In re Davenport, Bankruptcy No. 87-02395F

• Decision Date: 08 March 1988
• Docket Number: Bankruptcy No. 87-02395F,Adv. No. 87-0737F.
• Parties: In re Edward J. DAVENPORT, Sr. a/k/a Edward Davenport and Debora A. Davenport, Debtors. Edward & Debora DAVENPORT, Plaintiffs, v. COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE and Court of Common Pleas Of Bucks County, Adult Probation and Parole Dept. and Edward Sparkman, Trustee, Defendants.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

83 B.R. 309 (1988)

In re Edward J. DAVENPORT, Sr. a/k/a Edward Davenport and Debora A. Davenport, Debtors.

Edward & Debora DAVENPORT, Plaintiffs, v. COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE and Court of Common Pleas Of Bucks County, Adult Probation and Parole Dept. and Edward Sparkman, Trustee, Defendants.

Bankruptcy No. 87-02395F, Adv. No. 87-0737F.

United States Bankruptcy Court, E.D. Pennsylvania.

March 8, 1988.

David A. Searles, Community Legal Services, Inc., Philadelphia, Pa., for debtors/plaintiffs, Edward Davenport and Debora Davenport.

Mary B. Seiverling, Dept. of Public Welfare, Harrisburg, Pa., for defendant, Com. of Pa., Dept. of Public Welfare.

Edward Sparkman, Philadelphia, Pa., standing chapter 13 Trustee.

John D. Blumenthal, Asst. County Sol., Doylestown, Pa., for defendant, Court of Common Pleas of Bucks County, Adult Probation and Parole Dept.

OPINION

BRUCE I. FOX, Bankruptcy Judge:

The narrow issue before me is whether a criminal restitution obligation may be discharged in a chapter 13 case. The debtors have commenced an adversary proceeding seeking a determination that an order of criminal restitution requiring them to make payments to the Bucks County Adult Probation and Parole Department represents a dischargeable unsecured debt which is provided for by their confirmed chapter 13 plan and which is made dischargeable by virtue of 11 U.S.C. § 1328. Both the Probation and Parole Department as well as the Commonwealth of Pennsylvania, Department of Public Welfare, (DPW) to whom the restitution-payments would ultimately be sent, vigorously oppose the dischargeability of this obligation.

I.

The underlying facts are not seriously controverted.

On September 17, 1986, both debtors entered guilty pleas to the crime of welfare fraud in state court in Bucks County, Pennsylvania. Each was sentenced to one year probation; each was ordered to make criminal restitution payments of $208.00 per month beginning in December, 1986, until a total of $2,072.40 was repaid by the debtors. Payments were to be completed by September, 1987, and were to be sent to the Probation and Parole Department which was then to forward them to DPW.

On May 15, 1987, the debtors filed a voluntary petition in bankruptcy under chapter 13. The criminal restitution obligation was listed as an unsecured debt payable to DPW which was to be paid as other unsecured debts are paid. When the debtors failed to make restitution payments as required by state court order, the Probation and Parole Department commenced violation hearings on July 2, 1987. An informal hearing was scheduled before the Department on August 6, 1987. On July 20, 1987, debtors, through their bankruptcy counsel, informed the Department of the pendency of their bankruptcy case and requested that the Department consider withdrawing the parole violation charges. When the Department decided to press the violation issue, this adversary proceeding was initiated on August 12, 1987. On October 20, 1987, the debtors' chapter 13 plan was confirmed without objection from any creditors and with the express approval of the standing chapter 13 trustee. See In re Hines, 723 F.2d 333 (3d Cir.1983).

This proceeding was heard by this court prior to a hearing scheduled in state court for October 29, 1987, on the question of probation violation. While the Department was willing to request that the violation hearing be postponed, pending the outcome of this hearing, ultimately the debtors decided to proceed in state court. The parties informed me that state court insisted and the debtors agreed to make restitution payments;¹ however, the debtors are also continuing to press their dischargeability complaint.²See In re Johnson-Allen, 69 B.R. 461, 463 (Bankr.E.D.Pa.1987) appeal pending (debtor resumed making restitution payments pending disposition of dischargeability complaint).

II.

The fact that the debtors' chapter 13 plan has already been confirmed provides a framework for the dispute before me. 11 U.S.C. § 1327(a) states that:

The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.

