Criminal fines or restitution debts are not dischargeable in either Chapter 7 or Chapter 13, but Chapter 13 can provide a way to propose a plan to repay all or a portion of criminal fines over three to five years and it may be possible to specially classify such debts to repay criminal fines ahead of other unsecured claims under certain circumstances.
If a driver’s license has been suspended or revoked because of the failure to repay fines, the filing of a Chapter 13 bankruptcy will allow a driver’s license to be reinstated. If a license has been suspended or revoked as a result of DUI, Habitual Traffic Offender, or for some criminal sentence, although the filing of a Chapter 13 may not be effective to reinstate a license there still may be benefits to filing as to other debts.
If Court or traffic fines have resulted in a driver’s license suspension or revocation, it will be important to obtain a copy of a complete driving transcript report from the DMV so that all fines or obligations that are causing a problem with a driver’s license can be included and listed on the Bankruptcy schedules.
A successful Chapter 13 plan allows a Debtor to reinstate a delinquent mortgage as if no default had occurred. The Chapter 13 Trustee will verify the status of a mortgage as reinstated before the completion of a plan. When a Chapter 13 debtor receives a discharge, a permanent injunction against collection on amounts addressed through the Chapter 13 plan goes into place. The willful failure of a creditor to have properly credited payments received under a confirmed Chapter 13 plan where there has been no default by a Debtor constitutes a violation of the discharge injunction if such action causes material injury to a Debtor. A party who knowingly violates a discharge order can be held in contempt and sanctions awarded. The Ninth Circuit has applied a two-part test for a Debtor to prove in determining whether sanctions are justified: (1) the creditor knew the discharge injunction was applicable and (2) the creditor intended the actions which violated the injunction.
As to the first prong, the Court must find actual knowledge in the context of contempt before a finding of willfulness can be made. Meaning, the Court must find evidence that the creditor was aware of the discharge injunction and that it applied to its claim. As to the second prong concerning a party’s intent, the focus is not on a party’s belief or intent, but on determination of whether a party’s conduct complied with the order at issue. If the Court finds a party has willfully violated the discharge injunction to a Debtor’s detriment, the Court may award compensatory damages, punitive damages, and attorney’s fees to the Debtor. Therefore, a Chapter 13 Debtor has protection to know once a delinquent mortgage has been cured through a confirmed Chapter 13 plan, that a Debtor is absolutely entitled to a fresh start going forward.
For tax liability to be dischargeable in bankruptcy, i.e. no longer considered a personal liability, at least the following three rules must be met:
Please note that if taxes are not dischargeable in a Chapter 7 bankruptcy, a Chapter 13 bankruptcy may provide meaningful protection to a person owing tax debt. There has been much litigation across the country in the past several years concerning discharge of tax liability in Chapter 13 cases and recent court decisions have changed the interpretation of tax claim treatment in Chapter 13 cases. The US Supreme Court was asked to hear such a case but recently declined to do so.
A successful Chapter 13 Plan can provide for repayment of secured and unsecured priority tax liability to the IRS and allow for discharge of penalties, interest on penalties, and other eligible general unsecured tax debt. In addition, priority taxes paid through a Chapter 13 Plan will not accrue additional penalties.
Liability on late-filed tax returns are very likely never dischargeable without a very good reason. However, the debt can still be managed through a Chapter 13. Where there is non-dischargeable tax liability, the accruing interest is also non-dischargeable but a Chapter 13 plan may be able to provide to pay that interest to the IRS in some circumstances.