A Second Bite at The Apple: When a Debtor Can Obtain a Discharge in a Chapter 13 Case Even After Her Discharge is Denied or Re

A Second Bite at The Apple: When a Debtor Can Obtain a Discharge in a Chapter 13 Case Even After Her Discharge is Denied or Revoked in an Earlier Chapter 7 Case

Posted By Alan W. Forsley, Esq. || 24-Sep-2015

A debtor whose discharged is denied or revoked in a Chapter 7 case cannot discharge in a later Chapter 7 case claims incurred before the prior case. 11 U.S.C. §523(a)(10). However, for individuals who qualify for Chapter 13, the denial or revocation of discharge in an earlier Chapter 7 case might not preclude the granting of a so-called “super-discharge” in a later-filed Chapter 13 case.

The Bankruptcy Code describes certain types of claims that are not discharged in Chapter 13 cases. For example, certain taxes, alimony and child support, and debts found by the bankruptcy court to have been incurred through fraud are not dischargeable in Chapter 13. See 11 U.S.C. 1328 (incorporating 11 U.S.C. §523(a) (1)(B & C), (2), (3), (4), (5), (8), and (9), but not sub-sections (6), (7), and (10)).

But what about debts scheduled in a prior Chapter 7 case in which the discharge was revoked or denied? Can those be discharged in a Chapter 13 case? The answer depends on whether or not the debtor completes her plan payments. If the debtor receives a so-called “hardship” discharge under Chapter 13 prior to completing her plan payments, then the earlier Chapter 7 claims are will not be discharged. 11 U.S.C. §523(a)(10). However, if the debtor completes her plan payments, then otherwise dischargeable claims (an even some otherwise non-dischargeable claims) from the prior Chapter 7 case can be discharged by much more encompassing “super-discharge” available in the later-filed Chapter 13 case. 11 U.S.C. §1328(a).

At least one appellate court’s agrees with our reasoning and has held that a “prior declaration of non-dischargeability does not per se . . . prevent discharge of the debt” in a subsequent Chapter 13 case. In re Chaffin, 816 F.2d 1070, 1071 (5th Cir. 1987). In Chaffin, the Fifth Circuit Court of Appeals reversed two lower courts and allowed a debtor to discharge in his Chapter 13 case a debt that could not be discharged in his earlier Chapter 7 case. Rejecting a creditor’s bad faith argument, the Fifth Circuit Panel wrote:

“The debt from which Chaffin now seeks discharge is not of the kind stated to be non-dischargeable by § 1328. Congress could have easily added more exceptions to the list in § 1328(a) had it so intended.”

Thus, although a bankruptcy court may revoke or deny a discharge in a Chapter 7 case, unless the debt is not explicitly excepted from discharge in Chapter 13, it can be discharged upon consummation of a Chapter 13 plan in a later-filed Chapter 13 case.

© Alan W. Forsley, Esq. 2015