WHAT BANKRUPTCY CAN’T
DO
Part 2: Traffic Fines,
Speeding Tickets, DUI fines, Misdemeanor fines, etc.
Additional
Here is a case from April of 2016 that ties into the topics I
have blogged about recently: the dischargeability of debts owed to the
government. This case is on appeal and it will be interesting to see how it
turns out!
If the Debtor wins on appeal, this shows that attorneys need
to review the laws from which these fees grow. I suspect these will be
considered loopholes the various states will close quickly!
Pay-to-Stay Debt Dischargeable
Posted by NCBRC - April 12, 2016
A debt owed to the
county under a pay-to-stay incarceration cost recoupment program was held to be
dischargeable under section 523(a)(7). County of Dakota v. Milan,
No. 15-3034 (March 1, 2016).
Jacob Jerome and Ashley Kaye Milan filed
chapter 7 bankruptcy in which they listed, as an unsecured, non-priority debt,
$3,600.00 owed to Dakota County incurred by Mr. Milan under the state
pay-to-stay program for prison inmates. The program, Minn. Stat. § 641.12,
subd.3, charges $25.00/day for incarceration expenses including room and board,
medical expenses, and other miscellaneous costs. The stated purpose of the
program is to permit the County to recoup some of the over $100.00/day cost of
incarceration. Unlike court costs and fees which are administered by the
district court collector, the pay-to-stay program is administered by the Dakota
County Sheriff’s Office (DCSO). In the event the inmate fails to pay the fee
the state authorizes “recapture” through garnishment of tax refunds, rent
credits and lottery winnings.
The county filed an adversary complaint
seeking declaratory judgment that the debt was not dischargeable and the
parties filed cross-motions for summary judgment.
Section 523(a)(7)
renders nondischargeable a debt that is: 1) a “fine, penalty, or forfeiture,”
2) payable to a governmental unit, and 3) “not compensation for actual
pecuniary loss.” The controversy in this case revolved around the first and
third prongs of this test. The court reviewed cases examining what types of
costs are rendered nondischargeable under this section beginning with Kelly v. Robinson, 479 U.S. 36 (1986), which held that
court-ordered victim restitution was not dischargeable. Likewise, other courts
have found court-ordered restitution, court costs, and disgorgements all to be
nondischargeable. The Milan court
concluded: “The direction of these cases is clear: when a court imposes an
obligation as part of a judicial order in a criminal case, the obligation is
nondischargeable pursuant to § 523(a)(7).”
In this case the debt did not arise out of a
court order, however, but out of a program established by the state and
administered by the DCSO. The court, therefore, turned to the three-part test
to determine whether the debt was nonetheless nondischargeable.
The first part of the test looks at the nature
of the debt. The court rejected DCSO’s argument that the costs are “penal”
because they are a result of Mr. Milan’s criminal conviction and incarceration.
The court found no connection by statute or otherwise between the cost
recoupment program and the criminal justice system that would justify calling
the costs a “penalty.” Nor could it be deemed penal as having been
included in a court order or as part of the criminal process. As such, it did
not meet the first requirement of the exception to discharge test set forth in
section 523(a)(7).
The court went on to
determine whether the third prong of the test applied and found that it did
not. Addressing whether the costs imposed under the pay-to-stay program were
compensation, the court again turned to the decision in Kelly where that Court found victim restitution
was penal rather than compensatory. The Kelly Court was
persuaded by the facts that the victim had no say in whether or how much
restitution would be awarded, and that the government’s intention in providing
for restitution was primarily penal.
The Milan court found no similar penal purpose behind
the pay-to-stay program. The program was codified in the state’s civil
administrative code rather than its criminal code. Its stated purpose was to
help the county recoup some of the costs of incarceration and it was directly
related to the county’s actual costs. The county’s control over the collection
amount further distinguished it from Kelly where the
victim had no similar input with respect to restitution. Moreover, in the event
that a pay-to-stay debtor fails to pay the costs, the statute provides for
ordinary civil collection methods to be used rather than recourse to the
criminal justice system.
The court dismissed the adversary complaint as
against Ashley Milan, and granted summary judgment in favor of Jacob Milan.
This case is currently on appeal to the BAP
for the Eighth Circuit, No. 16-6012
***
My name is Michael Curry and I have practiced law in Mount Vernon,
Fairfield, Flora and throughout Southern Illinois since 1992. During that time,
I have helped more than 5,000 people (and businesses) overcome their financial
difficulties by filing for bankruptcy. As a solo practitioner, I will also be
happy to help protect you and your family’s future with estate planning, wills,
powers-of-attorney, real estate transactions and other legal services.
Please call or text me at 618-246-0993, email me at michael.curry.law@gmail.com or send
me a letter: 123 South 10th Street, Suite 507, PO Box
93, Mount Vernon, IL 62864
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