Will That Debt Go Away? Parking Tickets, Library Fines, and other Debts owed to a City or State
We love helping people get out of debt. In fact, Congress designates bankruptcy law firms like us as “Debt relief agencies”. Our literal job is to get people relief from their debts so they can afford to pay their monthly bills and survive and thrive.
However, when Congress wrote (and re-wrote) our country’s bankruptcy laws, they made decisions about some debts that don’t get eliminated in bankruptcy. These types of debts are found in Section 523 of the bankruptcy code (11 U.S.C. §523 for you law nerds out there).
Section 523 has a lot of different aspects to it, some of which we’ll address in future posts, but one in particular comes up often.
Section 523(a)(7) says that a discharge under any Chapter of the bankruptcy code does not discharge an individual debtor from 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…”
This short section of big words protects cities and other municipalities, counties, and states and commonwealths from losing money when debtors file for bankruptcy. “Governmental unit” covers the very smallest incorporated city to the largest state.
For instance, I used to live and work in Chicago. The Windy City is notorious for issuing parking tickets, as well installing red light cameras in busy city intersections. Illinois also has a number of tollways, similar to the Kansas Turnpike. This meant that drivers would find themselves owing fines (and penalties and interest, sometimes) to Chicago, the Illinois Tollway, and other municipal agencies. Those kinds of debts generally do not get discharged in Chapter 7 bankruptcy (although they may be able to be paid through Chapter 13 repayment plans).
Bankruptcy law is federal, but Congress left decisions on these debts up to the states and local municipal governments that created these debts. This means that if the Lawrence Public Library or the Lee’s Summit Police Department send me fines and tickets, I can’t simply turn to bankruptcy to eliminate those debts.
If you owe money to a local or state governmental agency and have questions about resolving the debts owed to a city or statein bankruptcy, please give us a call to arrange a free initial consultation.