Discharge Under Chapter 7

A Chapter 7 discharge relieves an individual debtor from personal liability for all debts that arose before the date of the order for relief under Chapter 7, except for non-dischargeable debts. The “order for relief” means the date on which the debtor filed her bankruptcy petition. (11 USC Sec. 767(b), Sec. 301(b); Cal. Prac. Guide: Bankruptcy ¶22:830-1 (Rutter Group 2018.)

In terms of what “debt” is discharged, “debt” means any liability on a claim. (11 USC Sec. 101(12).) “Claim” means a right to payment, whether or not it is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. (11 USC Sec. 101(5).) This “broadest possible definition of ‘claim’ is designed to ensure that all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case. (In re Ybarra (2005) 424 F.3d 1018, 1022.)

Discharge in Bankruptcy: 11 U.S.C. Sec. 523(a)(3)(A) excepts from the bankruptcy discharge debts neither listed nor scheduled in time to permit timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time to timely file a claim.

An unscheduled debt can be discharged in a Chapter 7 bankruptcy case. In a no asset, no claims bar date Chapter 7 case, an omitted debt that is of a type covered by 11 U.S.C. Sec. 523(a)(3)(A), is discharged pursuant to 11 U.S.C. § 727. Beezley v. California Land Title Co., 994 F.2d 1433, 1434 (9th Cir. 1993).

Non-Dischargeable Debts

Non-dischargeable debts are listed in section 523.... (In re Marriage of Henderson (1990) 225 Cal.App.3d 531, 534.) 11 U.S.C. Sec. 523 and include such debts as:

• Consumer debts owed to a single creditor and aggregating more than $675 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be non-dischargeable;
• Cash advances aggregating more than $950 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be non-dischargeable;
• A domestic support obligation;
• An obligation to repay funds received as an educational benefit, scholarship, or stipend;
• any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;
• For death or personal injury caused by the debtor's operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance;

11 U.S.C. Sec. 523

Debtor's Duties Under the Code — Schedules and Notice

“[T]he bankruptcy code place[s] an affirmative duty on [the debtor] to schedule his assets and liabilities... the debtor has a duty to prepare schedules carefully, completely, and accurately.” (M & M Foods, Inc. v. Pacific American Fish Co., Inc. (2011) 196 Cal.App.4th 554, 563-564.) “[I]t is very important that a debtor's bankruptcy schedules and statement of affairs be as accurate as possible, because that is the initial information on which all creditors rely.” (Hamilton v. State Farm Fire & Cas. Co. (9th Cir. 2001) 270 F.3d 778, 785.) “These matters are at the heart of the bankruptcy system, and their importance ... can hardly be understated.... The proper operation of the bankruptcy system depends on honest reporting.” (In re Mohring (E.D. Ca. 1992) 142 B.R. 389, 394.)

The Bankruptcy Code provides that a discharge of a debtor:

1. “voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged . . .; [¶] [and]
2. operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor . . . ."

(Forsyth v. Jones (1997) 57 Cal.App.4th 776, 780-81 citing Sec. 524(a).)

However, the "discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt." (Id., citing Sec. 524(e).)

“Together, the language of these sections reveals that Congress sought to free the debtor of his personal obligations while ensuring that no one else reaps a similar benefit.” (Forsyth, supra, 57 Cal.App.4th at 781 citing Green v. Welsh (1992) 956 F.2d 30, 33.) “Thus, it is clear that, following discharge, a plaintiff or other creditor may not seek to hold the debtor personally liable for any debt, but may proceed against either a co-debtor or a surety or guarantor who guaranteed the debtor's payment of that debt.” (Id.)

Cost and Fees of Bankruptcy Litigation

A debtor is discharged from personal liability for costs and attorney fees resulting from pre-petition litigation and pre-bankruptcy acts, including liability for the attorney and costs associated with those events. (In re Ybarra (9th Cir. 2005) 424 F.3d 1018; Siegel v. Federal Home Loan Mortg. Corp. (9th Cir. 1998) 143 F.3d 525.)

However, a debtor who chooses to pursue post-petition litigation may run the risk of being liable for post-petition costs. The discharge may serve as a shield apparently, but not as a sword. (See In re Ybarra, 424 F.3d 1018, 1024 (“we have held that post-petition attorney fee awards are not discharged where post-petition, the debtor voluntarily ‘pursue[d] a whole new course of litigation,’ commenced litigation, or ‘return[ed] to the fray’ voluntarily.... We have also endorsed the notion that by voluntarily continuing to pursue litigation post-petition that had been initiated pre-petition, a debtor may be held personally liable for attorney fees and costs that result from that litigation”); see Siegel, 143 F.3d 525, 533.)