Can I Wipe Out Government Fines in Bankruptcy?
Find out if you can wipe out federal, state, or municipal fines in Chapter 7 or Chapter 13 bankruptcy.
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Whether you can eliminate (discharge) a government fine, penalty, or ticket in bankruptcy depends on the government's intent on issuing the fine. If the government entity imposed the fine as punishment, then you cannot wipe it out in bankruptcy. However, if the government intends the fine to compensate it for a financial loss, then you can discharge it in bankruptcy. (Learn what it means when a debt is discharged in bankruptcy.)
Fine, Penalties, and Tickets: The Label Doesn't Matter for Dischargeability
The law refers to government fines in many ways: fines, penalties, forfeitures, tickets, tolls, and surcharges. The law may also classify fines as criminal, civil or administrative. The common element for purposes of this article: The fine (or whatever other label used) is owed to a governmental unit. The unit can be a municipal, state, federal or pseudo-governmental entity, like a tollway authority.
What the fine is called, however, does not determine whether it is dischargeable in a Chapter 7 bankruptcy case.
The Key to Dischargeability: Does the Fine Punish the Violator or Compensate the Government?
Whether you can discharge a fine in bankruptcy depends on the nature of the charge or what it is intended to accomplish. If the fine is penal in nature -- that is, the fine is intended to punish you for wrongdoing -- you cannot discharge in in a Chapter 7 case. On the other hand, if the fine is designed to compensate the government for its pecuniary (monetary) loss, you can discharge it in bankruptcy.
Example. Let’s say you spray paint graffiti in a public park. If caught, you would likely receive two fines: One for defacing public property and one for the cost of cleanup or repair. The first fine would likely be nondischargeable because it is intended to punish you for failing to abide by the law. The second would likely be dischargeable because it is designed to compensate the city for removing the paint.
How State or Local Law Classifies the Fine
Whether a fine is penal in nature may also depend on how state or local law characterize the infraction. For instance, misdemeanors and felonies are usually considered criminal, which means you could not discharge the fine in bankruptcy. But many states and municipalities do not designate parking tickets and many traffic tickets as criminal -- you could argue that those should be eligible for discharge in a Chapter 7 case.
Fines and Penalties You May Want to Discharge in Bankruptcy
Below are some fines and penalties that many bankruptcy files wish to discharge. In some cases, it may be difficult to know whether the fine is penal or compensatory in nature. It may depend on the jurisdication, and even then, experts may disagree as to whether the fine is dischargeable or not. If you want to discharge a fine in bankruptcy, talk to a local bankruptcy attorney.
- Bad check fees. Because these generally arise through criminal or civil fraud, they are usually nondischargeable.
- Unpaid road and bridge tolls. Experts differ on whether unpaid tolls are dischargeable. Some argue that you should be able to discharge unpaid tolls because they are meant to compensate the government for the use of the bridge or road.
- Criminal restitution fees. These are usually nondischargeable. Even though the use of the word “restitution” makes it sound as if the victim is being compensated, the U.S. Supreme Court has made it clear that restitution is penal in nature.
- Income tax penalties. Bankruptcy law treats tax penalties separately from other types of penalties. If the tax itself is less than three tax years old, the tax and the penalty are nondischargeable. If the tax is more than three years old, it is dischargeable. (Learn more about discharging tax debts in Chapter 7.)
- Fines for building code violations. These are generally considered to be criminal in nature and nondischargeable.
- Fines for contempt of court. These are generally nondischageable, although some experts argue that a civil contempt of court fine, which the court imposes for your failure to abide by a court order, is dischargeable.
- Bail bond forfeitures. These are usually dischargeable.
Fines in Chapter 7 v. Chapter 13
Many fines and penalties that cannot be discharged in a Chapter 7 case can be discharged in a Chapter 13 case. These include fines for traffic violations, parking tickets, building code violations, and toll charges.
However, there are some fines that you cannot discharge in Chapter 13, such as those that are included in a sentence for criminal conviction. For example, you would not be able to discharge a fine imposed by a court as part of a conviction for a drug offense or robbing a convenience store. (Learn more about debts that you can discharge in Chapter 13 bankruptcy.)