§ 158.4     Criminal Restitution and Criminal Fines
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 158.4, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

Congress has acted too many times to except criminal restitution and criminal fines from discharge in Chapter 13 cases. Excessive legislative attention has produced a lumpy sausage: restitution and criminal fines sometimes are and sometimes are not nondischargeable in Chapter 13 cases, depending on when the case was filed, depending on the kind of restitution or fine at issue and depending on the kind of discharge to which the debtor is entitled. The restitution story in Chapter 13 cases begins with the Supreme Court in 1986.

[2]

In Kelly v. Robinson,1 the U.S. Supreme Court struggled to conclude that criminal restitution is a nondischargeable debt in a Chapter 7 case. The Court reserved the question whether criminal restitution is dischargeable after completion of all payments under a Chapter 13 plan. Kelly relied heavily on the fact that § 523(a)(7) is applicable in Chapter 7 cases to bar the dischargeability of (noncompensatory) fines and penalties. Section 523(a)(7) is not applicable at discharge after full payment in a Chapter 13 case.

[3]

Many courts before and after Kelly considered whether criminal restitution was dischargeable in a Chapter 13 case. A majority concluded that restitution was not dischargeable; a vocal minority, led by the U.S. Court of Appeals for the Third Circuit, held that restitution could be discharged after completion of all payments in a Chapter 13 case.2

[4]

In 1990, in Pennsylvania Department of Public Welfare v. Davenport,3 the U.S. Supreme Court resolved the controversy by holding that criminal restitution is dischargeable in a Chapter 13 case after completion of all payments. As a matter of statutory interpretation, the Supreme Court found that a debtor’s obligation to pay restitution was a “right to payment” within the definition of claim in 11 U.S.C. § 101(5). Finding no statutory exception to discharge for restitution under § 1328(a), the court concluded that restitution was dischargeable after completion of payments.

[5]

The Supreme Court’s Davenport decision was short-lived. Congress responded quickly and often by twice amending § 1328(a) to add an exception to discharge for restitution. On November 15, 1990,4 and again on November 29, 1990,5 Congress amended § 1328(a) by adding an exception to discharge for “restitution included in a sentence on the debtor’s conviction of a crime.” The language of both enactments was identical. The earlier effective date controls. Restitution included in a sentence on the debtor’s conviction of a crime is an exception to discharge upon completion of payments in all Chapter 13 cases filed after November 15, 1990.

[6]

The House and Senate versions of the legislation that became the 1990 amendments with respect to restitution were different in important ways. The House version6 added the phrase “for restitution included in a sentence on the debtor’s conviction of a crime” to the exceptions to discharge in § 1328(a). The Senate version7 would have amended § 1322(a) by adding a new mandatory condition that all Chapter 13 plans “provide for the full payment, in deferred cash payments, of all claims which would be nondischargeable under § 523(a)(11).” The Senate bill then created a new § 523(a)(11) that broadly excepted from discharge debts “from a proceeding brought by a governmental unit to recover civil or criminal restitution, or to the extent that such debt arises from an agreed judgment or other agreement by the debtor to pay money or transfer property in settlement of such an action by a governmental unit.”8 The Senate approach would have required full payment of any claim for restitution as a condition for confirmation. The legislative history to the Senate bill confirms this difference in approach:

This amendment makes restitution orders payable to the government nondischargeable in bankruptcy. Specifically, § 5 of S. 1931 further amends § 523(a) by adding to the list of nondischargeable debts those that arise from “a proceeding brought by a governmental unit to recover civil or criminal restitution.” Section 6 amends § 1322(a) of title 11 to require full payment of government restitution orders as a condition for confirmation of a Chapter 13 bankruptcy plan.9
[7]

The House version was adopted.10 The House Report contains these comments about how nondischargeable restitution claims might be managed through a Chapter 13 plan:

As in the case of intoxicated driving offenses, a criminal restitution victim will participate fully as a creditor in a Chapter 13 plan. Following completion of the plan, any remaining portion of the restitution obligation will remain owed to the victim until fully paid.11
[8]

This legislative history supports the argument that Chapter 13 debtors can confirm plans that pay less than 100 percent of a nondischargeable restitution debt, with the balance to survive discharge at the completion of payments to other creditors. Difficult classification-of-claims questions arise when debtors prefer nondischargeable restitution claims over other unsecured debts through the plan.12 The restitution victim that fails to timely file a proof of claim may find itself trapped in the Chapter 13 case: the automatic stay will prohibit direct collection action against the debtor; the failure to have an allowed claim will preclude distributions even if the plan provides for payment of the restitution in whole or in part.13

[9]

Most likely by oversight, the hasty congressional effort to undo Davenport was imperfectly accomplished in the 1990 amendments. Congress amended § 1328(a) to except from discharge, after completion of all payments under a plan, restitution included in a sentence on the debtor’s conviction of a crime. The 1990 enactment contained no parallel amendment to § 1328(c) dealing with exceptions to the hardship discharge available at any time after confirmation of a plan.14 As a matter of statutory construction, Congress made restitution nondischargeable at the completion of all payments under a plan under § 1328(a) but failed to except restitution from discharge if the debtor is entitled to a discharge before completion of payments under the plan under § 1328(b). Courts might be inclined to apply Kelly at hardship discharge in Chapter 13 cases to fill this illogical gap in the statute.15

