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Facing Criminal Charges, Can I Protect my IRA by Including it in My “Bankruptcy Estate”?

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    When Bankruptcy Law and Criminal Restitution Orders Clash

    A few days ago, the U.S. District Court located in Tennessee held that when there is a conflict of laws between the Bankruptcy Code and a federal criminal code and ability to collect for restitution, the latter wins out. Due to the language in the Bankruptcy Code, however, the matter was not clear. The case is United States v. Robinson, 2013 U.S. Dist. LEXIS 83915 (W.D. Tenn. June 14, 2013).

    A conflict arose between the Bankruptcy Code and federal criminal law because the Bankruptcy Court ordered an automatic stay pursuant to 11 U.S.C. § 362(a), which bars the enforcement of a restitution order as against the property of a bankruptcy estate. The government argued that the automatic stay did not apply to the collection of a criminal restitution under either 18 U.S.C. § 3613(a) or 11 U.S.C. § 362(b)(1).

    However, contrary to the government’s position, the Bankruptcy Court “held that the so-called ‘criminal action or proceeding’ exception to the automatic stay under 11 U.S.C. §362(b)(1) allowed the United States to enforce a restitution order against property of the debtor, but not against property of the bankruptcy estate.” United States v. Robinson, 2013 U.S. Dist. LEXIS 83915 (W.D. Tenn. June 14, 2013). The U.S. District Court disagreed with the Bankruptcy Court and held that 18 U.S.C. § 3613 serves to exempt enforcement of criminal restitution orders from the automatic stay as against all property of the person ordered to pay—even if the property is included in one’s bankruptcy estate. In other words, the Court held that a criminal restitution wins out over the bankruptcy court’s automatic stay, thus permitting the government to collect the criminal restitution from one’s bankruptcy estate.

    Here is a brief background of the case. James D. Robinson (“Robinson”) pleaded guilty in 1996 to mail fraud and aiding and abetting under 18 U.S.C. §§ 1341 and 1342. Later the Western District of Tennessee Ordered him imprisoned for 97.5 months and to pay criminal restitution in an amount of $286,875. A few years later, Robinson filed for protection under Chapter 13 of the U.S. Bankruptcy Code. Included in his schedule of assets submitted to the Bankruptcy Court was an IRA (valued at $47,000), a tax refund valued ($4,500.00), and three cars. Robinson claimed the full amount of his IRA and one of the cars as exempt from the Bankruptcy judgment under Tennessee law.

    This issue is whether the IRA was protected in the bankruptcy estate from a restitution order. It is not. The U.S. resisted Robinson and asked the Bankruptcy Court to declare 11 U.S.C. § 362′s automatic stay provisions inapplicable to collection of criminal restitution under either 18 U.S.C. § 3613(a) or 11 U.S.C. § 362(b)(1). On appeal from the Bankruptcy Court, the Court held that § 3613(a) allows the government to enforce a criminal fine or restitution order “notwithstanding any other Federal law,” including the Bankruptcy Code. Thus, Robinson’s IRA was not protected in his bankruptcy estate (generally, IRAs are protected from bankruptcy). As the Court noted, “Congress did not intend the Bankruptcy Code to be a haven for criminal offenders. Instead, Congress intended that ‘[c]riminal actions and proceedings may proceed in spite of bankruptcy.’”


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