§ 58.7 — Criminal Action or Proceeding Exception
Revised: May 24, 2004
Chapter 13 can sometimes help debtors deal with the financial aspects of a criminal problem.1 But on its face, the exception to the automatic stay for the commencement or continuation of a criminal action or proceeding in 11 U.S.C. § 362(b)(1)2 insulates criminal prosecutions from the usual protections of a Chapter 13 petition. There is ample authority that Chapter 13 is not a refuge from criminal prosecution.3 Reported decisions find holes in the § 362(b)(1) exception just often enough that Chapter 13 practitioners are encouraged to keep testing the boundaries.
Application of the automatic stay to a pending criminal action turns on the phrase “criminal action or proceeding against the debtor” in § 362(b)(1). Criminal actions and proceedings take many forms under state and federal law. Sometimes the “public interest” invested in a criminal statute is obvious; other times the criminal action looks more like debt collection than vindication of any public interest. When the payment of money or the delivery of property to the victim will end the prosecution altogether, it is fair to question whether the participation of the state ends the inquiry whether filing a Chapter 13 petition raises an automatic stay. Fines and restitution are aspects of the criminal process that can look and feel more like debt collection and less like punishment or deterrence. This is especially true of petty property crimes such as bad check prosecutions when the state’s “interest” evaporates if the debtor makes the paper good.
Courts have accepted the argument that a criminal proceeding can be broken into its purely criminal aspects and its debt collection aspects, and only the purely criminal parts are excepted from the stay. For example, although revocation of probation for failure to make restitution is part of the “continuation of a criminal action or proceeding,” it has been held that collection of a criminal fine by forfeiture or public sale of property of the Chapter 13 estate is subject to the automatic stay.4 The lessor of a trailer did not violate the automatic stay by reporting to the police the debtor’s failure to return the trailer; but once the lessor embarked on an effort to use the police department and the threat of arrest to obtain possession of the trailer, the lessor traversed the exception and violated the automatic stay.5
It has been held that a state traffic court can issue a summons, determine the guilt or innocence of the debtor and impose fines, but once guilt is established and a fine imposed, it is a willful violation of § 362 for the traffic court to send letters demanding payment of fines or to threaten suspension of a debtor’s driving privileges if the debtor does not pay prepetition fines.6 In contrast, absent any postpetition action that could be characterized as debt collection, a city government does not violate the stay by merely refusing to lift a driver’s license suspension imposed before the petition when the debtor failed to pay traffic fines.7 These cases support an argument that the state could imprison a Chapter 13 debtor for failing to pay a criminal fine but would need relief from the stay to collect the fine from the debtor or from property of the estate.
There is a fine line here that is not always clear in the reported cases. Imprisoning a Chapter 13 debtor for failure to pay a criminal fine may be excepted from the automatic stay as the “continuation of a criminal action or proceeding”;8 but if immediately paying the fine would release the debtor from the threat of imprisonment, where does the criminal prosecution end and debt collection begin? Evidence could make a difference. For example, proof of an offer from the prosecutor to drop the prosecution if the debtor pays a fine might convince the court that debt collection, not vindication of the public interest, is at the heart of the proceeding. Evidence that the victim can and will end the prosecution upon recovery of money or property from the debtor has made the difference for some courts with respect to whether the exception in § 362(b)(1) applies.9
Emberton v. Lobb (In re Emberton)10 contains perhaps the most compelling facts in a reported decision for the holding that § 362(b) does not shield debt collection masquerading as a criminal prosecution. Fifteen months before bankruptcy, the Embertons contracted to sell real property to the Lobbs. The contract required the Embertons to deliver a general warranty deed at the completion of payments but contained no warranties concerning title at the time of execution of the contract.
Before the Lobbs completed payments, the Embertons filed Chapter 13. The proposed plan rejected the land sale contract but repaid the Lobbs their full claim with postpetition interest. The Lobbs objected, then withdrew their objection to confirmation.
Unbeknownst to the debtors, just before confirmation of the plan, Mr. Lobb visited the county prosecuting attorney and inspired the prosecutor to indict the debtors for theft by deception. The debtors were arrested and spent 21 days in jail, and the debtors’ family was forced to post a substantial bond to arrange the debtors’ release. After confirmation, the debtors entered conditional guilty pleas and signed pretrial diversion agreements.
