Kelly v. Robinson

Background

A woman convicted of larceny for wrongfully receiving welfare benefits was sentenced to five years' probation and ordered to pay restitution in monthly installments. She filed for Chapter 7 bankruptcy, listed the restitution as a debt, received a bankruptcy discharge, and then stopped payments. State probation officials later said the restitution remained enforceable and sued in the bankruptcy courts to have the obligation declared nondischargeable.

Reasoning

The Court considered whether a restitution condition imposed as part of a criminal sentence can be erased by a Chapter 7 bankruptcy discharge. It looked at the long history of courts refusing to allow bankruptcy to undo state criminal judgments and read the Bankruptcy Code provision that bars discharge of fines, penalties, or forfeitures payable to and for the benefit of government when they are not compensation for the victim’s actual loss. The majority concluded that restitution ordered in a criminal sentence serves the State’s penal and rehabilitative purposes and therefore falls within that nondischargeable category, so a Chapter 7 discharge does not eliminate the restitution obligation.

Real world impact

States and their probation systems can continue to enforce restitution imposed as part of criminal sentences even after a debtor receives a Chapter 7 discharge. Individuals on probation cannot rely on Chapter 7 to eliminate these payment obligations. The opinion leaves some related questions open, such as how restitution will be treated in other kinds of bankruptcy cases (for example, Chapter 13).

Dissents or concurrances

The dissent argued the restitution was compensatory and that the State waived rights by failing to object earlier; it favored leaving resolution of the issue to Congress rather than enlarging the statute by judicial decision.