[10]

Several courts addressed the dischargeability of restitution in Chapter 13 cases that straddled the effective date of the 1990 amendments.16 For example, in Hucke v. Oregon,17 the Chapter 13 case was filed after the Supreme Court’s decision in Davenport and 36 days before the effective date of the 1990 amendments to § 1328(a). The U.S. Court of Appeals for the Ninth Circuit concluded that the debtor’s restitution debt was dischargeable upon completion of payments under the plan; however, because a state court rejected the debtor’s offer to pay restitution in full through the Chapter 13 plan, the state court action to revoke probation was the continuation of a criminal proceeding excepted from the automatic stay by § 362(b)(1).18 In In re Stanton,19 the debtor filed a Chapter 7 case when criminal restitution was dischargeable in Chapter 13 because of Davenport. The debtor converted to Chapter 13 after the effective date of the 1990 amendments to § 1328(a). In contrast to Hucke, the court held, “The effective date for determining dischargeability of the . . . criminal restitution orders is the date on which the debtors converted their proceedings to Chapter 13 petitions, not the date on which . . . original petitions were filed.”20

[11]

One court struggled to determine when a restitution claim arose for purposes of applying the 1990 amendment to § 1328(a). In Drimmel v. Moran (In re Drimmel),21 the debtor filed Chapter 13 in August of 1990 after committing a forgery. The debtor scheduled the victim as an unsecured claim holder but did not schedule the state as a creditor. A plan was confirmed over the good-faith objection of the victim. After the petition, the state of Montana charged the debtor with forgery, the debtor pleaded guilty, and restitution was imposed as a condition for a deferred sentence. The court determined that the restitution debt was not dischargeable because it was a postpetition debt:

The restitution condition was not imposed until well after the petition date, and well after the Debtor’s Plan was confirmed. Therefore, this Court finds that they were not “creditors” as defined by the Code. . . . The restitution condition was a postpetition, not a pre-petition, debt. . . . [T]he sentencing court received no notice and was not scheduled as a creditor. . . . [T]his Court finds the restitution condition was not “provided for by the plan” under § 1328(a) and is therefore not subject to discharge.22
[12]

The outcome of Drimmel seems odd. The restitution imposed by the state criminal court was a direct consequence of prepetition misconduct by the debtor. The broad definitions of “claim” and “debt” applied by the Supreme Court in Kelly and in Davenport to include criminal restitution suggest that the restitution in Drimmel was a debt at the petition notwithstanding that the state criminal court order was not entered until later. The debtor in Drimmel may have failed to provide for the restitution claim through the plan, and thus the debt was not dischargeable upon completion of payments;23 however, this results not because the claim arose after the petition.

[13]

In Chapter 13 cases filed after November 15, 1990, restitution included in a sentence on the debtor’s conviction of a crime is nondischargeable at the completion of payments under the plan,24 and the holder of the restitution claim need not file a complaint to determine dischargeability within any particular time or even in the bankruptcy court. For example, in In re Sutherland,25 the debtor was convicted of embezzlement and ordered to make restitution. The victim was an Arkansas school district, and the Arkansas Fidelity Bond Trust Fund paid the amount embezzled by the debtor. The debtor filed a Chapter 13 case and contended that the embezzlement was dischargeable because no complaint to determine dischargeability was filed and the victim had been fully compensated by the trust fund. The court rejected both arguments: “[N]either the victim nor the state is required to file an adversary proceeding regarding the dischargeability of the restitution. Restitution is automatically excepted from discharge such that the provisions of section 523(a) need not be invoked.”26 Because the Arkansas Fidelity Bond Trust Fund was subrogated to the restitution rights of the school district under state law, the court held the restitution was nondischargeable notwithstanding payment to the school board by the trust fund.27

[14]

The wording and placement of the restitution exception to discharge raises interesting questions for the management of restitution debts in Chapter 13 cases. Will “restitution included in a sentence on the debtor’s conviction of a crime” include restitution obligations that result from pretrial diversion? What about “bad check” statutes and similar petty property crimes where an agreement to make restitution is embodied in a preconviction order that, if satisfied, leaves no residue of a criminal conviction?

[15]

The Bankruptcy Appellate Panel for the Eighth Circuit has addressed some of the issues of interpretation of § 1328(a)(3). In Wilson v. Cumis Insurance Society, Inc. (In re Wilson),28 the debtor pleaded guilty to felony theft. A criminal court placed the debtor on deferred adjudication probation for 10 years and imposed restitution as a condition. The debtor filed a Chapter 13 petition and received a discharge without listing the restitution debt. After discharge, the debtor was arrested for failing to pay the restitution. The debtor reopened the Chapter 13 case and filed a complaint to determine dischargeability, arguing that she was never convicted of a crime for purposes of the exception to discharge in § 1328(a)(3). The Eighth Circuit disagreed:

We believe the issue in the present case is analogous to the issues addressed by the Supreme Court in [Dickerson v. New Banner Institute, Inc., 460 U.S. 103, 103 S. Ct. 986, 74 L. Ed. 2d 845 (1983)] . . . . Accordingly, we follow the Supreme Court’s reasoning in Dickerson and conclude that the term “conviction” as used [in] Section 1328(a)(3) of the Bankruptcy Code includes a plea of guilty followed by a sentence of probation, despite the absence of the formal entry of a conviction by the criminal court.29
[16]

What about restitution that has become a civil matter? The requirement in § 1328(a)(3) that restitution be “included in a sentence on the debtor’s conviction of a crime” strongly suggests that restitution based on a civil judgment is dischargeable at the completion of payments in a Chapter 13 case. But what about restitution that begins as a criminal matter but later is collected by civil process? the civil courts?

