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Bankruptcy Discharge Exceptions Apply to Subchapter V Companies

June 7, 2022, 6:19 PM

Company debtors taking advantage of a relatively new, streamlined type of bankruptcy filing are subject to a bankruptcy law that limits certain debts from being wiped out, the Fourth Circuit ruled.

Section 523(a) of Chapter 11 of the US Bankruptcy Code spells out certain types of debt that individual debtors can’t discharge through bankruptcy, such as those incurred from fraud or malicious misconduct. These exceptions also apply to business entities that file bankruptcy under “Subchapter V” of Chapter 11, the US Court of Appeals for the Fourth Circuit said in a ruling Tuesday.

The ruling reverses a bankruptcy court’s determination ...