Community Discharge:
Subsection (a) of 11 U.S.C. §524 addresses the split
discharge, when only one spouse attains a discharge in
bankruptcy, in community property states. The legislative
history of this section says that "if community property was
in the [bankruptcy] estate and community claims were
discharged, the discharge is effective against the community
creditors of the nondebtor spouse as well as of the debtor
spouse. House Report No. 95-595, 95th Cong., 1st Sess.
365-6 (1977), Senate Report No. 95-989, 95th Cong., 2d Sess.
80 (1978). § 524(a)(3) treats the effect on the nondebtor
spouse of a discharge of a debtor in a community property
state when the nondebtor spouse is liable on the community
claim, but has not filed a bankruptcy petition. That is, if
one spouse in a community property state has commenced a
bankruptcy case where, as here, no claim is excepted from
the debtor's discharge and is not otherwise found to be
nondischargeable, and if the nondebtor spouse would not
have had a claim excepted from her discharge in a
hypothetical case commenced on the same day as the
commencement of the debtor's case, then the creditors of
either spouse holding community claims on the date of
bankruptcy are thereafter barred from asserting claims
against after acquired community property. It was the duty
of the scheduled creditors in the Braden Jay Karber
bankruptcy proceedings to object to the hypothetical
discharge of Valerie Karber, as the nondebtor spouse, within
the same time limits as their objections to the discharge of
Braden Jay Karber. 11 U.S.C. § 524(b). No such objections
were filed and thus all community creditors before the Court
in that case are now barred from seeking to collect their
deficiencies from the after acquired community property
of either Braden Jay Karber or Valerie Karber. In re Karber
25 B.R. 9, 12 (Bkrtcy.Tex.,1982) See also In re Dyson 277
B.R. 84 (Bkrtcy.M.D.La.,2002)
Branigan v. Bateman, No.
07-1030, 07-1307 (4th Cir Ct App, 2/4/08)
Orders denying motions to dismiss Chapter 13 petitions and
confirming debtors' plans are affirmed over claims that,
since the debtors are ineligible for discharges under 11
U.S.C. section 1328(f), they should not be allowed to file a
Chapter 13 petition. Not bad faith to file case where
no discharge can be entered. Time frame for filing
runs from date of Petition to date of Petition, not date of
discharge.
Creditor not listed in
chapter 7 bankruptcy, discharge entered - omission was unintentional:
9th Cir. No asset, ct declined to reopen – no need
to reopen because creditor suffered no prejudice; bankruptcy
proof of claim deadline has not come and gone.
In re Beezley, 994 F.2d 1433 (9th Cir. 1993)
see also State of Texas v Walker,
(5th
Circ 1998) - endorsed Beezley.
The First Circuit contrasted the Ninth Circuit's approach
with the Seventh Circuit's decision in In re Stark,
717 F.2d 322 (7th Cir. 1983) and went with the Seventh
Circuit's analysis. 2009 the First Circuit held that where
a claim is not listed and the creditor is not notified of
the bankruptcy, and does not otherwise learn of the
bankruptcy, the debt is not discharged due to section
523(a)(3)(A). Colonial Sur. Co. v. Weizman, 564 F.3d
526 (1st Cir. 2009). The First circuit recognized that the
Ninth Circuit had adopted a version of the "no harm, no
foul" approach to the discharge of unlisted claims in no
assets cases, which most circuits have followed as in
Beezley.
In re Lasko - failure to list
creditor, if no asset then debt is discharged.
In re Nielsen (09/07/04 - No.
02-35983, 9th Cir Ct. Apps) Failure to list a creditor in a
no-assets, no-bar-date Chapter 7 bankruptcy does not justify
revocation of the discharge.
http://caselaw.lp.findlaw.com/data2/circs/9th/0235983p.pdf
MCGHAN v. RUTZ (05/07/02 - No.
99-56956) (9th Cir Ct Apps) State courts lack 1)
jurisdiction to determine whether a listed and scheduled
creditor received adequate notice of discharge proceedings and
2) authority to modify bankruptcy court orders discharging a
claim and enjoining collection on a debt; bankruptcy court was
required to reopen proceedings to protect jurisdiction over
enforcement of its own orders.
http://caselaw.lp.findlaw.com/data2/circs/9th/9956956p.pdf
IN THE MATTER OF MCGEE (12/23/03 -
No. 032297) (U.S. 7th Circuit Court of Appeals)
Having demanded and
received a security deposit under statutory terms designed to
ensure that the money would be available for return to the
tenants if they kept their own promises, the landlord was
obliged to act as the tenants' fiduciary in investing and
preserving the funds. Her making off with the money was an act
of defalcation disqualifying her from a discharge per
Bankruptcy Code section 523(a)(4).
http://caselaw.lp.findlaw.com/data2/circs/7th/032297p.pdf
IN RE: HARLESTON (06/05/03 - No.
