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Fines, Penalties & Criminal Restitution

1. Criminal Fines & Restitution. All fines and restitution obligations issued in criminal cases can not be discharged in any bankruptcy case (Chapter 7, 11 or 13).  See, 11 U.S.C. § 523(a)(7) and § 1328(a)(3)        Index

2. Civil Fines & Penalties. All civil fines and penalties owed to governmental units are not dischargeable in a Chapter 7 or 11 case (11 U.S.C. § 523(a)(7)), but can be discharged in a Chapter 13 case.  To be non-dischargeable in a Chapter 7 case, the fine or penalty must meet the following requirements:

(1) It must be both payable to and for the benefit of a governmental unit.  Debts payable to a private party arising from judicial sanctions imposed prepetition do not fall under this discharge exception.

(2) It must not be compensation for actual pecuniary loss.  The fine or penalty must  arise as a punishment for wrongdoing by the debtor and not merely be a monetary remedy for a breach of contract.        Index

3. Tax Penalties More Than 3 Years Old. The only exception is for tax penalties more than 3 years old. A debtor can discharge a tax penalty in a Chapter 7, 11 or 13 case if it relates to a transaction or event that occurred more than 3 years before he files for bankruptcy. See, 5. Penalties and Interest  at the article on Discharging Tax Debts in Bankruptcy for a discussion of discharging tax penalties in bankruptcy.        Index


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