When you owe money to the federal, state, or local government, usually you cannot get rid of the debt in bankruptcy. Fines and penalties owed to government agencies are no exception. For the most part, you cannot discharge (eliminate) government fines and penalties in bankruptcy. There are rare exceptions, however. If the government wants you to pay money for property you damaged, you may be able to discharge the debt in bankruptcy. (Learn more about discharging debts in bankruptcy.)
The government can fine or penalize you as long as there is a written law saying it has a right to do so. All levels of government, including the city, county, state, and federal government have such laws in place. Whether called an ordinance, statute, code, or regulation, these laws help society function in a peaceful way by punishing rule breakers. Each law must tell you what you are supposed to do as well as what will happen if you break the law.
A government fine or a penalty is a punishment for doing something wrong. If you do not wear a seatbelt, or if you refuse to cross in the cross walk, you may receive a ticket and have to pay a fee. The fee serves as an incentive for you to do better next time. Similarly, when a police officer gives you a ticket for breaking the speed limit, the fine you must pay is punishment for driving too fast.
The purpose of bankruptcy is to help you get rid of financial debt, not to help you avoid punishment. Since fines and penalties are forms of punishment, they are not dischargeable in bankruptcy.
The following list includes examples of common fines and penalties that you cannot discharge in bankruptcy:
In some cases, however, you might owe money to a government agency that is technically not a fine or penalty. While you cannot discharge government fines and penalties intended to punish you, you can discharge debt that you owe to a government agency because you accidentally damaged or destroyed government property.
It doesn’t matter whether you rear-end a government vehicle at a stoplight, start a small grass fire, or run into a telephone pole, if you damage the government’s property, a representative will ask you to pay for it. Since asking you to repair or replace damaged property is not a way of punishing you, you can discharge the debt in bankruptcy as long as the damage was an accident.
The tricky part is determining if your bill from a government agency is a fine, reimbursement for property damage, or both. Start by looking at your paperwork. If you are paying a fine, it will likely list the authorizing law. If you like, you can check the law to see if the fine is within the law’s guidelines.
If the amount you are paying is more than the total fine amount allowed by law, there may be property damage involved -- though realistically you probably remember if you damaged government property. In addition, most government demand letters specifically state how much they are asking you to pay and why.
If, after reviewing your paperwork, you still are not sure, you may want to call the government agency and ask if the amount is dischargeable in bankruptcy. Agencies are usually happy to answer your question, and if the debt is dischargeable, it will tell you what to do to make sure it knows about your bankruptcy. Another option is to consult with a local bankruptcy attorney.