The debtors brought an action against the Lobbs and the prosecuting attorney for willful violation of the stay. The bankruptcy court found for the debtors and ordered the Lobbs to pay $8,758.21 in compensatory damages and treble that amount, $26,274.63, in punitive damages. The prosecuting attorney was permanently enjoined from enforcing the pretrial diversion agreement, and was directed to vacate the debtors’ guilty pleas and to expunge the debtors’ criminal records:
The Court accepts and determines that the execution of the Pretrial Diversion Agreements were made under extreme, unreasonable and unwarranted criminal action and the Embertons’ severe emotional distress. . . . The Bankruptcy Code precludes the use of criminal actions instituted for the purpose of collecting a debt. . . . [Mr. Lobb’s] actions, along with those of the Commonwealth’s Attorney in seeking a criminal indictment against the Embertons, resulting in their arrest and incarceration for 21 days, compel the Court to conclude that Defendants committed a willful violation of the stay. . . . [Section] 362(b)(4) . . . does not apply where a criminal action is pursued and initiated against the debtor for the purpose of debt collection. . . . Mr. Lobb intentionally sought the Hart County Commonwealth Attorneys’ assistance in instituting criminal proceedings against the Embertons to collect a debt and gain an advantage over other creditors in bankruptcy. . . . The acts that caused the Embertons’ damage were the request to the County Attorney for the indictment, the indictment based on inaccurate information, the Embertons’ incarceration and Mr. Lobb’s participation in the pretrial diversion negotiations, which taken as a whole, indicate an intent to secure payment of a debt.11
The courts have struggled with the question whether revocation of a Chapter 13 debtor’s probation for failure to pay restitution is a violation of the automatic stay. Prior to 1990, several courts concluded that probation revocation was the “commencement or continuation of a criminal action” excepted from the automatic stay by § 362(b)(1) notwithstanding that the probation revocation proceeding might have as its purpose coercing the debtor to pay restitution that resulted from a criminal conviction.12
In 1990 in Pennsylvania Department of Public Welfare v. Davenport,13 the Supreme Court held that criminal restitution is a debt that is dischargeable in a Chapter 13 case after completion of payments.14 Reasoning that Davenport would be emasculated if a state could simply jail a debtor for seeking to discharge all or part of a restitution obligation in a Chapter 13 case, the district court in Hucke v. Oregon15 held that the State of Oregon violated the automatic stay by seeking revocation of a Chapter 13 debtor’s probation when the plan proposed to pay 20 percent of a $20,000 compensatory fine.
On appeal, the Ninth Circuit reversed. As explained by the Ninth Circuit, “the mere institution of a probation revocation proceeding, without more, would constitute a continuation of a criminal action against the defendant/debtor and, thus, be exempt from the automatic stay.”16 However, “if the probation hearing had as its aim the collection of the fine, then it would run afoul of § 362(a)(6) . . . . In sum, if the present state revocation proceeding constituted collection efforts, then it would violate the automatic stay and would be void. On the other hand, if that proceeding were not a collection effort, then it would be a ‘continuation of a criminal action or proceeding against a debtor’ and exempt from the stay.”17
In Hucke, at the probation revocation hearing, the state court judge refused the debtor’s offer to pay the $20,000 compensatory fine in full by amendment to the Chapter 13 plan. Instead, the state court resentenced the debtor to imprisonment and made findings that the purposes of probation were no longer being served. That the state court refused to impose any monetary obligation and instead imprisoned the debtor compelled the Ninth Circuit to conclude that the probation revocation was a criminal proceeding and not debt collection.18
The Ninth Circuit revisited the gray area between criminal prosecution and debt collection six years after Hucke in Gruntz v. County of Los Angeles (In re Gruntz).19 In Gruntz, the debtor filed a Chapter 13 case that included a large claim for past-due child support. The case converted to Chapter 11. The district attorney then prosecuted the debtor for criminal nonsupport. The debtor claimed that the “DA’s office offered to agree to a suspended sentence if Gruntz would plead guilty and pay the back child support.” A California state court determined that the automatic stay did not prohibit prosecution of the debtor,20 and a jury found the debtor guilty. The debtor was sentenced to 360 days in jail.
The debtor then brought an adversary proceeding in the bankruptcy court to stop the state court prosecution. The bankruptcy and district courts concluded that the state court determination that the criminal prosecution did not violate the automatic stay precluded review in federal court. The Ninth Circuit panel disagreed, finding that “federal pre-emption over bankruptcy” prevented the state court decision from having preclusive effect with respect to the question whether the automatic stay prevented prosecution of the debtor. In the course of this important jurisdictional ruling, the Ninth Circuit panel cited Hucke for this proposition:
A criminal prosecution is not automatically excluded from the reach of the automatic stay. If the purpose of the prosecution is to “collect, assess or recover a claim” against a debtor in bankruptcy, the prosecution will violate the automatic stay. . . . Gruntz, like Hucke, faced criminal proceedings as a result of his failure to pay a court imposed financial obligation. The critical difference, however, is that contrary to the facts in [Hucke v. Oregon, 992 F.2d 950 (9th Cir. 1993)] which dispelled any notion that the proceeding was intended to recover money, Gruntz alleges that the County threatened to prosecute him unless he paid the back child support, and then offered a suspended sentence if he would pay the money he owed. These allegations, if proved, would tend to support a finding that Gruntz’s criminal prosecution for failure to support his children was intended as a debt collection action. If that should be the case, neither the exception to the automatic stay for criminal proceedings provided by subsection 362(b)(1), nor the exception for a proceeding by a governmental unit to enforce its police or regulatory power provided by subsection 362(b)(4), would apply.21
The Ninth Circuit granted rehearing en banc ostensibly to address the jurisdictional question whether the state court judgement with respect to the reach of the automatic stay precluded the debtor’s complaint in the bankruptcy court. The Ninth Circuit en banc disposed of the jurisdictional issue by holding that “federal courts have the final authority to determine the scope and applicability of the automatic stay.”22 Accordingly, the Rooker-Feldman doctrine was not implicated and the bankruptcy court did have jurisdiction to determine whether the automatic stay prevented the state from prosecuting the debtor.
