In Benshot, LLC v. 2 Monkey Trading, LLC et al., No. 23-12342, 2025 U.S. App. LEXIS 16936 (11th Cir. July 9, 2025), the U.S. Court of Appeals for the Eleventh Circuit addressed a difficult statutory question under the Bankruptcy Code: Are debts listed as non-dischargeable for individuals under section 523(a)—such as those from fraud or willful and malicious injury—also non-dischargeable for corporate debtors in Subchapter V bankruptcies? 

The Eleventh Circuit answered in the negative and held that corporate debtors may not discharge debts identified in section 523(a) in Subchapter V cases where confirmation of the plan is non-consensual. This holding aligns with the Fourth and Fifth Circuits and deepens the split with the Bankruptcy Appellate Panel (BAP) for the Ninth Circuit and various bankruptcy courts that have ruled that corporate Subchapter V debtors may discharge section 523(a) debts. 

Background on Subchapter V

Enacted in 2019 as part of the Small Business Reorganization Act, Subchapter V was designed to make Chapter 11 more accessible and streamlined for small businesses, removing the “absolute priority rule” and introducing more flexible discharge provisions. 

Subchapter V defines debtors to include both individual and corporate debtors, as long as they are engaged in commercial or business activities. 

Crucially, section 1192 allows small business debtors confirming non-consensual plans to discharge most debts, except those “of the kind specified in section 523(a).” Section 523(a) lists 21 categories of non-dischargeable debts, including those for “willful and malicious injury.” Notably, the preamble to section 523(a) states these exceptions to discharge only apply to “individual debtor[s]” without reference to corporate debtors. 

Facts of the Dispute

In Benshot, LLC, a creditor obtained a judgment against two corporate debtors based on a jury finding of willful and malicious injury. The corporate debtors filed for bankruptcy under Subchapter V and sought to discharge the debt arising from the judgment in favor of the creditor. 

The creditor argued that the debt was non-dischargeable because it was “of the kind” described in section 523(a) and section 1192 makes these types of judgments non-dischargeable. The debtors countered that section 523(a)’s exceptions apply only to individual debtors. 

The bankruptcy court sided with the debtors and found the debt to be dischargeable because section 523(a)’s exceptions to discharge only applied to individual debtors and did not apply to corporate Subchapter V debtors. 

This issue was certified for direct appeal to the Eleventh Circuit, bypassing the district court.

The Eleventh Circuit Holds that Corporate Subchapter V Debtors May Not Discharge Section 523(a) Debts 

The Eleventh Circuit reversed the bankruptcy court. In doing so, the Eleventh Circuit joined the Fourth and Fifth Circuits, by holding that the text of section 1192 plainly precludes both individual and corporate debtors under Subchapter V from discharging debts “of the kind” described in section 523(a). 

The court emphasized that “debtor” in the Bankruptcy Code includes both individuals and business entities, but that section 1192 cross-references “debts” of the kind specified, rather than repeating section 523(a)’s preamble, which is limited to individuals. 

Finding the statute clear, the court rejected arguments relying on other canons of statutory interpretation.

Conclusion

By reversing the bankruptcy court, the Eleventh Circuit confirmed that both individual and corporate Subchapter V debtors cannot discharge debts “of the kind” listed in section 523(a). This decision limits relief for corporate debtors under Subchapter V, impacting creditors and small business debtors alike until the U.S. Supreme Court or Congress resolves the ongoing circuit split.