                          RECOMMENDED FOR FULL-TEXT PUBLICATION
                              Pursuant to Sixth Circuit I.O.P. 32.1(b)
                                      File Name: 18a0098p.06

                   UNITED STATES COURT OF APPEALS
                                  FOR THE SIXTH CIRCUIT



 PRISCILLA ANNETTE ANDREWS (16-2383); STANLEY            ┐
 RICHARD KOZLOWSKI III (16-2680),                        │
                               Debtors-Appellants,       │
                                                          >     Nos. 16-2383/2680
                                                         │
       v.                                                │
                                                         │
                                                         │
 MICHIGAN UNEMPLOYMENT INSURANCE AGENCY,                 │
                             Creditor-Appellee.          │
                                                         ┘

                                           16-2383
Appeal from the United States District Court for the Eastern District of Michigan at Ann Arbor.
                 No. 5:15-cv-13681—John Corbett O’Meara, District Judge.

                                           16-2680
  Appeal from the United States District Court for the Eastern District of Michigan at Detroit.
                   No. 2:16-cv-11323—Paul D. Borman, District Judge.

                                    Argued: June 22, 2017

                               Decided and Filed: May 29, 2018

                  Before: SILER, McKEAGUE, and WHITE, Circuit Judges.
                                  _________________

                                          COUNSEL

ARGUED: Brian A. Rookard, GUDEMAN & ASSOCIATES, PC, Royal Oak, Michigan, for
Appellants. Zachary A. Risk, OFFICE OF THE MICHIGAN ATTORNEY GENERAL, Detroit,
Michigan, for Appellee. ON BRIEF: Brian A. Rookard, GUDEMAN & ASSOCIATES, PC,
Royal Oak, Michigan, for Appellants. Zachary A. Risk, OFFICE OF THE MICHIGAN
ATTORNEY GENERAL, Detroit, Michigan, for Appellee.
 Nos. 16-2383/2680       Andrews, et al. v. Mich. Unemployment Ins. Agency                Page 2


                                      _________________

                                           OPINION
                                      _________________

       SILER, Circuit Judge. These two cases, consolidated for oral argument, present the same
question regarding whether a penalty assessed by a governmental unit against the debtor due to
fraud is dischargeable in a Chapter 13 bankruptcy proceeding.         In both cases, the debtors
fraudulently obtained unemployment benefits from the state of Michigan, and after determining
these benefits were wrongfully paid, Michigan assessed a penalty. The debtors argue that the
penalties assessed are dischargeable in a Chapter 13 bankruptcy. In each case, the district court
disagreed, finding the penalties to be nondischargeable. We affirm the decisions below because
the penalties are nondischargeable under 11 U.S.C. § 523(a)(2).

                     FACTUAL AND PROCEDURAL BACKGROUND

I.     Andrews v. Michigan Unemployment Insurance Agency (16-2383)

       Priscilla Andrews obtained unemployment benefits from the Michigan Unemployment
Insurance Agency (“Agency”) in 2010–11. While she was receiving unemployment benefits,
Andrews was also receiving wages from the Department of Community Health and from Family
Dollar Stores of MI, Inc. As Andrews failed to report these wages to the Agency, she received
unemployment benefits to which she was not entitled.            The Agency found that Andrews
committed fraud by failing to disclose the receipt of wages to obtain or increase her benefits and
ordered restitution of $6,897.00 and penalties of $27,588.00.

       In 2015, Andrews filed for bankruptcy pursuant to Chapter 13. The Agency filed an
adversary complaint alleging that Andrews’s penalties were nondischargeable under
§ 523(a)(2)(A) of the Bankruptcy Code. Andrews moved to dismiss the complaint, arguing that
the penalties assessed by the Agency were dischargeable in bankruptcy.

       The bankruptcy court agreed with Andrews and held that the penalties were
dischargeable, even though they arose from the underlying fraud.         This was based on the
conclusion that the penalties fell under only § 523(a)(7), which the bankruptcy court saw as
 Nos. 16-2383/2680        Andrews, et al. v. Mich. Unemployment Ins. Agency                  Page 3


dealing specifically with government penalties, and not § 523(a)(2), which the bankruptcy court
saw as dealing generally with debts arising from fraud; and as § 523(a)(7) debts are not listed as
nondischargeable in § 1328(a), the penalty debt could be discharged. The district court reversed
the bankruptcy court. Specifically, it held that the entire debt, including penalties and restitution,
was nondischargeable under § 523(a)(2).

