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Second Circuit: Bankruptcy Automatic Stay is No Excuse for Non-payment of Restitution

Philip Colasuonno, a defendant in the U.S. District Court for the Southern District of New York, was resentenced to 4 months in prison after the court found he had “willfully violated probation by failing to pay ordered restitution.” Colasuonno filed for Chapter 7 bankruptcy following his initial sentencing, then argued that the automatic stay provision of 11 U.S.C. § 362(a) temporarily relieved him of his obligation to pay the court-ordered restitution in his criminal case. The district court disagreed with his reasoning, as did the Second Circuit.

The appellate court wrote that Colasuonno’s argument “presents us with a question of first impression in this Circuit as to what effect, if any, the Bankruptcy Code’s automatic stay provision has on court-ordered conditions of a criminal sentence or proceeding to address violation of those conditions.” Colasuonno also maintained that he “relied in good faith on advice of counsel in not paying restitution and that the record evidence does not support the district court’s rejection of this defense.”

The Court of Appeals rejected both arguments, finding that the restitution order was exempt from the automatic stay provision of the Bankruptcy Code because it constituted a “continuation of [the] criminal action or proceeding” pursuant to 11 U.S.C. § 362(b)(11). Colasuonno’s “advice of counsel” defense was also turned aside, with the Second Circuit finding that he had “failed fully to disclose to bankruptcy counsel relevant facts about his restitution obligation, specifically, that payment was a condition of a criminal sentence.”

The appellate court noted that the restitution order arose from “commission of a crime,” and although the purpose of restitution is “essentially compensatory,” the “compensation is for no ordinary debt, nor is the person compensated simply a creditor. Rather, restitution compensates a crime victim, to the extent money can do so, for actual injuries sustained, whether to body or property, from a criminal offense.”

The Second Circuit further observed that the U.S. Supreme Court held in Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353 (1986) that there was no necessity on the part of the government to move for a lifting of the automatic stay. The Criminal Victims Protection Act of 1990, Public Law 101-581, Section 3, 104 Stat. 2865, has also expressly withdrawn a bankruptcy court’s power to discharge restitution orders.

Colasuonno’s argument that his judgment must be modified to exempt him from paying restitution while incarcerated was not addressed by the Court of Appeals, which held that that claim was moot until the government actually pursued restitution payments while he was in prison. See: United States v. Colasuonno, 697 F.3d 164 (2d Cir. 2012).

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Related legal case

United States v. Colasuonno