TITLE 11BANKRUPTCY
CHAPTER 5CREDITORS, THE DEBTOR, AND THE ESTATE
Sub Chapter II Debtor's Duties and Benefits
Sec. 524. Effect of discharge
(a) A discharge in a case under this title--
(1) voids any judgment at any time obtained, to the extent that
such judgment is a determination of the personal liability of the
debtor with respect to any debt discharged under section 727, 944,
1141, 1228, or 1328 of this title, whether or not discharge of such
debt is waived;
(2) operates as an injunction against the commencement or
continuation of an action, the employment of process, or an act, to
collect, recover or offset any such debt as a personal liability of
the debtor, whether or not discharge of such debt is waived; and
(3) operates as an injunction against the commencement or
continuation of an action, the employment of process, or an act, to
collect or recover from, or offset against, property of the debtor
of the kind specified in section 541(a)(2) of this title that is
acquired after the commencement of the case, on account of any
allowable community claim, except a community claim that is excepted
from discharge under section 523, 1228(a)(1), or 1328(a)(1) \1\ of
this title, or that would be so excepted, determined in accordance
with the provisions of sections 523(c) and 523(d) of this title, in
a case concerning the debtor's spouse commenced on the date of the
filing of the petition in the case concerning the debtor, whether or
not discharge of the debt based on such community claim is waived.
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\1\ See 1986 and 1994 Amendment notes below.
(b) Subsection (a)(3) of this section does not apply if--
(1)(A) the debtor's spouse is a debtor in a case under this
title, or a bankrupt or a debtor in a case under the Bankruptcy Act,
commenced within six years of the date of the filing of the petition
in the case concerning the debtor; and
(B) the court does not grant the debtor's spouse a discharge in
such case concerning the debtor's spouse; or
(2)(A) the court would not grant the debtor's spouse a discharge
in a case under chapter 7 of this title concerning such spouse
commenced on the date of the filing of the petition in the case
concerning the debtor; and
(B) a determination that the court would not so grant such
discharge is made by the bankruptcy court within the time and in the
manner provided for a determination under section 727 of this title
of whether a debtor is granted a discharge.
(c) An agreement between a holder of a claim and the debtor, the
consideration for which, in whole or in part, is based on a debt that is
dischargeable in a case under this title is enforceable only to any
extent enforceable under applicable nonbankruptcy law, whether or not
discharge of such debt is waived, only if--
(1) such agreement was made before the granting of the discharge
under section 727, 1141, 1228, or 1328 of this title;
(2)(A) such agreement contains a clear and conspicuous statement
which advises the debtor that the agreement may be rescinded at any
time prior to discharge or within sixty days after such agreement is
filed with the court, whichever occurs later, by giving notice of
rescission to the holder of such claim; and
(B) such agreement contains a clear and conspicuous statement
which advises the debtor that such agreement is not required under
this title, under nonbankruptcy law, or under any agreement not in
accordance with the provisions of this subsection;
(3) such agreement has been filed with the court and, if
applicable, accompanied by a declaration or an affidavit of the
attorney that represented the debtor during the course of
negotiating an agreement under this subsection, which states that--
(A) such agreement represents a fully informed and voluntary
agreement by the debtor;
(B) such agreement does not impose an undue hardship on the
debtor or a dependent of the debtor; and
(C) the attorney fully advised the debtor of the legal
effect and consequences of--
(i) an agreement of the kind specified in this
subsection; and
(ii) any default under such an agreement;
(4) the debtor has not rescinded such agreement at any time
prior to discharge or within sixty days after such agreement is
filed with the court, whichever occurs later, by giving notice of
rescission to the holder of such claim;
(5) the provisions of subsection (d) of this section have been
complied with; and
(6)(A) in a case concerning an individual who was not
represented by an attorney during the course of negotiating an
agreement under this subsection, the court approves such agreement
as--
(i) not imposing an undue hardship on the debtor or a
dependent of the debtor; and
(ii) in the best interest of the debtor.
(B) Subparagraph (A) shall not apply to the extent that such
debt is a consumer debt secured by real property.