II.    Kozlowski v. Michigan Unemployment Insurance Agency (16-2680)

       Stanley Kozlowski obtained unemployment benefits from the Michigan Unemployment
Insurance Agency for several weeks in 2011. However, during that time, Kozlowski also
received wages from Triam Schroth LLC. Because he failed to report these wages, Kozlowski
received unemployment benefits to which he was not entitled.               The Agency found that
Kozlowski committed fraud by failing to disclose the receipt of wages and ordered restitution of
$4,334.00 and penalties of $16,669.00.

       In 2015, Kozlowski filed for bankruptcy pursuant to Chapter 13. The Agency filed an
adversary complaint alleging that Kozlowski’s debt to the Agency was nondischargeable under
§ 523(a)(2)(A) of the Bankruptcy Code. Kozlowski moved to dismiss the complaint, arguing
that the penalty portion of his debt was dischargeable under Chapter 13.

       The bankruptcy court denied the motion to dismiss and found that the penalty portion fell
under both § 523(a)(2) and (a)(7). Because § 523(a)(2) debts are explicitly nondischargeable in
Chapter 13 proceedings, the penalties were nondischargeable. The bankruptcy court also made
clear that it disagreed with the Andrews bankruptcy court’s narrow reading of Cohen v. de la
Cruz, 523 U.S. 213 (1998). On appeal, the district court affirmed the bankruptcy court’s order,
finding that Kozlowski’s penalties were nondischargeable under § 523(a)(2).
 Nos. 16-2383/2680            Andrews, et al. v. Mich. Unemployment Ins. Agency                             Page 4


                       STANDARD OF REVIEW AND LEGAL STANDARD

         We “review the decision of the bankruptcy court directly, reviewing its factual findings
for clear error and its legal conclusions de novo.” Suhar v. Burns (In re Burns), 322 F.3d 421,
425 (6th Cir. 2003).1

         In a Chapter 13 bankruptcy case, a debtor can obtain a court order discharging debt if she
completes all payments in a confirmed plan or if she fails to complete the payments but the court
grants her a discharge. 11 U.S.C. § 1328(a)-(b). Section 523(a) sets out nineteen exceptions to
the standard discharge procedures used in bankruptcy proceedings. However, in Chapter 13
proceedings in which a debtor completes all payments under the plan,2 the § 523(a) exceptions to
discharge are limited to those enumerated in 11 U.S.C. § 1328(a). The exceptions relevant to
this case are in § 523(a)(2) and (a)(7). Subsection 523(a)(2) exempts from discharge any debt

         for money, property, services, or an extension, renewal, or refinancing of credit,
         to the extent obtained by false pretenses, a false representation, or actual fraud,
         other than a statement respecting the debtor’s or an insider’s financial
         condition . . . .

Id. § 523(a)(2)(A). Subsection 523(a)(7) excepts from discharge “any debt to the extent such
debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and
is not compensation for actual pecuniary loss, other than a tax penalty.” Importantly, § 523(a)(7)
is not one of the subsections excluded from discharge by § 1328(a), while § 523(a)(2) is
excluded.

                                                 DISCUSSION

I.       Subsection 523(a)(2) Encompasses Debtors’ Debt3

         Debtors argue that the penalties they were assessed fall under § 523(a)(7). Because
§ 523(a)(7) is not listed in § 1328(a), Debtors claim that the penalty debt should be

         1As mentioned above, the bankruptcy courts in these cases differed on the outcome. Although we review
the bankruptcy decisions directly, the de novo nature of the review allows the analysis of both cases to be identical.
         2The  11 U.S.C. § 1328(a) superdischarge for debtors who complete payments under the plan is not
applicable to debtors who have not completed payments under the plan but who are nevertheless granted discharge
by the court. Id. § 1328(b).
 Nos. 16-2383/2680            Andrews, et al. v. Mich. Unemployment Ins. Agency                           Page 5


dischargeable. Their arguments center on the belief that the Supreme Court case relied upon by
the district court and the Agency, Cohen, is not applicable and that rules of statutory construction
require a finding of dischargeability in order to prevent § 523(a)(7) from being superfluous and
to follow the intent of Congress.

