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Bankruptcy Sanctions and the Governments

By L. Jed Berliner, Massachusetts Bankruptcy Attorney on Jun 30, 2008 in Bankruptcy Myths, Bankruptcy Protection & Automatic Stay, Massachusetts

Yes, Virginia, even the federal government must comply with your bankruptcy protections.

Congress waived sovereign immunity for the federal government - including our good friends at the Internal Revenue Service !! - in Section 106 of the Bankruptcy Code.

Well, not entirely. One can sue for actual damages but not punitive damages. In the First Circuit, covering Puerto Rico and New England (without Connecticut), one cannot recover emotional distress either. United States v Torres (In re Torres), 432 F.3d 20 (1st Cir., 2005). Attorney fees are limited to $125 per hour plus cost of living from 1996 forward, which would be about $172 per hour today.

There are no such limitations on claiming damages against state or municipal governments. Unsettled is whether a state government may itself be sued for sanctions if it violates bankruptcy protections, or if one must sue a state official. This has to do with unknown sovereign immunity of the separate states under federal laws. Municipal governments can be sued.

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