One of the first questions people often ask when they contact a Roseville bankruptcy lawyer is which debts bankruptcy can eliminate in California. This is an understandable question as the reason many people file for bankruptcy is to eliminate debt. Even in cases where someone needs to reorganize their financial obligations through Chapter 13, discharging some debts is usually an added bonus.
The Bankruptcy Code is often confusing and inconsistent. However, when Congress enacted the law, it purposefully made certain debts non-dischargeable as a matter of public policy. In most cases, court fines are included in the non-dischargeable category.
This article reviews whether different chapters of bankruptcy, including Chapter 7 and Chapter 13, can get rid of court fees and fines owed to the U.S. government by filers. It also looks at certain taxes as well as parking tickets. To discuss your specific debt in more detail, contact The Bankruptcy Group at 1-800-920-5351 to schedule a free consultation.
What Does It Mean if a Debt Is Dischargeable?
Debts are divided into several categories when filing for bankruptcy in California. For example, some debts are deemed “dischargeable” while others are classified as “non-dischargeable” debts.
Put simply, a dischargeable debt is a debt for which the filer will no longer be liable when the bankruptcy court enters a discharge order on the debtor’s behalf. Conversely, a non-dischargeable debt is a debt that will remain with the filer even after the bankruptcy case is over. Unlike dischargeable debts, which are effectively wiped out, non-dischargeable debts must be paid regardless of a bankruptcy case’s successful completion.
As a matter of public policy, Congress determined that certain debts would not be dischargeable in bankruptcy. More specifically, there are nineteen categories of debt that cannot be discharged in bankruptcy.
For all practical purposes, the following debts are non-dischargeable. A debtor would have to demonstrate extraordinarily rare circumstances to have a court discharge any of the following debts.
- Debt that was not included on your bankruptcy schedules, unless the creditor was aware you were filing for bankruptcy
- Most taxes
- Alimony or child support
- Penalties or fines owed to government agencies
- Student loans
- Personal injury debt or judgments arising from a drunk driving accident
- Debts arising out of a tax-advantaged retirement plan, for example, a 401(k) loan
- Cooperative housing or Condominium fees
- Attorney fees incurred for child support or custody
- Criminal restitution and other court fines
The other non-dischargeable debts will only be non-dischargeable if successfully challenged by the creditor. For example, if you purchased a luxury good within 90 days of filing for bankruptcy, the creditor could challenge whether the debt should be discharged. Other debts that could be challenged include those obtained fraudulently, under false pretenses, and debts that were incurred through the willful and malicious injury to a person or property. In these situations, a hearing will be scheduled and both sides, the creditor and debtor, are entitled to present their arguments.
Are Court Fees and Government Fines Dischargeable in Bankruptcy?
Generally speaking, many court fees are non-dischargeable in Chapter 7 bankruptcy, which means they cannot be wiped out by the discharge. By comparison, Chapter 13 gives the filer time to pay off a greater array of court-related debts over the course of the three- to five-year plan of reorganization but requires that such debts be paid in full.
Overall, the Chapter 13 discharge is more expansive than the Chapter 7 discharge and allows a greater variety of debts to be discharged — including debts arising from a variety of penalties and fines. To provide a few examples, the following fees and fines are dischargeable in Chapter 13, but not Chapter 7 bankruptcy:
- Debts arising from malicious, willful property damage (but not bodily injury — for example, injury or death related to DUI)
- Debts arising from divorce proceedings, such as property settlements
Unlike Chapter 7 bankruptcy, Chapter 13 can also create an opportunity to discharge government fines and court fees such as unpaid bridge tolls, building code violation fines, and parking tickets. However, even with the broad discharge afforded by Chapter 13 bankruptcy in California, there are still certain court judgments that cannot be discharged under any circumstances. For example, regardless of whether an individual files for Chapter 7 or Chapter 13 bankruptcy, they will not be able to discharge debts arising from court-ordered alimony payments or child support payments.
Discharging Income Tax Debt in Chapter 13 and Chapter 7
Income tax-related debts are subject to a few unique regulations in bankruptcy cases. In Chapter 13 and Chapter 7, income tax obligations may be eligible for discharge if certain criteria are satisfied. A debt related to income tax may be discharged in Chapter 13 or Chapter 7 in California if the following conditions are met:
- The taxpayer did not commit fraud or tax evasion.
- The tax return was filed a minimum of two years before the debtor filed for bankruptcy.
- The tax return was due a minimum of three years before the debtor declared bankruptcy, including extensions where applicable.
