There are many factors that go into this decision-making. Among the factors is one that I want to look at closely in this blog: debts that may not be discharged in a chapter 7 case can be discharged in a chapter 13 case. The operation of the discharge in chapter 13 of debts not discharged in chapter 7 is called the chapter 13 “super” discharge. The ability of chapter 13 to discharge debts that cannot be discharged in a chapter 7 case is something that clients should consider as they decide whether to file a chapter 7, or a chapter 13 bankruptcy case.
WHY DOES THE “SUPER” DISCHARGE EXIST?
Why are there some debts that can be discharged in a chapter 13 that are not subject to discharge in a chapter 7 case? The answer is that, at one time, Congress wanted to encourage an increase in chapter 13 cases. Congress found that most people sought the benefits of the liquidation theory of chapter 7 bankruptcy – the chapter 7 discharge comes within months of filing; the chapter 13 discharge, years. Chapter 7 has typically been the bankruptcy chapter that is less expensive in terms of attorney fees. And chapter 7 carries with it a “no strings attached” scenario – the chapter 7 debtor doesn’t have to make payments on discharged debt after the chapter 7 case is filed.
Chapter 13 is slower, more expensive and the chapter 13 debtor has to commit to make monthly payments to pay at least a portion of the debt owed. Since chapter 13 wasn’t as popular as chapter 7, in 1978 Congress created the super discharge – it was a “carrot,” so to speak, to encourage people to file a chapter 13 bankruptcy.