§ 160.7 — Exceptions to Hardship Discharge Added or Changed by BAPCPA

Revised: June 24, 2010

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The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)1 did not change the rule that when a Chapter 13 debtor seeks a discharge before the completion of payments under the plan, all of the debts described in § 523(a) are nondischargeable.2 But because of many changes and additions to § 523(a), BAPCPA increased the number and kinds of debts that are not dischargeable when a Chapter 13 debtor requests a discharge before the completion of payments under the plan.

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This isn’t a book about the nondischargeability of debt under § 523(a) of the Bankruptcy Code, but Chapter 13 practitioners should be alerted to the many new exceptions to discharge and changed exceptions to discharge in § 523(a), as amended by BAPCPA. Here are the high points:

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1. Section 523(a)(1): Taxes. BAPCPA added the phrase “or equivalent report or notice” to § 523(a)(1)(B) to describe the required document that was not filed “or given” for purposes of the nondischargeability of taxes or customs duties under § 523(a)(1). The impact of this change on Chapter 13 practice will turn on how broadly or narrowly the courts interpret “equivalent report or notice” to affect the universe of taxes that are nondischargeable under § 523(a)(1).

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2. Section 523(a)(2): Luxury goods and cash advances. Section 523(a)(2) is the exception to discharge for money, property or services obtained by false pretenses, false representations or actual fraud. Most credit card dischargeability litigation arises under § 523(a)(2). BAPCPA amended subparagraph (c) to reduce the amount of and enlarge the time within which purchases of luxury goods and cash advances are presumed to be nondischargeable. The luxury goods presumption now arises when $6753 is owed to a single creditor incurred within 90 days of the petition.4 The cash advances presumption of fraud arises when $9505 is obtained within 70 days of the petition.6 The exception to discharge in § 523(a)(2) has always applied at hardship discharge under § 1328(b) and (c)(2); after BAPCPA, § 523(a)(2) also applies at discharge after the completion of payments under § 1328(a)(2).7

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3. Section 523(a)(5): Domestic support obligation. BAPCPA expanded the debts in the nature of alimony, maintenance and support that are nondischargeable under § 523(a)(5). A new term of art, domestic support obligation (DSO), is defined in § 101(14A) to include all debts in the nature of alimony, maintenance or support that accrue before or after the Chapter 13 petition, including interest under nonbankruptcy law.8 The class of entities to whom a DSO can be owed was enlarged. The exception to nondischargeability for assigned support obligations was narrowed to make many assigned support obligations nondischargeable DSOs.9

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4. Section 523(a)(6): Willful and malicious injury. BAPCPA did not amend § 523(a)(6)—the exception to discharge for debts resulting from willful and malicious injury by the debtor to another entity or the property of another entity. But the section is mentioned here because the exception to discharge before the completion of payments under § 523(a)(6) is different from the analogous exception that BAPCPA created at the completion of payments under a Chapter 13 plan. In new § 1328(a)(4), BAPCPA created an exception to discharge at the completion of payments under a Chapter 13 plan for “restitution or damages awarded in a civil action against the debtor as a result of willful or malicious injury . . . that caused personal injury . . . or the death of an individual.”10 The new exception to discharge in § 1328(a)(4) applies only at discharge at the completion of payments under § 1328(a). This exception is obviously worded differently from the exception to discharge in § 523(a)(6) that applies only at hardship discharge before the completion of payments. The differences are significant and curious. One would expect the exceptions to discharge in a full-payment Chapter 13 case to be more narrowly conceived to respect the debtor’s successful completion of payments to creditors. To the contrary, in some ways, the exception to discharge in new § 1328(a)(4) for “willful or malicious injury” is broader and more easily proven than the familiar exception to discharge for “willful and malicious injury” in § 523(a)(6). In other ways, the § 1328(a)(4) version of this exception is more narrow than § 523(a)(6)—for example, injuries to property are not actionable at the completion of payments under a plan but are at hardship discharge.11

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5. Section 523(a)(8): Student loans. BAPCPA changed “will” impose an undue hardship to “would” impose an undue hardship in § 523(a)(8) and extended the nondischargeability of student loans to include loans by for-profit schools and institutions.12

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6. Section 523(a)(9): DWI. BAPCPA amended § 523(a)(9) to extend the nondischargeability of debts for death or personal injury caused by the unlawful operation of a motor vehicle because the debtor was intoxicated to include debts caused by unlawful operation of a “vessel, or aircraft.”13 Operating a boat or airplane while unlawfully intoxicated can now produce nondischargeable debt. It is at least curious that BAPCPA enacted a new priority in § 507(a)(10) that also addresses DWI debts but is worded differently—“resulting from” rather than “caused by”—and that omits “aircraft.”14

