Subchapter V Discharge: 1191(a) vs 1191(b)
The discharge is the entire point of bankruptcy. In Sub V, when you get it depends on whether creditors accept your plan.
Two Paths to Discharge
Subchapter V offers two distinct confirmation and discharge paths. The difference between them is the most important strategic decision in your case.
| Feature | Section 1191(a) -- Consensual | Section 1191(b) -- Cramdown |
|---|---|---|
| Creditor acceptance | All impaired classes accept | At least one impaired class rejects |
| Discharge timing | At confirmation | After completing all plan payments |
| Plan duration commitment | Flexible -- no disposable income requirement | 3-5 years of projected disposable income |
| Absolute priority rule | Does not apply | Does not apply |
| Debtor keeps business | Yes | Yes |
| Post-confirmation trustee | Trustee service terminates | Trustee continues making distributions |
Section 1191(a): Consensual Confirmation
Under § 1191(a), the plan is confirmed because all impaired classes of creditors have voted to accept it. This is the best outcome for the debtor because:
- Immediate discharge. The discharge is entered at confirmation, not years later after plan completion.
- No disposable income commitment. You do not have to commit all projected disposable income for 3-5 years.
- Trustee role ends. The Sub V trustee's appointment terminates upon substantial consummation of the plan.
- Greater certainty. With creditor acceptance, the risk of plan failure is lower.
Voting mechanics: A class accepts the plan if more than half in number and at least two-thirds in dollar amount of the voting creditors in that class vote yes. Creditors who do not vote are not counted. Classes that are unimpaired (paid in full) are deemed to accept.
Section 1191(b): Cramdown Confirmation
If at least one impaired class rejects the plan, the court can still confirm it under § 1191(b) -- the "cramdown" provision. Requirements:
- The plan does not discriminate unfairly against any rejecting class
- The plan is fair and equitable with respect to each rejecting class
- The debtor commits all projected disposable income for a period of 3 to 5 years to unsecured creditors
- The plan satisfies the best interests of creditors test (liquidation analysis)
Critical difference: Under § 1191(b), the discharge is not entered until after the debtor completes all plan payments. That can be 3-5 years of living under court supervision, filing reports, and making payments. If you default, the case can be dismissed or converted.
Scope of the Discharge
The Sub V discharge covers the same debts as a regular Chapter 11 discharge. It releases the debtor from personal liability for pre-petition debts that were dealt with in the plan. Exceptions (debts that survive discharge) include:
- Most tax debts (11 U.S.C. § 523(a)(1))
- Debts obtained by fraud (11 U.S.C. § 523(a)(2))
- Domestic support obligations (11 U.S.C. § 523(a)(5))
- Student loans (absent undue hardship finding) (11 U.S.C. § 523(a)(8))
- Debts from willful and malicious injury (11 U.S.C. § 523(a)(6))
- Debts from DUI/DWI (11 U.S.C. § 523(a)(9))
For entity debtors (corporations, LLCs), the discharge exceptions are narrower because § 523 applies only to individual debtors.
Strategy: Always Aim for 1191(a)
The advantages of consensual confirmation are so significant that every Sub V debtor should make achieving § 1191(a) a primary goal:
- Negotiate before the confirmation hearing. Talk to creditors early. The Sub V trustee can help facilitate.
- Offer reasonable terms. A plan that pays unsecured creditors 20-30 cents on the dollar may be accepted if the alternative (liquidation) would pay less.
- Leverage non-voting. Creditors who do not return ballots are not counted. In many Sub V cases, unsecured creditor participation is low -- which helps you.
- Keep one class unimpaired. If you can pay one class in full (even a small class), that guarantees at least one accepting class.
Related Pages
Discharge Screener · Research Platform · Exemptions by State · Bankruptcy Cost · Pro Se Guide