§ 8.11     Discharge or Dischargeability Problems
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 8.11, at ¶ ____, LundinOnChapter13.com (last visited __________).

Debtors not eligible for a Chapter 7 discharge may be eligible for a Chapter 13 discharge. Debtors not eligible for discharge under any chapter of the Bankruptcy Code may still be eligible for substantial debt relief in a Chapter 13 case. Debtors with claims that are or may be nondischargeable in another chapter find Chapter 13 attractive because of its broader discharge. Amendments to the Chapter 13 discharge by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)1 reduced but did not eliminate these advantages.2


There are many statutory limitations on the availability of discharge in a Chapter 7 case that are either less onerous or not applicable at all in a Chapter 13 case. For example, an individual who received a discharge in a prior Chapter 7 case filed within the past eight years is not eligible for another Chapter 7 discharge.3 That same individual is eligible for a Chapter 13 discharge when four years have elapsed between the filing of the prior Chapter 7 case and a subsequent Chapter 13 petition.4 There is a six-year bar to discharge (with conditions) in a Chapter 7 case when the debtor received a prior Chapter 13 discharge.5 The bar to successive Chapter 13 discharges is only two years—measured from the filing of the prior Chapter 13 case to the filing of the subsequent Chapter 13 case.6


An individual who has concealed assets or made fraudulent transfers during the past year faces a bar to discharge in a Chapter 7 case.7 There is no analogue to this barrier to discharge in a Chapter 13 case—even a debtor who has mistreated creditors in the run-up to bankruptcy can “get religion” and be entitled to discharge in a Chapter 13.8 Similarly, an individual guilty of sloppy record keeping is better positioned to seek a discharge in Chapter 13 than in a Chapter 7 case.9


An individual not eligible for discharge can accomplish very little that is good for the debtor in a Chapter 7 case. That same individual—even if not eligible for a discharge under any chapter of the Bankruptcy Code—can do quite a lot in a Chapter 13 case. Retention of possession by the debtor of all property of the estate is not discharge dependent in a Chapter 13 case. The debtor can confirm a Chapter 13 plan without regard to discharge eligibility, and that plan can modify the payment terms of secured and unsecured debt, including nondischargeable debt, in ways that may allow the debtor to pay some or all of that debt over five years within the cocoon of the automatic stay. Stripping off a wholly unsecured junior lien on the debtor’s home is possible in a Chapter 13 case without regard to whether the debtor is eligible for a discharge.10


Some debts that would be nondischargeable in a Chapter 7, 11 or 12 case can be discharged upon completion of all payments in a Chapter 13 case.11 Perhaps most importantly, Chapter 13 is the only avenue for individual bankruptcy relief that includes the possibility of discharge of property division debts arising under a divorce or separation agreement.12 The exception to discharge for willful and malicious injury applicable outside Chapter 13 is different and less inclusive for Chapter 13 debtors.13 Some taxes that are nondischargeable in Chapter 7 are dischargeable at the completion of payments under a Chapter 13 plan.14 Knowledgeable counsel will steer the debtor with dischargeability problems into Chapter 13 where a troublesome debt can perhaps be compromised and discharged, or at least addressed through a plan provision.


Even when the problem debt will be nondischargeable in a Chapter 7 or a Chapter 13 case, the debtor may be better off in Chapter 13 because the debt can be modified. For example, student loans are nondischargeable (or not) on the same statutory terms in either Chapter 7 or Chapter 13,15 but a Chapter 13 debtor can confirm a plan that modifies the repayment terms of a student loan—an outcome not possible in Chapter 7 without consent of the lender.


