Are Government Fines Dischargeable in Chapter 7 Bankruptcy?

Usually, government fines are not discharged in Chapter 7 bankruptcy. But there's one exception.

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We have an addition in our home that the prior owners built. The county assessed non-compliance fees against us for the illegal addition. If we file for Chapter 7 bankruptcy, will these fees be discharged?

Government Fines Are Not Discharged, With One Exception

Bankruptcy does not discharge any fine or penalty payable to a governmental unit. There’s one exception. The fee might be dischargeable in bankruptcy if it is meant to reimburse a governmental entity for money it has actually spent, or financial loss it has actually incurred, separate and apart from any related fines and penalties. 

For example, say a city bills you to recover its cost of brush clearance on your property, or to replace a stop sign you knocked over, or to demolish an illegal structure on your property. These county fees might be dischargeable in bankruptcy because the county assesses them in an effort to recover the actual costs involved in clearing, replacing, or demolishing. 

(Learn more about which debts are discharged in Chapter 7 bankruptcy.)

County or City Fees Might Be Discharged in Part

Sometimes part of these fees will be dischargeable, and part will not be. For example, say your total bill from the county is $7,500. The bill breaks the charges down as follows:  $5,000 for the cost of paying a contractor to tear down the illegally built structure and $2,500 as a penalty because you failed to do the tear-down on your own. In this case, $5,000 is will probably be discharged, but the $2,500 penalty portion probably will not be discharged.

Because counties and cities differ in how they treat fees and penalties, and you might have a cause of action against the prior owners, it would be wise to contact a local bankruptcy attorney for advice before you file for Chapter 7 bankruptcy.

(Find out what happens to other debts in Chapter 7 bankruptcy.)

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