Bankruptcy Code Section 1192(2) of Subchapter V provides that a plan confirmed under Section 1191(b) does not discharge the debtor from debts of the kind specified in Section 523(a), making no reference to the type of debtor. Section 523(a), however, famously applies only to individual debtors, not entities. Courts are trying to decide if Section 1192(2) applies to entities or just individuals.
Nothing is completely settled under Subchapter V. A significant shift in Chapter 11 jurisprudence, In re Cleary ostensibly held that fairness and equity, not necessarily the statutory language, required that Section 1192(2)'s discharge exceptions apply to both individual and entity debtors. Other courts, however, have refused to follow what they contend is flawed reasoning to achieve a satisfying result.
Fact sensitive and often alleging fraud, dischargeability litigation is expensive, difficult to settle, and usually renders judgments uninsurable. While creditors might see Cleary as creating leverage, others may see a threat to the viability of Subchapter V.
Listen as our panel of trailblazing bankruptcy attorneys discusses the intersection of Subchapter V and Section 523, and what strategies are needed to maximize both the debtor's fresh start and creditor recovery.