02-55770) (9th Cir) The California Board of
Equalization waived its sovereign immunity by filing a proof
of claim in a previous bankruptcy proceeding, thus the debt to
the Board was discharged. http://caselaw.lp.findlaw.com/data2/circs/9th/0255770p.pdf
WALLS v.
WELLS FARGO BANK, N.A. (01/08/02 - No. 00-17036)(9th
Cir. Ct App) There is no implied private right of action for
violations of 11 USC 524, which enjoins debt collection
against a debtor after a discharge in bankruptcy, nor may a
debtor file a simultaneous claim under the Fair Debt
Collections Practices Act.
http://caselaw.lp.findlaw.com/data2/circs/9th/0017036p.pdf
STRATOSPHERE
LITIG. LLC v. GRAND CASINOS, INC. (08/13/02 - No. 01-15947) (9th
Cir Ct App) In a contract dispute, one party's obligation to
fund an escrow account (a concurrent condition) was discharged
when the other party, charged with raising additional equity,
filed for bankruptcy, and a third-party beneficiary's claims
are subject to that defense.
http://caselaw.lp.findlaw.com/data2/circs/9th/0115947p.pdf
THE STATE BAR OF CALIFORNIA v.
TAGGART (05/10/01 - No. 99-56343) Costs of attorney
disciplinary proceedings brought by California State Bar are
compensation for the bar's pecuniary loss and are thus
dischargeable in bankruptcy under 11 USC 523(a)(7).
http://caselaw.lp.findlaw.com/data2/circs/9th/9956343p.pdf
How to Obtain a Hardship Discharge in Chapter 13
By:
Peter M. Lively petermlively@aol.com And: Hillary C. Coleman
The loss of so
many jobs in the current recession will negatively impact
many debtors who are making plan payments pursuant to their
confirmed Chapter 13 plans but have yet reached plan
completion.
Post-confirmation Chapter 13 debtors who experience a
decrease in disposable income may become eligible for either
conversion to Chapter 7 or a Chapter 13 hardship discharge.
In circumstances where debtors have not incurred
post-petition debt that may be discharged in a case
converted to Chapter 7, it is most advantageous for them to
proceed with a request for hardship discharge.
Obtaining a
hardship discharge under 11 U.S.C. section 1328(b) helps
debtors to become eligible for a subsequent Chapter 7 or 13
discharge two (2) years earlier than they would be if they
converted their case and received a Chapter 7 discharge. See
Discharge Analysis article in last issue of CDCBAA’s
Newsletter.
A motion
brought under 11 U.S.C. section 1328(b) is made on grounds
that (1) the debtors are not able to complete the payments
under their Plan due to circumstances for which they should
not be held accountable, (2) creditors have received more
than would have been paid under a hypothetical liquidation
of debtors’ estate, and (3) modification of the Plan is not
practicable. Such a motion should set forth facts supporting
lack of accountability on the debtors’ part for the hardship
circumstances and a discharge analysis, evidenced, of
course, by declarations, then quote and cite the statute,
and finally, explain why debtors’ particular facts and
circumstances meet each of the elements of the statute.
For example,
where one spouse in a joint case (“Husband”) has lost his
job, has been unable to secure replacement income and is
receiving unemployment benefits that do not provide
sufficient disposable income to pay the existing or a
modified plan payment, an example of a format for such
motion is:
MEMORANDUM OF POINTS AND AUTHORITIES
I.
INTRODUCTION/STATEMENT OF FACTS.
Debtors WARREN
WAGE EARNER (“HUSBAND”) and SALLY SALARIED (“WIFE”)
(collectively “Debtors”) filed their joint petition as
husband and wife under Chapter 13. Debtors’ Chapter 13 Plan
was confirmed on [date], 2008. Debtors remained current with
their plan payments of $1,500.00 through [date], 2008. See
Declaration of HUSBAND, attached hereto and incorporated
herein by reference (“HUSBAND Dec.”).