- The Internal Revenue Service (IRS) did not assess the debtor’s liability for the debt during the 240 days preceding the bankruptcy: the taxes must have been assessed 240 days ago or more.
Additionally, filers should be aware that while bankruptcy can release the debtor from liability for the tax obligation itself, the discharge does not wipe out liens arising from tax-related debts.
Parking Tickets in Bankruptcy
One type of fine or penalty everyone who drives is likely familiar with is a parking ticket. Another common question our California bankruptcy lawyers get is, “are my parking tickets dischargeable?” The answer actually depends on what chapter of bankruptcy you filed.
Parking Tickets and Chapter 7
Under the Bankruptcy Code, certain debts are excluded from discharge. This includes debts that are for a fine, penalty, or forfeiture that is payable to a government unit. Therefore, the general legal conclusion is that parking tickets fall under the category of non-dischargeable debts. However, while your bankruptcy is pending, any collection actions against you for any unpaid parking tickets would cease. This could provide a filer a few months of peace.
Parking Tickets and Chapter 13
Two things any consumer bankruptcy attorney will tell you is that the Bankruptcy Code is inconsistent and confusing to someone without intimate knowledge of its provisions. In the paragraph above, we discussed how the Bankruptcy Code excludes parking tickets from a discharge. However, in Chapter 13, municipal fines, such as parking tickets, are categorized as unsecured debt. Therefore, this debt is treated in the same fashion as any other unsecured debt. For example, if your Chapter 13 plan requires that you pay 15% to your unsecured creditors, you will have to pay a percentage of your unpaid parking tickets. Anything more than 15% will be discharged. To understand all of the nuances, advantages, and disadvantages of the Bankruptcy Code, you need our California bankruptcy lawyers working on your behalf.
The Bankruptcy Court Could Deny a Discharge
In certain situations, the bankruptcy court will deny a discharge if the debtor fails to comply with the rules or bankruptcy procedures. For instance, a discharge could be denied if you fail to list your assets, commit perjury, purposefully hide property, destroy or edit financial records, or otherwise attempt to defraud your creditors. Furthermore, if the trustee or your creditors believe you are not being forthright, they could file an objection to discharge.
A discharge could also be denied based on when you filed your bankruptcy case. For example, if you filed a Chapter 7 case within eight years of your previous case, you are not entitled to a discharge – even if the debt would normally be dischargeable. This is similar for Chapter 13 cases, except the timeframe is only two years from the previous filing date.
In cases where you are filing different chapters consecutively, the order will determine who long you must wait to obtain a discharge in the second case. For instance, if you filed a Chapter 13 case, you must wait six years from the filing date to obtain a discharge in a Chapter bankruptcy. Conversely, if you filed a Chapter 7 case, you would have to wait four years before you could receive a discharge in a Chapter 13 bankruptcy.
Bankruptcy Could Still Provide Some Help If You Have Outstanding Court Fines or Penalties
Chapter 7 bankruptcy and Chapter 13 bankruptcy enable filers who follow the bankruptcy court’s rules to eliminate or restructure many of their most burdensome debts, including but not limited to credit card debt, medical debt, business debts, and debt related to personal loans. Depending on the circumstances, it may also be possible to eliminate certain court fees, government fines, and debts related to income tax.
However, if you are not able to discharge your court fines, filing for bankruptcy could still provide you much-needed relief. If you are struggling to manage debt related to medical bills, credit cards, older income tax obligations, or other sources of debt, Chapter 7 could be a way to alleviate much of the burden. Even if your court fines are non-dischargeable, eliminating your other debt could free up the funds necessary to pay those required costs.
Additionally, a Chapter 13 bankruptcy could be an effective and practical method of regaining control over your finances. A Chapter 13 bankruptcy plan could be that payment plan you need to get back on your feet, especially if you can discharge a portion of or all of your unsecured debt. Another possible benefit is the ability to have your driver’s license returned if it was suspended because of unpaid fines. By paying your fines back through Chapter 13, your license could be reinstated.
Consider talking to a Folsom Chapter 13 bankruptcy attorney about how filing for bankruptcy in California may be able to help you achieve your goals and protect your personal property and assets.
California Bankruptcy Lawyers Serving Roseville, Sacramento, and Folsom
The Folsom lawyers of The Bankruptcy Group have extensive experience assisting married couples, single individuals, and business owners with consumer bankruptcies and business bankruptcies, including Chapter 11, Chapter 13, and Chapter 7, in Roseville, Sacramento, and Folsom. To arrange a free and completely confidential legal consultation about your bankruptcy options in California, contact The Bankruptcy Group as soon as possible by calling 1-800 920-5351.