Criminal Debts Not Discharged in Bankruptcy

 Posted on April 13, 2016 in Bankruptcy

Bankruptcy can’t discharge—permanently write off—criminal debts, but it can still help in indirect but potentially game-changing ways.

If filing a bankruptcy case does not discharge criminal debts, how could it possibly help?

In a number of practical ways, bankruptcy enables you to focus on your criminal defense and to deal with any potential fallout. If you’ve been charged with a significant crime you need to make that your highest priority, financially and emotionally. Here’s how filing bankruptcy can help you do that.

1) Discharge Your Other Debts

If you’ve been charged with a serious crime, you have to figure out how to pay for a good criminal attorney and for the other costs of your defense. Considering what’s at stake, you need to consider not paying all or most of your creditors. It may make sense to sell some of your assets and/or even get early access to any retirement funds.

Either in addition to or instead of these tactics, often the fastest way to reduce your debts and quickly improve your cash flow is by filing a Chapter 7 "straight bankruptcy." Then you can immediately stop paying the debts you intend to discharge. The discharge itself usually happens within only about 4 months after your case is filed, freeing you of your debts.

Or if your criminal case has already gone through a plea bargain or trial and sentencing, bankruptcy can be just as important. Unless you got a full acquittal, you likely have some ongoing financial obligations to the criminal justice system that you absolutely must pay. These can include restitution payments, probation or supervision fees, treatment costs, community service fees, and/or drug and electronic monitoring charges. Filing bankruptcy can clear you of your other debts so you can pay these court-mandated obligations. Paying them could well be necessary for you to avoid incarceration or re-incarceration.

2) Pay Necessary Non-Criminal Debts and Expenses

In many situations the criminal court will require you to pay certain debts or expenses, beyond the direct court and probation related fees just mentioned above.

In situations involving tax or financial fraud, you could be ordered to file tax returns and pay income taxes on time. In cases of driving under the influence or vehicular manslaughter, you may be ordered to pay for better and or more expensive than usual vehicle insurance in order to be able to drive.

You may well also have ongoing expenses indirectly related to your probation. For example, you’ll need to have reliable transportation so that you can get to your probation meetings and/or community service assignments.

Freeing up your cash flow by filing bankruptcy could make it possible for you to pay these expenses when you couldn’t otherwise.

3) Deal with Related Potential Non-Criminal Liability

If the criminal allegations against you involve a victim, you could be legally liable to that person. The same actions that led to the criminal charges against you could also lead to a lawsuit against you by that person for civil damages.

Your bankruptcy filing could persuade that person not to sue you, or lead to a sensible settlement if you’ve already been sued.

Why might that happen? Because:

• If you’re hurting financially, disclosing that on paper under oath could convince your adversary and his or her attorney that pursuing you would not be economically worthwhile.
• Civil claims can be discharged in bankruptcy unlike criminal ones. There are certainly exceptions, debts that can’t be discharged if the alleged injury was "willful and malicious," for example. But at the very least bankruptcy creates another hurdle with risks for your adversary. This adds to the possibility that continuing to pursue you could be fruitless.
• If you are already in litigation with the purported victim, filing bankruptcy can speed up the litigation timeline since bankruptcy procedures tend to be much more streamlined and efficient than state court ones. Getting to a quicker settlement or court decision saves you litigation costs. It also lets you move on with your life faster.

Conclusion

Clearly these are all very delicate issues that need to be thoroughly discussed with a highly experienced and understanding bankruptcy attorney. If you are faced with criminal allegations or a recent conviction, and are feeling financial pressure, don’t try making decisions in this area without this kind of help.