I found out the hard way that corporate fraud is discharged in chapter 11 (provided of course that a plan is confirmed that is not a liquidating plan). I say the hard way because I advised Judge Wayne Johnson recently that I was going to file a non-dischargeability complaint in the corporate chapter 11 and he said something like, “you can’t do that,” and I responded something like, “Oh yes I can.” He then read me sections 523 and 1141 and I backed off and promised to review the code before filing anything. The issue came up last week when someone posted the same question on a listserve and Prof. Mark Scarberry from Pepperdine responded explaining the reasoning behind the rule.
Mark wrote:
Section 523(a) applies, by its terms, only to debtors who are individuals (flesh-and-blood human beings). Section 523(a) refers to section 1141 and thus applies to chapter 11 discharges of individuals. Section 1141(d)(2) confirms that result by providing that the chapter 11 discharge does not discharge an individual debtor from debts that are excepted from the discharge by section 523.
Section 727 applies only in chapter 7 cases. See section 103(b). (Note that the exceptions from discharge in section 523(a) are irrelevant in a chapter 7 case where the debtor is not an individual, because section 727(a)(1) prevents any such non-individual debtor from receiving a chapter 7 discharge.)
Here is my best understanding of the policy behind the non-applicability of section 523(a) to non-individual chapter 11 cases.
