Legal Memorandum: Bankruptcy Protection under Chapter 7 or 11

Issue: Does bankruptcy protection vary depending on whether the bankruptcy filing is made under Chapter 7 or 11?

Area of Law: Bankruptcy & Creditors Rights
Keywords: Bankruptcy protection; Filing; Exemptions from discharge
Jurisdiction: Federal
Cited Cases: None
Cited Statutes: Chapter 7 or 11; 11 U.S.C. §§ 524, 523; 11 U.S.C. § 1122 (1993 & Supp. 2000); 11 U.S.C. § 1129(a), § 1141©, (d)(1), (d)(2); 11 U.S.C. § 507 (1993 & Supp. 2000); 11 U.S.C. § 726; 11 U.S.C. § 727; 11 U.S.C. § 727(b), § 727(a)(1);
Date: 02/01/2008

  The protections afforded any debtor who files bankruptcy include relief from prosecution to collect debts and relief from the obligation to pay pre-petition debts that are entitled to receive a discharge under the proceeding. The Bankruptcy Code forbids creditors from prosecuting actions for monetary damages against a Debtor (with limited exceptions, discussed below). The same general rules apply to both Chapters 7 and 11 and are contained in Chapters 1-5 of the Bankruptcy Code.

The exemptions from discharge are paramount and the true goal of the creditor, since a discharge operates as a permanent injunction to relieve the debtor from his obligation to pay the debt in the absence of any arrangements made in the context of the bankruptcy filing.  Section 523 lists exceptions to discharge which apply with equal force to Chapters 7 and 11.  It exempts from extinguishment such things as tax or customs duties; credit extended as the result of false representation or actual fraud; consumer debts for luxury items; debts known to the debtor which are not listed or scheduled on the bankruptcy schedules; fraud committed in conjunction with a fiduciary obligation; spousal maintenance or child support; fines payable to a governmental agency; and payments for willful and malicious injury to a person or property (discussed more fully below), as well as other debts arising from discretely defined preconditions.

In general, the effects of a discharge are set forth at 11 U.S.C. § 524, the most salient feature […]

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