        The first question we must answer is whether the penalty portion of the debt falls under
§ 523(a)(2). The Supreme Court addressed a similar issue in Cohen when it analyzed how to
classify treble damages and attorney’s fees and costs arising from fraud in a Chapter 7
bankruptcy case. 523 U.S. at 217-18. The Court discussed the history and interpretation of
§ 523(a)(2) and carefully examined the language of the statute. Id. at 219-22. It ultimately
concluded that “[w]hen construed in the context of the statute as a whole, then, § 523(a)(2)(A) is
best read to prohibit the discharge of any liability arising from a debtor’s fraudulent acquisition
of money, property, etc., including an award of treble damages for the fraud.” Id. at 220-21.
This decision demonstrates that the penalties associated with fraud should be regarded as
essentially the same as the fraud itself and are to be included under the § 523(a)(2) exception
from discharge, as debt arising from fraud.

        Debtors argue that Cohen is inapplicable because it concerned private parties and not a
government agency, but they offer no citation or persuasive reasoning as to why that changes the
analysis. Debtors also rely on two additional cases, Pennsylvania Department of Public Welfare
v. Davenport, 495 U.S. 552, 558 (1990), and Kelly v. Robinson, 479 U.S. 36, 42 (1986).
Davenport and Kelly analyze restitution orders in criminal proceedings in Chapter 7 and Chapter
13 proceedings. Neither case analyzed the relationship between § 523(a)(2) and (a)(7), and
importantly, both were decided before Cohen clarified that § 523(a)(2) applies to all debt
involving fraud. Therefore, these cases are unpersuasive.

        Debtors also rely on the principle that “exceptions to discharge are to be strictly
construed against the creditor.” In re Pazdzierz, 718 F.3d 582, 586 (6th Cir. 2013) (quoting
Rembert v. AT & T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 281 (6th Cir.


         3All references to “debt” concern only the penalty portion of the Debtors’ debt, as the principal amount is
not disputed in this appeal.
 Nos. 16-2383/2680          Andrews, et al. v. Mich. Unemployment Ins. Agency                Page 6


1998)). This argument fails for two reasons. First, as the bankruptcy court in Kozlowski aptly
put it:

          Whatever that rule means in other contexts, in the context of this case, it does not
          mean that the Court may ignore Cohen . . . . If anything, one might argue that in
          Cohen the Supreme Court did not construe § 523(a)(2) strictly against the
          creditor. But even if that is so, it is water under the bridge—this Court is bound
          to follow Cohen.

Second, that presumption is intended to operate for the benefit of “honest but unfortunate
debtors.” See In re Pazdzierz, 718 F.3d at 586 (emphasis added and brackets omitted) (quoting
Grogan v. Garner, 498 U.S. 279, 286 (1991)). That § 523(a)(2) debts are excepted from
discharge under § 1328(a) reflects a congressional decision that those who commit fraud are not
to be given the same “fresh start” as “honest but unfortunate debtor[s].” See Grogan, 498 U.S. at
286–87 (discussing the nondischargeability of § 523(a)(2) debts in Chapter 11 proceedings);
H.R. Rep. No. 109-31(I), at 15 (2005) (explaining that the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, which added debts covered by § 523(a)(2) to § 1328(a)’s list
of nondischargeable debts, was intended to “prevent[] the discharge of debts based on fraud,
embezzlement, and malicious injury in a chapter 13 case”).

II.       The Agency Rightfully Could Apply for the Debt to be Nondischargeable

          As Cohen held, Debtors’ debt is properly included under § 523(a)(2). Because the debt at
issue is related to a governmental penalty, it also arguably falls under § 523(a)(7). Therefore, we
must determine whether the same debt may be covered by both subsections and, if so, whether
the Agency is correct in arguing that once the debt is classified under § 523(a)(2), it can file an
adversary complaint that the debt is nondischargeable.

