Is Criminal Restitution Dischargeable in Bankruptcy?

The Short Answer: No

Criminal restitution is not dischargeable in bankruptcy. Whether the restitution was ordered in a federal criminal case or a state criminal case, it will survive your bankruptcy and remain enforceable after your case closes. This applies in both Chapter 7 and Chapter 13.

The Bankruptcy Code addresses criminal restitution through two separate provisions, each covering different situations. Understanding which provision applies -- and how they interact -- is important for anyone considering bankruptcy while owing criminal restitution.

Section 523(a)(13) -- Federal Criminal Restitution

Section 523(a)(13) of the Bankruptcy Code provides that a discharge does not discharge an individual debtor from any debt "for restitution included in a sentence on the debtor's conviction of a crime." This provision was added by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005.

The language of Section 523(a)(13) specifically references restitution "issued under title 18, United States Code," which is the federal criminal code. This means it directly and unambiguously covers restitution ordered in federal criminal cases, including:

• Restitution under the Mandatory Victims Restitution Act (18 U.S.C. Section 3663A)
• Restitution under the general restitution statute (18 U.S.C. Section 3663)
• Restitution ordered as a condition of probation or supervised release
• Restitution in fraud, identity theft, child exploitation, and other federal offenses

Section 523(a)(13) is automatic -- no adversary proceeding is required. The government does not need to file anything in the bankruptcy case. The restitution simply survives the discharge by operation of law.

Section 523(a)(7) -- Fines, Penalties, and Forfeitures

Section 523(a)(7) excepts from discharge any debt "to the extent such debt 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." This is the broader provision that captures most government-imposed financial obligations arising from criminal proceedings.

Section 523(a)(7) covers:

• Criminal fines (federal and state)
• Penalties imposed by government agencies
• Forfeitures of property or money
• Court costs and fees associated with criminal proceedings
• Certain regulatory penalties and sanctions

There is a key distinction in the statute: the exception under 523(a)(7) applies to fines and penalties that are "not compensation for actual pecuniary loss." This language was designed to distinguish punitive government obligations (which survive) from compensatory payments (which might be dischargeable in some circumstances). However, as discussed below, courts have broadly interpreted this to cover most criminal restitution as well.

Kelly v. Robinson (1986) -- The Supreme Court's Landmark Ruling

Before BAPCPA added Section 523(a)(13) in 2005, the dischargeability of state criminal restitution was a contested issue. The Supreme Court resolved this question in Kelly v. Robinson, 479 U.S. 36 (1986).

In Kelly, the Court held that restitution obligations imposed as conditions of state criminal sentences fall within the scope of Section 523(a)(7), even though restitution is technically "compensation for actual pecuniary loss." The Court reasoned that Congress did not intend for the bankruptcy system to interfere with the operation of state criminal justice systems.

The Court emphasized several principles:

• The primary purpose of criminal restitution is rehabilitative and punitive, not compensatory -- even when the money goes to a victim
• States have a strong interest in enforcing criminal sentences, and bankruptcy should not undermine that interest
• The Bankruptcy Code should be read to avoid conflicts between federal bankruptcy law and state criminal law

State Criminal Restitution -- Circuit Variations

While Kelly v. Robinson established the general rule, some nuances remain in how different circuits apply the nondischargeability rules to state criminal restitution. Most circuits follow Kelly broadly and treat all criminal restitution as nondischargeable.

Some courts have distinguished between restitution ordered as part of a criminal sentence and restitution ordered in a separate civil proceeding arising from the same conduct. If a victim obtains a civil judgment (rather than a criminal restitution order), that judgment may be dischargeable unless it falls under another exception, such as Section 523(a)(6) for willful and malicious injury.

The practical takeaway: if the restitution obligation appears in a criminal judgment, sentencing order, or as a condition of probation or parole, it is almost certainly nondischargeable regardless of the state or circuit.

Chapter 7 vs. Chapter 13 Treatment

Chapter 7

In Chapter 7, criminal restitution is simply excepted from discharge. The debtor receives a discharge of other qualifying debts, but the restitution obligation remains in full force. After the bankruptcy case closes, the government (or victim, if assigned collection rights) can resume all collection efforts on the restitution amount.

Chapter 13

In Chapter 13, criminal restitution can be listed in the repayment plan, and payments may be made through the plan. However, the "superdischarge" available in Chapter 13 -- which can discharge some debts that survive Chapter 7, such as certain fraud debts under 523(a)(2) -- does not extend to criminal restitution. Section 1328(a)(3) specifically excludes debts under 523(a)(7) and 523(a)(13) from the Chapter 13 discharge.

This means that any unpaid balance on criminal restitution after the Chapter 13 plan completes remains the debtor's obligation. Chapter 13 can help manage the payments, but it cannot eliminate the debt.

Practical Considerations

If you owe criminal restitution and are considering bankruptcy, keep these points in mind:

• Bankruptcy can still help. Even though restitution survives, discharging other debts may free up income to make restitution payments. Many people file bankruptcy specifically to eliminate credit card debt, medical bills, and other obligations so they can focus on paying restitution.
• List the restitution in your schedules. Even though it is nondischargeable, you must list all debts in your bankruptcy schedules, including restitution. Failing to list a debt can create separate legal problems.
• The automatic stay has limits. Criminal proceedings are exempt from the automatic stay. If you are on probation with a restitution condition, your probation officer and the criminal court retain authority over enforcement.
• Interest and penalties may accumulate. Depending on the jurisdiction and the terms of the criminal sentence, interest may continue to accrue on unpaid restitution during and after bankruptcy.

Frequently Asked Questions

Is criminal restitution dischargeable in Chapter 7 bankruptcy?

No. Criminal restitution ordered as part of a federal criminal sentence is nondischargeable under 11 U.S.C. Section 523(a)(13). State criminal restitution is also generally nondischargeable under Section 523(a)(7) and the Supreme Court's reasoning in Kelly v. Robinson (1986).

What is the difference between Section 523(a)(7) and Section 523(a)(13)?

Section 523(a)(7) covers fines, penalties, and forfeitures payable to a governmental unit. Section 523(a)(13) specifically covers restitution included in a sentence for a federal crime. Section 523(a)(13) was added by BAPCPA in 2005 to close any remaining gap for federal criminal restitution.

Can criminal restitution be included in a Chapter 13 repayment plan?

Criminal restitution can be listed in a Chapter 13 plan, but it cannot be discharged at the end of the plan. Any unpaid balance remains the debtor's obligation. Chapter 13 can help manage payments alongside other debts, but the restitution is not reduced or eliminated.

Does the automatic stay stop criminal restitution collection?

The automatic stay under Section 362(b)(1) does not stay criminal proceedings. Criminal enforcement of restitution -- such as probation violations for nonpayment -- continues during bankruptcy. Civil collection efforts on a restitution judgment may be temporarily paused, depending on the jurisdiction.