Thus, the debtor's plan, which provides for the payment of their criminal restitution obligation, is now binding upon their creditors. See Matter of Gregory, 705 F.2d 1118 (9th Cir.1983) (embezzlement debt). See also In re Bonanno, 78 B.R. 52 (Bankr.E.D.Pa.1987); In re Stern, 70 B.R. 472 (Bankr.E.D.Pa.1987). However, although the plan terms may be binding, 11 U.S.C. § 1328(a) limits the chapter 13 discharge to, inter alia, "all debts provided for by the plan." Clearly, the criminal restitution obligation is "provided for" by the debtors' plan. Matter of Gregory. The issue therefore becomes whether the criminal restitution order is a "debt"—a matter expressly left open by the Supreme Court in Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986). If so, upon completion of their plan payments, the debtors' obligation to make restitution must be discharged. See In re Cullens, 77 B.R. 825 (Bankr.D.Colo.1987); In re Stern. If the obligation is not a "debt" within the meaning of the Bankruptcy Code, see e.g., In re Oslager, 46 B.R. 58 (Bankr.M.D.Pa. 1985), then the obligation is not discharged.³

With statutory interpretation one starts first with the language of the relevant statutory provisions. Kelly v. Robinson, 107 S.Ct. at 358. A "debt" is defined as a "liability on a claim." 11 U.S.C. § 101(11). A claim is defined as follows:

(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured;

11 U.S.C. § 101(4).

This definition is much broader than existed under the former Bankruptcy Act of 1898. See Ohio v. Kovacs, 469 U.S. 274, 105 S.Ct. 905, 83 L.Ed.2d 649 (1985); In re Heincy, 78 B.R. 246 (Bankr. 9th Cir.1987); In re Johnson-Allen, 69 B.R. 461, 467 (Bankr.E.D.Pa.1987). In this circuit, the Court of Appeals has interpreted this definition with an eye toward its legislative history:

Congress intended the definition of a claim to be very broad; the legislative history states:

The definition is any right to payment, whether or not reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. . . . By this broadest possible definition, and by the use of the terms throughout the title 11, especially in subchapter I of chapter 5, the bill contemplates that all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case. It permits the broadest possible relief in the bankruptcy court.

Matter of M. Frenville Co., Inc., 744 F.2d 332, 336 (3d Cir.1984) cert. denied, 449 U.S. 1160, 105 S.Ct. 911, 83 L.Ed.2d 925 (1985) quoting H.R.Rep. No. 95-595, 95th Cong. 2d Sess. 309 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6266. Accord e.g., Ohio v. Kovacs; Remington Rand Corp. v. General Services Administration, 836 F.2d 825 (3d Cir.1988). The existence of a claim, for bankruptcy purposes, arises when: (1) the claimant possesses a right to payment; and (2) the right to payment arose prepetition.⁴ Remington Rand 836 F.2d at 830.

The criminal restitution obligation is derived from an order of the Bucks County Court of Common Pleas, entered pursuant to 18 Pa.C.S. § 1106. This criminal statute defines restitution as "the return of the property of the victim or payments in cash or the equivalent thereof pursuant to an order of the court." The amount of restitution and manner of payment is left, within limits, to court discretion. If restitution is ordered, payment shall be made to the probation department which shall then forward the payments to the victim. While the victim is not divested of any right to seek a civil damage award, that award must be reduced by the restitution payments received. Finally, enforcement of the restitution order is by contempt proceeding. Id. See Commonwealth v. Wood, 300 Pa.Super. 463, 446 A.2d 948 (1982).

I agree with those courts that have concluded that restitution obligations fall within the broad definition of a "claim", recently enacted by Congress with the passage of the Bankruptcy Code. E.g. In re Heincy; In re Hackney, 83 B.R. 20, 16 B.C.D. 1357 (Bankr.N.D.Cal.1988); In re Cullens, 77 B.R. 825 (Bankr.D.Colo.1987); In re Taite, 76 B.R. 764 (Bankr.C.D.Cal. 1987); In re Johnson-Allen; In re Gilliam, 67 B.R. 83 (Bankr.M.D.Tenn.1986); In re Brown, 39 B.R. 820 (Bankr.M.D. Tenn.1984); In re Newton. Contra e.g., In re Oslager; In re Pellegrino, 42 B.R. 129 (Bankr.D.Conn.1984); In re Button, 8 B.R. 692 (Bankr.W.D.N.Y.1981). Both the Probation and Parole Department as well as DPW had the prepetition right to demand payment from the debtors. That the Department's right was enforceable by contempt rather than by civil execution, or that it arose as a result of a criminal order rather than by a civil judgment does not make it any less of a right to payment:

If the Bankruptcy Code said that only orders to pay money by civil courts are debts for bankruptcy purposes, then credence could be given to the defendant\'s argument that a criminal court restitution order does not embody a "debt" dischargeable in bankruptcy. However, nothing in the Bankruptcy Code suggests that only civil courts enter orders to pay money that are subject to discharge in bankruptcy. A restitution order by a criminal court no less acknowledges the existence of

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