Chapter 13 Bankruptcy and the “Super Discharge”

When you file for Chapter 13 bankruptcy rather than Chapter 7 bankruptcy, you may be able to discharge more of your debts. When the United States bankruptcy code first became binding law, Congress hoped to create incentives for people to choose filing for Chapter 13 bankruptcy and use payment plans rather than filing for Chapter 7 bankruptcy. As such, the new laws allowed for the discharge of several kinds of debts in Chapter 13 bankruptcy which would not be dischargeable under Chapter 7 bankruptcy. Because of this, Chapter 13 bankruptcy has since been referred to as a super discharge. However, the kinds of debts that can be discharged in Chapter 13 bankruptcy have been continuously reduced in the years since the law was codified. Be sure to contact a bankruptcy attorney to help you determine which bankruptcy chapter is right for you. At present, only two kinds of debts remain, and are discussed here:

Financial Obligations to an Ex-Spouse, Excluding Support

There are generally two typed of debts that result from a divorce, and they are support obligations like alimony and child support, and obligations which are not related to support. You may not discharge support obligations under any circumstances, but you may be able to discharge obligations not related to support when you file for Chapter 13 bankruptcy. The same obligations cannot be discharged in chapter 7 bankruptcy.

Non-support obligations, not surprisingly, will include any financial obligations that come from divorce but are not “support” obligations, meaning they are not spousal alimony or child support. Sometimes, non-support obligations are referred to as property settlement obligations. Usually, these kinds of obligations are requirements specified in a divorce decree, to be paid by one spouse to the other, if the first spouse has gotten more than a fair share of the marital property. In some cases, rather than being made to pay the ex-spouse, a person will be obligated to instead pay a debt incurred jointly by both spouses or even to pay one of the other spouse’s debts, if such is necessary to make the split of marital property equal. These kinds of debts can be discharged in the super-discharge offered by Chapter 13 bankruptcy.

For example, many recently divorced individuals find themselves having to file bankruptcy because although the ex-spouse was supposed to pay on certain debts according to the divorce decree and marital settlement agreement, they didn’t. A chapter 7 filing would allow the debtor to wipe out his or her individual liability to the creditor, but in many cases the ex-spouse remains a target for the creditor to collect against; because of this, an ex-spouse can ask the family law court to enforce the divorce decree and martial settlement agreement even though the debt was discharged in a Chapter 7. The ex-spouse that could pursue such an indemnification claim, can generally only due so if they’ve suffered some type of harm from the creditor that was discharged; in many cases creditors don’t bother going after an ex-spouse and so a Chapter 7 filing may be sufficient.

Financial Obligations for Willful and Malicious Injury

Any debt you owe for having caused a “willful and malicious” injury to the property another, which arises when a debtor allegedly hurts or damages another’s property recklessly or intentionally. Please note that before 2005 when the Bankruptcy Abuse Prevention & Consumer Protection Act was passed, the super discharge applied to obligations for willful and malicious injury to the person and also to property; the 2005 changes made the super discharge only applicable to willful and malicious injury to property. This kind of debt might be the product of litigation or a settlement, and happened before bankruptcy was filed.

An obligation for “willful and malicious injury” may not be discharged with Chapter 7 bankruptcy, if the party who has been injured objects to the debt being discharged; this would be done by filing an adversary proceeding. There are few cases in which the party will not object. However, these debts can in fact be “super discharged” when you file for Chapter 13 bankruptcy.

What Qualifies As a “Non-Support” Or “Willful and Malicious Injury” Debt?

The bad thing about the super discharge is that the law is not very specific on what counts as a non-support obligation or a willful and malicious injury debt. Included in the support obligations category might be debts that the divorce decree did not necessarily categorize or refer to as “non-support.” Therefore, the bankruptcy court will have to decide what debts do and do not qualify. So, a debt that might not seem on its face to be a non-support obligation may in fact be treated as one by the court. Also, differentiating a willful and malicious injury from a negligently caused injury can be difficult.

Further, both of these discharge categories tend to involve those situations in which emotions run high, and so creditors might not be too keen on someone trying to discharge these kinds of debts. If that’s the case, the creditor will fight the debtor’s attempt to have the debts discharged; this inevitably increases costs for the debtor due to litigation.

The decision to file for Chapter 13 bankruptcy as a way to eliminate part or all of a divorce decree, or as a means to avoid accusations of having acted willfully and maliciously in injuring someone, will inevitable involve certain unpleasant issues or feelings. As such, you should talk with a qualified bankruptcy attorney before you put your unwavering faith in the Chapter 13 bankruptcy “super-discharge.”