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Making Sense of Bankruptcy: How Neither Chapter 7 nor Chapter 13 Can Write Off Debts from A Criminal Conviction but Can Still Provide Crucial Help

Bankruptcy can allow you to focus on your criminal defense costs and debts, as well as potentially avoid other expenses and obligations.

Here’s the sentence that we’re explaining in today’s blog post, phrase by phrase:

Criminal fines, fees and restitution can’t be discharged (written-off) through bankruptcy, but if you’re being charged with, or already been convicted of, a significant crime, bankruptcy can discharge your other debts so that you can pay your criminal ones, enable you to pay crucial non-criminal debts and expenses, and either prevent or address related civil lawsuits.

Criminal vs. Civil Debts

There is a big divide between most debts and the ones based on criminal convictions. A civil debt is an obligation to a certain individual or company; a criminal debt is a punishment owed to society (through the state) for violating the rules of society. Common sense says that there would not be much point to being punished through criminal fines if such punishments could be gotten out of by simply filing bankruptcy. So, financial obligations arising from a criminal conviction are legally excluded from debts that can be discharged through bankruptcy.

Usually the distinction between debts arising from a past or anticipated criminal conviction (criminal debts) and all the rest (civil debts) is obvious. But not always. The same kind of behavior can often result in either kind of debt. For example, physically hitting and injuring someone can lead to a criminal conviction for battery and also to a civil judgment for personal injury to the person harmed. The same behavior can even be a criminal misdemeanor in one place and a civil infraction in another, such as certain vehicle traffic violations. Sometime finding out whether a debt can be discharged in bankruptcy or not turns on the technicality of which kind of debt it actually is.

Focus Your Financial Resources on Criminal Expenses and Debts

If you’ve been charged with a serious crime, you have to focus your emotional energy and your financial resources on finding and paying for a criminal attorney and paying other related expenses, and/or dealing with the loss of some or all your income. With your freedom and reputation at stake, you may have to seriously think about selling assets or not paying your creditors. You may need to consider doing away with every debt that you can and quickly improving your cash flow through bankruptcy.

Or if your criminal case has already been adjudicated, you probably now have some financial obligations to the criminal justice system. You likely have to pay them to either avoid incarceration or, if you’ve already done some jail or prison time, to fulfill your probation responsibilities and avoid re-incarceration. Examples of what you may need to pay include restitution payments, probation/supervision fees, treatment costs, community service fees, and drug and electronic monitoring charges. A bankruptcy can clean up your debts so you have the means to pay these criminal obligations.

Pay Crucial Non-Criminal Debts and Expenses

Sometimes the criminal court requires you pay certain debts or expenses beyond the direct court and probation fees above. You may have to fulfill certain obligations related to your crime, such as to file income tax returns and pay the taxes on time if your crime involved tax fraud or some other financial crime. Or you may be required to meet regularly with your probation officer, get to counseling or treatment, or show up for community service, all of which require you to keep current on your vehicle payments, maintenance and insurance. If you are under financial pressure from other creditors you may jeopardize your ability to meet the conditions of probation.

So again filing bankruptcy may make it possible for you to pay what you absolutely must pay.

Prevent or Address Related Civil Litigation

As mentioned above, your alleged criminal behavior can also lead to civil liabilities. Indeed you may be cleared of criminal charges, or have relatively modest financial obligations arising from a plea bargain of those charges, only to be sued by the person affected by the same behavior. After all, in the criminal arena you aren’t supposed to be convicted without proof “beyond a reasonable doubt” while in civil court you have the lower standard of “the preponderance of the evidence.”

If you are concerned about being sued by an allegedly injured person based on the same behavior that resulted in your criminal charges, filing bankruptcy may persuade that person not to sue you. Or if you have already been sued, filing bankruptcy may lead to the lawsuit being abandoned or it being settled more quickly and more favorably.

The reasons for this are:

  • Presenting the truth about your meager finances and doing so in writing and under oath—as is part of the bankruptcy procedure—can convincingly establish for your adversary (or, maybe more importantly, for his or her attorney) that pursuing you would simply not be financially worthwhile. People’s anger tends to cool when they have to pay a small fortune to their attorney without any realistic chance of getting any serious money out of you.

  • Civil debts and claims are discharged (permanently written off) in bankruptcy except under circumstances that can be difficult for your adversary to prove. It’s not enough for him or her to establish that the law entitles him or her to damages against you. Those damages may be dischargeable in bankruptcy. Your adversary has to jump through some extra hurdles, which the facts of the case may not permit doing so. So again this may persuade him or her not to pursue you once you file bankruptcy.

  • A bankruptcy filing can speed up resolving the dispute with your adversary. Litigation moves relatively fast in the bankruptcy court. In many places state courts are strapped for money and so have a backlog of cases, and so cases move at a glacial pace. The factual and legal issues are often more focused in bankruptcy, with that focus being not on whether you owe any money to the claimant but rather on whether that debt meets the conditions for avoiding discharge. This, along with the other two points made above, can encourage a quicker settlement or court ruling, saving you litigation costs and potentially years of aggravation.