Corporate Debtors May Now Face Non-Dischargeability Claims Under § 523(a)
A recent decision from the Eleventh Circuit Court of Appeals holds that corporate debtors proceeding under Subchapter V of Chapter 11 are subject to non-dischargeability claims under 11 U.S.C. § 523(a). The court joins the Fourth and Fifth Circuits and diverges from the Ninth Circuit in extending this risk to both individual and corporate debtors.
In In re Bavier, No. 23-12342 (11th Cir. July 18, 2025), the court reversed a decision by the Bankruptcy Court for the Middle District of Florida. The ruling confirms that creditors may pursue claims alleging fraud, willful misconduct, or other grounds listed in § 523(a), even against corporate Subchapter V debtors seeking to confirm a non-consensual plan.
Key Takeaways:
- Increased risk for corporate debtors under Subchapter V if they pursue a non-consensual plan
- Creditors may now bring non-dischargeability claims against both individual and corporate Subchapter V debtors
- The decision creates a circuit split, increasing the likelihood of future Supreme Court review
This decision underscores the importance of carefully evaluating the risks of a non-consensual plan under Subchapter V. While creditors now have broader grounds to challenge certain debts as non-dischargeable, Subchapter V still offers valuable tools for streamlined reorganization when used strategically.
Read the full opinion here: 11th Circuit Opinion – In re Bavier (No. 23-12342)
For more information on how this ruling may affect your rights or restructuring strategy, please contact a member of Bast Amron’s Bankruptcy and Restructuring team.