Commuting the Bankruptcy Death Sentence

08 Sep Commuting the Bankruptcy Death Sentence

The denial of a Chapter 7 discharge under Section 727 is sometimes referred to as the “bankruptcy death sentence.” One way to cope after being denied a Chapter 7 discharge or having specific debts held nondischargeable was to try a Chapter 13. However, after the 2005 BAPCPA amendments, the scope of the Chapter 13 discharge has narrowed. While formerly it had encompassed many debts that were nondischargeable in Chapter 7–such as debts incurred by fraud–now the additional debts covered by the Chapter 13 discharge are few. However, one type of debt that is still dischargeable in a Chapter 13 but nondischargeable in a Chapter 7 is one incurred through the willful and malicious injury to another’s person or property under Section 523(a)(6). That section is not mentioned in the limiting language of Section 1328(a). Personal injury damages are to an extent excluded from the Chapter 13 discharge by Section 1328(a)(4). So, the exception in most cases will be limited to situations in which a debtor has incurred a debt through willful and malicious injury to a property interest.

In these difficult situations, Chapter 13 can be a tempting oasis, but not a guaranteed safe harbor. If one files a Chapter 13 case after finding of nondischargeability under Section 523(a)(6), the affected creditor can still file a motion to dismiss and an objection to confirmation of the debtor’s plan on the grounds that it is filed in bad faith. These objections have often met with success when is only trying to deal with one creditor. See, e.g., In re Haque, 334 B.R. 486, 490 (Bankr.D.Mass.2005) (Judge Rosenthal denying confirmation after the court determined that the debtors’ sole motivation in filing the Chapter 13 case was to defeat state court litigation and avoid repayment of a single debt). Having many debts to discharge is ironically better for a debtor–it is seen as a legitimate reorganization instead of an attempt to defeat one creditor. Even when all or some of the applicable debts are owed to one creditor, it can sometimes be a debtor’s last, best chance to try a Chapter 13. However, such a case will normally be a real battle, and whether to confirm a plan will be almost entirely in the discretion of the judge.

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Nicholas Ortiz, Boston Bankruptcy Attorney

From Attorney Ortiz: We have been helping consumers and small businesses in Massachusetts successfully navigate through the bankruptcy process since 2002. We offer free initial consultations and payment plans. Call us at 617-716-0282 to discuss your debt relief options. Mention the Bankruptcy Law Network when you call!
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