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Governmental unit

In bankruptcy law, a governmental unit is a government body at any level: the United States, a state, a territory, a municipality or a foreign state, or one of their departments or agencies. 1

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How it works

The term covers agencies as well as governments themselves, so a federal department or a state tax agency is a governmental unit. A United States trustee who is serving as the trustee in a case is not counted as one. 1

The label matters because several rules treat debts owed to the government differently. A fine, penalty or forfeiture that is payable to a governmental unit, and is not compensation for an actual financial loss, is not wiped out by a Chapter 7 discharge. Tax penalties follow their own rule. Most education loans made or guaranteed by a governmental unit are also generally not discharged in Chapter 7. 2 3

Governmental units also get their own treatment as creditors. Certain of their claims, such as taxes, are priority claims, and they have 180 days from the date a Chapter 7 case is filed to file a claim. 4 3

The law also limits governmental units. One may not discriminate against a person only because that person was a bankruptcy debtor or did not pay a debt that was discharged. 5

Common questions

Does the automatic stay stop a government agency?

Not always. Filing does not stay an action by a governmental unit to enforce its police and regulatory power, including enforcing a judgment other than a money judgment. Ask a lawyer how this applies to a specific agency action. 6

Does a Chapter 7 discharge erase a court fine?

Generally not, when the fine is payable to a governmental unit and is a penalty and not compensation for an actual financial loss. Certain criminal restitution orders are also not discharged in Chapter 7. Ask a lawyer how the rules apply to a specific fine. 2 3

Why are federal student loans treated differently?

Education loans made or guaranteed by a governmental unit are generally not discharged unless repaying them would be an undue hardship, which the debtor must prove in a separate lawsuit inside the bankruptcy case. 3 2 7

Related reading

Automatic stayCriminal fines and penalties in bankruptcyServing the United States correctlyAll bankruptcy terms

Sources

  1. 11 U.S. Code § 101(27) (Cornell LII)
  2. 11 U.S. Code § 523(a)(7) (Cornell LII)
  3. Chapter 7 - Bankruptcy Basics
  4. 11 U.S. Code § 507, Priorities (law.cornell.edu)
  5. Discharge in Bankruptcy - Bankruptcy Basics
  6. 11 U.S. Code § 362, Automatic stay (law.cornell.edu)
  7. DOJ: Student Loan Discharge Guidance: Fact Sheet (Nov. 17, 2022)

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