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7. Section 523(a)(14)(A) and (14)(B): Debts to pay taxes and election law violations. Any debt incurred to pay a tax to a governmental unit “other than the United States” is now nondischargeable. Did the drafters intend to capture only debts incurred to pay foreign tax debt? Also, debts incurred to pay fines or penalties imposed under federal election law are now nondischargeable under § 523(a)(14)(B). Perhaps this supplements in some way the fines and penalties that were always nondischargeable under § 523(a)(7).15

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8. Section 523(a)(15): Nonsupport domestic debts. Debts to a spouse, former spouse or child that are not in the nature of alimony, maintenance or support as described in § 523(a)(5) are nondischargeable under § 523(a)(15) after BAPCPA without passing the complex balancing test under former law. This exception applies only at hardship discharge notwithstanding that § 523(a)(5) applies at discharge after the completion of payments.16

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9. Section 523(a)(16): Condominium and cooperative fees. Fees and assessments payable to a membership association or for condominium or cooperative ownership interests are nondischargeable at hardship discharge (only) and continue to be nondischargeable after BAPCPA “for so long as the debtor or the trustee has a legal, equitable or possessory ownership interest.”17

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10. Section 523(a)(18): Pension loans. BAPCPA protected pension and retirement plans and benefits in bankruptcy in many ways,18 including the addition of an exception to discharge for “loans” from a pension, profit-sharing, stock bonus or other plan. This new exception to discharge applies only at hardship discharge in a Chapter 13 case.19 In all Chapter 13 cases, § 1322(f) prohibits the plan from materially altering the terms of most pension loans, and amounts required to repay pension loans do not constitute disposable income at confirmation for purposes of § 1325(b).20

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11. Section 1326(b)(3) and (d): Chapter 7 trustee compensation. One of the strangest new “exceptions” to discharge in Chapter 13 cases brought to us by BAPCPA is displaced in § 1326(d) and concerns unpaid compensation of a Chapter 7 trustee due to the conversion or dismissal of a prior Chapter 7 case pursuant to § 707(b).21 Subject to the all but impossible conditions in § 1326(b)(3), unpaid compensation of a Chapter 7 trustee is collectible in a Chapter 13 case even if that compensation “has been discharged in a prior case under this title.”22 Compensation of a Chapter 7 trustee that falls within the requirements in § 1326(b)(3) even though “discharged” in a prior bankruptcy case is collectible in a subsequent Chapter 13 case to the extent provided in § 1326(b)(3). This new form of debt is not excepted from discharge in the conventional sense, but remains collectible only in a Chapter 13 case notwithstanding discharge in a prior case. Very strange.


 

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

 

2  See 11 U.S.C. § 1328(c)(2), discussed in § 354.1 [ Exceptions to Hardship Discharge ] § 160.6  Exceptions to Hardship Discharge before BAPCPA.

 

3  Dollar amount is adjusted by the Judicial Conference of the United States, consistent with 11 U.S.C. § 104, every three years, starting with 1998. The dollar amounts were most recently reset effective April 1, 2016.

 

4  11 U.S.C. § 523(a)(2)(C)(i)(I), discussed in § 549.1 [ False Representations and Fraud: § 523(a)(2) ] § 159.2  False Representations and Fraud: § 523(a)(2).

 

5  Dollar amount is adjusted by the Judicial Conference of the United States, consistent with 11 U.S.C. § 104, every three years, starting with 1998. The dollar amounts were most recently reset effective April 1, 2016.

 

6  11 U.S.C. § 523(a)(2)(C)(i)(II), discussed in § 549.1 [ False Representations and Fraud: § 523(a)(2) ] § 159.2  False Representations and Fraud: § 523(a)(2).

 

7  See 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).

 

8  11 U.S.C. § 101(14A), discussed in §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA, 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA and 552.1 [ Domestic Support Obligations: § 523(a)(5) ] § 159.5  Domestic Support Obligations: § 523(a)(5).

 

9  See § 552.1 [ Domestic Support Obligations: § 523(a)(5) ] § 159.5  Domestic Support Obligations: § 523(a)(5).

 

10  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).

