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Consumer Bankruptcy Law and Practice: 15.4.3.5.1 Introduction

The Code excepts domestic support obligations from discharge in both chapter 7 and chapter 13 cases.412 The term “domestic support obligation” is defined in section 101(14A) and encompasses what was considered alimony, maintenance, or support under former section 523(a)(5), but is broader in several respects.

Consumer Bankruptcy Law and Practice: 15.4.3.5.2 Support debts owed to governmental units

Unfortunately, support rights assigned to public welfare departments in cases in which the debtor’s children receive public assistance are included within this exception to discharge. The exception includes both sums owing at the time of the assignment and sums that become due thereafter.423 All obligations within the scope of the definition of domestic support obligation are nondischargeable if they are owed to a governmental unit.

Consumer Bankruptcy Law and Practice: 15.4.3.5.3 Determination of whether debt is a domestic support obligation

Most of the disputes about whether a debt is a domestic support obligation concern whether the debt is for alimony, maintenance, or support as opposed to being a property settlement debt—which is covered by a different dischargeability provision,430 is not a priority debt, and is dischargeable in chapter 13.431 As with any exception to discharge, the burden is on the creditor to establish that the debt is nondischargeable under section 523(a)(5).432

Consumer Bankruptcy Law and Practice: 15.4.3.8.1 Introduction

The exception to discharge for student loans, applicable in both chapter 7 and chapter 13, resulted from publicity over a supposed flood of bankruptcies in the early 1970s filed by students who were just finishing their education with the purpose of discharging their student loans before they started earning money.525 While the exception initially applied only to student loans made by governmental units and nonprofit higher education institutions, the scope of the exception was expanded over time, culminating in the 2005 Act amendment that ex

Consumer Bankruptcy Law and Practice: 15.4.3.8.2.1 Loans related to government units and nonprofit institutions: § 523(a)(8)(A)(i)

The exception has had several different wordings and, as amended in 1990,531 covers an “educational benefit, overpayment or loan”532 that is “made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or a nonprofit institution.”533 This language covers most, if not all, student loans made or insured by nonprofit institutions or governmental units.

Consumer Bankruptcy Law and Practice: 15.4.3.8.2.2 Funds received as educational benefits, scholarships, or stipends; § 523(a)(8)(A)(ii)

The exception also applies to “an obligation to repay funds received as an educational benefit, scholarship, or stipend.”538 This language in subpart (A)(ii) is applicable to certain educational benefit grants involving funds received by the debtor or advanced on the debtor’s behalf.539 However, subpart (A)(ii) is not a “catch-all” provision designed to include every type of transaction that creates an educational benefit for a debtor.540 Important

Consumer Bankruptcy Law and Practice: 15.4.3.8.2.3 Private student loans; § 523(a)(8)(B)

The exception was broadened in 2005 to also include, in subpart (B), any other education loans from for-profit lenders if they are qualified education loans as defined in section 221(d)(1) of the Internal Revenue Code.544 The term “qualified education loan” is defined in section 221(d)(1) of the Internal Revenue Code to mean any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses.545 Debtors who have incurred debt for education and other purposes may

Consumer Bankruptcy Law and Practice: 15.4.3.8.3.1 Undue hardship test

If a student loan or educational obligation is covered by Bankruptcy Code section 523(a)(8), the debt is nondischargeable in bankruptcy cases unless repayment would cause the debtor or the debtor’s dependents “undue hardship.” This provision is incorporated in chapter 13 by section 1328(a)(2).

Consumer Bankruptcy Law and Practice: 15.4.3.8.3.2 Former seven-year test applicable only to bankruptcy cases filed prior to 1998

Prior to 1998, student loans were dischargeable if they had come due more than seven years prior to the debtor’s bankruptcy filing. This exception to the exception was repealed in 1998.623 Therefore the seven-year provision is applicable only to bankruptcy cases filed before October 7, 1998, and the discussion below applies only to such cases. It is included primarily for the purpose of analyzing whether a student loan may have been discharged in a past bankruptcy case.

Consumer Bankruptcy Law and Practice: 15.4.3.8.6 Special issues regarding student loans in chapter 13

In the past, because student loan debts were dischargeable upon completion of a chapter 13 plan, chapter 13 was an attractive option for those who sought to deal with student loan debt burdens. However, changes in the law eliminated many of the advantages of the chapter 13 option. Code section 1328(a)(2) now incorporates section 523(a)(8) by reference so that student loans that are nondischargeable in chapter 7 are also nondischargeable in chapter 13.

Consumer Bankruptcy Law and Practice: 15.4.3.9 Debts Incurred Through Drunk Driving—11 U.S.C. § 523(a)(9)

As a result of increased public concern about the social problem of drunk drivers, the 1984 amendments added an exception to the chapter 7 discharge for debts incurred through drunk driving.692 A 1990 amendment to the statute made the exception to discharge applicable in chapter 13 cases as well.693 The same amendment broadened the exception to include unlawful driving while under the influence of a drug or other substance, but also narrowed it to include only debts for death or personal injury.

Consumer Bankruptcy Law and Practice: 15.4.3.12 Federal Criminal Restitution—11 U.S.C. § 523(a)(13)

Code section 523(a)(13), enacted as part of a 1994 crime bill, excepts from discharge any order of restitution issued under title 18 of the United States Code, the federal criminal code. As the Supreme Court had already held that criminal restitution generally came within the scope of section 523(a)(7)’s exception for non-compensatory fines, penalties and forfeitures payable to or for the benefit of a governmental unit,717 this section appears to make only a few additional types of debts nondischargeable.

Consumer Bankruptcy Law and Practice: 15.4.3.13 Debts Incurred to Pay Nondischargeable Taxes or to Pay Federal Election Law Fines or Penalties—11 U.S.C. § 523(a)(14A), (14B)

At the urging of the credit card industry, Congress enacted section 523(a)(14A) which, as amended and redesignated,720 provides that a debt incurred to pay a tax that would have been nondischargeable under section 523(a)(1) is nondischargeable to the same extent as the tax debt would have been. Supposedly, this section was needed to prevent debtors anticipating a bankruptcy from using a credit card to pay nondischargeable taxes and then discharging the credit card debt.

Consumer Bankruptcy Law and Practice: 15.4.3.14 Marital Property Settlement Debts—11 U.S.C. § 523(a)(15)

The Bankruptcy Reform Act of 1994 created a new exception to discharge for marital property settlements in limited situations. The provision was amended in 2005 to make all marital property settlements nondischargeable, eliminating both the balancing tests it had previously contained and the need for a creditor to file a proceeding in the bankruptcy court to obtain a determination of nondischargeability.

Consumer Bankruptcy Law and Practice: 15.4.3.15 Debts for Condominium, Cooperative, or Home Owner Association Fees—11 U.S.C. § 523(a)(16)

The Bankruptcy Reform Act of 1994 also enacted a new section 523(a)(16) making nondischargeable certain condominium and cooperative fees or assessments. The provision was amended in 2005 to add fees and assessments with respect to a lot in a homeowners association and to change the language concerning when fees are nondischargeable. The prior standard limiting fees to those incurred during a period that the debtor occupied the dwelling was changed to “for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest” in the property.