The principal impediment to confirmation of a Chapter 13 plan that deals with nondischargeable claims is the “good faith” requirement in 11 U.S.C. § 1325(a)(3). Many Chapter 13 cases have been confirmed over the good-faith objections of the holders of claims that would be nondischargeable in another chapter.16


Even the threat of dischargeability litigation in a Chapter 7 case can be strong incentive to counsel in favor of Chapter 13. Although the exceptions to discharge added to Chapter 13 by the 2005 amendments reduced the broader discharge, a debtor with a nondischargeable claim may avoid the expense of dischargeability litigation by commencing a Chapter 13 case and dealing with the debt in a plan.17


1.  Pub. L. No. 109-8, 119 Stat. 23 (2005).


2.  See § 157.2  BAPCPA Shrank the Discharge, § 159.1  Taxes, § 159.2  False Representations and Fraud: § 523(a)(2), § 159.3  Fraud and Defalcation: § 523(a)(4), § 159.4  Unscheduled Creditors: § 523(a)(3), § 159.5  Domestic Support Obligations: § 523(a)(5), § 159.6  Student Loans: § 523(a)(8), § 159.7  Willful or Malicious Injury: § 1328(a)(4), § 159.8  Boating or Flying while Intoxicated: § 523(a)(9) and § 159.9  Chapter 7 Trustee Compensation: § 1326(d).


3.  See 11 U.S.C. § 727(a)(8).


4.  See 11 U.S.C. § 1328(f)(1), discussed in § 156.2  Limitations on Successive Discharges.


5.  See 11 U.S.C. § 727(a)(9).


6.  See 11 U.S.C. § 1328(f)(2), discussed in § 156.2  Limitations on Successive Discharges.


7.  See 11 U.S.C. § 727(a)(2)(A).


8.  Getting religion in a Chapter 13 case means showing “good faith” to all, before and after the petition. See 11 U.S.C. § 1325(a)(3) and (a)(7), discussed in § 103.1  In General, § 104.1  In General, § 104.2  Frequency of Filing Bankruptcy—Chapter 20 and Beyond, § 104.3  Accuracy of Petition, Schedules, Statement and Testimony, § 104.4  Burden of Administration, § 105.1  Prepetition Conduct and Misconduct—In General, § 105.2  Prepetition Transfers and Transactions, § 105.3  Filing on the Eve of Whatever, § 106.1  In General, § 106.2  Criminal Misconduct, § 106.3  Alimony, Maintenance and Support, § 106.4  Student Loans, § 106.5  Separate Classification of Nondischargeable Claims and Good Faith, § 107.1  Greed, Not Need, § 107.2  Executory Contracts, § 107.3  Tax Problems, § 107.4  Payment of Attorney Fees, § 107.5  Special Circumstances: The Unusually Worthy or Needy Debtor, § 108.1  Economic Components of Good Faith—In General, § 108.2  Duration of Plan, § 108.3  Percentage of Payment, § 108.4  Income, Expenses, Lifestyle and Luxuries, § 109.1  Smell Tests, § 110.1  Good-Faith Filing Requirement after BAPCPA and § 110.2  Good-Faith Plans after BAPCPA.


9.  See 11 U.S.C. § 727(a)(3).


10.  See § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA.


11.  See § 157.1  Broadest Discharge Available.


12.  See 11 U.S.C. §§ 523(a)(15) and 1328(a), discussed in § 8.16  Domestic Relations Problems, § 158.1  Alimony, Maintenance or Support and § 159.5  Domestic Support Obligations: § 523(a)(5).


13.  Compare 11 U.S.C. § 523(a)(6) and § 1328(a)(4), both discussed in § 159.7  Willful or Malicious Injury: § 1328(a)(4).


14.  See § 159.1  Taxes.


15.  See 11 U.S.C. §§ 523(a)(8) and 1328(a)(2), discussed in § 159.6  Student Loans: § 523(a)(8).


16.  See § 106.1  In General, § 106.2  Criminal Misconduct, § 106.3  Alimony, Maintenance and Support, § 106.4  Student Loans and § 106.5  Separate Classification of Nondischargeable Claims and Good Faith.


17.  If there are good reasons to be in Chapter 7, the debtor may begin in Chapter 7, litigate the dischargeability of claims, and, if unsuccessful, seek conversion to Chapter 13. See § 148.1  Procedure, § 148.2  Absolute Right of Debtor?, § 148.3  Effects of Conversion from Chapter 7 to Chapter 13 and § 148.4  Conversion to Chapter 13 after BAPCPA.