          Debtors argue that § 523(a)(7) is the more specific of the relevant § 523(a) subsections,
and that the debt must be considered as contained solely in that subsection, thus making it
dischargeable because § 523(a)(7) is not enumerated in § 1328(a). However, aside from the
general proposition that nondischargeability provisions should be construed against creditors,
Debtors cite no authority for the proposition that a particular debt may be covered by only one of
§ 523(a)’s subsections. To the contrary, Husky International Electronics, Inc. v. Ritz, 136 S. Ct.
1581 (2016), makes clear that the various subsections of § 523(a) are not necessarily mutually
 Nos. 16-2383/2680          Andrews, et al. v. Mich. Unemployment Ins. Agency               Page 7


exclusive. In Husky, the Court held that certain conduct covered by § 523(a)(2) could also be
covered by § 523(a)(6) (“willful and malicious injury”). Id. at 1588. The Court found similar
overlap between § 523(a)(2) and 11 U.S.C. § 727(a)(2), which, generally prevents discharge in
cases involving fraudulent conveyances. Id. at 1588–89. None of this was problematic for the
Court because, “[a]lthough the two provisions could cover some of the same conduct, they are
meaningfully different.” Id. at 1589. Kelly is also illustrative. In that case, the Court held that a
debt arising from restitution ordered following a state larceny conviction for wrongful receipt of
welfare benefits was nondischargeable in a Chapter 7 proceeding under § 523(a)(7). Kelly,
479 U.S. at 53. The Court also suggested that both § 523(a)(2) (fraud) and § 523(a)(4) (larceny)
would have applied, had the state petitioned the court to find the debt nondischargeable under
§ 523(c)(1). Id. at 42 n.3. In light of Husky and Kelly, we conclude that the debt at issue is
covered by both § 523(a)(2) and § 523(a)(7).

       Contrary to Debtors’ argument, the debt can be both nondischargeable under § 523(a)(2)
and dischargeable under § 523(a)(7). Had the agency not challenged the discharge under
§ 523(a)(2), the absence of § 523(a)(7) in § 1328(a)’s nondischargeability section would have
made the debt dischargeable under § 523(a)(7). However, the absence of § 523(a)(7) in the list
of nondischargeable debts does not mean that any debt that falls under § 523(a)(7) is
automatically dischargeable regardless of any other provision. Put differently, the Agency may
not file an adversary complaint claiming the debt is nondischargeable under § 523(a)(7), but it is
not prohibited from filing such a complaint under another subsection that is incorporated in
§ 1328(a). The Agency does not dispute that § 1328(a) does not incorporate § 523(a)(7), and, in
fact, the Agency places no reliance on § 523(a)(7). It merely argues that the debt is encompassed
by § 523(a)(2), and regardless of whether § 523(a)(7) applies, the inclusion of § 523(a)(2) in
§ 1328(a) allows the Agency to file an adversary complaint seeking the determination that the
debt is nondischargeable.

       We agree. Subsection 523(a)(2) provides that “any debt” arising from fraud is excepted
from discharge. A finding that the debt here arises from fraud perpetuated against the Agency
makes § 523(a)(2) applicable in these cases. Thus, because the debt falls into § 523(a)(2), it is
 Nos. 16-2383/2680       Andrews, et al. v. Mich. Unemployment Ins. Agency               Page 8


nondischargeable as “any debt” arising from fraud, regardless of whether the debt could also fit
under § 523(a)(7).

       Debtors’ argument that § 523(a)(7) is more specific than § 523(a)(2), and under
principles of statutory construction, that subsection should control, is also unpersuasive. Under
Husky, a debt may fall under more than one subsection. If the debt falls into a subsection
incorporated in § 1328(a), a creditor may apply for it to be declared nondischargeable. That a
debt might also be covered by a subsection not incorporated in § 1328(a) does not change this
outcome. Furthermore, contrary to Debtors’ assertion, neither subsection is more specific than
the other on these facts.   Subsection 523(a)(7) is more specific inasmuch as it deals with
penalties owed to the government, where § 523(a)(2) deals generally with fraud. But § 523(a)(2)
is in a sense more specific because it deals with fraud-related penalties, whereas § 523(a)(7)
applies to all penalties owed to a government entity. This does not matter, however, because the
debt can be covered by both subsections under Husky.

       AFFIRMED.