[17]

This is approximately what happened in Bova v. St. Vincent DePaul Corp. (In re Bova).30 The debtor in Bova pleaded guilty to theft in 1993 and was ordered to make restitution of $104,000. Under Illinois law, five years was the maximum period for the payment of criminal restitution. In 1998 an Illinois court ended the debtor’s probation before restitution was fully paid. The victim then took a civil judgment for unpaid restitution of $69,451. The debtor retreated into Chapter 13. The victim filed an adversary proceeding to determine the dischargeability of the restitution under § 1328(a)(3).

[18]

The Bankruptcy Appellate Panel and the U.S. Court of Appeals for the First Circuit rejected the debtor’s argument that the restitution debt moved outside the exception to discharge in § 1328(a)(3) when it became a civil judgment. The BAP found that enforcement of the criminal restitution order through the civil courts was “merely a continuation of the criminal cause of action . . . not a separate civil action.”31 On further appeal, the First Circuit reached the same conclusion by slightly different logic: the restitution took on the character of a civil judgment; but because the Illinois law that limited criminal restitution orders to five years was not a statute of limitations, the underlying criminal restitution debt survived and was nondischargeable under § 1328(a)(3).

[19]

Not content to leave well enough alone, Congress messed with the dischargeability of restitution in Chapter 13 cases twice more in 1994. Although the Supreme Court declared in 1986 that criminal restitution was nondischargeable in a Chapter 7 case,32 and notwithstanding that Congress amended § 1328(a)(3) in 1990 to make “restitution included in a sentence on the debtor’s conviction of a crime” nondischargeable at the completion of payments in a Chapter 13 case,33 the Violent Crime Control and Law Enforcement Act of 1994 created a new § 523(a)(13) that excepts from discharge “any payment of an order of restitution issued under title 18, United States Code.”34 This exception to discharge is not applicable at completion of payments in a Chapter 13 case under § 1328(a); however, it is an exception to discharge in a Chapter 13 case if the debtor seeks a hardship discharge under § 1328(b) before the completion of payments under the plan.35

[20]

Congress’s second swipe at the discharge of restitution in Chapter 13 cases in 1994 is humorous, or depressing, depending on your perspective. The Bankruptcy Reform Act of 1994 twice amended § 1328(a)(3). Section 302 of the 1994 Act added “criminal fines” to the exception to discharge for restitution in § 1328(a)(3).36 In § 501(d)(38)(B) of the “technical corrections” sections of the 1994 Act, Congress again amended § 1328(a) “by striking the last paragraph (3).”37

[21]

The reference to “the last paragraph (3)” is a reference to 11 U.S.C. § 1328(a)(3): the section of the Code that excepts restitution from discharge at the completion of payments in a Chapter 13 case; the same section that was amended by § 302 of the 1994 legislation to add “criminal fines” as an exception to discharge at the completion of payments in a Chapter 13 case. Section 501(d)(38)(B) of the 1994 Act could be interpreted to delete § 1328(a)(3) from the Bankruptcy Code. There is nothing in the legislative history to the Bankruptcy Reform Act of 1994 or to any of its predecessor bills in the House or the Senate to suggest that Congress intended to delete the exception to discharge for restitution. That the 1994 Act so purposefully amended the very same section to add criminal fines as an exception to discharge argues strongly that “striking the last paragraph (3)” in § 501(d)(38)(B) was intended to accomplish something else.

[22]

The something else may be the perception of congressional staffers that more than one § 1328(a)(3) was enacted by Congress in 1990. As mentioned above,38 in response to Davenport in 1990, Congress twice amended § 1328(a)(3) to except criminal restitution from discharge in a Chapter 13 case. Although no official codification of the United States Code since 1990 has contained two § 1328(a)(3)s, the reference to the “last paragraph (3)” in § 501(d)(38)(B) of the 1994 Act indicates that somebody thought there were two such subsections. The technical correction may have been intended to clean up the redundancy.

[23]

Sooner or later it will be in a Chapter 13 debtor’s interest to challenge whether an exception to discharge for restitution survived the 1994 amendments. The absence of duplicative § 1328(a)(3)s in any edition of the United States Code “is prima facie evidence” that there was only one such provision in the law at the enactment of the 1994 Act.39 There were several other double enactments of exceptions to discharge in 1990 that were not “corrected” by the 1994 Act.40 However, it is the Statutes at Large that “provides the ‘legal evidence of laws,’” and despite an omission or mistake in the official United States Code, a statutory enactment “remains on the books if the Statutes at Large so dictates.”41 With respect to the exception to discharge for restitution at the completion of payments under a Chapter 13 plan, the Statutes at Large reveals two enactments of § 1328(a)(3) in 1990.42

[24]

If there were two § 1328(a)(3)s on the books at the time of the 1994 Act, which of those two was amended by § 302 of the 1994 Act to receive the addition of “criminal fines” as an exception to discharge at the completion of payments under a Chapter 13 plan? If only one of the two § 1328(a)(3)s was amended with the addition of the exception for criminal fines, was it the “last” of the two § 1328(a)(3)s? When the last § 1328(a)(3) was deleted by § 501(d)(38)(B), did that leave the “first” version of § 1328(a)(3) without the 1994 amendment to add criminal fines?