 

11  See § 554.1 [ Willful or Malicious Injury: § 1328(a)(4) ] § 159.7  Willful or Malicious Injury: § 1328(a)(4). See, e.g., Ray v. Ray (In re Ray), Nos. 07-31298, 07-3032, 2008 WL 2152193, at *3 (Bankr. W.D. La. May 19, 2008) (unpublished) (Hunter) (At hardship discharge or conversion to Chapter 7, damage caused when debtor abandoned rental property, leaving nine cats and a dog locked inside, would be nondischargeable willful and malicious injury; this damage to property will be dischargeable at completion of payments in the Chapter 13 case. “Plaintiff is entitled to its claim for $18,000.00 in damages. Here, however, it is limited to that claim being amended to be paid the low .037 dividend due the other unsecured creditors according to the Chapter 13 plan. This result is a travesty. Creditors similarly situated should object to confirmation on the basis of bad faith. . . . [T]he debtors may not discharge this claim under the hardship discharge provisions of 11 U.S.C. § 1328(b); but in the event this case is converted to one under Chapter 7 the debt to plaintiff is non-dischargeable, and further, the debt is to be deemed non-dischargeable in the event debtors seek relief under Chapter 7 in a subsequent separate case.”).

 

12  See § 553.1 [ Student Loans: § 523(a)(8) ] § 159.6  Student Loans: § 523(a)(8).

 

13  11 U.S.C. § 523(a)(9), discussed in § 555.1 [ Boating or Flying while Intoxicated: § 523(a)(9) ] § 159.8  Boating or Flying while Intoxicated: § 523(a)(9).

 

14  See 11 U.S.C. § 507(a)(10), discussed in §§ 522.1 [ The New DWI Priority ] § 136.22  The Driving or Boating while Intoxicated Priority after BAPCPA and 555.1 [ Boating or Flying while Intoxicated: § 523(a)(9) ] § 159.8  Boating or Flying while Intoxicated: § 523(a)(9).

 

15  See § 348.1 [ Criminal Restitution and Criminal Fines ] § 158.4  Criminal Restitution and Criminal Fines.

 

16  See §§ 345.1 [ Alimony, Maintenance or Support ] § 158.1  Alimony, Maintenance or Support and 552.1 [ Domestic Support Obligations: § 523(a)(5) ] § 159.5  Domestic Support Obligations: § 523(a)(5).

 

17  11 U.S.C. § 523(a)(16).

 

18  See §§ 403.1 [ Property of the Chapter 13 Estate—New Ins and Outs ] § 46.2  Property of the Chapter 13 Estate—Changes by BAPCPA, 431.2 [ Pension Loans Exception ] § 58.10  Pension Loans Exception after BAPCPA, 491.1 [ Pension Loan Repayments ] § 99.4  Pension Loan Repayments and 492.1 [ Employee Benefit Plan Contributions ] § 99.5  Employee Benefit Plan Contributions.

 

19  See 11 U.S.C. §§ 523(a)(18) and 1328(b). See, e.g., Lee v. Birmingham (In re Lee), Nos. 07-02643-TOM-13, 07-00155, 2008 WL 2246917 (Bankr. N.D. Ala. May 29, 2008) (unpublished) (Mitchell) (Without determining whether loan from pension fund is “debt” or whether proof of claim must be filed by retirement system—and without specific limitation to hardship discharge under § 1328(b)—pension loan is not dischargeable under § 523(a)(18).).

 

20  See 11 U.S.C. § 1322(f), discussed in §§ 461.1 [ Pension Loan Repayment: New § 1322(f) ] § 87.6  Pension Loan Repayment: § 1322(f) after BAPCPA and 491.1 [ Pension Loan Repayments ] § 99.4  Pension Loan Repayments.

 

21  See § 556.1 [ Chapter 7 Trustee Compensation: § 1326(d) ] § 159.9  Chapter 7 Trustee Compensation: § 1326(d).

 

22  11 U.S.C. § 1326(d)(1), discussed in §§ 501.1 [ Order of Payments to Creditors ] § 113.8  Order of Payments to Creditors after BAPCPA, 526.1 [ Chapter 7 Trustee Compensation: New § 1326(b)(3) ] § 138.10  Chapter 7 Trustee Compensation: § 1326(b)(3) after BAPCPA, 538.1 [ Conversion to Chapter 13 after BAPCPA ] § 148.4  Conversion to Chapter 13 after BAPCPA and 556.1 [ Chapter 7 Trustee Compensation: § 1326(d) ] § 159.9  Chapter 7 Trustee Compensation: § 1326(d).