Bankruptcy does not write off criminal fines or restitution. But it can help by writing off other debts so you can pay crucial expenses.

If you owe criminal fines, penalties, forfeiture, or restitution, bankruptcy does not help you directly with those debts. But bankruptcy can still provide you essential help in paying for essential expenses, including criminal related ones.

The Criminal Fines and Restitution Exception

Neither Chapter 7 “straight bankruptcy” nor Chapter 13 “adjustment of debts” writes off criminal fines, penalties, forfeiture, or restitution.

Under Chapter 7 any “fine, penalty, or forfeiture” owed to “a governmental unit” is excluded from discharge (bankruptcy write-off). Section 523(a)(7) of the U.S. Bankruptcy Code.

(The only exceptions are if the debt is “compensation for actual pecuniary loss” or certain tax penalties. These are narrow exceptions that are beyond what this blog post covers.)

Criminal restitution is also not written off in Chapter 7. Excluded are debts “for any payment of an order of restitution issued under title 18, United States Code.” Title 18 is the main criminal code for the federal government. Courts have extended this to include state criminal restitution as well.

Chapter 13 excludes from write off “any debt… for restitution, or a criminal fine, included in a sentence on the debtor’s conviction of a crime.”  Section 1328(a)(3) of the Bankruptcy Code.  (In the past Chapter 13 did allow some criminal debts to be written off. But about 25 years ago Congress changed the law.)

Bankruptcy May Still Provide Crucial Help

Even if filing bankruptcy would not write off your criminal debt(s), doing so may still be very worthwhile. Bankruptcy may in fact be an indispensable tool for dealing with your situation. If you’ve been criminally charged, here are two ways filing bankruptcy could significantly help.

1) Write Off Your Other Debts

If you’ve been charged with a serious crime you need to intensely focus your financial resources to deal with it. You need to fixate on how to pay for your defense—for an experienced criminal attorney and other related costs. If you’re like most people, you’ll need to consider whether to stop paying many or even all of your debts.

Often the best way to eliminate or greatly reduce your debt payments is by filing bankruptcy. Doing so allows you to immediately stop paying many or most of your debts.

If your criminal case has already finished, bankruptcy can also be extremely effective. You presumably have financial obligations to the criminal justice system that you absolutely must pay. These obligations may include criminal fines, restitution payments, probation or supervision fees, treatment costs, community service fees, and/or drug and electronic monitoring charges. If you don’t pay these the consequences can be catastrophic, including incarceration and other harsh penalties.  Writing off your other debts through bankruptcy can enable you to pay your court-required obligations.

2) Deal with Related Non-Criminal Liability

If the criminal allegations against you involve a victim, you may end up owing that person a debt. This debt would—unlike the criminal debts owed to the court—likely be civil damages that you may be able to write off in bankruptcy.

The truth is that there are other exceptions that may prevent you from writing off even civil damages. However, your filing of bankruptcy may persuade that person not to sue you. Or, if you’ve already been sued, it could lead to a better settlement for you.

That’s because:

• You disclose the details of your financial distress in your bankruptcy documents, under oath. That may well quickly and convincingly show your adversary that pursuing you is not financially worthwhile.
• Even if a civil claim against you might not be discharged in bankruptcy, it might be. You are putting up another hurdle for your adversary. He or she has to seriously consider whether it’s worth more money, time, and emotional effort to pursue you.
• Filing bankruptcy can sometimes speed up the litigation process. Bankruptcy court litigation tends to be more streamlined and efficient than in state court, often much more so. Faster procedures lead to a quicker settlement or court decision. That saves you money, potentially a lot of money.
• Almost always your adversary has to act very quickly to preserve the claim. If he or she fails to act, the civil claim will simply be written off.