Bankruptcy is a democratized system that offers debt discharge for all debtors who are unable to pay their debts, even those who have become entangled in the criminal justice system. As we have mentioned before, debtors who are imprisoned are allowed to file bankruptcy and discharge those debts that are allowed under the bankruptcy code. But what happens if a debtor has criminal restitution payments that he/she wants to discharge? Under the bankruptcy code and the precedence set by a 1986 US Supreme Court Ruling (Kelly v. Robinson, 479 U.S. 36) criminal restitution payments cannot be discharged in bankruptcy. However, they can be paid over time in a Chapter 13 bankruptcy. But there are few things that debtors need to know about criminal restitution payments in bankruptcy.
- Since there is a clear precedence set for not discharging criminal restitution payments in bankruptcy, a debtor would not be able to discharge the balance of the restitution amount at the end of the Chapter 13 bankruptcy plan. For example, if a debtor owed $40,000 in criminal restitution payments and only paid $30,000 by the time they ended their Chapter 13 bankruptcy repayment plan, they would still owe the $10,000.
- A debtor with criminal restitution payments may still benefit from bankruptcy because they may be able to discharge other debts such as credit card debt. The discharging of other debt could feasibly free up more income so that they can make payments on their undischargeable debt.
- In the case of a Chapter 13 bankruptcy, the repayment period could give the debtor an opportunity to pay most of the criminal restitution debt overtime while working hard to increase their income and better position themselves financially before their Chapter 13 bankruptcy case ends.
Debtors who have criminal restitution payment obligations should speak with a bankruptcy attorney to find out how bankruptcy could benefit them.