The Ninth Circuit then addressed the merits of whether the stay applied to the criminal prosecution. The county as prosecutor argued the plain language of the exception in § 362(b)(1). The debtor argued Hucke. The Ninth Circuit determined to overrule Hucke:
Although [Hucke v. Oregon, 992 F.2d 950 (9th Cir. 1993)] was well within the mainstream of thought at the time, it is time to reexamine it. . . . [I]t is at odds with the plain words of the statute. Quite simply, the Bankruptcy Code declares that § 362 does not stay “the commencement or continuation of a criminal action or proceeding against the debtor.” On its face, it does not provide any exception for prosecutorial purpose or bad faith. . . . [I]n the case of the automatic stay, Congress has specifically subordinated the goals of economic rehabilitation and equitable distribution of assets to the states’ interest in prosecuting criminals. . . . In the end, this is not a chronicle of creditor and debtor, but of crime and punishment. Gruntz was lawfully prosecuted, convicted, and ordered to be incarcerated. As a matter of law, the automatic stay did not apply to prevent this course of events. The words of the statute mean what they say: all criminal proceedings, including those to which Gruntz was subject, are excepted from the reach of the automatic stay. Thus, unless a specific § 105 injunction applies, state trial courts need not seek bankruptcy court approval before commencing criminal proceedings. To the extent that it conflicts with this interpretation of 11 U.S.C. § 362(b)(1), Hucke is overruled.23
The Ninth Circuit’s opinion in Hucke invited arguments by Chapter 13 debtors that probation revocation was debt collection whenever the prosecutor insisted on conditioning probation on the debtor’s payment of restitution or a compensatory fine. In some reported decisions between Hucke and Gruntz, application of the automatic stay and the exception in § 362(b)(1) seemed to turn on evidence that the debtor could “buy” a solution to the criminal prosecution other than by going to jail.24 After the Ninth Circuit’s rejection of Hucke in Gruntz, there is little appellate support for the view that there is an “exception to the exception” in § 362(b)(1) when the facts suggest a debt collection motive behind the criminal prosecution.
Bankruptcy court opinions from outside the Ninth Circuit still occasionally recite that § 362(b)(1) does not except from the automatic stay criminal actions for the “primary” purpose of collecting debt.25 Even less often, criminal prosecutions are found to have actually violated the automatic stay.26 The possibility of a “specific § 105 injunction” mentioned in Gruntz will be a tough row to hoe unless there is evidence of bad faith in the prosecution—something more than just a debt collection motive.27
Davenport—the Supreme Court decision that started this discussion—was short-lived. Congress twice amended § 1328(a) in November of 1990 to render criminal restitution nondischargeable after completion of payments in Chapter 13 cases.28 In 1994, Congress again amended § 1328(a) to also except criminal fines from discharge in a Chapter 13 case upon completion of payments under the plan.29 11 U.S.C. § 1328(a)(3), as amended in 1990 and in 1994, excepts from discharge after completion of payments “restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime.”30
The automatic stay makes no distinction between debts that are dischargeable and those that are not dischargeable for purposes of prohibiting creditor collection action. The Chapter 13 case in Hucke was filed after Davenport and before the effective date of the 1990 amendment. However, the logic of the opinion is not dependent on whether the restitution claim was dischargeable. Rather, the Ninth Circuit focused on whether the probation revocation proceeding had as its purpose the collection of the compensatory fine. The Ninth Circuit in Hucke reasoned that a “collection action” and a “criminal action or proceeding” are mutually exclusive characterizations. The Ninth Circuit abandoned that view in favor of a “plan reading” of § 362(b)(1) in Gruntz.
