Month: April 2016

Discharging Victim Restitution Claims

Under 11 USC 523(a)(3)(7), debts are nondischargeable

“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, other than a tax penalty”

However, in the case “In Re Scheer” handed down on April 14th, 2016, the 9th Circuit appears to be challenging the logic of the Supreme Court case Kelly v. Robinson (479 US 36) (1986) for failing to follow the plain meaning of the statute – not only are debts owed to the government nondischargeable, but Kelly ruled that debts owed to the victims of crimes are also nondischargeable in bankruptcy.

The Scheer decision relied heavily on the 2010 Finley decision which held that costs associated with prosecuting a state disciplinary proceeding against a lawyer were dischargeable since they were for actual loss, and wouldn’t be considered as having the character of a fine.

All said and good – the 9th Circuit has a tendency to have a very unique opinions, and probably makes decisions with the hope the rest of the country follows its course.  How much effect this has on the Supreme Court remains to be seen, although it is promising with a vacancy on the bench – one that may be filled by a liberal judge.




Property Settlement Agreements

Under 11 USC 523, past due Domestic Support Obligations (DSO’s) are not dischargeable in bankruptcy, along with a whole laundry list including taxes less than three years old(sort of), criminal restitution, and debt owed by a spouse for his other spouse’s divorce attorney fees.

But what is a domestic support obligation?  The most common examples are child support and spousal support.  It’s money used to provide for the day to day living expenses of ones children and former spouse.

Marital settlement agreements (MSA’s) are also usually nondischargeable in bankruptcy.   These are the orders that determine who gets what after a divorce.  However, if a Chapter 13 payment plan is completed, then an MSA can be discharged along with your other debts.

The lines get blurred of course when dealing with property settlement agreements that are meant as a form of support.  A common example is when a spouse is not working, so the Judge awards the house to the other party in order to substitute for the missing income.  This will be the case in long term marriages, i.e. old school, (since spousal support is increasingly looked down upon as sexist) and in the case where one spouse has acted in bad faith, e.g. quit his job on purpose and moved to another country in order to avoid paying.  There are no fast or easy rules, and it’s best to consult a lawyer to analyze the facts in detail to determine the character of the asset.