Can bankruptcy wipe out court-ordered restitution?

Which restitution do the bankruptcy rules cover?

Bankruptcy law deals with restitution in more than one place, and the wording differs by chapter. The Chapter 13 rule speaks of restitution included in a sentence on the debtor's conviction of a crime. It does not say which court has to have issued the sentence.1

The Chapter 7 rule is written more narrowly. It names any payment of an order of restitution issued under title 18 of the United States Code, which is the title that contains federal criminal law.2

What happens to restitution in Chapter 7?

Restitution ordered under federal criminal law is not discharged. The exception applies automatically, so no one has to file anything in the bankruptcy court to preserve it.2 4

Federal criminal law backs this up from its own side. It says no bankruptcy discharge under any chapter discharges liability to pay a federal criminal fine, and it makes the same enforcement provisions available to the United States for an order of restitution.5

Restitution ordered by a state court is not named in that Chapter 7 rule. A separate rule keeps fines, penalties and forfeitures that are payable to and for the benefit of a government out of the discharge when they are not compensation for an actual money loss. Whether a state restitution order falls under that rule depends on the order, so do not assume a state order is wiped out. The federal courts' own summary lists debts for certain criminal restitution orders among those a Chapter 7 case does not discharge.2 6

What happens in Chapter 13?

The answer does not improve. Restitution included in a sentence on conviction of a crime is on the list of debts a completed Chapter 13 plan does not discharge.1

A plan usually runs three to five years. To the extent the plan does not pay the restitution in full during that time, you still owe the rest after the case ends.7

If you cannot complete the plan and the court grants a hardship discharge, the debts left out are similar to those left out of a Chapter 7 discharge.4 1

Does filing pause the criminal case or the payment order?

The automatic stay stops most collection actions against you, but it does not stop a criminal action or proceeding. The criminal court keeps its authority over the case.8 3

Whether a particular step to collect restitution is paused while your bankruptcy is open depends on who is collecting and how. Talk to your criminal defense lawyer and your bankruptcy lawyer before you change any court-ordered payment.

What about money awarded in a civil lawsuit?

A civil judgment is a different thing from restitution in a criminal sentence, even when it comes from the same events. The rules for it depend on the chapter and on the kind of harm.1 2

In Chapter 7, a creditor who wants a willful and malicious injury debt kept out of the discharge generally has to file a complaint within 60 days after the first date set for the meeting of creditors.9

What can change the answer?

The details of the order matter more than the label on it.

• Which court ordered it, and under what law. The Chapter 7 restitution rule names orders issued under federal criminal law.2
• Whether it is part of a criminal sentence. That is the test on the Chapter 13 list.1
• Whether it is really a civil award. Civil awards for willful or malicious injury follow the rules in the table above.1 2
• Whether a lien was filed. Under federal criminal law, a lien filed for a federal criminal fine is not voided in bankruptcy, and those enforcement provisions are available for restitution orders.5