Other courts have read the exception to the automatic stay in § 362(b)(1) literally in Chapter 13 cases to except from the automatic stay a probation revocation proceeding against the debtor even when the purpose of probation revocation is to punish the debtor for failing to pay restitution.31 These courts have acknowledged that the language of the discharge injunction in 11 U.S.C. § 524 is broader than the automatic stay of § 362 and provides broader protection against a criminal proceeding that seeks to collect a debt.32 However, because the discharge is not entered in a Chapter 13 case until completion of payments under the plan,33 § 524 is not available to balance the exception to the stay in § 362(b)(1). These courts conclude that prior to discharge in a Chapter 13 case there is no automatic stay to protect the debtor from criminal actions or proceedings, even if the action is purely debt collection in content. A bankruptcy court that issued a writ of habeas corpus to release from jail a Chapter 13 debtor incarcerated for failing to pay restitution was reversed on appeal based in part on the district court’s finding that § 362(b)(1) excepts from the automatic stay even debt collection in the form of a criminal prosecution.34
The creditor to whom restitution is owed is in an awkward position in a Chapter 13 case. If the victim encourages the continuation of the state criminal proceeding, it is at some risk of violating the automatic stay in a jurisdiction following Hucke. The victim will be hard-pressed to convince the bankruptcy court that seeking probation revocation is for a purpose other than coercing the debtor to pay restitution. The state prosecutor can avoid the logic of Hucke by refusing to seek or accept restitution as a substitute for imprisonment in the probation revocation proceeding. The odd outcome is that any effort by the debtor to use the Chapter 13 case to pay restitution and thus avoid imprisonment must be refused by the victim and the state to avoid violating the automatic stay. Even a Chapter 13 debtor who proposes to pay 100 percent of the restitution through the plan may be foiled by Hucke from reaching an accommodation with the state. This is bad news for everybody. Debtors and victims are better off with an agreement to use the Chapter 13 plan to pay the criminal restitution.
If the debtor has been ordered to make restitution or if an offer of restitution might derail a prosecution (as is often true, for example, in bad-check cases), a proposal to pay the victim through a Chapter 13 plan may buy the debtor some relief from the criminal proceedings. Even in restitution situations, it is rarely in the best interests of the victim to have the debtor’s probation revoked and incarceration imposed. Debtor’s counsel can often negotiate repayment terms through the Chapter 13 plan to deal with criminal fines and restitution, notwithstanding the inadequacy of the stay to automatically protect the debtor.
1 See §§ 4.15 [ Criminal Problems ] § 8.17 Criminal Problems, 154.1 [ Restitution, Fines and Other Criminal Problems ] § 88.7 Restitution, Fines and Other Criminal Problems and 184.1 [ Criminal Misconduct ] § 106.2 Criminal Misconduct.
2 11 U.S.C. § 362(b)(1) provides: “The filing of a petition . . . does not operate as a stay—(1) under subsection (a) of this section, of the commencement or continuation of a criminal action or proceeding against the debtor.”
3 See, e.g., Smith v. Goode (In re Smith), 301 B.R. 96 (Bankr. M.D. Ga. 2003) (Criminal action for fraudulently obtaining unemployment benefits is excepted from automatic stay.); In re Coleman, No. 02-81156, 2002 WL 31045351 (Bankr. M.D.N.C. Aug. 9, 2002) (unpublished) (Postpetition arrest and prosecution for bad check did not violate automatic stay.); In re Bibbs, 282 B.R. 876, 880 (Bankr. E.D. Ark. 2002) (The city of Sherwood, Arkansas, and the Pulaski County prosecuting attorney did not violate the automatic stay by prosecuting and incarcerating the debtor for bad checks because “the automatic stay . . . by its express terms, does not apply to criminal proceedings including the enforcement of orders to pay fines and restitutions.”); In re Wrobel, 197 B.R. 289, 293–94 (Bankr. N.D. Ill. 1996) (Postpetition action to assess attorneys’ fees for contempt of state court order prohibiting the debtor from removing her son from the jurisdiction was a criminal proceeding excepted from the automatic stay by § 362(b)(1). The state court judge “determined that the Debtor had committed criminal contempt and punished the Debtor by awarding attorneys’ fees . . . . [T]he fee award falls within the exception to the automatic stay found in section 362(b)(1).” That the claims bar date has passed and creditor cannot file a claim for the attorneys’ fees is cause for relief from stay after confirmation.); Kohr v. Magisterial Dist. 52-1-01 (In re Kohr), 82 B.R. 706 (Bankr. M.D. Pa. 1988) (Issuance of arrest warrants to force Chapter 13 debtor to pay fines for failing to file income tax returns did not violate stay. Warrants, even if intended to collect fines, were part of a criminal proceeding excepted from the stay under § 362(b)(1).); Gilliam v. Metropolitan Gov’t of Nashville & Davidson County (In re Gilliam), 67 B.R. 83 (Bankr. M.D. Tenn. 1986).
