A Chapter 7 bankruptcy can have many purposes, including the avoidance or reduction of administrative fines and penalties. A recent filing by two companies and their owner based in West Liberty demonstrates how a Chapter 7 filing can be used to avoid paying significant fines rather than merely eliminate operating debt.

In November 2016, the Kentucky Department of Public Health assessed fines against two firms and their owner for illegally dumping radioactive waste from another state in landfills in Estill and Greenup counties. Evidence at the hearing showed that the illegal dumping began in May 2015, with the transport and disposal of “technologically enhanced naturally occurring radioactive material,” known by the acronym TENORM. One of the companies did business under the name Advanced TENORM Services, LLC. The state assessed a total of $5.3 million in penalties against the two companies.

The unspoken purpose of the bankruptcy is the automatic stay under 11 U.S.C. § 362 and stop the administrative proceedings before the state can collect the penalties. The bankruptcy court is in the process of assembling the debtors’ banking records for the last six months before the petitions were filed and appointing a trustee.

The trustee will be responsible for gathering the assets of the two companies and their owner, selling the assets and using the proceeds of the sale to pay the claims of creditors. When this process is completed, the court will order the companies’ remaining debts to be discharged.

Whether the administrative penalties can be discharged remains to be determined. Chapter 7 does not allow discharge of debts obtained through fraud. Whether the companies committed fraud during the illegal dumping will be a crucial issue in the bankruptcy case.

Source: Lexington Herald-Leader, “Companies that dumped radioactive waste in Estill and Greenup counties file for bankruptcy,” Greg Kocher, March 13, 2017