11 U.S.C. Section 1328 - Chapter 13 Discharge

What Is Section 1328?

Section 1328 governs discharge in Chapter 13. Unlike a Chapter 7 discharge, which is generally entered shortly after the meeting of creditors, the Chapter 13 discharge comes at the end of a years-long plan: typically three to five years of regular payments to the trustee under Section 1322 and confirmed under Section 1325. The Chapter 13 discharge is also broader than the Chapter 7 discharge in some respects, although the so-called "superdischarge" was substantially narrowed by the 2005 amendments.

Two paths to discharge exist: the full-payment discharge under Section 1328(a) and the hardship discharge under Section 1328(b). Two structural bars limit eligibility regardless of payment performance: the prior-bankruptcy lookback rule of Section 1328(f) and the financial-management certificate requirement of Section 1328(g).

Section 1328(a): Full-Payment Discharge

The standard Chapter 13 discharge issues "as soon as practicable after completion by the debtor of all payments under the plan." All payments means all of them: regular plan payments to the trustee, direct payments to creditors (such as ongoing mortgage payments), payments on long-term debts that extend beyond the plan term only if the plan contemplates such treatment, and any catch-up or true-up payments required at the end of the plan.

Section 1328(a) excepts a list of debts from discharge. The exceptions track Section 523 in part, but several Section 523 categories that would not be discharged in Chapter 7 are nonetheless discharged in Chapter 13. The categories that remain non-dischargeable in Chapter 13 include:

• Long-term debts whose last payment is due after the date on which the final payment under the plan is due, such as a 30-year mortgage being maintained through the plan (Section 1328(a)(1)).
• Domestic support obligations (Section 1328(a)(2) cross-reference to Section 523(a)(5)).
• Student loans not subject to undue-hardship discharge under Section 523(a)(8) (Section 1328(a)(2)).
• Debts for death or personal injury caused by the debtor's operation of a motor vehicle, vessel, or aircraft while intoxicated (Section 1328(a)(2) cross-reference to Section 523(a)(9)).
• Restitution and criminal fines (Section 1328(a)(3)).
• Restitution or damages for willful or malicious personal injury or death (Section 1328(a)(4)).

Notably absent from this list is the broader Section 523(a)(2)(A) exception for fraud-based debts. A general unsecured debt obtained by fraud is dischargeable in Chapter 13 under Section 1328(a) but not under Section 727 in Chapter 7. This residual "superdischarge" remains a meaningful incentive for some debtors to choose Chapter 13.

Section 1328(b): Hardship Discharge

Where the debtor cannot complete plan payments, Section 1328(b) permits a hardship discharge before completion. The court may grant the discharge only if all three elements are satisfied:

1. The debtor's failure to complete plan payments is due to circumstances for which the debtor should not justly be held accountable.
2. The value, as of the effective date of the plan, of property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on such claim if the estate of the debtor had been liquidated under Chapter 7 on such date (the best-interests-of-creditors test).
3. Modification of the plan under Section 1329 is not practicable.

The first element is the most contested. Courts have generally required a serious, involuntary, and unforeseen change in circumstances: typically illness, disability, prolonged unemployment, or death of a co-debtor. Voluntary lifestyle changes, retirement by choice, or business setbacks attributable to the debtor's own decisions are usually insufficient.

In re McCarty, 376 B.R. 819 (Bankr. N.D. Ohio 2007), is representative of the strict approach to the "should not justly be held accountable" element: the debtor's mid-plan financial deterioration must be shown to be the product of forces outside the debtor's control. In re Bateman, 515 F.3d 272 (4th Cir. 2008), addresses the related question of what payments must be made before hardship discharge will issue.

Section 1328(f): The Prior-Bankruptcy Discharge Bar

The 2005 amendments added Section 1328(f) to impose lookback periods on serial filers. A debtor is not eligible for a Chapter 13 discharge if the debtor received:

• A discharge in a case filed under Chapter 7, 11, or 12 within the 4-year period preceding the date of the order for relief in the current Chapter 13 case (Section 1328(f)(1)); or
• A discharge in a case filed under Chapter 13 within the 2-year period preceding the date of the order for relief in the current Chapter 13 case (Section 1328(f)(2)).

The lookback is measured from filing date to filing date, not from discharge date to filing date. This is the so-called "filing-to-filing" rule, confirmed by the overwhelming majority of courts to have considered the issue. A debtor who filed a Chapter 7 on day one and received a discharge on day 120 may file a Chapter 13 on day 1,462 (four years and one day after the Chapter 7 filing) and remain eligible for a Chapter 13 discharge.

Importantly, Section 1328(f) only bars the discharge. It does not bar the filing itself. A debtor who is ineligible for discharge under 1328(f) may still file a Chapter 13 case for purposes that do not require discharge: paying through arrears on a mortgage, stretching out tax obligations, or maintaining the automatic stay against secured creditors. These so-called "Chapter 20" cases (Chapter 7 followed by Chapter 13) are well-established in many districts.

Section 1328(g): Financial-Management Certificate

The 2005 amendments also added Section 1328(g), requiring that the court not grant a discharge "unless after filing the petition the debtor has completed an instructional course concerning personal financial management described in section 111." The course must be taken from an approved provider, and the debtor must file the certificate of completion (Official Form 423) before the discharge order will issue.

The financial-management course is distinct from the pre-filing credit-counseling briefing required by Section 109(h). Pre-filing counseling is a gatekeeping eligibility requirement; the post-petition financial-management course is a discharge-eligibility requirement. Failure to complete the course is a frequent reason for cases to be closed without discharge despite full completion of plan payments; the discharge may be re-opened upon belated filing of the certificate, but the practical inconvenience is significant.

Effect of Discharge

The Chapter 13 discharge operates under Section 524 as a permanent injunction against any act to collect, recover, or offset a discharged debt as a personal liability of the debtor. Liens on collateral that have not been stripped, avoided, or modified in the plan ride through the discharge and remain enforceable in rem against the collateral. The discharge does not release co-debtors from their obligations, although the co-debtor stay of Section 1301 may have protected co-debtors during the case.

Related Bankruptcy Code Sections

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

• Section 1322 - Contents of Chapter 13 plan
• Section 1325 - Confirmation of Chapter 13 plan
• Section 1329 - Modification of plan after confirmation
• Section 523 - Exceptions to discharge
• Section 524 - Effect of discharge
• Section 727 - Chapter 7 discharge (comparison)

Understanding how these sections interact is essential for any debtor approaching plan completion or facing a hardship that may force an early discharge request.