4 Blair v. Alabama, 62 B.R. 650 (Bankr. N.D. Ala. 1986) (Section 362 prohibits public sale of Chapter 13 debtor’s property to satisfy a criminal fine.). Accord Finley v. Mississippi Dep’t of Public Safety (In re Finley), 237 B.R. 890, 894 (Bankr. N.D. Miss. 1999) (Forfeiture proceeding by Mississippi Department of Public Safety based on debtor’s third DUI offense was civil action subject to the stay and not excepted by § 362(b)(1). “[T]he forfeiture proceeding specified in [Mississippi law] is civil in nature rather than criminal. . . . Parties having a security interest in the vehicle are required to be served with process . . . . [P]arties having an ownership interest in the vehicle must likewise be notice. . . . If the vehicle is the only means of transportation, it can be forfeited to the spouse of the owner. . . . [F]orfeiture adjudication is processed on the civil docket of the appropriate state court. Because of the foregoing, this court must conclude that the exception to the automatic stay found in 11 U.S.C. § 362(b)(1) is not applicable to this proceeding since the forfeiture is not the commencement or continuation of a criminal action or proceeding against the debtor.”).
5 Soto v. Lanoue (In re Soto), 302 B.R. 757 (Bankr. D. N.H. 2003).
6 Colon v. Hart (In re Colon), 102 B.R. 421 (Bankr. E.D. Pa. 1989), appeal dismissed in part, 123 B.R. 719 (E.D. Pa.), aff’d in part, appeal dismissed in part, 941 F.2d 242 (3d Cir. 1991). See In re Raphael, 238 B.R. 69, 78 (D.N.J. 1999) (In dicta, if suspension of debtor’s driver’s license had occurred after the petition in violation of the automatic stay, the bankruptcy court might have had statutory authority to order reinstatement. “Without reaching a determination on this issue, a post-petition revocation, particularly if done in connection with an effort to collect outstanding fines, would raise issues as to whether the State’s conduct violated the provisions of the automatic stay.”); Chicago v. Fisher (In re Fisher), 203 B.R. 958, 964 n.6 (N.D. Ill. 1997) (In dicta, § 362(b)(5) does not immunize the city from a violation of the automatic stay where the City booted, towed and eventually crushed a debtor’s car to collect postpetition parking tickets. “[Section] 362(b)(5) does not authorize enforcement of a ‘money judgment,’ which was what the city did by selling Fisher’s car due to her failure to pay the parking tickets.” City did not violate the stay because car vested in the debtor at confirmation under § 1327(b) and thus was not protected by the automatic stay of the city’s collection action with respect to a postpetition claim for parking tickets.). See also Colon v. Harta (In re Colon), 114 B.R. 890 (Bankr. E.D. Pa. 1990), appeal dismissed in part, 123 B.R. 719 (E.D. Pa.), aff’d, in part, appeal dismissed in part, 941 F.2d 242 (3d Cir. 1991).
7 See § 73.1 [ Termination of Services to Debtor and Discrimination against Debtor ] § 58.13 Termination of Services to Debtor and Discrimination against Debtor. See, e.g., Kimsey v. Suskie (In re Kimsey), 263 B.R. 244, 246–47 (Bankr. E.D. Ark. 2001) (City did not violate stay when it revoked the debtor’s driver’s license before the Chapter 13 petition for failure to pay traffic fines but took no action after the petition with respect to the fines. The debtor had 12 traffic violations, and the City of North Little Rock suspended the debtor’s driver’s license based on his failure to pay fines. Confirmed plan proposed to pay the fines. Debtor brought adversary proceeding to compel reinstatement of the driver’s license based on § 362(a)(6) and § 525. “There is no evidence, however, that the City has in fact taken any action to collect the debt and the mere refusal to lift the suspension of his license is not a violation of the stay. . . . [T]here is no requirement in the Bankruptcy Code, including section 362, that a governmental unit reinstate the privilege to operate a motor vehicle simply because the individual later files a bankruptcy case. . . . In the case of [Walters v. Sherwood Municipal Court (In re Walters), 219 B.R. 520 (Bankr. E.D. Ark. 1998)], the Sherwood Municipal Court was required, upon notification of the filing of the chapter 13 petition, to rescind its warrant for her arrest, or ensure that one was not issued for nonpayment, because, if she were arrested after the filing of the case due to the nonpayment of the obligation, a violation of the stay would occur. Kimsey’s situation is different in that all of the City’s acts were concluded prior to the time the bankruptcy petition was filed. . . . [T]his Court has consistently denied debtor requests for release from incarceration or similar requests to preclude governmental units from enforcing their police and regulatory powers.”).
