Debt Forgiveness in Chapter 11 Bankruptcy: What to Expect

In Chapter 11 bankruptcy, debt can be forgiven, but the extent and timing of forgiveness depend on several factors, including the type of debtor (individual or non-individual) and the nature of the debts.

Key Points:

1. General Rule: Confirmation of a Chapter 11 plan generally discharges a debtor from any debt that arose before the date of confirmation. 14
2. Exceptions for Individual Debtors: For individual debtors, certain debts are not dischargeable, including debts for alimony, child support, certain taxes, debts for willful and malicious injury, and debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit. 137
3. Timing of Discharge: The timing of the discharge varies. For non-individual debtors, the discharge is granted upon confirmation of the plan. For individual debtors, the discharge is granted after the completion of payments under the plan, unless specific circumstances allow for an earlier discharge. 237
4. Plan Requirements: The plan must be confirmed by the court, which requires approval by at least one class of creditors whose claims are impaired under the plan, and the court must find that the treatment of creditors under the plan is appropriate under the Bankruptcy Code. 248
5. Non-Dischargeable Debts: Certain debts are not dischargeable in Chapter 11, including debts for fraud, defalcation while acting in a fiduciary capacity, and willful and malicious injury by the debtor to another entity or to the property of another entity, unless a creditor fails to timely file and prevail in an action to have such debts declared nondischargeable. 137