Limits on Discharge in Bankruptcy Not Codified in the Bankruptcy Code, Title 11, United States Code
Released: 2010-03-24T00:00:00

Introduction

Article I, Section 8, clause 5 of the U.S. Constitution gives Congress the power to enact "uniform Laws on the subject of Bankruptcies throughout the United States." Generally, these laws are codified in Title 11 of the U.S. Code (Bankruptcy Code). Bankruptcy is a method through which financially troubled debtors can receive relief from financial pressures by discharging some or all of their debts under procedures designed to provide some protection to both debtors and creditors. Bankruptcy is often said to provide debtors with a "fresh start," eliminating their debts and allowing them to move forward. However, some debts cannot be discharged in bankruptcy. To the extent that debts cannot be discharged, debtors may be hindered in their quest for a fresh start. Although Section 523 of the Bankruptcy Code provides an extensive list of debts that cannot be discharged in bankruptcy, there are other debts whose discharge in bankruptcy is either limited or prohibited under legislation not codified in Title 11 of the United States Code.

Some concern has been expressed that confusion may result from these exceptions to discharge being found only outside of the Bankruptcy Code. It would seem that bankruptcy attorneys and judges, as well as Members of Congress, might reasonably expect to find all limitations on discharge in bankruptcy in the Bankruptcy Code. This report may provide some assistance by identifying those debts whose discharge in bankruptcy is limited but for which no limitation is specified in the Bankruptcy Code.

111th Congress

Two bills introduced in the 111 th Congress that do not propose to amend the Bankruptcy Code but would limit the dischargeability of certain debts in bankruptcy.

The first, H.R. 3962 , the Affordable Health Care for America Act, would amend the Indian Health Care Improvement Act (25 U.S.C. § 1601 et seq.). In so doing, it would leave unchanged the limitations on discharge in bankruptcy that already exist under that act and would not amend the Bankruptcy Code to include those limitations. The limitations pertain to obligations to repay Indian Health Scholarships and obligations to pay damages under the Indian Health Service Loan Repayment Program.

H.R. 4364 , the Citizen Participation Act of 2009, would make certain court-awarded fees or costs ineligible for discharge in bankruptcy under both Sections 523 and 1328 of the Bankruptcy Code. Among the fees and costs excluded from discharge would be those awarded as the result of prosecution of any claim that was finally dismissed pursuant to the act. Additionally, where subpoenas or discovery requests were quashed pursuant to the act, any resultant award of fees or costs could not be discharged. The bill includes no specific provision to amend the Bankruptcy Code.

General Nature of Provisions Limiting Discharge in Bankruptcy

Debts owed to the United States are the subject of nearly all of the limitations and outright prohibitions on discharge in bankruptcy found outside of the Bankruptcy Code. One exception to this general rule is support obligations that have been assigned to a state or municipality.

Prohibiting discharge within a five-year period is a common, though not universal, provision in these extra-Title 11 limitations on discharge in bankruptcy. However, two provisions for the Public Health Service (Title 42), which originally prohibited discharge in bankruptcy within a five-year period, have been changed to extend the prohibition for two additional years. While allowing discharge after the prescribed time has passed, the time-related provisions frequently limit such subsequent discharge to cases in which the court has found that nondischarge of the debt would be unconscionable.

Most of the extra-Title 11 provisions limit rather than prohibit discharge in bankruptcy. However, four of the provisions completely prohibit discharge in bankruptcy. These are 20 U.S.C. § 6674(f)(1)(C)(3), which pertains to the Troops-to-Teachers Program; 42 U.S.C. § 656(b), which pertains to support obligations that have been assigned to a state or municipality; 47 U.S.C. § 1104(p), which pertains to debt owed to the United States as a result of loan guarantees for local television through the Rural Utilities Service; and 50 U.S.C. app. § 547(b)(3), which pertains to debts owed to the United States as a result of life insurance premiums and interest guaranteed by the United States.

In 2006, a number of the identified provisions that relate to military pay were changed to reference the repayment provisions of 37 U.S.C. § 303a(e). This subsection reads as follows:

An obligation to repay United States under this subsection is, for all purposes, a debt owed the United States. A discharge in bankruptcy under title 11 does not discharge a person from such debt if the discharge order is entered less than five years after (A) the date of the termination of the agreement or contract on which the debt is based; or (B) in the absence of such an agreement or contract, the date of the termination of the service on which the debt is based.

Data Collection

Table 1 lists provisions that are not codified in the Bankruptcy Code but that nonetheless limit or prohibit discharge of debts in bankruptcy. The table was compiled through a series of searches using both Lexis-Nexis and Westlaw. The initial search was broad, using "bankruptcy or 'title 11'" as the search parameters in the Lexis-Nexis version of the U.S. Code. This search produced 2,235 results, the majority of which were within Title 11. Initially, it appeared that all provisions outside the Bankruptcy Code were related to either the military or intelligence communities. Titles 10 (Armed Forces), 14 (Coast Guard), 32 (National Guard), 37 (Pay and Allowances of the Uniformed Services), 38 (Veterans' Benefits), 42 (The Public Health and Welfare) and 50 (War and National Defense) were identified as the titles most likely to include such provisions; therefore the initial results were focused to search only those titles. Reviewing those results identified specific language pertaining to the effect of bankruptcy on particular types of indebtedness. Three more focused searches were performed and revealed ten additional provisions outside the Bankruptcy Code. Five were found using "bankruptcy or 'title 11' and discharge w/s 'not release'"; four were found using "bankruptcy or 'title 11' w/s nondischarge"; one was found using "bankruptcy or 'title 11' w/s released w/s 'no obligation.'" These searches produced results in three additional titles of the U.S. Code: Titles 20 (Education), 25 (Indians), and 47 (Telegraphs, Telephones, and Radiotelegraphs).

These search strategies revealed 53 instances outside of title 11 in which the U.S. Code limits the effect of bankruptcy on discharge of indebtedness. Each of these is identified in Table 1 . There may be other provisions that use different terms and, therefore, were not found by the searches.

Guide to the Table

Generally, the provisions are listed in the numerical order of the title and section in which the provision is currently found. If a section was later redesignated as a different section number, the entry in the "code section" column includes both the original section number and the redesignated section number.

The first two columns of the table list the original title and code section for each provision. These are followed by the public law in which the provision was enacted and the enactment date. In some cases, the discharge limitation was included in legislation that added an entire code section. In others, the subsection limiting discharge was added at a later date. The "Date of Enactment" column indicates the date when the discharge limitation was added to the code. The "Comments" column shows the date when the code section itself was added. The existence of previous, unrelated code sections that bore the same number is noted in the "Comments" column as well.

The original language limiting discharge in bankruptcy is provided in the "Specific Language" column, even when that language has been changed by later legislation. Those changes are noted in the "Comments" column.

The subject of the relevant code section is noted at the beginning of each entry in the "Specific Language" column. Generally these notations are in brackets and are taken from either the United States Code Service or the United States Code Annotated—capitalization used is as provided in the online versions of those publications. Descriptions that do not come directly from those publications are enclosed in braces—{ }.