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How Bankruptcy Affects Criminal Cases

There are times when debt becomes oppressive. Bankruptcy offers the opportunity for relief from debt and a fresh start on a better life. But the difficulties posed by debt can be compounded when an individual is facing a criminal prosecution.

Can bankruptcy help someone who has been accused or convicted of a crime? The answer is: yes and no.

Start by getting legal advice

While your criminal case is pending, you should talk to your criminal defense attorney about the wisdom of filing bankruptcy. If your bankruptcy filing pertains to your crime, a judge might view it as a failure to accept responsibility. Even if the bankruptcy filing is unrelated to your prosecution, a judge might view it as evidence of bad character. For those reasons, your criminal defense lawyer might want you to delay filing a bankruptcy until after your prosecution is concluded.

After you are convicted, a bankruptcy attorney can advise you about the benefits you might or might not receive from filing bankruptcy. In many cases, a traditional chapter 7 liquidation will not wipe out debts that were imposed in your criminal case, but you might benefit from filing a debt repayment plan under chapter 13.

Fines and penalties

When the government imposes a monetary punishment for an offense, that punishment cannot be discharged in bankruptcy. In criminal and traffic cases, the punishment is usually called a fine. In some civil and administrative proceedings, the government may call the punishment by some other name, such as civil forfeiture or administrative penalty. Regardless of the label, monetary punishments generally cannot be wiped out in a bankruptcy.

In civil and administrative proceedings, there is sometimes room to argue about whether the requirement to pay money to the government is a punishment. In criminal cases, the law makes clear that a fine is penal in nature and cannot be discharged in bankruptcy.

Restitution

When a crime causes financial harm to a victim, courts often require a convicted defendant to pay restitution. A restitution order requires the defendant to reimburse the victim for money that was obtained by theft or fraud. A defendant may also be ordered to pay a victim’s medical expenses that were incurred after the defendant injured the victim.

Bankruptcy courts regard restitution as part of the defendant’s punishment. For that reason, an obligation to pay restitution that is imposed in a criminal proceeding cannot be discharged in bankruptcy.

Civil judgments

Criminal restitution differs from a civil judgment seeking the payment of money. An ordinary judgment for breach of an agreement to repay a debt can be discharged in bankruptcy. When the lawsuit is based on allegations that the debt resulted from certain criminal conduct, however, the debt might not be dischargeable.

In particular, judgments based on fraud and other “willful or malicious” conduct are not usually dischargeable. Most intentional criminal conduct, such as theft, falls into that category. Your bankruptcy lawyer will need to determine how the judgment is characterized to determine whether the judgment debt can be discharged in bankruptcy. If there is doubt about the debt’s nature and if the judgment creditor objects to discharge, the bankruptcy court may need to hold a hearing to decide whether the judgment can be discharged.

Tax penalties

A special set of rules applies to penalties imposed for failure to pay taxes. Whether a penalty imposed by a tax authority (such as the IRS) can be discharged may depend upon how old it is. If the penalty was imposed by a court in a criminal proceeding as punishment for the nonpayment of taxes, however, the penalty cannot be discharged.

Bail bond forfeitures

If you jump bail after signing a bond in which you agreed to pay money to the court if you did not comply with your bail conditions, the court can order you to pay the bond amount. If you have not already done so, you may be able to discharge that obligation in bankruptcy.

Using chapter 13

Chapter 13 of the Bankruptcy Code allows you to repay certain debts under the supervision of the bankruptcy court. Secured debts (like car loans) are typically paid in full while unsecured debts (like credit card bills) can often be discharged after paying only part (or none) of the debt you owe.

You might be able to discharge certain debts, like parking tickets, in a chapter 13 that cannot be discharged in a chapter 7. Your bankruptcy lawyer can tell you how your local bankruptcy judge is likely to rule if you want to discharge those debts in a chapter 13.

You cannot discharge criminal fines or restitution in a chapter 13. You may, however, be able to include those debts in your payment plan. You may also be able to use a credit card to pay your fine and then discharge the credit card debt in a chapter 13. Your bankruptcy lawyer can help you understand whether those strategies will work in your case.

Advantages of bankruptcy

Even if a debt cannot be discharged in either a chapter 7 or a chapter 13 bankruptcy, getting your financial problems under control with a bankruptcy proceeding may help you pay those debts. If you are no longer facing the burden of paying credit card debt or if a chapter 13 filing has eliminated the immediate threat of a mortgage foreclosure, you might be able to free up money you can use to satisfy fines and restitution imposed in your criminal case.

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