Sometimes different areas of law can conflict. Bankruptcy law is particularly prone to such conflicts. One prime example is found in the relationship between bankruptcy law and criminal law. The purpose of bankruptcy is to give the debtor a fresh start by "discharging" or wiping out his or her debts. But what if one of these debts consists of criminal restitution payments? The purpose of criminal restitution is the compensation of victims for financial loss. By freeing the debtor of this debt, the bankruptcy court would deprive the victim of compensation. This would interfere with the purpose of criminal law.
Criminal Restitution is Non-Dischargeable
Criminal restitution payments are considered non-dischargeable in a Chapter 7 bankruptcy. The "automatic stay" does protect the debtor from being arrested for failing to make the criminal restitution payments. At the end of the case, however, the debtor once again has to make the criminal restitution payments. Furthermore, any criminal restitution payments are considered "preferential payments." This means that the trustee can claim any payments made within the 90 days preceding the filing of the bankruptcy case. The trustee will use these funds to pay back other creditors in a specific order. The criminal restitution debt will be restored to the amount prior to that payment.
Paying Over Time under Chapter 13
Although a Chapter 7 bankruptcy case cannot be used to discharge criminal restitution payments, there is an alternative. You can file a Chapter 13 bankruptcy case. As with Chapter 7, the criminal restitution remains non-dischargeable. But the repayment plan of Chapter 13 makes it so that you can actually afford to repay your debts. During your bankruptcy, the government cannot seize your assets if you fail to make payments. Most debtors filing under Chapter 13 end up paying less than 100% of what they owe. This does not apply to the criminal restitution, which must be paid in full. At the end of your bankruptcy, you will be responsible for any amount of the criminal restitution payments that you have not paid.
Make It More Manageable
A Chapter 13 bankruptcy case does not free you from the obligation to make criminal restitution payments. But it does buy you time and makes the process much more manageable. Many types of debt are dischargeable. Freeing yourself from these debts means you have more income to go toward the criminal restitution. If at the end of your case you have not paid the criminal restitution in full, you can even file for bankruptcy under Chapter 13 again.
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