[25]

The dischargeability of criminal fines in Chapter 13 cases has received almost as much legislative attention as the dischargeability of restitution. The picture that emerges is every bit as confusing but differently so.

[26]

In an individual Chapter 7 or Chapter 11 case and at hardship discharge in a Chapter 13 case,43 § 523(a)(7) has always excepted from discharge “a fine, penalty or forfeiture payable to and for the benefit of a governmental unit, [that] is not compensation for actual pecuniary loss.”44 In 1984, the Comprehensive Crime Control Act enacted 18 U.S.C. § 3613(f), which provides, “No discharge of debts pursuant to a bankruptcy proceeding shall render a lien under this section unenforceable or discharge liability to pay a fine.”45 This amendment was effective on November 1, 1987. 18 U.S.C. § 3613(f) deals with fines and liens in favor of the United States, and its generic reference to “bankruptcy proceeding” is broad enough to include a Chapter 13 case. 18 U.S.C. § 3613(f) renders most federal criminal fines nondischargeable in Chapter 13 cases filed after November 1, 1987. Although § 523(a)(7) is only applicable in a Chapter 13 case at hardship discharge,46 the 1984 legislation overlaps § 523(a)(7) to the extent that the word “fines” in § 523(a)(7) includes the same federal criminal fines excepted from discharge by 18 U.S.C. § 3613(f). The case law interpreting “fine” in § 523(a)(7) is somewhat confused.

[27]

Prior to Kelly and Davenport, it had been held that criminal fines were not debts dischargeable in a Chapter 13 case.47 Kelly holds that § 523(a)(7) “protects traditional criminal fines [by] codif[ying] the judicially created exception to discharge for fines.”48 Kelly and Davenport both recognize that criminal fines are debts and are excepted from discharge in a Chapter 7 case by § 523(a)(7). Because § 523(a)(7) is not applicable at completion of payments in a Chapter 13 case and because the 1990 amendments to § 1328(a)(3) dealt with restitution but not with fines, and with the exception of federal criminal fines excepted from discharge by 18 U.S.C. § 3613(f), in Chapter 13 cases filed before October 22, 1994, criminal fines are dischargeable upon completion of payments under a plan.

[28]

After the Supreme Court decided Kelly and Davenport and before enactment of the Bankruptcy Reform Act of 1994, the U.S. Court of Appeals for the Sixth Circuit directly addressed whether criminal fines were debts dischargeable in a Chapter 13 case upon completion of payments. In Hardenberg v. Virginia (In re Hardenberg),49 fines and costs were imposed on the debtor as punishment for a state criminal conviction. The debtor filed a Chapter 13 case before October 22, 1994. Conscious that state criminal fines were not obviously excepted from discharge in Chapter 13 cases at the time, Virginia argued that its claim for fines and costs did not constitute a debt and thus could not be discharged.50 The Sixth Circuit analyzed Kelly and concluded that state criminal fines were debts that were dischargeable (at the time) at the completion of payments in a Chapter 13 plan:

The [Kelly v. Robinson, 479 U.S. 36, 107 S. Ct. 353, 93 L. Ed. 2d 216 (1986)] Court explicitly found that section 523(a)(7) codified the judicially created exception to discharge for criminal fines. . . . But section 523(a)(7) only applies to “debts.” . . . Thus, the Court’s holding in Kelly and its dictum seem quite incongruous. If Congress had believed that criminal fines were not “debts” giving rise to “claims,” it would have had no reason to except such obligations from discharge in section 523(a)(7). Thus, if this court were to follow the Kelly dictum in a Chapter 13 proceeding and hold that Congress did not intend criminal fines to be debts, it would render superfluous Congress’ plain language in section 523(a)(7). . . . Although not applicable to the case before us, subsequent to the [Pennsylvania Dep’t of Public Welfare v. Davenport, 495 U.S. 552, 110 S. Ct. 2126, 109 L. Ed. 2d 588 (1990)] decision, Congress enacted a bill to amend section 1328(a), specifically exempting restitution orders from discharge in Chapter 13 bankruptcies and thereby superseding the Court’s holding in Davenport. . . . Conspicuously, however, Congress did not supersede the Court’s determination that criminal fines and restitution orders are “debts” for purposes of the Bankruptcy Code. In fact, by adding an exception for restitution orders to the discharge provisions of 11 U.S.C. § 1328(a), Congress reaffirmed the Court’s determination in Davenport that criminal fines and restitution orders were debts for purposes of the Bankruptcy Code because section 1328(a), like section 523(a)(7), only applies to debts. . . . Thus, although contrary case law does exist, we believe that Congress, through the plain language of the applicable provisions of the Bankruptcy Code, has indicated that state criminal fines are “debts,” which cannot be discharged in a Chapter 7 proceeding, pursuant to 11 U.S.C. § 523(a)(7), but which can be discharged in a Chapter 13 proceeding, pursuant to 11 U.S.C. § 1328(a).51
[29]

Hardenberg is a comprehensive statement of the law with respect to the dischargeability of state criminal fines in Chapter 13 cases filed before October 22, 1994.52 After that date, the 1994 amendments to § 1328(a)(3) change the picture.

