Kelly, Connecticut Chief State's Attorney, et al. v. Robinson

Supreme Court of United States
479 U.S. 36 (1986)

ELI5:

Rule of Law:

A restitution obligation imposed as a condition of probation in a state criminal proceeding is not dischargeable in a Chapter 7 bankruptcy proceeding. Such an obligation falls within the Bankruptcy Code § 523(a)(7) exception for debts that are a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit and not compensation for actual pecuniary loss.

Facts:

In 1980, Carolyn Robinson pleaded guilty to larceny for wrongfully receiving $9,932.95 in welfare benefits from the Connecticut Department of Income Maintenance.
A Connecticut court sentenced Robinson to a suspended prison term and placed her on probation for five years.
As a condition of her probation, Robinson was ordered to make restitution to the State of Connecticut at a rate of $100 per month.
Robinson made restitution payments totaling $450.
After filing for bankruptcy, Robinson stopped making payments, believing the obligation had been discharged.

Procedural Posture:

Carolyn Robinson filed a voluntary Chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for the District of Connecticut, listing the state restitution obligation as a debt.
The relevant Connecticut agencies were notified but did not object to the discharge.
The Bankruptcy Court granted Robinson a discharge.
Robinson filed an adversary proceeding in Bankruptcy Court seeking a declaration that the restitution obligation had been discharged.
The Bankruptcy Court held the restitution obligation was not a 'debt' and, alternatively, was non-dischargeable under § 523(a)(7).
The U.S. District Court for the District of Connecticut adopted the Bankruptcy Court's holding.
Robinson, the debtor, appealed to the U.S. Court of Appeals for the Second Circuit.
The Court of Appeals for the Second Circuit reversed, holding the restitution obligation was a dischargeable debt not covered by the § 523(a)(7) exception.
The State of Connecticut successfully petitioned the U.S. Supreme Court for a writ of certiorari.

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Issue:

Is a restitution obligation, imposed as a condition of probation in a state criminal case, dischargeable under Chapter 7 of the Bankruptcy Code?

Opinions:

Majority - Justice Powell

No. A restitution obligation imposed as a condition of probation in a state criminal proceeding is not dischargeable in Chapter 7 bankruptcy. The Court determined that such obligations are preserved from discharge under § 523(a)(7) of the Bankruptcy Code. Historically, federal courts have refrained from interpreting bankruptcy statutes to interfere with state criminal judgments, a principle rooted in federalism and deference to state sovereignty. The Court reasoned that Congress did not intend to silently abrogate this long-standing judicial tradition when it enacted the 1978 Bankruptcy Code. The Court held that criminal restitution fits the § 523(a)(7) exception because its primary purpose is penal and rehabilitative, not compensatory. Although the funds may be forwarded to the victim, the restitution order serves the state's interest in punishment and deterrence, operating 'for the benefit of a governmental unit.' Similarly, because the focus is on the state's penal goals rather than the victim's loss, it is 'not compensation for actual pecuniary loss.'

Dissenting - Justice Marshall

Yes. The restitution obligation should be considered a dischargeable debt in this case. The state agencies failed to make a timely objection to the discharge, which would have been granted under other sections of the Code (§ 523(a)(2) or (a)(4)) related to larceny and fraud. The majority improperly excuses this procedural default. Furthermore, the plain language of § 523(a)(7) does not support the majority's conclusion. The restitution was explicitly tied to the victim's 'loss or damage,' indicating its primary purpose was 'compensation for actual pecuniary loss,' which removes it from the § 523(a)(7) exception. Finally, the Code's intentionally broad definition of 'debt' as a 'right to payment' clearly encompasses a restitution obligation. To rule otherwise contradicts the statutory text and creates an anomaly where the state cannot even participate as a creditor in the bankruptcy estate distribution.

Analysis:

This decision establishes a strong precedent that federal bankruptcy law does not override the outcomes of state criminal proceedings. By broadly interpreting § 523(a)(7), the Court prioritized principles of federalism and the state's sovereign interest in administering its criminal justice system. The ruling focuses on the underlying purpose (penal and rehabilitative) of a sanction rather than its form (payment to a victim) to determine dischargeability. This effectively insulates criminal justice financial obligations from discharge in bankruptcy, ensuring that sentencing orders from state courts retain their force.

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