11 U.S.C. Section 1192 - Discharge in Subchapter V

What Is Section 1192?

Section 1192 grants the discharge to a debtor whose plan is confirmed under Section 1191(b) (the nonconsensual cramdown path). The discharge is entered after the debtor completes all payments due within the first 3 to 5 years of the plan, as fixed by the court. For consensually confirmed plans under Section 1191(a), discharge is entered on the effective date by operation of Section 1141(d), not Section 1192.

Section 1192 is one of the most novel features of the Small Business Reorganization Act. It extends a discharge to entity debtors (corporations and limited liability companies), which is not generally available in standard Chapter 11 liquidating plans, and it does so on terms that have generated significant litigation.

Scope of the Discharge

Section 1192 provides that the court "shall grant the debtor a discharge of all debts provided in section 1141(d)(1)(A) of this title, and all other debts allowed under section 503 of this title and provided for in the plan, except any debt—"

• 1192(1): On which the last payment is due after the first 3 years of the plan (or such longer period not to exceed 5 years fixed by the court); or
• 1192(2): Of the kind specified in section 523(a).

The first exception is a "long-tail" carve-out for debts the plan extends beyond the 3-to-5-year period. The second exception incorporates the standard 523(a) categories of nondischargeable debts (fraud debts, taxes, domestic-support obligations, willful and malicious injury, and so on).

The Corporate-Debtor Discharge Question

A central interpretive question under Section 1192 is whether the cross-reference to Section 523(a) applies to corporate Subchapter V debtors. By its plain terms, Section 523(a) applies to "an individual debtor." The Fourth Circuit, in In re Cleary Packaging, LLC, 36 F.4th 509 (4th Cir. 2022), held that the Section 1192(2) cross-reference incorporates the categories of debt in Section 523(a) wholesale, including for corporate debtors, on the theory that Section 1192 is a freestanding exception list that does not import the "individual debtor" limitation.

Several bankruptcy courts have disagreed, holding that the "individual debtor" limitation of Section 523(a) travels with the cross-reference and that Section 1192(2) accordingly does not apply to corporate Subchapter V debtors. The Fifth Circuit subsequently aligned with the Fourth Circuit's reading in Avion Funding, LLC v. GFS Industries, LLC (In re GFS Industries, LLC), 99 F.4th 223 (5th Cir. 2024). The split has practical importance: creditors holding fraud or willful-and-malicious-injury claims may be able to pursue corporate debtors post-discharge in circuits adopting the Cleary Packaging view.

Timing: Consensual Versus Nonconsensual Plans

Section 1192 applies only when confirmation occurs under Section 1191(b). When confirmation is consensual under Section 1191(a), the discharge is entered immediately on the effective date under Section 1141(d)(1), not Section 1192. This is a meaningful distinction:

• A consensual debtor receives a fresh start immediately upon confirmation, with the plan operating as a new contract.
• A nonconsensual debtor must complete years of plan payments before receiving the discharge, with the threat of conversion or dismissal under Section 1112 hanging over the case if payments lapse.

The differential treatment is one reason consensual plans, even where cramdown would otherwise succeed, remain attractive to Subchapter V debtors.

Hardship Discharge

Subchapter V does not contain its own hardship-discharge provision analogous to Section 1328(b). However, where plan payments become impossible due to circumstances beyond the debtor's control, the debtor may seek modification under Section 1193 to adjust the payment schedule, or in extreme cases may convert or dismiss the case under Section 1112. The interaction between modification, dismissal, and discharge in nonconsensual Subchapter V cases continues to generate litigation.

Related Bankruptcy Code Sections

This section operates in concert with several other provisions of the Bankruptcy Code:

• Section 1181 - Subchapter V applicability
• Section 1191 - Confirmation requirements
• Section 1193 - Plan modification
• Section 523 - Exceptions to discharge incorporated by 1192(2)
• Section 524 - Discharge injunction
• Section 1141 - Standard Chapter 11 discharge by confirmation

Understanding how these sections interact is important for debtors, creditors, trustees, and counsel navigating a bankruptcy case.