(d) In a case concerning an individual, when the court has
determined whether to grant or not to grant a discharge under section
727, 1141, 1228, or 1328 of this title, the court may hold a hearing at
which the debtor shall appear in person. At any such hearing, the court
shall inform the debtor that a discharge has been granted or the reason
why a discharge has not been granted. If a discharge has been granted
and if the debtor desires to make an agreement of the kind specified in
subsection (c) of this section and was not represented by an attorney
during the course of negotiating such agreement, then the court shall
hold a hearing at which the debtor shall appear in person and at such
hearing the court shall--
(1) inform the debtor--
(A) that such an agreement is not required under this title,
under nonbankruptcy law, or under any agreement not made in
accordance with the provisions of subsection (c) of this
section; and
(B) of the legal effect and consequences of--
(i) an agreement of the kind specified in subsection (c)
of this section; and
(ii) a default under such an agreement; and
(2) determine whether the agreement that the debtor desires to
make complies with the requirements of subsection (c)(6) of this
section, if the consideration for such agreement is based in whole
or in part on a consumer debt that is not secured by real property
of the debtor.
(e) Except as provided in subsection (a)(3) of this section,
discharge of a debt of the debtor does not affect the liability of any
other entity on, or the property of any other entity for, such debt.
(f) Nothing contained in subsection (c) or (d) of this section
prevents a debtor from voluntarily repaying any debt.
(g)(1)(A) After notice and hearing, a court that enters an order
confirming a plan of reorganization under chapter 11 may issue, in
connection with such order, an injunction in accordance with this
subsection to supplement the injunctive effect of a discharge under this
section.
(B) An injunction may be issued under subparagraph (A) to enjoin
entities from taking legal action for the purpose of directly or
indirectly collecting, recovering, or receiving payment or recovery with
respect to any claim or demand that, under a plan of reorganization, is
to be paid in whole or in part by a trust described in paragraph
(2)(B)(i), except such legal actions as are expressly allowed by the
injunction, the confirmation order, or the plan of reorganization.
(2)(A) Subject to subsection (h), if the requirements of
subparagraph (B) are met at the time an injunction described in
paragraph (1) is entered, then after entry of such injunction, any
proceeding that involves the validity, application, construction, or
modification of such injunction, or of this subsection with respect to
such injunction, may be commenced only in the district court in which
such injunction was entered, and such court shall have exclusive
jurisdiction over any such proceeding without regard to the amount in
controversy.
(B) The requirements of this subparagraph are that--
(i) the injunction is to be implemented in connection with a
trust that, pursuant to the plan of reorganization--
(I) is to assume the liabilities of a debtor which at the
time of entry of the order for relief has been named as a
defendant in personal injury, wrongful death, or property-damage
actions seeking recovery for damages allegedly caused by the
presence of, or exposure to, asbestos or asbestos-containing
products;
(II) is to be funded in whole or in part by the securities
of 1 or more debtors involved in such plan and by the obligation
of such debtor or debtors to make future payments, including
dividends;
(III) is to own, or by the exercise of rights granted under
such plan would be entitled to own if specified contingencies
occur, a majority of the voting shares of--
(aa) each such debtor;
(bb) the parent corporation of each such debtor; or
(cc) a subsidiary of each such debtor that is also a
debtor; and
(IV) is to use its assets or income to pay claims and
demands; and
(ii) subject to subsection (h), the court determines that--
(I) the debtor is likely to be subject to substantial future
demands for payment arising out of the same or similar conduct
or events that gave rise to the claims that are addressed by the
injunction;
(II) the actual amounts, numbers, and timing of such future
demands cannot be determined;
(III) pursuit of such demands outside the procedures
prescribed by such plan is likely to threaten the plan's purpose
to deal equitably with claims and future demands;
(IV) as part of the process of seeking confirmation of such
plan--
(aa) the terms of the injunction proposed to be issued
under paragraph (1)(A), including any provisions barring
actions against third parties pursuant to paragraph (4)(A),
are set out in such plan and in any disclosure statement
supporting the plan; and
(bb) a separate class or classes of the claimants whose
claims are to be addressed by a trust described in clause
(i) is established and votes, by at least 75 percent of
those voting, in favor of the plan; and
(V) subject to subsection (h), pursuant to court orders or
otherwise, the trust will operate through mechanisms such as
structured, periodic, or supplemental payments, pro rata
distributions, matrices, or periodic review of estimates of the
numbers and values of present claims and future demands, or
other comparable mechanisms, that provide reasonable assurance
that the trust will value, and be in a financial position to
pay, present claims and future demands that involve similar
claims in substantially the same manner.
