A criminal attorney called me this week to discuss the possible Chapter 7 bankruptcy by one of his current criminal clients who had been convicted of a financial crime against individual victims. The court ordered payment of restitution to the victims which the client could not afford to pay following his conviction and incarceration.When the client had served his criminal sentence the criminal court converted the restitution order to a civil judgment. The criminal attorney wants to know if his client could discharge the civil judgment in a Chapter 7 bankruptcy.
The bankruptcy law specifies many classes of debts which cannot be discharged in Chapter 7 such as alimony, government fines, many taxes, and fraud. There is no specific discharge exception for criminal restitution or civil judgments based thereon. Nevertheless, I think most bankruptcy judges would deny the discharge of this judgment.
There are some discharge exceptions which indirectly include or refer to this type of debt. For example, Chapter 7 debtors cannot discharge, embezzlement, larceny, or willful and malicious injury to another. I think that obtaining money from another by criminal means falls within the scope of one or more of these discharge exception categories. I don’t think a bankruptcy court will permit a debtor to discharge debts to victims of his intentional crimes.