Criminal Restitution and Bankruptcy
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. Through bankruptcy, they can 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?
Conflicts of Bankruptcy and Criminal Law
If the court orders someone who has been found guilty of defrauding others to discharge that debt immediately in bankruptcy it would be contrary to the victim’s interests and allow the individual to get off without making restitution to their victims. For this reason, the court simply doesn’t allow an individual to discharge criminal restitution in Chapter 7 bankruptcy.
That does not, however, mean that there are no advantages to filing for bankruptcy if one cannot make payments and meet their other financial obligations due to being overburdened by debt.
The Automatic Stay Extends to Government Actions
Those who file for bankruptcy get an “automatic stay” from any creditor actions. This extends to government actions. While the money cannot simply be discharged, it does prevent the government from arresting you for failure to make restitution. Once the debtor has filed bankruptcy and the court has signed off on the outcome, the debtor will need to make payments.
If the debtor opts to file for Chapter 7, other debt may be discharged. This will free up some of their money to make payments for criminal restitution. If the debtor opts for Chapter 13, the repayment plan will roll in the criminal restitution payments.
It Works the Same as Student Loans
Those who have filed for bankruptcy and owe a lot of money in student loans know that, except in very rare cases, that debt cannot be discharged in bankruptcy. Payments for your student loans can be rolled into a Chapter 13. But once the Chapter 13 ends, you will simply continue making payments on your student loan until the debt is fully repaid.
It works the same way with criminal restitution payments. While they can never be discharged or reduced as part of a Chapter 13 bankruptcy, they can be rolled into the repayment plan. You would therefore still reap many of the benefits of Chapter 13 on your other debt. In other words, Chapter 13 can make your total debt repayment more manageable.
Using Chapter 13 Bankruptcy to Repay Criminal Restitution
Under the bankruptcy code and the precedence set by a 1986 US Supreme Court Ruling (Kelly v. Robinson, 479 U.S. 36), bankruptcy cannot discharge criminal restitution payments. However, you can pay them over time in a Chapter 13 bankruptcy.
But there are few things that debtors need to know about criminal restitution payments in bankruptcy:
- There is a clear precedence set for not discharging criminal restitution payments in bankruptcy. Therefore, 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, let’s say a debtor owed $40,000 in criminal restitution payments. But they 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. This is 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. This is while they are working hard to increase their income and better position themselves financially before their Chapter 13 bankruptcy case ends.
Does It Make Sense to File for Bankruptcy If You Have Criminal Restitution Payments?
In the hierarchy of debts that you owe, criminal restitution is the highest. Repaying your criminal restitution is what keeps you out of jail and in your home. Other debts that may be important are your home mortgage and your car payments. If much of your debt is unsecured (medical expenses or credit card debt) then it may be worthwhile to discharge it in Chapter 7. If most of your debt is secured, then reorganizing it in Chapter 13 will have several advantages.
When Is Filing for Chapter 7 the Right Move?
Filing for Chapter 7 makes a great deal of sense when you owe a lot of unsecured debt. These creditors may be looking to:
- sue you,
- place liens on your property,
- garnish your wages, or
- levy your bank account.
In cases where you’re struggling to make payments as it is, Chapter 7 can be beneficial. In Chapter 7, bankruptcy can discharge all of your unsecured debt. This would free up your finances to ensure that you stay out of jail and continuing making restitution to the court. It would also ensure that you continue pay those whom you owe a duty to repay.
When Is Filing for Chapter 13 the Right Move?
Chapter 13 bankruptcy reorganizes your debt into manageable payments. In order to do this, your attorney structures a payment plan that will work over the course of three or five years. The plan orders your debt into a hierarchy with nondischargeable debt (like your criminal restitution payments) at the top. Next is secured debt and at the bottom is unsecured debt. In some cases, you can simply discharge unsecured debt. If the burden of repaying secured debt with interest is too much for an individual debtor, you may qualify for a cramdown. Essentially, a cramdown allows you to pay off the real value of the property you own without having to pay interest. If the property has devalued significantly in the period of time that you began making payments on it, you can adjust the cost to you to the current value of the property.
Talk to a Bankruptcy Attorney
If you’re afraid that your criminal restitution payments will impact your ability to meet your monthly expenses, you have options. It’s just that one of those options is not to avoid repaying the criminal restitution payments. Failure to do so or take adequate measures to ensure those debts get repaid will result in you going (back) to prison. The attorneys at Allmand Law Firm, however, can help. Contact us today.
Have Questions About Criminal Restitution and Bankruptcy?
If you have criminal restitution payment obligations, speak with a bankruptcy attorney to find out how bankruptcy could benefit you. If you would like to see how bankruptcy can benefit your situation feel free to contact us today to set up a free consultation.