Those thinking about filing for bankruptcy understandably have many questions about the process. These inquiries can range from how exactly their debts will be affected to questions about the procedure and players involved in their bankruptcy case. One person who plays a large part in bankruptcy proceedings, and of whom many petitioners are not aware, is the trustee appointed to the case.
A question that frequently comes up at consultations in my office is whether traffic tickets can be discharged in bankruptcy. Recently, a client presented with over $7000 of fines related to going through tolls with an invalidSunPass.
11 U.S.C. § 523(a)(7) of the bankruptcy law provides that a Chapter 7 bankruptcy does not discharge an individual from any debt that 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, other than a tax penalty. Therefore, traffic tickets are clearly not dischargeable in a Chapter 7 filing.
There are, however, alternative approaches.
Under Chapter 13, certain fines are dischargeable. Where the fine is imposed as a criminal penalty, it will be non-dischargeable; however, non-criminal fines will be dischargeable. The key is determining whether the parking or traffic violations are deemed “crimes” under the state law where the offenses occurred.
In Florida, traffic offenses are divided into two categories: crimes and civil (non-criminal) infractions. Examples of criminal traffic offenses include DUI, reckless driving, leaving the scene of an accident and knowingly driving with a suspended license. Civil traffic offenses (i.e., non-criminal offenses) include speeding, running a red light or stop sign, illegal U-turns, failure to yield to emergency vehicles and non-moving violations.
In a Chapter 13 bankruptcy, non-criminal traffic fines will be paid as part of a plan that will decrease the amount of the ticket and allow for payment at levels that the debtor can afford by extending the debt over a period of three to five years.
So what can you do about non-dischargeable criminal fines or penalties? You can make payments for a portion of what you owe through a Chapter 13 Plan over a period of 3-5 years. The balance remaining at the conclusion of the Plan will not be discharged.
Chapter 13 Bankruptcy Can Keep You in your Home
Consider the following (unfortunately) common situation faced by many homeowners: their home in the current depressed real estate market is worth $150,000. They have two mortgages on the property that they obtained during the real estate boom several years ago. They have a first mortgage of $160,000 (they are a little ‘underwater’, that is, they owe a little more than the property is worth). They are not happy, but can manage the payments. The problem is the second mortgage of $100,000 that they put on the property when it was worth much more; they are not able to keep up with this mortgage and just received a notice of acceleration and imminent foreclosure from the lender.
There is a remedy for these homeowners which will allow them to keep their home- CHAPTER 13 BANKRUPTCY.
Seeing a lawyer for a bankruptcy problem is much like seeing a dentist. You try to ignore the pain as long as you can before you make an appointment. When you finally do, you wonder why you waited so long and went through months or years of unnecessary discomfort.
As an attorney who sees clients in Miami-Dade, Broward/Fort Lauderdale and from Key Largo to Key West, I often advise a new client that the most difficult decision they have had to make concerning their financial problem is whether to call my office. From then on, we deal with solutions, not problems.
How then, should you choose a bankruptcy lawyer?
Do not go to a bankruptcy ‘mill’
Not all loans are alike.
A tuition bill is not a student loan. As a general rule, student loans are non-dischargeable debts, which means that you will still have to pay the loan off even after filing for Chapter 7 or Chapter 13 bankruptcy. Under current law, this is true for both federal and private loans, even if it’s a private loan from for-profit lenders such as Citibank or the student loan specialist Sallie Mae. Private student loans (also called the alternative student loans, e.g., FFELP and FDSLP) are generally given to supplement federal loans (Stafford loans, Perkins loans or the PLUS loans.)
If you default on your student loan, the U.S. Department of Education can have money deducted from your federal income tax refund to collect on defaulted federal student loans (tax offset) or force your employer to withhold a portion of your pay (wage garnishment) or both.
Ordinary tuition bills have different considerations. Generally, so long as the family did not sign a promissory note (which would cause them to be considered educational loans), unpaid tuition bills and other college bills can be discharged in bankruptcy. A Florida Bankruptcy attorney should review of all documents signed in connection with the unpaid tuition bills to determine whether they are dischargeable in bankruptcy.
There are remedies.
Bankruptcy is intended to give you a fresh start- all of your credit card debt, medical bills, deficiency judgments and unsecured debt become nothing more than a bad memory. But what about your nasty tax liabilities? Will they follow you forever? This is a question my clients frequently ask.
Well, it depends.
In general, if returns were properly filed (even though the taxes were not paid) income taxes more than three years old can be discharged in bankruptcy. Pay attention: only income taxes are dischargeable; other taxes, such as payroll taxes or fraud penalties cannot be discharged. Penalties on taxes that are dischargeable are also discharged.