Unfortunately,
Debtors have suffered some unexpected consequences since the
filing of their case. Specifically, HUSBAND, a widget
installer, was laid off from his job in late [date], 2008.
He received just two weeks’ severance pay, and now receives
only $1,250.00 per month in unemployment benefits. While he
has been seeking, and continues to seek, gainful employment,
the negative impact of the current economic crisis on the
job market is evident. As of even date, HUSBAND has been
unable, despite his diligent efforts, to secure new
employment. HUSBAND Declaration:
HUSBAND was
the primary wage earner for the household, earning base pay
of $3,000.00 per month. WIFE earns a gross salary of only
$2,500.00 per month. Debtors’ household expenses far exceed
WIFE’s salary, and there is certainly no excess available
with which to make plan
payments of $1,500.00. Debtors’ plan was premised on
contributions by both spouses. Without the income from
HUSBAND’s employment, Debtors cannot possibly meet their
obligations under their confirmed Chapter 13 Plan. HUSBAND
Dec.
A liquidation analysis of
the case shows that Debtors have already paid more to their
unsecured creditors under their Chapter 13 Plan than such
creditors would receive if the case proceeds as a Chapter 7.
See Declaration of ATTORNEY FOR DEBTORS, attached hereto and
incorporated herein by reference. Under these
circumstances, a hardship discharge is warranted.
II.
A HARDSHIP DISCHARGE IS WARRANTED HERE BECAUSE THE DEBTORS
ARE NOT ABLE TO COMPLETE THE PAYMENTS UNDER THE PLAN,
CREDITORS HAVE RECEIVED MORE THAN WOULD HAVE BEEN PAID UNDER
A HYPOTHETICAL LIQUIDATION OF DEBTORS’ ESTATE, AND
MODIFICATION OF THE PLAN IS NOT PRACTICABLE.
Under certain limited
circumstances, the Bankruptcy Code provides for entry of a
discharge order despite failure to pay all of the plan
payments. Specifically, 11 U.S.C. section 1328(b) provides:
Subject to subsection (d)2,
at any time after the confirmation of the plan and after
notice and a hearing, the court may grant a discharge to a
Debtor that has not completed payments under the plan only
if–
(1) the Debtor’s failure to complete such payments is due to
circumstances for which the Debtor should not justly be held
accountable;
(2) the value, as of the effective date of the plan, or
property actually distributed under the plan on account of
each allowed unsecured claim is not less than the amount
that would have been paid on such claim if the estate of the
Debtor had been liquidated under chapter 7 of this title on
such date; and
(3) modification of the plan under section 1329 of this
title is not practicable.
Debtors’ circumstances
here fall squarely within the statute. First, HUSBAND was
laid off by his employer. This has eliminated HUSBAND’s
ability to contribute to household expenses, including the
plan payments. HUSBAND has attempted to secure new
employment, but his efforts have been unsuccessful. This is
certainly a situation that is beyond HUSBAND’s control, and
accordingly, Debtors’ resulting inability to make their plan
payments is a circumstance for which Debtors should not
justly be held accountable. Thus,
one condition for a hardship discharge, as set forth in 11
U.S.C. section 1328(b)(1), is met.
Second, a hypothetical Chapter 7 liquidation would yield nothing
for general unsecured creditors. Thus, another condition for
a hardship discharge, as required by 11 U.S.C. section
1328(b)(2), is met here.
Finally, a modification of Debtors’ plan is pointless here as their
current household income falls so far below their household
expenses that there is clearly no means by which to modify
the Chapter 13 Plan feasibly. Thus, all conditions for
hardship discharge, including impracticability of
modification of the Plan, required under 11 U.S.C. section
1328(b)(3) are met here.
Under these circumstances, 11 U.S.C. section 1328(b) permits this
honorable Court to enter a discharge order.
Conclusion
When, as here, the value paid into the plan is no less than a
hypothetical Chapter 7 liquidation payment to general
unsecured creditors, and Debtors’ reduced income resulting
from unexpected and uncontrollable separation from
employment make further plan payments and plan modification
infeasible, the Bankruptcy Code permits this honorable Court
to enter a discharge order. Debtors respectfully request
that the Court grant them a discharge.
Dated:
Respectfully submitted,
COUNSEL FOR DEBTOR
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