(3)(A) If the requirements of paragraph (2)(B) are met and the order
confirming the plan of reorganization was issued or affirmed by the
district court that has jurisdiction over the reorganization case, then
after the time for appeal of the order that issues or affirms the plan--
(i) the injunction shall be valid and enforceable and may not be
revoked or modified by any court except through appeal in accordance
with paragraph (6);
(ii) no entity that pursuant to such plan or thereafter becomes
a direct or indirect transferee of, or successor to any assets of, a
debtor or trust that is the subject of the injunction shall be
liable with respect to any claim or demand made against such entity
by reason of its becoming such a transferee or successor; and
(iii) no entity that pursuant to such plan or thereafter makes a
loan to such a debtor or trust or to such a successor or transferee
shall, by reason of making the loan, be liable with respect to any
claim or demand made against such entity, nor shall any pledge of
assets made in connection with such a loan be upset or impaired for
that reason;
(B) Subparagraph (A) shall not be construed to--
(i) imply that an entity described in subparagraph (A)(ii) or
(iii) would, if this paragraph were not applicable, necessarily be
liable to any entity by reason of any of the acts described in
subparagraph (A);
(ii) relieve any such entity of the duty to comply with, or of
liability under, any Federal or State law regarding the making of a
fraudulent conveyance in a transaction described in subparagraph
(A)(ii) or (iii); or
(iii) relieve a debtor of the debtor's obligation to comply with
the terms of the plan of reorganization, or affect the power of the
court to exercise its authority under sections 1141 and 1142 to
compel the debtor to do so.
(4)(A)(i) Subject to subparagraph (B), an injunction described in
paragraph (1) shall be valid and enforceable against all entities that
it addresses.
(ii) Notwithstanding the provisions of section 524(e), such an
injunction may bar any action directed against a third party who is
identifiable from the terms of such injunction (by name or as part of an
identifiable group) and is alleged to be directly or indirectly liable
for the conduct of, claims against, or demands on the debtor to the
extent such alleged liability of such third party arises by reason of--
(I) the third party's ownership of a financial interest in the
debtor, a past or present affiliate of the debtor, or a predecessor
in interest of the debtor;
(II) the third party's involvement in the management of the
debtor or a predecessor in interest of the debtor, or service as an
officer, director or employee of the debtor or a related party;
(III) the third party's provision of insurance to the debtor or
a related party; or
(IV) the third party's involvement in a transaction changing the
corporate structure, or in a loan or other financial transaction
affecting the financial condition, of the debtor or a related party,
including but not limited to--
(aa) involvement in providing financing (debt or equity), or
advice to an entity involved in such a transaction; or
(bb) acquiring or selling a financial interest in an entity
as part of such a transaction.
(iii) As used in this subparagraph, the term ``related party''
means--
(I) a past or present affiliate of the debtor;
(II) a predecessor in interest of the debtor; or
(III) any entity that owned a financial interest in--
(aa) the debtor;
(bb) a past or present affiliate of the debtor; or
(cc) a predecessor in interest of the debtor.
(B) Subject to subsection (h), if, under a plan of reorganization, a
kind of demand described in such plan is to be paid in whole or in part
by a trust described in paragraph (2)(B)(i) in connection with which an
injunction described in paragraph (1) is to be implemented, then such
injunction shall be valid and enforceable with respect to a demand of
such kind made, after such plan is confirmed, against the debtor or
debtors involved, or against a third party described in subparagraph
(A)(ii), if--
(i) as part of the proceedings leading to issuance of such
injunction, the court appoints a legal representative for the
purpose of protecting the rights of persons that might subsequently
assert demands of such kind, and
(ii) the court determines, before entering the order confirming
such plan, that identifying such debtor or debtors, or such third
party (by name or as part of an identifiable group), in such
injunction with respect to such demands for purposes of this
subparagraph is fair and equitable with respect to the persons that
might subsequently assert such demands, in light of the benefits
provided, or to be provided, to such trust on behalf of such debtor
or debtors or such third party.
