11 U.S.C. §523(a)(7); Dischargeability of Criminal Restitution
Colton v. Verola, No. 04-16079 (11th Cir. April 20, 2006)
Debtor was found guilty of fraudulent transactions and his sentence included a state court order to pay $2,538,557.07 in restitution through the state Department of Corrections. Debtor filed an action to determine dischargeability of his debt under §523(a)(7) and the Bankruptcy Court granted summary judgment in his favor because the money collected was ultimately for the victims instead of a governmental unit. The District Court reversed and the debtor appealed.
The Eleventh Circuit affirmed. In Kelly v. Robinson, 479 U.S. 36, 50, 107 S.Ct 353, 361 (1986), the Supreme Court held that §523(a)(7) preserves from discharge “any condition a state criminal court imposes as part of a criminal sentence.” Kelly was not abrogated by Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 110 S.Ct. 2126 (1990), wherein the Supreme Court held that the exception to discharge relied upon in Kelly did not extend to Chapter 13. Davenport did not question the general holding that state-imposed restitution obligations are not dischargeable under §523(a)(7). Additionally, Congress’ addition of §523(a)(13) (restitution under Title 18 of the US Code) to the Code in 1994 does not support the conclusion that the meaning of §523(a)(7) was effectively changed. Finally, the fact that the restitution is ultimately for the benefit of the victims does not alter the outcome.