[30]

As mentioned above, § 302 of the Bankruptcy Reform Act of 1994 amended § 1328(a)(3) by inserting “or a criminal fine” after “restitution.” In Chapter 13 cases filed after October 22, 1994, § 1328(a)(3) excepts from discharge at the completion of payments any debt “for restitution, or a criminal fine, included in a sentence on the debtor’s conviction of a crime.”53 Also mentioned above, § 501(d)(38)(B) of the same 1994 Act deleted the “last” § 1328(a)(3), ostensibly to correct the repetitive enactment of the exception to discharge for restitution in § 1328(a)(3) in 1990.54 Counsel might have to struggle not to smile during the argument that § 302 of the 1994 Act added “or a criminal fine” to the same last § 1328(a)(3) that was deleted by § 501(d)(38)(B). Stranger things have happened.

[31]

Assuming the § 1328(a)(3) that was amended by § 302 of the 1994 Act was not the last § 1328(a)(3) that was deleted by § 501(d)(38)(B),55 in Chapter 13 cases filed after October 22, 1994, a “criminal fine included in a sentence on the debtor’s conviction of a crime” is not dischargeable at the completion of payments under the plan. Presumably, the criminal fines contemplated by Congress in the 1994 amendments to § 1328(a)(3) are different than the federal criminal fines that were already nondischargeable in Chapter 13 cases filed after November 1, 1987, by virtue of 18 U.S.C. § 3613(f). Otherwise, the 1994 amendment to § 1328(a)(3) is redundant of the Comprehensive Crime Control Act of 1984 to the extent that both except federal criminal fines from discharge at the completion of payments in a Chapter 13 case.

[32]

The question whether 18 U.S.C. § 3613(f) and 11 U.S.C. § 1328(a)(3) address the same criminal fines could be important. Section 1328(a)(3) excepts from discharge at completion of payments in a Chapter 13 case only criminal fines that are “included in a sentence on the debtor’s conviction of a crime.” The federal criminal fines that are excepted from discharge by 18 U.S.C. § 3613(f) are not restricted to those included in a sentence on the debtor’s conviction of a crime. If a criminal fine in § 1328(a)(3) includes federal criminal fines, then the question arises whether the narrower definition of criminal fines excepted from discharge by § 1328(a)(3) overcomes and thus limits the general exception to discharge for federal criminal fines in 18 U.S.C. § 3613(f). If the sections are interpreted to avoid overlap—for example, if criminal fine in § 1328(a)(3) refers only to criminal fines that were not already nondischargeable under 18 U.S.C. § 3613(f)—then the exception to discharge upon completion of payments in Chapter 13 cases filed after October 22, 1994, is broader with respect to federal criminal fines than it is with respect to fines imposed by the states. Related issues will arise at hardship discharge in Chapter 13 cases filed after October 22, 1994, because of the different but in some ways broader exception for fines in § 523(a)(7).56

[33]

That criminal fines are often imposed other than by inclusion in a sentence on the debtor’s conviction of a crime is significant at discharge after completion of payments in Chapter 13 cases filed after October 22, 1994. As discussed above with respect to restitution,57 criminal fines that are not included in the sentence—for example, that arise by separate order or that are included in a negotiated pretrial diversion—will not fall within the exception to discharge described in § 1328(a)(3).

[34]

Also, it bears repeating that the criminal fines excepted from discharge at the completion of payments in a Chapter 13 case is a narrower class of claims than the “fine, penalty, or forfeiture” that is nondischargeable in a Chapter 7 case and at hardship discharge in a Chapter 13 case under § 523(a)(7). As explained by the bankruptcy court in In re Games:58

In contrast to the Chapter 7 discharge provisions, 11 U.S.C. § 1328(a)(3) excepts from discharge only a debt for restitution, or a criminal fine included in a sentence on the debtor’s conviction of a crime. Consequently, Chapter 13 provides broader relief for the debtor who completes the 13 plan by discharging civil fines and penalties leaving only criminal fines and penalties nondischargeable.59
[35]

But the less-than-all-inclusive exception to discharge for fines in § 1328(a)(3) may be of little consolation to Chapter 13 debtors. The debtor who fails to pay a criminal fine in full may be subjected to further prosecution for failure to pay the fine. The continuation of a state criminal proceeding typically falls within the exception to the automatic stay in § 362(b)(1) even when prosecution effects the collection of debt.60

[36]

At this writing, the bankruptcy courts are just beginning to deal with the Eleventh Amendment immunity implications of Chapter 13 plans that provide for the payment and discharge of criminal fines and restitution.61 This is undoubtedly a growth area for Chapter 13 practice.62


 

1  479 U.S. 36, 107 S. Ct. 353, 93 L. Ed. 2d 216 (1986).

