Revisiting Those Things I Just “Know”

Muse of KnowledgeOne of the stock lines in my sermon to clients about the importance of telling the entire and complete truth in the bankruptcy schedules has been the threat of denial of discharge.

If your discharge is denied, I intone, those debts are forever non dischargeable in bankruptcy.

It’s akin to the parental threat:  the bogeyman will get you.

Jay Fleischman wrote a piece in answer to the question about a bankruptcy filing following a denial of discharge, and my reaction was:  that’s not quite the way I know it.  But there were other things to do and I left it unaddressed.

And then I actually met someone whose discharge had been denied, as a result, as far as I can see, of wretched representation by a local, experienced bumbler.  (Note that not all mistakes and outrages are committed by new lawyers…I try to be fair here.)

He needed a citation to the law that makes debts from the case where discharge was denied non dischargeable, for use in trying to settle one of the surviving debts.  So I started to dig.

We all know (don’t we?) that Chapters 1, 3, and 5 of the Bankruptcy Code apply in all bankruptcy cases.  The provisions unique to the various kinds of cases are found in the dedicated chapters 9, 11, 12, 13, and 15.

The non- dischargeability of debts included in a bankruptcy case in which discharge was denied is clear:  §523(a)(10):

(10) that was or could have been listed or scheduled by the debtor in a prior case concerning the debtor under this title or under the Bankruptcy Act in which the debtor waived discharge, or was denied a discharge under section §727(a)(2), (3), (4), (5), (6), or (7) of this title…

 

But then, take a look at the discharge provisions in Chapter 13

…the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502of this title, except any debt—

(1) provided for under section 1322(b)(5);
(2) of the kind specified in section 507(a)(8)(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of section 523(a);

Son of a gun!

The provision in §523(a)(10)that  excluded the debts from a unsuccessful Chapter 7 is NOT one of the exceptions to the Chapter 13 discharge.

Therefore, debts non dischargeable in Chapter 7 when a prior Chapter 7 resulted in denial of discharge can be discharged in Chapter 13.  The specific trumped the general.  Principles of statutory construction at work.

My flat statement about denial of discharge has been overbroad for all these years.

Another reason to read the Code and to trust but verify those things you just know.

Image from a mural at the Library of Congress courtesy of wikimedia.

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