Are civil sanctions dischargeable?

[GIn]

If I have sanctions against me for attorneys fees and costs for losing on a motion in a civil court case, are those sanctions dischargeable?

[AngelinaCatHub]

If I have sanctions against me for attorneys fees and costs for losing on a motion in a civil court case, are those sanctions dischargeable?

Discharge Of Attorney Fees Awarded As Discovery Sanction In Civil Lawsuit

A caller and prospective bankruptcy debtor asked if attorneys fees awarded in a civil proceeding as a discovery sanction could be discharged in a Chapter 7 bankruptcy. The caller was concerned that "sanctions" imposed by a civil state court are in the nature of a "fine" or "penalty" for violation of court discovery orders. Section 523 of the bankruptcy code lists all types of debts which are non-dischargeable. All debts not listed in that Code section are dischargeable. Attorney fee sanctions in civil proceedings are not among the listed non-dischargeable debts.

Section 523 does include fines and penalties among non-dischargeable debts, but it specifically is limited to those fines and penalties payable to a governmental unit. Discovery sanctions in civil lawsuits are payable to the opposing party and not to the court or any unity of state or local government. There is nothing in Code section that describes civil sanctions awarded as part of civil judgment pursuant to a statute or contract. There are some exceptions where civil attorney fee awards will survive bankruptcy. At least one Florida bankruptcy court held that attorney fees awarded in a divorce case cannot be discharged if the proceeding is related to support or alimony. Also, fee sanctions awarded in the bankruptcy proceeding itself must be paid by the debtor. However, the general answer to the question is, I believe, that attorney fee sanctions and judgments for attorney fees in civil lawsuit can be discharged.


posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida

http://www.bankruptcyorlando.com/2008/12/discharge-of-attorney-fees-awarded-as-discovery-sanction-in-civil-lawsuit.html

[GIn]

I came across that article as well. Unfortunately there are other opinions on websites that contradict this. I was wondering if anyone had an actual experience in this matter.

[justbroke]

That's just it. Whether they are non-dischargeable in your District and Circuit Court of Appeals, appears to be a try-able issue. I can't tell you what the Strategy is, but I might be inclined to file a Complaint to Determine Dischargeability (adversary proceeding/AP). However, that can cost.

If the sanctions are significant, then the party that was awarded them in the civil matter may file their own complaint in the bankruptcy proceeding. It may also get tricky if the sanctions were part of a dissolution of marriage or other custody related issue.

I will say that even if someone from Florida or California say that they had theirs discharged, I would say that without a complaint determining such, it's probably still an open issue.

[GIn]

If we have sanctions and file BK and list the judgment that includes the amount of sanctions, will the creditor have to file an AP to have them removed from discharge? In other words will they be automatically discharged unless the creditor files an AP?

[justbroke]

If we have sanctions and file BK and list the judgment that includes the amount of sanctions, will the creditor have to file an AP to have them removed from discharge? In other words will they be automatically discharged unless the creditor files an AP?

Now that's the $64,000 question and what I showed concern for in my prior post. The question is... are the sanctions dischargeable to start with. If these sanctions were for a run-of-the-mill civil lawsuit in which the suit had nothing to do with a fine/fee payable to a government entity, an obligation to pay child support or related to divorce, then it is discharged.

So, since you wrote "creditor", I'm going to assume that this is for a run-of-the-mill credit card or other credit product. Those sanctions would be dischargeable unless otherwise determined by the court. The creditor would need to file a complaint (AP) and actually have it ruled upon in their favor to make them non-dischargeable.

It is still a great question on dischargeability and you an see that there are areas where it is questionable. I would assume that other than for a fine payable to some government entity, a creditor would need to file an AP to determine dischargeability and they must do so before the bar date.