 

2  Department of Pub. Welfare v. Johnson-Allen (In re Johnson-Allen), 871 F.2d 421 (3d Cir. 1989) (Criminal restitution constitutes a claim dischargeable in a Chapter 13 case.); California v. Heincy, 78 B.R. 246 (B.A.P. 9th Cir. 1987) (Criminal restitution is a debt that is dischargeable in Chapter 13 after full payment under § 1328(a).), rev’d, 858 F.2d 548 (9th Cir. 1988) (Expressing “considerable doubt whether the restitution order would be dischargeable in light of the Supreme Court’s recent decision in Kelly v. Robinson, [479 U.S. 36, 107 S. Ct. 353, 93 L. Ed. 2d 216 (1986)],” dischargeability of the debtor’s restitution order is not yet ripe for decision because debtor has not completed payments nor sought a hardship discharge.); Erickson v. District Court (In re Erickson), 104 B.R. 364 (Bankr. D. Colo. 1989) (A majority of courts have concluded that restitution payments are not debts. The legislative history of § 101(14) and the Third Circuit decision in Department of Pub. Welfare v. Johnson-Allen (In re Johnson-Allen), 871 F.2d 421 (3d Cir. 1989), inspire this court to adopt the view that a restitution obligation is a debt and is dischargeable upon completion of payments in a Chapter 13 case.); Rudy v. Oregon (In re Rudy), 92 B.R. 478, 479 (Bankr. D. Or. 1988) (Ninth Circuit in California v. Heincy, 78 B.R. 246 (B.A.P. 9th Cir. 1987), did not determine whether a restitution obligation is dischargeable under § 1328(a). Restitution is a debt subject to discharge upon completion of payments in a Chapter 13 case under § 1328(a). Confirmed plan called for full payment of general unsecured claims. Neither the state nor the victims of the debtor’s bad checks filed claims. Debtor completed payments, and a discharge was entered under § 1328(a). On these facts, “the restitution obligation was discharged for the reasons stated by the BAP in Heincy. The debtor has no adequate remedy at law, as absent an injunction the debtor will be subject to imprisonment for nonpayment of a discharged obligation.”); Kohr v. Magisterial Dist. 52-1-01 (In re Kohr), 82 B.R. 706 (Bankr. M.D. Pa. 1988) (Fine for failing to file county earned income tax returns is not a debt and is not dischargeable in a Chapter 13 case.); Cancel v. City of Schenectady (In re Cancel), 82 B.R. 674 (Bankr. N.D.N.Y.), rev’d, 85 B.R. 677 (N.D.N.Y. 1988) (Prepetition condition of probation to make restitution is not a “debt” and is not dischargeable in a Chapter 13 case.); Cullens v. District Court, 77 B.R. 825 (Bankr. D. Colo. 1987) (Criminal restitution obligation is a debt that can be dealt with and discharged in a composition Chapter 13 plan.); Everett C. Turner Realtors v. Carroll, 61 B.R. 178 (Bankr. D. Or. 1986) (Relying on Robinson v. McGuigan (In re Robinson), 776 F.2d 30 (2d Cir. 1985), and decided before the Supreme Court reversed the Second Circuit, criminal restitution is a “debt” that may be discharged upon completion of all payments under a Chapter 13 plan pursuant to § 1328(a).); In re Johnson, 32 B.R. 614 (Bankr. D. Colo. 1983) (Restitution as a condition of criminal probation does not create a debtor-creditor relationship. Debtor cannot discharge restitution in a composition plan. Plan confirmed, but balance of restitution will be payable by the debtor after consummation.).

 

3  495 U.S. 552, 110 S. Ct. 2126, 109 L. Ed. 2d 588 (1990).

 

4  See § 3 of Pub. L. No. 101-581, 104 Stat. 2865 (Nov. 15, 1990).

 

5  See § 3103 of Pub. L. No. 101-647, 104 Stat. 4789, 4916 (Nov. 29, 1990).

 

6  See H.R. 5269, 101st Cong., § 1902 (1990).

 

7  See S. 1931, 101st Cong., § 6 (1990).

 

8  See S. 1931, 101st Cong., § 5 (1990).

 

9  S. Rep. No. 101-434, at 4071 (Aug. 30, 1990) (to accompany S. 1931).

 

10  See Pub. L. No. 101-581, § 3, 104 Stat. 2865 (Nov. 15, 1990); Pub. L. No. 101-647, § 3103, 104 Stat. 4789, 4916 (Nov. 29, 1990).

 

11  H.R. Rep. No. 101-681, at 165 (1990) (to accompany H.R. 5269).

 

12  See § 154.1 [ Restitution, Fines and Other Criminal Problems ] § 88.7  Restitution, Fines and Other Criminal Problems.

 

13  See, e.g., Walters v. Sherwood Mun. Court (In re Walters), 219 B.R. 520, 528 (Bankr. W.D. Ark. 1998) (Although court-ordered fine for restitution is nondischargeable, municipality’s failure to file a proof of claim precludes it from collection action until after the completion of payments under the confirmed plan. “The Bankruptcy Code is clear that fines and restitution imposed in connection with a criminal judgment are nondischargeable, even in a Chapter 13 case. 11 U.S.C. § 1328(a)(3). The nondischargeability of the debtor, however, does not in any manner obviate the effect or the imposition of the automatic stay. . . . [T]he fact that Michelle Walters’ prepetition restitution debt to the Sherwood Municipal Court is nondischargeable does not permit the Sherwood Municipal Court to continue to maintain a warrant, or arrest Michelle Walters.”).