(5) In this subsection, the term ``demand'' means a demand for
payment, present or future, that--
(A) was not a claim during the proceedings leading to the
confirmation of a plan of reorganization;
(B) arises out of the same or similar conduct or events that
gave rise to the claims addressed by the injunction issued under
paragraph (1); and
(C) pursuant to the plan, is to be paid by a trust described in
paragraph (2)(B)(i).
(6) Paragraph (3)(A)(i) does not bar an action taken by or at the
direction of an appellate court on appeal of an injunction issued under
paragraph (1) or of the order of confirmation that relates to the
injunction.
(7) This subsection does not affect the operation of section 1144 or
the power of the district court to refer a proceeding under section 157
of title 28 or any reference of a proceeding made prior to the date of
the enactment of this subsection.
(h) Application to Existing Injunctions.--For purposes of subsection
(g)--
(1) subject to paragraph (2), if an injunction of the kind
described in subsection (g)(1)(B) was issued before the date of the
enactment of this Act, as part of a plan of reorganization confirmed
by an order entered before such date, then the injunction shall be
considered to meet the requirements of subsection (g)(2)(B) for
purposes of subsection (g)(2)(A), and to satisfy subsection
(g)(4)(A)(ii), if--
(A) the court determined at the time the plan was confirmed
that the plan was fair and equitable in accordance with the
requirements of section 1129(b);
(B) as part of the proceedings leading to issuance of such
injunction and confirmation of such plan, the court had
appointed a legal representative for the purpose of protecting
the rights of persons that might subsequently assert demands
described in subsection (g)(4)(B) with respect to such plan; and
(C) such legal representative did not object to confirmation
of such plan or issuance of such injunction; and
(2) for purposes of paragraph (1), if a trust described in
subsection (g)(2)(B)(i) is subject to a court order on the date of
the enactment of this Act staying such trust from settling or paying
further claims--
(A) the requirements of subsection (g)(2)(B)(ii)(V) shall
not apply with respect to such trust until such stay is lifted
or dissolved; and
(B) if such trust meets such requirements on the date such
stay is lifted or dissolved, such trust shall be considered to
have met such requirements continuously from the date of the
enactment of this Act.
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2592; Pub. L. 98-353, title III,
Secs. 308, 455, July 10, 1984, 98 Stat. 354, 376; Pub. L. 99-554, title
II, Secs. 257(o), 282, 283(k), Oct. 27, 1986, 100 Stat. 3115-3117; Pub.
L. 103-394, title I, Secs. 103, 111(a), title V, Sec. 501(d)(14), Oct.
22, 1994, 108 Stat. 4108, 4113, 4145.)
Historical and Revision Notes
legislative statements
Section 524(a) of the House amendment represents a compromise
between the House bill and the Senate amendment. Section 524(b) of the
House amendment is new, and represents standards clarifying the
operation of section 524(a)(3) with respect to community property.
Sections 524(c) and (d) represent a compromise between the House
bill and Senate amendment on the issue of reaffirmation of a debt
discharged in bankruptcy. Every reaffirmation to be enforceable must be
approved by the court, and any debtor may rescind a reaffirmation for 30
days from the time the reaffirmation becomes enforceable. If the debtor
is an individual the court must advise the debtor of various effects of
reaffirmation at a hearing. In addition, to any extent the debt is a
consumer debt that is not secured by real property of the debtor
reaffirmation is permitted only if the court approves the reaffirmation
agreement, before granting a discharge under section 727, 1141, or 1328,
as not imposing a hardship on the debtor or a dependent of the debtor
and in the best interest of the debtor; alternatively, the court may
approve an agreement entered into in good faith that is in settlement of
litigation of a complaint to determine dischargeability or that is
entered into in connection with redemption under section 722. The
hearing on discharge under section 524(d) will be held whether or not
the debtor desires to reaffirm any debts.
