Today we have a guest post from Jay S. Fleischman, a great consumer bankruptcy attorney who is a member of the National Association of Consumer Advocates, a member of — and the New York co-chair of — the National Association of Consumer Bankruptcy Attorneys, and a partner in the New York law firm of Shaev & Fleischman, LLP.
Let’s say you’re convicted of a crime. Your lawyer can get you jail time or criminal restitution, perhaps a mix of both. Here’s how to handle that restitution order using the U.S. Bankruptcy Code.
Bankruptcy is usually thought of as a way to get out of credit card debt, stop foreclosure, and the like. And though you can’t wipe out a criminal restitution order using the bankruptcy laws, you can leverage the system to repay that debt in a way that doesn’t interfere with your ability to earn a living.
Discharge of Criminal Restitution In Bankruptcy
Under 11 USC 523(a)(7), you cannot discharge a debt that is for a “fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty”. In other words, you can’t wipe out your criminal restitution obligation in bankruptcy. When you file for Chapter 7, which is designed to lead to a discharge of your obligations, you will still owe the criminal restitution when you complete your case.
Chapter 13 Bankruptcy As Repayment Tool
There is, however, a different type of bankruptcy case that is available to those who have regular monthly income. Under Chapter 13 bankruptcy you can repay a portion or all of your debts over a 3-5 year period. The amount you are required to pay each month under Chapter 13 is dictated by a combination of your income, expenses and debt, and the monthly payments go to a bankruptcy trustee for distribution to your creditors according to a legally-mandated formula.
Chapter 13 is an elegant way of reorganizing your financial life and structuring repayment in such a way as to minimize the impact on your day-to-day life. While you’re in an active Chapter 13 case the government cannot execute against your income or assets in connection with the restitution award, so you won’t need to worry about your paycheck or bank account being seized during this period of time.
If you’re in a Chapter 13 bankruptcy, however, you’re going to need to repay that restitution award in full because, as in Chapter 7, the claim won’t be discharged at the end of the case. That’s why it’s important to structure your Plan accordingly.
Order Of Repayment In Chapter 13
The Ever-Lasting Chapter 13 Bankruptcy
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