Bankrupt Small Companies Bound by Debt-Discharge Exceptions

Companies that reorganize under Subchapter V of Chapter 11, reserved for smaller debtors, are blocked from discharging debts stemming from willful or malicious injury, a third federal appeals court ruled.

The Small Business Reorganization Act—a 2019 federal law that created a special bankruptcy reorganization scheme for small companies—doesn’t allow individual or corporate debtors to wipe away debts that are precluded from discharge by Section 523 of the Bankruptcy Code, the US Court of Appeals for the Eleventh Circuit said in a published decision Wednesday.

Some bankruptcy courts have interpreted language in Subchapter V to let corporate debtors dodge certain discharge ...