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protected ” and thus should be extended to Subchapter V . Id . at 565 .
The first circuit to address this issue was the Fourth Circuit , on a direct appeal certified from the Bankruptcy Court , in In re Cleary Packaging , LLC , 36 F . 4th 509 ( 4th Cir . 2022 ). This case involved the dischargeability of a $ 4.7 million judgment obtained pre-petition for “ intentional interference with contracts and tortious interference with business relations .” Id . at 511-12 . The Fourth Circuit noted that , on appeal , both parties agreed that the judgment created a “ willful and malicious ” injury that would qualify as a non-dischargeable debt under Section 523 ( a )( 6 ), but disagreed on whether “ debts of the kind ” referred to in Section 1192 ( 2 ) applied “ regardless of the class of debtor .” Id . at 513 . The Bankruptcy Court had found the debt to be dischargeable because the debtor was not an individual debtor , with the debtor ’ s plan proposing a 2.98 % payment on the judgment over five years . Id . at 512 . While the Fourth Circuit “ recognize [ d ] a certain lack of clarify in the relationship between § 1192 ( 2 ) and § 523 ( a ),” it concluded , based on its “ textual review , the provisions ’ context in the Bankruptcy Code , and practical and equitable considerations ,” that the types of debts listed in section 523 ( a ) are non-dischargeable under section 1192 ( 2 ) whether against an individual or an entity debtor . Id . at 513 .
The Fourth Circuit cited the language in Section 1192 ( 2 ) granting “ debtors ” a discharge of all debts with the stated exceptions , where “ debtors ” are defined in a Subchapter V to include both individuals and corporations . It further noted that Section 1192 ( 2 ) refers to “ debt ” not to “ debtor ” when it states , “ of the kind .” Id . at 515 . The Fourth Circuit therefore concluded
that “ Congress intended to reference only the list of non-dischargeable debts found in § 523 ( a ),” not the kind of debtor . Id . ( emphasis in original ). Then , finding the more specific language to control over the more general , the Fourth Circuit concluded that “ while § 523 ( a ) references numerous discharge provisions in the Bankruptcy Code , § 1192 ( 2 ) is the more specific , addressing only Subchapter V discharges ” and thus controls . Id . The Circuit added that 1141 ( d )( 6 ), which makes certain debts non-dischargeable against corporations in Chapter 11 would create a statutory inconsistency if all debts were dischargeable against corporations in Subchapter V . Then , looking to almost identical language in Chapter 12 and its interpretation , the Circuit explained that it had been applied to make “ discharge exceptions apply to both individual debtors and corporate debtors ,” and “[ t ] o give different interpretations to the same language in the same statute would ignore the rationality of using the same language in describing a different proceeding of the Bankruptcy Code . . . .” Id . at 516-17 ( emphasis in original ). The Circuit concluded its analysis with the policy arguments that Subchapter V was meant to treat individual and corporate businesses the same , and that , with the elimination of the absolute priority rule , “ Congress understandably applied limitations on the discharge of debts to provide an additional layer of fairness and equity to creditors to balance against the altered order of priority that favors the debtor .” Id . at 517 .
The Fourth Circuit ’ s decision in Cleary Packaging did not change the analysis of the Bankruptcy Courts . Rather , Bankruptcy Courts continued to hold that entity debtors were not subject to non-dischargeability actions pursuant to Sections 1192 ( 2 ) and
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