Nondischargeable Debts in Chapter 13 Cases

We all know that section 523 contains exceptions to discharge, but some of those nondischargeable debts, including 523(a)(6) debts (for willful and malicious injury) CAN BE discharged in a chapter 13 case when the debtor completes plan payments.   If you represent creditors, you need to know how and when to seek nondischargeability under 523(a)(6) in chapter 13 cases.

Look at the first sentence in 523(a):  “A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from” the debts listed in 523(a).

There are two discharge options in a chapter 13 case:

  • the debtor can get a discharge upon completion of plan payments under 1328(a); or
  • if the debtor has not completed plan payments, s/he can still get a so-called hardship discharge under 1328(b) if certain conditions are met.

Read the first sentence of 523(a) again – those 523(a) debts are nondischargeable only if the debtor gets a discharge under 1328(b) – the hardship discharge.  So what can be nondischargeable if the debtor completes plan payments?

The list of nondischargeable debts in completed chapter 13 cases is contained in 1328(a).  Upon completion of plan payments, if the debtor certifies that s/he is current on DSO payments, the debtor gets a discharge of all debts provided for by the plan except debts:

  • (1) Provided for under 1322(b)(5) (cure defaults and maintain payments on long-term debts);
  • (2) Of the kind listed in:
    • 523(a)(1)(B) (taxes owed under late-filed returns)
    • 523(a)(1)(C) (taxes from fraudulent tax returns or tax evasion)
    • 523(a)(2) (fraud; false financial statements)
    • 523(a)(3) (unscheduled or late-scheduled debts)
    • 523(a)(4) (fraud or defalcation as a fiduciary; embezzlement)
    • 523(a)(5) (DSO’s)
    • 523(a)(8) (student loans)
    • 523(a)(9) (death or personal injury from DUI);
  • (3) For restitution or criminal fine included in a debtor’s conviction; or
  • (4) For willful or malicious injury that caused personal injury or death of another person.

Note that 523(a)(6) debts are not excepted from discharge if the debtor completes plan payments under 1328(a).  Those can be discharged (unless they are for willful or malicious injury that caused personal injury or death under 1328(a)(4)).  Also, the 60-day deadline for filing a 523(a)(6) complaint doesn’t apply.

Yes, section 523(c)(1) and Bankruptcy Rule 4007(c) require the creditor to seek a determination of nondischargeability under 523(a)(2), (a)(4), and (a)(6) by filing a complaint no later than 60 days after the first date set for the 341 meeting.

But look at Rule 4007(d), “Time for Filing Complaint Under § 523(a)(6) in a Chapter 13 Individual’s Debt Adjustment Case; Notice of Time Fixed.”  When the debtor files a motion for a discharge under section 1328(b) (the hardship discharge), the court shall enter an order fixing the time for filing a complaint under 523(a)(6) and shall give no less than 30 days’ notice of the deadline.

Creditors attorneys, when you have a claim for willful and malicious injury to property, such as a claim that the debtor sold collateral and failed to pay the proceeds to the secured creditor, use caution in filing a 523(a)(6) complaint in a chapter 13 case just because you are accustomed to the 60-day deadline in chapter 7 cases.  Think about Rule 9011(b)(2), that when you file the complaint you are representing to the court that the claims and legal contentions are warranted by existing law (or you have a nonfrivolous argument for changing existing law or establishing new law).

There may be reasons why a 523(a)(6) complaint would be filed early in a chapter 13 case.  For example, where the same facts support a 523(a)(2) and a 523(a)(6) determination, or if the 523(a)(6) complaint is intertwined with an objection to plan confirmation, it makes sense to have one trial and resolve all factual matters.  But I think it would be prudent to acknowledge in the complaint that a finding of nondischargeability under 523(a)(6) would be effective only if the debtor gets a hardship discharge.  Then let the court decide whether the matter is ripe or not.

 

 

2 comments

  1. Yes, good point. Same thing with property settlements or other non-DSO divorce-related debts under 523(a)(15). Debtors’ attorneys need to know that those can be discharged in a completed chapter 13 case so they can help their clients choose the best chapter under which to file, and attorneys for the former spouses need to know those debts can be discharged and decide what action, if any, to take to protect their interests (object to confirmation, seek dismissal or conversion, etc.). Thanks.

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