Criminal Restitution Not Dischargeable in Bankruptcy
In criminal cases, victim restitution is often an overlooked and minimized area of defendant’s concerns. Our client is more concerned with serving time in jail or prison. The client also seems to regard a criminal restitution order as something they intend to ignore and cannot pay anyways, much like parking tickets or other debts. The client will often even dismissively refer to restitution orders as “whatever.”
This lack of concern may be validated if the criminal restitution order is converted to a civil judgement and then the victim fails to renew the judgment at the end of ten years. Then the right to restitution will expire.
However, the obligation to pay restitution is an obligation that should not be downplayed, as the following summary of a recent First Appellate District Court ruling exemplifies.
Frayba and William Tipton’s house in San Joaquin County caught fire and was destroyed.
In filing an insurance claim with Nationwide Insurance Company of America (“Nationwide”), they overstated losses relating to the contents of their home. For example, they claimed their home had an original Vincent Van Gogh “Starry Night” painting.
Nationwide went to the San Joaquin Sheriff’s Department and produced a police report. The San Joaquin District Attorney then filed a criminal complaint against the Tiptons and both Frayba and William Tipton pled guilty to felony insurance fraud and felony perjury.
The trial court judge placed each Tipton on five years of formal probation and, in 2016, set a restitution hearing after informing them of their right to have the amount of restitution that would be owed to Nationwide, the Tiptons exercised their right to a restitution hearing. At the hearing, the trial court judge ordered the Tiptons to pay $792,597.22 in victim restitution.
At about the same time, Nationwide obtained an award of over $1,200,000 in civil litigation against the Tiptons as well. Although the Tiptons were later able to have the civil award against them discharged in federal bankruptcy, the order of discharge explained that “debts for most fines, penalties . . . or criminal restitution obligations” were not discharged.
Nationwide, when probation ended in 2020, then converted the criminal restitution order into a civil judgment because the probation department informed the parties that it would cease efforts to collect restitution because probation had expired. This is relevant because, the reader should note, a victim restitution order itself is not a civil judgment. However, the court clerk can then convert the criminal restitution order to a civil judgement, despite there being no statutory authority to do so.
Nationwide then had the right to set judgment debtor examinations and otherwise enforce the unsatisfied portions of the criminal restitution owed.
At that time, the civil judgement against each defendant in favor of Nationwide was over $1 million, after accounting for 10 percent annual interest.
The Tiptons appealed the state court order converting their criminal restitution order into a civil judgement. The appeal, titled Nationwide Insurance Company of America v. Frayba Tipton, was filed in the Third Appellate District Court in Sacramento.
The Third Appellate District denied the appeal because trial courts have the authority to deem restitution orders money judgments under Penal Code § 1214(b). The appellate court cited to the Victims’ Bill of Rights Act of 2008, known as Marsy’s Law, which amended article I, section 28 of the California Constitution by expanding and constitutionalizing the protection of victims’ rights, including the right to restitution. See People v. Gross (2015) 238 Cal. App. 4th 1313, 1317.
In interpreting victim rights to restitution, the appellate court found that a criminal victim’s right to restitution must be liberally construed, which meant a criminal restitution order may be converted to a civil judgment and that judgement may be collected after probation ends and the judgment may not be discharged in bankruptcy. A victim’s constitutional right to restitution “cannot be bargained away or limited, nor can the prosecution waive it.” Gross, supra, at 1318.
Moreover, criminal victims are first in line to receive any money collected from criminal defendants ordered to pay restitution. Cal. Const., art I, § 28(b)(13)(C). Because the California Constitution guarantees crime victims the right to restitution, that right “is given a broad and liberal construction” and statutes regarding the right should be “construed in the contest of the relevant statutory scheme.” In re J.H. (2020) 47 Cal. App. 5th 495, 500-501.
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