In re Button, Bankruptcy No. 80-20557.

• Citation: 8 BR 692
• Decision Date: 11 February 1981
• Docket Number: Bankruptcy No. 80-20557.
• Parties: In re Ralph BUTTON, Debtor.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Western District of New York

8 B.R. 692 (1981)

In re Ralph BUTTON, Debtor.

Bankruptcy No. 80-20557.

United States Bankruptcy Court, W.D. New York.

February 11, 1981.

John A. Ward, Ithaca, N.Y., for debtor.

Steward O. Miller, Dist. Atty., Seneca Falls, N.Y., for County of Seneca, N.Y.

Richard C. Wesley, Geneseo, N.Y., for Sheridan Oil Co.

MEMORANDUM AND DECISION

EDWARD D. HAYES, Bankruptcy Judge.

A Motion was made on December 8, 1980 by the debtor seeking an Order enjoining the Interlaken Village Justice, the Seneca County District Attorney and any other village or county personnel from enforcing an Order of Restitution which had been entered in the Village Court on June 15, 1979.

At that time, the debtor had pleaded guilty to petty larceny in violation of § 155.25 of the New York Penal Law. He was placed on probation for a period of three years and the Order of Probation required him to make restitution to the victim, Sheridan Oil Company, in the amount of $7,597.26 with interest by making weekly payments of $25. This type of sentence is provided for by § 65.10, subd. 2(g) of the Penal Law of the State of New York.

Before filing his petition in bankruptcy on May 7, 1980, the debtor had made payments to Sheridan Oil Company in the amount of $425. In his bankruptcy schedule, he listed Sheridan Oil Company as a creditor with an unpaid balance of $7,172.26 and in addition listed the Seneca County Probation Department and the Village Justice, Judge Aubrey Smith, as creditors.

Sheridan Oil Company, the creditor and victim, made no application to object to the discharge of the debtor. As a result, a discharge in the normal course of business was issued to the debtor on September 12, 1980. In October, 1980, the debtor was charged with violation of probation since he was no longer making restitution payments and Judge Smith ordered a hearing on the allegation of the probation violation to be held on December 11, 1980.

The debtor argues that restitution is a debt which is not excepted from discharge under 11 U.S.C. § 523(a)(7). The debtor further argues that the action for violation of probation was brought for the benefit of a creditor whose debt has been discharged and that such an action violates the fresh start provisions of the Code.

The district attorney argues that the condition of restitution incorporated into the debtor's sentence of probation forms a part of the criminal judgment of conviction imposed against him and does not create a debtor-creditor relationship between the debtor and Sheridan Oil Company or for that matter between the debtor and the judge who sentenced him, or the probation department that controls him.

Sheridan Oil Company who appeared at the Motion argues that the Code does not allow a person to circumvent the criminal justice process by filing bankruptcy. The Company points out that § 362(b)(1) of the Bankruptcy Law specifically excepts criminal proceedings from the operation of the stay and the company claims that restitution is a valid sentence in a state criminal proceeding and that the condition of probation requiring restitution does not create a debt.

This leaves the Court with the issue is restitution which is made a condition of probation dischargeable in bankruptcy?

Section 362(b)(1) states that the filing of a bankruptcy petition does not operate as a stay against the continuation of a criminal action or proceeding against the debtor. The legislative history which corresponds to this section, found in House Report No. 95-595, state that "the bankruptcy laws are not a haven for criminal offenders, but are designed to give relief from financial over-extension" and that "criminal actions and proceedings may proceed in spite of bankruptcy." 2 Collier on Bankruptcy ¶ 362.051 (15 ed. 1979) mentions that § 362(b)(1) "is consistent with the policy of making bankruptcy available as relief to financially pressed debtors and not as a shelter from the consequences of criminal acts." Additionally, Collier states that the § 362(b)(1) exception "is consistent with the strong federal policy against federal interference with state court criminal prosecutions."

In People v. Mosesson, 78 Misc.2d 217, 356 N.Y.S.2d 483 (Sup.Ct. NY Co. 1974), the debtor argued that his bankruptcy discharge removed his legal obligation to make further restitution. The court did not agree...