8 See, e.g., In re Perrin, 233 B.R. 71, 78 (Bankr. D.N.J. 1999) (“We readily reaffirm our holding in [In re Cuevas, 205 B.R. 457 (Bankr. D.N.J. 1997)] that the quasi-criminal action of a municipal court in substituting incarceration, or community service in lieu of incarceration, for payment of a fine falls within the section 362(b)(1) ‘criminal action or proceeding’ exception to the automatic stay.”); In re Vines, 224 B.R. 491, 491–92 (Bankr. M.D. Ala. 1998) (Municipal court did not violate stay by imprisoning debtor because of exceptions to stay in § 362(b)(1) and (b)(4). Sixteen days after filing a Chapter 13 case, debtor appeared in municipal court to answer charges including fines for bad checks, convictions for driving violations, and charges of harassment of the debtor’s former husband and his present wife. The municipal court jailed the debtor “for her refusal to comply with orders of that court relating to the payment of fines and orders to cease harassment.” Debtor had listed all of the fines in her bankruptcy petition and moved for contempt against the city and municipal court. Citing § 362(b)(1) and (b)(4) and after discussion of Younger v. Harris, 401 U.S. 37, 91 S. Ct. 746, 27 L. Ed. 2d 669 (1971), “[h]ere, the injunction of the automatic stay is specifically excluded as to state criminal proceedings. There is no showing of any ‘irreparable’ injury where the only thing at risk in debtor’s bankruptcy is the viability of her plan, if it is ever presented for confirmation.”); In re Perez, 220 B.R. 216, 225 (Bankr. D.N.J. 1998) (Adopting In re Cuevas, 205 B.R. 457 (Bankr. D.N.J. 1997), “incarceration of the debtor upon his non-payment of fines imposed for his pre-petition traffic offences, . . . was not an attempt to collect a pre-petition debt, but was rather a mere continuation of a criminal proceeding previously commenced against the debtor, to which the automatic stay did not apply.”).
9 See, e.g., Soto v. Lanoue (In re Soto), 302 B.R. 757, 759 (Bankr. D. N.H. 2003) (Evidence that the lessor of rental property knew that the debtor would be arrested and criminally charged for the unauthorized taking of rental property if he did not return a trailer to the lessor convinced the bankruptcy court that “all the [lessor] tried to accomplish by going to the Litchfield Police Department was to obtain possession of property from the Debtor. This use of the criminal statute where the primary purpose is collection of debt violates the automatic stay.”). See also In re Coleman, No. 02-81156, 2002 WL 31045351, at *2 (Bankr. M.D.N.C. Aug. 9, 2002) (unpublished) (Although “a creditor may not pursue criminal charges against the debtor for the primary purpose of attempting to recover a debt,” debtor’s failure to present evidence that the primary purpose for the bad check criminal prosecution was debt collection was fatal to argument that postpetition arrest violated the automatic stay.).
10 263 B.R. 817 (Bankr. W.D. Ky. 2001).
11 263 B.R. at 822–25.
12 See Gilliam v. Metropolitan Gov’t of Nashville & Davidson County (In re Gilliam), 67 B.R. 83 (Bankr. M.D. Tenn. 1986) (Neither the automatic stay of § 362 nor the discharge injunction of § 524 is available to protect a Chapter 13 debtor from probation revocation prior to completion of payments under the plan.). Accord Erickson v. District Court of Colo. (In re Erickson), 104 B.R. 364 (Bankr. D. Colo. 1989) (Although restitution is a debt dischargeable after completion of all payments under a Chapter 13 plan, prior to discharge the automatic stay does not prohibit state from seeking revocation of debtor’s probation. However, bankruptcy court has equitable powers under § 105 to enjoin a bad-faith criminal prosecution.); Birk v. Simmons, 108 B.R. 657 (Bankr. S.D. Ill. 1988). See also Drimmel v. Moran (In re Drimmel), 143 B.R. 249 (Bankr. D. Mont. 1992) (Debtor is not entitled to an injunction to prohibit the State of Montana from enforcing a criminal restitution judgment when Chapter 13 case was filed and plan was confirmed before entry of the restitution order. Debtor committed a prepetition forgery. Chapter 13 was filed before the effective date of the 1990 amendments excepting restitution from discharge. Debtor scheduled the victim of the forgery as an unsecured creditor. Debtor did not schedule the state. Criminal complaint was filed after the petition. Debtor pleaded guilty to forgery, and state criminal court imposed as a condition of deferred sentence that debtor make restitution in an amount approximately the same as the scheduled claim of the victim. Court holds that restitution obligation is a postpetition debt and is not subject to discharge in the Chapter 13 case.).
13 495 U.S. 552, 110 S. Ct. 2126, 109 L. Ed. 2d 588 (1990).
14 See § 348.1 [ Criminal Restitution and Criminal Fines ] § 158.4 Criminal Restitution and Criminal Fines.
15 128 B.R. 675 (D. Or. 1991).
16 Hucke v. Oregon, 992 F.2d 950, 953 (9th Cir. 1993).
17 992 F.2d at 953.