 

14  See discussion beginning at § 160.1  In General.

 

15  As discussed above in this section, in Kelly v. Robinson, 479 U.S. 36, 107 S. Ct. 353, 93 L. Ed. 2d 216 (1986), the Supreme Court found that criminal restitution was an exception to discharge in a Chapter 7 case, based on a tortured reading of § 523(a)(7). Section 523(a)(7) is an exception to hardship discharge in a Chapter 13 case under § 1328(c)(2). However, Justice Marshall (over)states in Pennsylvania Department of Public Welfare v. Davenport, 495 U.S. 552, 110 S. Ct. 2126, 109 L. Ed. 2d 588 (1990), “The exception to discharge relied on in Kelly [§ 523(a)(7)] does not extend to Chapter 13.” 495 U.S. at 555. Reconciling Davenport and Kelly in the context of a restitution claim at hardship discharge in a Chapter 13 case would make a good law school final exam.

 

16  See also discussion of the effects of conversion to Chapter 13 in § 148.3  Effects of Conversion from Chapter 7 to Chapter 13  and § 148.4  Conversion to Chapter 13 after BAPCPA.

 

17  992 F.2d 950 (9th Cir. 1993), overruled on other grounds by Gruntz v. County of L.A. (In re Gruntz), 202 F.3d 1074 (9th Cir. 2000) (en banc).

 

18  See § 70.1 [ Criminal Action or Proceeding Exception ] § 58.7  Criminal Action or Proceeding Exception.

 

19  136 B.R. 562 (D. Kan. 1992).

 

20  136 B.R. at 565. Stanton is criticized in § 148.3  Effects of Conversion from Chapter 7 to Chapter 13. See also § 142.1  New Schedules, Statement, Meeting of Creditors and Deadlines and § 142.2  Deadlines and Filing Requirements at Conversion after BAPCPA.

 

21  143 B.R. 249 (Bankr. D. Mont. 1992).

 

22  143 B.R. at 251–52.

 

23  See § 349.1 [ Claims Not Provided for by the Plan or Disallowed under § 502 ] § 158.5  Claims Not Provided for by the Plan or Disallowed under § 502 for discussion of the dischargeability of claims not provided for by the plan.

 

24  But see discussion of possible deletion of this exception to discharge below in this section.

 

25  161 B.R. 657 (Bankr. E.D. Ark. 1993).

 

26  161 B.R. at 659.

 

27  Accord In re Bryer, 227 B.R. 201, 202–04 (Bankr. D. Me. 1998) (Restitution claim assigned to sureties who made cash settlements with the victim is still nondischargeable. Court rejects debtor’s argument that the sureties’ claims “arise from the contract created by the assignments.” Court cites Pennsylvania Department of Public Welfare v. Davenport, 495 U.S. 552, 110 S. Ct. 2126, 109 L. Ed. 2d 588 (1990), for proposition that “the nature of the debt, and not the holder of the claim,” determines whether restitution is nondischargeable.).

 

28  252 B.R. 739 (B.A.P. 8th Cir. 2000). See also Wilson v. Cumis Ins. Soc’y, Inc. (In re Wilson), 250 B.R. 686 (Bankr. E.D. Ark. 2000), and Wilson v. Cumis Ins. Soc’y, Inc. (In re Wilson), 246 B.R. 600 (Bankr. E.D. Ark. 2000).

 

29  252 B.R. at 742.

 

30  276 B.R. 726 (B.A.P. 1st Cir. 2002), aff’d, 326 F.3d 300 (1st Cir. 2003).

 

31  276 B.R. at 732.

 

32  See Kelly v. Robinson, 479 U.S. 36, 107 S. Ct. 353, 93 L. Ed. 2d 216 (1986), discussed above in this section.

 

33  See above in this section.

 

34  11 U.S.C. § 523(a)(13), as amended by Violent Crime Control and Law Enforcement Act of 1994, Pub. L. No. 103-322, § 320934, 108 Stat. 1796, 2135 (1994).

 

35  See § 160.6  Exceptions to Hardship Discharge before BAPCPA and § 160.7  Exceptions to Hardship Discharge Added or Changed by BAPCPA.

 

36  See below in this section.

 

37  Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 501(d)(38), 108 Stat. 4106 (1994).

 

38  See above in this section.

 

39  See United States Nat’l Bank of Or. v. Independent Ins. Agents of Am., Inc., 508 U.S. 439, 113 S. Ct. 2173, 124 L. Ed. 2d 402 (1993).

 

40  See, e.g., the twice-enacted exception for driving while intoxicated in § 1328(a)(2), discussed in § 347.1 [ Driving While Intoxicated ] § 158.3  Driving while Intoxicated.

 

41  See United States Nat’l Bank of Or. v. Independent Ins. Agents of Am., Inc., 508 U.S. 439, 448, 113 S. Ct. 2173, 2179, 124 L. Ed. 2d 402 (1993).

 

42  See, discussed above in this section, Pub. L. No. 101-581, § 3, 104 Stat. 2865 (Nov. 15, 1990), and Pub. L. No. 101-647, § 3103, 104 Stat. 4789, 4916 (Nov. 29, 1990).

 

43  See § 160.6  Exceptions to Hardship Discharge before BAPCPA and § 160.7  Exceptions to Hardship Discharge Added or Changed by BAPCPA.

 

44  11 U.S.C. § 523(a)(7).

