Denial of Discharge vs Exceptions to Discharge

The granting or denial of a discharge is a cornerstone in bankruptcy jurisprudence.  The discharge of one’s debts is the goal of debtors in the bankruptcy process.  However, the receipt of a discharge is not without its limitations.  Remember, a bankruptcy discharge is only for the “honest but unfortunate debtor.”  This section is dedicated the former.    

So what does it mean to be honest?  There are some bright lines of what honesty is and isn’t.  For example, lying on the bankruptcy paperwork is not honest (it is also potentially criminal).  Defrauding someone and then attempting to discharge that debt is not honest.  Neither is stealing money, breaching a fiduciary duty or perpetrating a willful and malicious injury.  However merely filing bankruptcy is not in itself dishonest.  Confused creditors oftentimes wrongly assume that their debt cannot be discharged for a number of reasons.  If those reasons aren’t on the list of non-dischargeability then the debt is discharged.

This brings us to the question of what debts cannot be discharged?  There are two broad categories of debts that aren’t discharged.  The first category are specific types of debts that are excepted from discharge.  These are set forth in 11 U.S.C. §523.  These types of debts apply in all chapters of bankruptcy (unless the chapter states otherwise).  The second category of non-discharge only applies in Chapter 7 and is when the entire discharge is denied per 11 U.S.C. §727.

It is important to understand the distinction between the exception of discharge and the denial of discharge.  The exception of discharge is where one specific debt is denied but the rest are discharged.  The denial of discharge is what is sounds like, all debts are not discharged.  It gets a little confusing because most cases filed are Chapter 7.  Oftentimes one or more creditors will file both a §523 and a §727 action in a Chapter 7 case.  Generally speaking, it is harder to prove a §727 denial of the entire discharge than a §523.  But that is difficult to quantify because there are several sections of both statutes with different burdens of proof.

Now that we get the difference between exception and denial of discharge, let’s take a quick look at the types of debts that are covered under these categories.  Under §523 the most common types of cases filed to except a particular debt from discharge are stemming from fraud, willful and malicious injury, theft, embezzlement, or breach of a fiduciary duty.  Under §727 the list is significantly shorter and similar in feel.  Nonetheless, the entire discharge can be revoked for destroying the property of the estate, concealment, improper transfers, lying, not providing information to the trustee, and not obeying a court order (very common).

Remember that the above categories are just that, categories.  Discharge litigation is complex stuff and each category has its own set of burdens and specific elements to meet.  Moreover, those elements differ by jurisdiction (i.e., Colorado vs California vs Florida etc…).  Not only do we at Cohen & Cohen, represent debtors defending these types of cases but also creditors and trustees prosecuting them.  

Call today if you need experienced representation with discharge litigation.

About the Author: Robertson Cohen

Rob Cohen is a Managing Partner of Cohen & Cohen, P.C., serving clients in Colorado and Wyoming. He’s a Chapter 7 Bankruptcy Panel Trustee, certified mediator, and has administered over 8,000 Chapter 7 bankruptcy estates.

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