18 Accord In re Perrin, 233 B.R. 71, 78–79 (Bankr. D.N.J. 1999) (Municipal court did not violate automatic stay by vacating traffic fines and re-sentencing the debtor to community service after confirmation of a plan that provided full payment of the fines. “We readily reaffirm our holding in [In re Cuevas, 205 B.R. 457 (Bankr. D.N.J. 1997)] that the quasi-criminal action of a municipal court in substituting incarceration, or community service in lieu of incarceration, for payment of a fine falls within the section 362(b)(1) ‘criminal action or proceeding’ exception to the automatic stay. . . . There is no question that if the municipal court attempted to compel the debtor to remit his fine in a manner other than as provided for under his confirmed plan, the municipal court would be prohibited from doing so. . . . However, the Vineland Municipal Court is not restructuring the debtor’s repayment plan, but has actually vacated the debtor’s fine. The court elected to waive its monetary claim. . . . [T]he Bankruptcy Code does not limit the court’s authority to resentence the debtor, where the municipal court is not attempting to collect its debt, but is imposing punitive sanctions of incarceration or community service . . . . A similar circumstance was presented in a criminal context in the case of Hucke v. State of Oregon, 992 F.2d 950 (9th Cir. 1993).”).
19 166 F.3d 1020 (9th Cir.), as modified, 177 F.3d 728, 736 (9th Cir.), withdrawn and reh’g granted, 177 F.3d 729 (9th Cir. 1999), after reh’g, 202 F.3d 1074 (9th Cir. 2000).
20 See below in this section.
21 166 F.3d at 1027.
22 202 F.3d at 1083.
23 202 F.3d at 1085–87.
24 See, e.g., Walters v. Sherwood Mun. Court (In re Walters), 219 B.R. 520, 527–28 n.11 (Bankr. W.D. Ark. 1998) (Municipality’s arrest of the debtor and extortion from the debtor of a prepetition restitution debt was not excepted from the automatic stay by § 362(b)(1). Debtor scheduled prepetition debt to municipality for restitution, and confirmed plan provided to pay restitution debt in full. Municipality failed to file a proof of claim. After confirmation, debtor was in a car accident, and police officers found an outstanding warrant. Debtor was arrested and not permitted release until she paid the municipal court. Citing Pennsylvania Dep’t of Pub. Welfare v. Davenport, 495 U.S. 552, 110 S. Ct. 2126, 109 L. Ed. 2d 588 (1990), “Section 362(a) precludes enforcement of restitution orders while a debtor seeks relief under Chapter 13. Thus, a governmental entity is in violation of the automatic stay in bankruptcy if it acts upon the debtor’s failure to pay the fines or restitution.” Once the municipal court received notice of the bankruptcy case, § 362 required the court to “ensure that there were no warrants outstanding on the debtor; cancel any such warrants; ensure that no such warrants . . . are re-issued during the pendency of the bankruptcy case; upon the arrest of the debtor . . . ensure the debtor’s immediate release without condition of any monetary payment at that time.” [I]n a note, “In this case, . . . the two-year delay in her arrest, the statements of the clerks and officers, together with all of the other circumstances, clearly indicate that the municipality was pursuing a post-petition collection action with regard to this particular debtor, not vindicating the authority of the court.”).
25 See, e.g., In re Coleman, No. 02-81156, 2002 WL 31045351, at *1–*2 (Bankr. M.D.N.C. Aug. 9, 2002) (unpublished) (Absent evidence that the primary purpose for the bad check criminal prosecution was debt collection, postpetition arrest did not violate the automatic stay. “The bankruptcy filing has no impact on whether Person County commences or continues criminal action against the Debtor. . . . Section 362(b)(1) does not, however, authorize a creditor to recover a debt through a criminal proceeding. . . . [A] creditor may not pursue criminal charges against the debtor for the primary purpose of attempting to recover a debt. . . . In this instance, the Debtor presented no testimony or other evidence as to the motive of [the creditor].”).
26 See Soto v. Lanoue (In re Soto), 302 B.R. 757, 759 (Bankr. D.N.H. 2003) (Lessor violated automatic stay by using police department to recover rented property. “The Defendant’s action in going to the police department fit well within the definitions of those acts precluded by section 362(a)(3). The [lessor] and his counsel were informed by the Lieutenant that the [debtor] would be arrested for criminal charges of unauthorized taking of rental property if he did not return the Trailer to the Defendant. . . . [A]ll the Defendant tried to accomplish by going to the Litchfield Police Department was to obtain possession of property from the Debtor. This use of the criminal statute where the primary purpose is collection of debt violates the automatic stay.”).
