The Difference Between Nondiscargeable Debt & The Denial of A Discharge in Bankruptcy
Section 523 of the bankruptcy code excepts particular debts from discharge whereas Section 727 of the bankruptcy code lists instances in which the debtor will be denied a discharge entirely. The difference in effect between the sections can be seen in the plain language of the statutes. Section 523 reads “A discharge under [chapter 7, chapter 13…] does not discharge an individual debtor from any debt (1) for a tax… (5) for a domestic support obligation…” etc. In contrast to the listing of particular debts that will not be discharged Section 727 reads “the court shall grant a debtor a discharge, unless…” and goes on to list instances giving rise the denial of a discharge in general.
Here’s an example highlighting the difference between Section 523 and Section 727. Let’s assume our debtor is filing for chapter 7 bankruptcy in Sacramento California. In the chapter 7 bankruptcy the debtor through his bankruptcy attorney reports a domestic support obligation owed to their former spouse. The debtor also reports $20,000 of credit card debt along with several thousand dollars of other unsecured debts. Since domestic support obligations are nondischargeable under Section 523 that particular debt will not be discharged. However, the debtor’s credit card debt and several thousand dollars of other unsecured debts will be discharged. Therefore, the debtor will receive a discharge of their debts excluding the domestic support obligation. Now, assume the same facts except that the debtor burned his financial records before filing to prevent the court and Trustee from ascertaining his true financial condition. Since Section 727 authorizes the granting of a discharge unless the debtor destroyed financial records telling of their financial condition, the debtor in our case will not be granted a discharge. Accordingly, none of the debtor’s debts will be eliminated.