The traditional non-dischargeable debts in bankruptcy are fairly known to most of us. But what about an obligation that arises out of criminal restitution and the debtor wants to get it discharged? Well, the issue of criminal restitution in bankruptcy is complicated and delicate as well. But many debt consolidation company might agree to consolidate the debt of a criminal.
But before that, it is important to understand what restitution is all about. Restitution refers to the money that the offender owes to the victim (or the victim's insurance or the victim's family) to reimburse for the financial losses suffered by the victim as a result of the offense. It can be compared to a monetary debt that the offender owes to the victim. Where it gets complicated is if the restitution was a criminal conviction or not. On its criminal status depends how it would be treated in a bankruptcy case.
If the restitution is part of a criminal conviction, it will be treated as a criminal fine, which will not get discharged in bankruptcy in most cases. In a 1986 case (Kelly versus Robinson), the US Supreme Court clearly ruled that under the Federal Bankruptcy Code criminal restitutions are non-dischargeable in bankruptcy. However, you can pay it under the Chapter 13 Bankruptcy repayment plan.
Here, it is worth noting that a debtor cannot get any restitution balance discharged even on the completion of a Chapter 13 plan. Suppose, if a debtor owed criminal restitution payments in the amount of $50,000 and they could only pay $20,000 within the time period set by the Chapter 13 plan. In that case, the debtor will still be liable for the payment of the remaining $30,000.
But there is nothing to feel at a loss if you owe criminal restitution payments and need to file for bankruptcy. You can still benefit from bankruptcy because bankruptcy will discharge most of your debts (apart from the non-dischargeable ones). The discharge will rid you of your obligations towards those debts and help you dedicate more of your funds towards your criminal restitution payments. Moreover, on filing for Chapter 13 bankruptcy, you will get a chance to pay most of the criminal restitution debt over the repayment period. While you are in the payment plan, you can work hard to increase your income and better your financial standing before the repayment period gets over.
However, status of the criminal restitution continues to be in legal flux. In a particular case, the 9th Circuit construed the status of criminal restitution a little differently. According to the 9th Circuit, criminal restitution can be a preference in bankruptcy. The preference allows the bankruptcy trustee to recover a restitution payment as a part of the bankruptcy estate, if the payment is done within 90 days of bankruptcy filing. It has not only reinforced the tricky nature of criminal restitution in bankruptcy but has also questioned the effectiveness of the criminal restitution altogether.
Mixing criminal defense with bankruptcy could indeed be quite baffling. Dealing with them cannot be that easy. So, irrespective of a whether you are a debtor in bankruptcy or a simple recipient in a restitution case, you should always get reputable bankruptcy attorneys to help you defend your interest and determine your legal course of action.
Edward Baxter is a financial writer associated with fileyourbankruptcy.org. He writes on a wide range of personal finance topics.