargeability of debt under Interim Rule 4007(c) is timed from the first date set for the meeting of creditors under § 341(a).

[11]

There will cases in which the 60-day period for filing nondischargeability complaints expires after the new deadline for the hearing on confirmation in § 1324(b). The result is that some debtors may be forced to confirmation before they know of the existence of debt that may be nondischargeable. On the other hand, the confirmation process may become leverage with respect to a debt that might be nondischargeable when the deadline for filing a complaint to determine nondischargeability has not expired at the time of the hearing on confirmation. These timing issues will have to be worked out as Chapter 13 practitioners gain experience with the new exceptions to discharge under § 523(a)(2) and (a)(4).


 

1  See 11 U.S.C. § 1328(b) discussion beginning at § 160.1  In General.

 

2  See § 157.1  Broadest Discharge Available and § 157.2  BAPCPA Shrank the Discharge.

 

3  Prior to BAPCPA, § 523(a)(15) was also included in debts specified in § 523(c)(1).

 

4  See 11 U.S.C. § 523(c)(1) which provides:

(c)(1) Except as provided in subsection (a)(3)(B) of this section, the debtor shall be discharged from a debt of a kind specified in paragraph (2), (4), or (6) of subsection (a) of this section, unless, on request of the creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted from discharge under paragraph (2), (4), or (6), as the case may be, of subsection (a) of this section.

 

5  Fed. R. Bankr. P. 4007(c).

 

6  11 U.S.C. § 1328(a)(2), discussed in §§ 549.1 [ False Representations and Fraud: § 523(a)(2) ] § 159.2  False Representations and Fraud: § 523(a)(2) and 550.1 [ Fraud and Defalcation: § 523(a)(4) ] § 159.3  Fraud and Defalcation: § 523(a)(4).

 

7  Interim Bankr. R. 4007(c).

 

8  See § 549.1 [ False Representations and Fraud: § 523(a)(2) ] § 159.2  False Representations and Fraud: § 523(a)(2).

 

9  See § 550.1 [ Fraud and Defalcation: § 523(a)(4) ] § 159.3  Fraud and Defalcation: § 523(a)(4).

 

10  See 11 U.S.C. § 523(a)(2)(C), discussed in § 549.1 [ False Representations and Fraud: § 523(a)(2) ] § 159.2  False Representations and Fraud: § 523(a)(2).

 

11  See Interim Bankr. R. 1019(2), discussed in §§ 528.1 [ In General: More Grounds; Changed Consequences ] § 139.2  BAPCPA: More Grounds; Changed Consequences, 538.1 [ Conversion to Chapter 13 after BAPCPA ] § 148.4  Conversion to Chapter 13 after BAPCPA and 539.1 [ Reconversion to or from Chapter 13 ] § 150.2  Reconversion to Chapter 13 after BAPCPA.

 

12  See 11 U.S.C. § 523(a)(6), discussed in § 554.1 [ Willful or Malicious Injury: § 1328(a)(4) ] § 159.7  Willful or Malicious Injury: § 1328(a)(4).

 

13  See 11 U.S.C. § 1328(a)(4), discussed in § 554.1 [ Willful or Malicious Injury: § 1328(a)(4) ] § 159.7  Willful or Malicious Injury: § 1328(a)(4).

 

14  11 U.S.C. § 1324(b), discussed in § 502.1 [ Timing of Hearing on Confirmation ] § 115.2  Timing of Hearing on Confirmation after BAPCPA.