senate report no. 95-989
Subsection (a) specifies that a discharge in a bankruptcy case voids
any judgment to the extent that it is a determination of the personal
liability of the debtor with respect to a prepetition debt, and operates
as an injunction against the commencement or continuation of an action,
the employment of process, or any act, including telephone calls,
letters, and personal contacts, to collect, recover, or offset any
discharged debt as a personal liability of the debtor, or from property
of the debtor, whether or not the debtor has waived discharge of the
debt involved. The injunction is to give complete effect to the
discharge and to eliminate any doubt concerning the effect of the
discharge as a total prohibition on debt collection efforts. This
paragraph has been expanded over a comparable provision in Bankruptcy
Act Sec. 14f [section 32(f) of former title 11] to cover any act to
collect, such as dunning by telephone or letter, or indirectly through
friends, relatives, or employers, harassment, threats of repossession,
and the like. The change is consonant with the new policy forbidding
binding reaffirmation agreements under proposed 11 U.S.C. 524(b), and is
intended to insure that once a debt is discharged, the debtor will not
be pressured in any way to repay it. In effect, the discharge
extinguishes the debt, and creditors may not attempt to avoid that. The
language ``whether or not discharge of such debt is waived'' is intended
to prevent waiver of discharge of a particular debt from defeating the
purposes of this section. It is directed at waiver of discharge of a
particular debt, not waiver of discharge in toto as permitted under
section 727(a)(9).
Subsection (a) also codifies the split discharge for debtors in
community property states. If community property was in the estate and
community claims were discharged, the discharge is effective against
community creditors of the nondebtor spouse as well as of the debtor
spouse.
Subsection (b) gives further effect to the discharge. It prohibits
reaffirmation agreements after the commencement of the case with respect
to any dischargeable debt. The prohibition extends to agreements the
consideration for which in whole or in part is based on a dischargeable
debt, and it applies whether or not discharge of the debt involved in
the agreement has been waived. Thus, the prohibition on reaffirmation
agreements extends to debts that are based on discharged debts. Thus,
``second generation'' debts, which included all or a part of a
discharged debt could not be included in any new agreement for new
money. This subsection will not have any effect on reaffirmations of
debts discharged under the Bankruptcy Act [former title 11]. It will
only apply to discharges granted if commenced under the new title 11
bankruptcy code.
Subsection (c) grants an exception to the anti-reaffirmation
provision. It permits reaffirmation in connection with the settlement of
a proceeding to determine the dischargeability of the debt being
reaffirmed, or in connection with a redemption agreement permitted under
section 722. In either case, the reaffirmation agreement must be entered
into in good faith and must be approved by the court.
Subsection (d) provides the discharge of the debtor does not affect
co-debtors or guarantors.
References in Text
The Bankruptcy Act, referred to in subsec. (b)(1), is act July 1,
1898, ch. 541, 30 Stat. 544, as amended, which was classified generally
to former Title 11.
The date of the enactment of this subsection, referred to in subsec.
(g)(7), is the date of enactment of Pub. L. 103-394, which enacted
subsec. (g) and was approved Oct. 22, 1994.
The date of the enactment of this Act, referred to in subsec. (h),
probably means the date of enactment of Pub. L. 103-394, which enacted
subsec. (h) and was approved Oct. 22, 1994.
Amendments
1994--Subsec. (a)(3). Pub. L. 103-394, Sec. 501(d)(14)(A),
substituted ``1328(a)(1)'' for ``1328(c)(1)''. See 1986 Amendment note
below.
Subsec. (c)(2). Pub. L. 103-394, Sec. 103(a)(1), designated existing
provisions as subpar. (A), inserted ``and'' at end, and added subpar.
(B).
Subsec. (c)(3). Pub. L. 103-394, Sec. 103(a)(2), struck out ``such
agreement'' after ``which states that'' in introductory provisions,
struck out ``and'' at end of subpar. (A), inserted ``such agreement'' in
subpars. (A) and (B), and added subpar. (C).
Subsec. (c)(4). Pub. L. 103-394, Sec. 501(d)(14)(B), substituted
``rescission'' for ``recission''.
Subsec. (d). Pub. L. 103-394, Sec. 103(b), inserted ``and was not
represented by an attorney during the course of negotiating such
agreement'' after ``this section'' in introductory provisions.
