Restitution Is Not Discharged in Bankruptcy

Posted in: General Bankruptcy

Section 523 of the Bankruptcy Code provides that a Chapter 7 discharge does not include debts for “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny” nor does the discharge include debts that are for a “fine, penalty, or forfeiture payable to and for the benefit of a governmental unit.”

A Michigan woman recently sought to discharge a large restitution debt owed to her former employer.  The former Kentwood parks clerk was convicted of  fabricating reservations for city parks, canceling the reservations, and refunding the money into her own pockets.  Upon her sentencing, she was ordered to repay the city $331,000 as restitution.

After filing Chapter 7 bankruptcy with her husband, she argued that the city would recover the money from insurance payments and that she should not have to pay the money back.  The bankruptcy judge denied her request.