27 See, e.g., Smith v. Goode (In re Smith), 299 B.R. 669, 675–76 (Bankr. M.D. Ga.) (Georgia Department of Labor waived sovereign immunity by filing a proof of claim; although criminal prosecution for fraudulently obtaining unemployment insurance benefits fits the exception in § 362(b)(1), under Younger v. Harris, 401 U.S. 37, 91 S. Ct. 746, 27 L. Ed. 2d 669 (1971), debtor’s complaint for an injunction survives motion to dismiss. “First, to show a threat of great and immediate injury, the debtor must allege some bad faith in the criminal case. Second, to demonstrate the necessity of an injunction to protect a federal right, the debtor must show that he is unable to raise a defense in the state court based on his allegation of bad faith. . . . Debtor in this case has done so by alleging improper use of the criminal system for purposes of collecting a debt in contravention of the Bankruptcy Code, and alleging that Georgia provides no defense based on that debt collection motive in the criminal case.”), on reconsideration, 301 B.R. 96 (Bankr. M.D. Ga. 2003) (Criminal action for fraudulently obtaining unemployment benefits is excepted from automatic stay; injunction is not appropriate under Younger v. Harris, 401 U.S. 37, 91 S. Ct. 746, 27 L. Ed. 2d 669 (1971), because there is no evidence of bad-faith prosecution and debtor failed to demonstrate any threat of great or immediate injury to any federally protected right.).
28 Pub. L. No. 101-581, 104 Stat. 2865 (Nov. 5, 1990), and Pub. L. No. 101-647, 104 Stat. 4789 (Nov. 29, 1990). This exception to discharge for criminal restitution upon completion of payments in a Chapter 13 case may have been inadvertently deleted by § 501(d)(38)(B) of the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 501(d)(38)(B), 108 Stat. 4106 (1994). See § 348.1 [ Criminal Restitution and Criminal Fines ] § 158.4 Criminal Restitution and Criminal Fines.
29 See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 302, 108 Stat. 4106 (1994), discussed in § 348.1 [ Criminal Restitution and Criminal Fines ] § 158.4 Criminal Restitution and Criminal Fines.
30 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). In 1994, Congress also enacted § 523(a)(13) to render nondischargeable “any payment of an order of restitution under title 18, United States Code.” 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 (1994). This exception to discharge for “federal” restitution is applicable in a Chapter 13 case only if the debtor seeks a hardship discharge under § 1328(b). See § 160.1 In General, § 160.6 Exceptions to Hardship Discharge before BAPCPA and § 160.7 Exceptions to Hardship Discharge Added or Changed by BAPCPA.
31 See Gilliam v. Metropolitan Gov’t of Nashville & Davidson County (In re Gilliam), 67 B.R. 83 (Bankr. M.D. Tenn. 1986); Erickson v. District Court of Colo. (In re Erickson), 104 B.R. 364 (Bankr. D. Colo. 1989); Birk v. Simmons, 108 B.R. 657 (Bankr. S.D. Ill. 1988).
32 See Gilliam v. Metropolitan Gov’t of Nashville & Davidson County (In re Gilliam), 67 B.R. 83 (Bankr. M.D. Tenn. 1986) (Discharge injunction in § 524 is broader than automatic stay in § 362; discharge injunction would prohibit even a criminal action that has as its purpose the collection of a dischargeable debt.).
33 11 U.S.C. § 1328. A “hardship” discharge might be entered in advance of completion of payments under 11 U.S.C. § 1328(b). See § 352.1 [ In General ] § 160.1 In General.
34 Rainwater v. Alabama (In re Rainwater), 233 B.R. 126, 157 (Bankr. N.D. Ala. 1999) (State officials violated stay be revoking probation and incarcerating the debtor for failure to pay restitution; bankruptcy court issues writ of habeas corpus to release debtor from jail and enjoins continuing prosecution, but refuses damages under § 362(h). The debtor pleaded guilty to stealing $21,000 from her employer. Alabama criminal court sentenced the debtor to 10 years but ordered probation and restitution in lieu of incarceration. Debtor failed to pay restitution because her husband was ill and out of work. Debtor filed Chapter 13 and with notice of the bankruptcy, probation officer filed a delinquency report. Criminal court conducted a delinquency hearing, revoked the debtor’s probation and incarcerated the debtor. While in jail, state officials counseled the debtor on ways to earn release by agreeing to make restitution. “Such actions, even under the guise of a continuing criminal proceeding, are in violation of the stay as determined by 11 U.S.C. § 362(a)(6).” Applying Gruntz v. County of Los Angeles (In re Gruntz), 166 F.3d 1020 (9th Cir. 1999), before the Ninth Circuit granted rehearing en banc and vacated the panel decision, because debtor is without adequate state forum in which to assert rights under the automatic stay, Ex parte Young, 209 U.S. 123, 28 S. Ct. 441, 52 L. Ed. 714 (1908), provides exception to Eleventh Amendment immunity of state prosecutor. Bankruptcy court issues a writ of habeas corpus, but declines to award damages because prospective injunctive relief is the only relief available under Ex parte Young.), rev’d, 254 B.R. 273 (N.D. Ala. 2000) (Bankruptcy court exceeded its authority by issuing writ of habeas corpus, see 28 U.S.C. § 2241; stay exception in § 362(b)(1) permits even debt collection in the form of a criminal prosecution.).