 

45  18 U.S.C. § 3613(f), as amended by Comprehensive Crime Control Act of 1984, Pub. L. No. 98-473, tit. II, § 212(a)(2), 98 Stat. 1837, 2006 (1984).

 

46  See § 160.6  Exceptions to Hardship Discharge before BAPCPA and § 160.7  Exceptions to Hardship Discharge Added or Changed by BAPCPA.

 

47  See, e.g., United States v. Jacobson (In re Jacobson), 35 B.R. 40, 41 (Bankr. D. Ariz. 1983) (Criminal fine imposed by U.S. district court “is not a debt contemplated by the Chapter 13 proceedings to which a debtor is entitled to a discharge upon completion of his plan.”). Accord Hartford Accident & Indem. Co. v. Rose, 37 B.R. 876 (Bankr. N.D. Ga. 1984) (citing In re Newton, 15 B.R. 708 (Bankr. N.D. Ga. 1981), aff’d, Civ. Action No. 81-2170A (N.D. Ga. May 24, 1982)).

 

48  Kelly v. Robinson, 479 U.S. at 51; Pennsylvania Dep’t of Public Welfare v. Davenport, 495 U.S. at 562.

 

49  42 F.3d 986 (6th Cir. 1994).

 

50  The issue arose in Hardenberg v. Virginia (In re Hardenberg), 42 F.3d 986 (6th Cir. 1994), in the context of the debtor’s adversary proceeding against Virginia for violating the automatic stay by refusing to reinstate the debtor’s driving privileges. The Chapter 13 plan proposed to pay 20% of the unsecured claims for criminal fines and costs.

 

51  42 F.3d at 991–92.

 

52  See also In re Adams, 106 B.R. 811 (Bankr. D.N.J. 1989) (In Chapter 13 cases filed before October 22, 1994, surcharges imposed after convictions for refusal to submit to a Breathalyzer test are dischargeable after completion of all payments in a Chapter 13 case.). Accord Szostek v. Hart, 123 B.R. 719 (E.D. Pa. 1991); In re Colon, 114 B.R. 890 (Bankr. E.D. Pa. 1990); Colon v. Hart (In re Colon), 102 B.R. 421 (Bankr. E.D. Pa. 1989) (Traffic fines are dischargeable debts at completion of payments in a Chapter 13 case.), aff’d in part, appeal dismissed in part, 941 F.2d 242 (3d Cir. 1991); Christensen v. State Div. of Motor Vehicles (In re Christensen), 95 B.R. 886 (Bankr. D.N.J. 1988); In re DeBaecke, 91 B.R. 3 (Bankr. D.N.J. 1988); In re Bill, 90 B.R. 651 (Bankr. D.N.J. 1988).

 

53  11 U.S.C. § 1328(a)(3), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 302, 108 Stat. 4106 (1994).

 

54  See above in this section.

 

55  Or that § 302 of the 1994 Act amended both § 1328(a)(3)s enacted in 1990, and only one of the two was struck by § 501(d)(38)(B).

 

56  See § 160.6  Exceptions to Hardship Discharge before BAPCPA and § 160.7  Exceptions to Hardship Discharge Added or Changed by BAPCPA.

 

57  See above in this section.

 

58  213 B.R. 773 (Bankr. E.D. Wash. 1997).

 

59  213 B.R. at 776.

 

60  See § 70.1 [ Criminal Action or Proceeding Exception ] § 58.7  Criminal Action or Proceeding Exception.

 

61  See, e.g., Wilson v. Cumis Ins. Soc’y, Inc. (In re Wilson), 246 B.R. 600, 603 (Bankr. E.D. Ark. 2000) (Chapter 13 debtor’s complaint to determine the dischargeability of restitution is not barred by the Eleventh Amendment because request for injunctive relief to stop probation revocation falls within the exception in Ex parte Young, 209 U.S. 123, 28 S. Ct. 441, 52 L. Ed. 714 (1908). “The complaint in this proceeding seeks to enjoin the probation revocation proceedings pending resolution of the separate adversary proceedings . . . to determine the dischargeability of the restitution debt. . . . [T]he complaint alleges that the Harris County, Texas prosecuting attorney has instituted proceedings to revoke her probation in a criminal proceeding for failure to pay a discharged debt, in violation of federal bankruptcy law. The debtor seeks an order enjoining those state court proceedings until such time as this Court determines whether the debt was discharged. Debtor thus seeks prospective relief to prevent an alleged continuing violation of federal law, circumstances permitting application of the Young doctrine.”); In re Burkhardt, 220 B.R. 837, 849 (Bankr. D.N.J. 1998) (Sovereign immunity does not bar confirmation and discharge through payments under a Chapter 13 plan of motor vehicle fines and surcharges resulting from the debtor’s prepetition driving infractions; sovereign immunity does bar debtor’s motion to require the state of New Jersey to reinstate his driver’s license. “[T]his Court finds that it does in fact have subject matter jurisdiction to discharge motor vehicle fines and surcharges in the context of confirmation of and payment under a Chapter 13 Plan, since such confirmation and resulting discharge of a State debt is not a ‘suit in law or equity’ against the State of New Jersey in contravention of the Eleventh Amendment.”).

 

62  See also § 235.1 [ Other Limitations ] § 121.4  Other Limitations.