Subsec. (d)(1)(B)(ii). Pub. L. 103-394, Sec. 501(d)(14)(C), inserted
``and'' at end.
Subsecs. (g), (h). Pub. L. 103-394, Sec. 111(a), added subsecs. (g)
and (h).
1986--Subsec. (a)(1). Pub. L. 99-554, Sec. 257(o)(1), inserted
reference to section 1228 of this title.
Subsec. (a)(3). Pub. L. 99-554, Sec. 257(o)(2), which directed the
substitution of ``, 1228(a)(1), or 1328(a)(1)'' for ``or 1328(a)(1)''
was executed by making the substitution for ``or 1328(c)(1)'' to reflect
the probable intent of Congress. See 1994 Amendment note above.
Subsec. (c)(1). Pub. L. 99-554, Sec. 257(o)(1), inserted reference
to section 1228 of this title.
Subsec. (d). Pub. L. 99-554, Sec. 257(o)(1), inserted reference to
section 1228 of this title.
Pub. L. 99-554, Sec. 282, substituted ``shall'' for ``may'' before
``hold'' in first sentence, inserted ``any'' after ``At'' in second
sentence, and inserted ``the court shall hold a hearing at which the
debtor shall appear in person and'' after ``then'' in third sentence.
Subsec. (d)(2). Pub. L. 99-554, Sec. 283(k), substituted ``section''
for ``subsection'' after ``subsection (c)(6) of this''.
1984--Subsec. (a)(2). Pub. L. 98-353, Secs. 308(a), 455, struck out
``or from property of the debtor,'' before ``whether or not discharge'',
and substituted ``an act'' for ``any act''.
Subsec. (a)(3). Pub. L. 98-353, Sec. 455, substituted ``an act'' for
``any act''.
Subsec. (c)(2). Pub. L. 98-353, Sec. 308(b)(1), (3), added par. (2).
Former par. (2), which related to situations where the debtor had not
rescinded the agreement within 30 days after the agreement became
enforceable, was struck out.
Subsec. (c)(3), (4). Pub. L. 98-352, Sec. 308(b)(3), added pars. (3)
and (4). Former pars. (3) and (4) redesignated (5) and (6),
respectively.
Subsec. (c)(5). Pub. L. 98-353, Sec. 308(b)(2), redesignated former
par. (3) as (5).
Subsec. (c)(6). Pub. L. 98-353, Sec. 308(b)(2), (4), redesignated
former par. (4) as (6) and generally amended par. (6), as so
redesignated, thereby striking out provisions relating to court approval
of such agreements as are entered into in good faith and are in
settlement of litigation under section 523 of this title or provide for
redemption under section 722 of this title.
Subsec. (d)(2). Pub. L. 98-353, Sec. 308(c), substituted
``subsection (c)(6)'' for ``subsection (c)(4)''.
Subsec. (f). Pub. L. 98-353, Sec. 308(d), added subsec. (f).
Effective Date of 1994 Amendment
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and, except
with respect to amendment by section 111(a) of Pub. L. 103-394,
amendment by Pub. L. 103-394 not applicable with respect to cases
commenced under this title before Oct. 22, 1994, see section 702 of Pub.
L. 103-394, set out as a note under section 101 of this title.
Effective Date of 1986 Amendment
Amendment by section 257 of Pub. L. 99-554 effective 30 days after
Oct. 27, 1986, but not applicable to cases commenced under this title
before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out
as a note under section 581 of Title 28, Judiciary and Judicial
Procedure.
Amendment by sections 282 and 283 of Pub. L. 99-554 effective 30
days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554.
Effective Date of 1984 Amendment
Amendment by Pub. L. 98-353 effective with respect to cases filed 90
days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out
as a note under section 101 of this title.
Construction
Section 111(b) of Pub. L. 103-394 provided that: ``Nothing in
subsection (a), or in the amendments made by subsection (a) [amending
this section], shall be construed to modify, impair, or supersede any
other authority the court has to issue injunctions in connection with an
order confirming a plan of reorganization.''
Section Referred to in Other Sections
This section is referred to in sections 106, 108, 341, 521, 901 of
this title.
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