Pennsylvania Department of Public Welfare v. Davenport

1990-05-29

Headline: Court allows criminal restitution orders to be treated as debts and dischargeable in Chapter 13, making it easier for people in bankruptcy to include restitution payments while affecting state collection efforts.

Holding: Restitution payments ordered as part of a state criminal sentence are "debts" under the Bankruptcy Code and can be discharged through a Chapter 13 bankruptcy plan.

Real World Impact:

Allows people in Chapter 13 to discharge criminal restitution obligations.
May reduce states’ ability to collect restitution outside bankruptcy plans.
Could require probation offices to engage in bankruptcy claims or lose some collections.

Topics: bankruptcy and debt relief, criminal restitution, probation and sentencing, state collection of debts

Summary

Background

A married couple in Pennsylvania pled guilty to welfare fraud and were sentenced to probation with monthly restitution payments to the state welfare agency. They filed for relief under Chapter 13 of the Bankruptcy Code and listed the restitution as an unsecured debt. Lower courts split: the Bankruptcy Court allowed discharge, the District Court rejected it, and the Third Circuit found restitution to be a debt dischargeable in Chapter 13, producing the conflict this Court resolved.

Reasoning

The Justices focused on the Code’s definitions. The Court explained that Congress defined a "debt" broadly as a "liability on a claim," and a "claim" as a "right to payment," covering many kinds of enforceable obligations. The Court said the fact that restitution is enforced by probation (including possible revocation) rather than by a civil suit does not remove it from that definition. The majority distinguished an earlier case (Kelly) that made restitution nondischargeable in Chapter 7 under a special exception that Congress did not extend to Chapter 13, so restitution can be treated as dischargeable debt under Chapter 13 plans.

Real world impact

As a practical matter, people who owe court-ordered restitution can include those payments in a Chapter 13 repayment plan and, after completing the plan, obtain a discharge of those obligations. The ruling limits one way states and probation officers can collect restitution outside bankruptcy. The decision does not change Kelly’s holding about Chapter 7 and notes Chapter 13’s different statutory treatment.

Dissents or concurrances

A dissent argued that long-standing pre-Code practice and federalism concerns show Congress did not clearly intend to let bankruptcy erase criminal restitution, warning of intrusion on state criminal sentencing.