Two Paths to Discharge
The Subchapter V discharge depends entirely on how the plan was confirmed:
| Confirmation Path | Discharge Timing | Discharge Scope |
|---|---|---|
| 1191(a) - Consensual | Upon confirmation | Broad (standard Ch. 11 scope) |
| 1191(b) - Cramdown | After completing all plan payments | Narrower - Section 523(a) exceptions apply |
This difference creates a powerful incentive for debtors to negotiate with creditors for consensual acceptance. An early, broad discharge is far preferable to waiting 3-5 years for a narrower discharge.
Section 1192 - The Cramdown Discharge
Section 1192 governs the discharge in cramdown cases. After the debtor completes all payments required under the plan, the court grants a discharge of all debts provided for in the plan except those listed in Section 523(a).
Debts that survive the cramdown discharge include:
- Fraud - Section 523(a)(2): debts obtained through false pretenses, fraud, or false financial statements
- Willful injury - Section 523(a)(6): debts for willful and malicious injury to person or property
- Domestic support - Section 523(a)(5): alimony, child support, and other domestic support obligations
- Taxes - Section 523(a)(1): certain tax debts
- Student loans - Section 523(a)(8): educational loans (unless undue hardship is proven)
- DUI injuries - Section 523(a)(9): death or personal injury caused by intoxicated driving
This is a significant limitation. Under consensual confirmation, these exceptions do not apply to the Chapter 11 discharge. The cramdown path exposes the debtor to discharge litigation on these categories of debt.
Completing Plan Payments
For cramdown cases, the discharge does not enter until the debtor has completed all payments required by the plan. The plan period is 3 to 5 years. During this time, the debtor must:
- Make all scheduled payments to creditors
- Remain current on domestic support obligations
- Cooperate with the Subchapter V trustee's oversight
- File required reports (operating reports, tax returns)
If the debtor fails to complete payments, the case may be dismissed or converted. In limited circumstances, a hardship discharge may be available - though this remains an unsettled legal question in Subchapter V.
The Discharge Incentive
The discharge timing difference creates clear strategic incentives:
For debtors: Negotiate aggressively for consensual acceptance. Even modest concessions to creditors may be worth the benefit of immediate, broad discharge.
For creditors: The threat of cramdown gives creditors leverage to negotiate better terms, but rejecting the plan may ultimately result in the same or lesser recovery over a longer period.
For the full cramdown analysis: section1192.org
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