Chapter 7 Discharge & Chapter 13 Discharge - What's the Difference?

Once upon a time, the discharge available to debtors at the conclusion of a chapter 13 bankruptcy plan was known as a "super-discharge" as it ended personal liability on significantly more debts that its counterpart in chapter 7. Today, after the 2005 bankruptcy law (BAPCPA), the chapter 13 discharge isn't so super anymore. Nevertheless, it is not identical to the chapter 7 discharge in scope. This post considers what is dischargeable in chapter 13 bankruptcy, and highlights some notable differences with chapter 7.

For most debtors, the most important difference between the two discharges is that chapter 7 discharges come relatively quickly (a matter of months from filing) while chapter 13 discharges occur after conclusion of plan payments (generally 3 to 5 years). There are other benefits to chapter 13, including fixing problems with secured loans and paying priority debts over time.

As an overview, the following are expressly non-dischargeable under the chapter 13 discharge:

1. Certain Taxes: Taxes without returns (or in some cases late returns), evaded taxes, and certain liabilities for withholding taxes.
2. Domestic Support: Domestic support obligations are non-dischargable, including alimony and child support.
3. Student Loans: Student loans are not discharged in almost all cases.
4. Fraudulent Debts: Debts incurred by defrauding the creditor as to the debtor's financial condition are non-dischargeable. This category presumptively includes certain cash advances and purchases of luxury goods on credit prior to bankruptcy. Also non-dischargeable are debts from fiduciary fraud, embezzlement, or larceny. These debts are only non-dischargeable if the creditor obtains a determination of such in a dischargeability adversary proceeding.
5. Liability from Certain Wrongdoing: Debts owed for willful and malicious injury where damages or restitution have been awarded in a lawsuit for personal injury or death are non-dischargeable. Additionally, the discharge does not end liability from driving while intoxicated.
6. Improperly listed debts: Unlisted or improperly listed debts that impede the creditor's ability to file a proof of claim are non-dischargeable.
7. Criminal Fines and Restitution: Criminal fines are not discharged. Additionally, certain criminal restitution payments are non-dischargeable.
8. Cure and Maintain Debts: If a plan provided for cure and maintain on a long-term obligation, personal liability on that obligation is not discharged in chapter 13. Most frequently, this would include a residential mortgage where payments will continue after the plan.

In contrast to debts not discharged in chapter 7, one observes that chapter 13 does not restrict as non-dischargeable the following debts:

1. Certain recent taxes (but not a collection or withholding liability), as well as debts incurred to pay taxes.
2. Payments associated with divorce or martial separation not characterized as support, such as a property settlement.
3. Debts associated with willful and malicious injury to another, except those where damage or restitution have been awarded in a lawsuit for personal injury or death.
4. Fines and penalties payable to a government unit, but not criminal fines.
5. Debts dating from a previous bankruptcy where the debtor's discharge was denied.
6. Certain post-petition HOA fees. While Chapter 13's discharge does not incorporate the limit on HOA fee discharge associated with chapter 7, a number of factors are at play in determining whether a chapter 13 debtor is responsible for payment of these fees.
7. Retirement plan loans, such as 401(k) loans

In addition, certain debts concerning prisoner court fees, debts incurred for federal elections fines, securities fraud, and certain depository institution related misconduct are dischargeable in chapter 13 but not in chapter 7. Non-dischargeable restitution is defined somewhat differently between the chapters.

If a debtor receives a hardship discharge prior to completing a chapter 13 plan, that hardship discharge has a scope similar to that of a chapter 7 discharge. Additionally, the hardship discharge does not eliminate personal liability on cure-and-maintain type long-term debts as provided for in the chapter 13 plan.

The discharge of recent taxes is a benefit with an important practical qualification. As recent taxes subject to discharge in chapter 13 are also priority claims, the chapter 13 plan would have proposed paying them in full over the course of the plan. In order for these tax claims to remain unpaid to be discharged at the end of a chapter 13 plan, some intervening event would have had to occur. Notable situations involve certain problems with the taxing authority's proof of claim.