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Bankruptcy Injunction Covers Pre-petition Incarceration Costs, but Not Those that Accrue Afterwards

The Bankruptcy Appellate Panel for the Eighth Circuit held on February 5, 2013 that a Missouri bankruptcy court was correct in concluding prison officials did not violate a discharge injunction by collecting money from a prisoner’s account for incarceration costs that accrued after the injunction was filed.

Missouri prisoner Zachary A. Smith became subject to an $87,830.13 judgment under the Missouri Incarceration Reimbursement Act (MIRA) on January 20, 2009, for the costs of his incarceration through March 26, 2007. The state of Missouri was also granted a judgment for reimbursement costs accruing after March 26, 2007 through Smith’s release from prison – which is unlikely since he is serving life without the possibility of parole. The judgment further allowed the state to collect 90% of all deposits to Smith’s prison account, excluding wages and bonuses earned while incarcerated.

Smith filed a Chapter 7 bankruptcy petition on September 14, 2010 and received his discharge on March 11, 2011. In September 2012, the state seized a $45.00 deposit to Smith’s prison account pursuant to the MIRA judgment. He then filed a motion for contempt with the bankruptcy court, claiming the state had violated the discharge injunction. The bankruptcy court agreed that the MIRA judgment was void with respect to all costs accrued as of the bankruptcy filing, but held the judgment remained valid as to future reimbursement costs and that the costs incurred by the state since Smith’s bankruptcy petition were not dischargeable debts.

On appeal, the state agreed the MIRA judgment was void as to pre-bankruptcy petition debt, and the Bankruptcy Appellate Panel upheld the lower court’s determination that reimbursement costs incurred after the discharge injunction remained valid. Thus, there was no Supremacy Clause violation. The appellate court also rejected Smith’s argument that the $45.00 was protected because it came from his mother’s Social Security benefits. Not only was the issue fruitless because it was raised for the first time on appeal, but such benefits “are no longer protected when the recipient chooses to pay or give away those funds.” The bankruptcy court’s judgment was therefore affirmed. See: Smith v. Missouri, 488 B.R. 101 (B.A.P. 8th Cir. 2013), rehearing denied.

Smith appealed to the Eighth Circuit Court of Appeals, citing a recent Missouri state court appellate decision that held a judgment under MIRA permits reimbursement only from assets to which a prisoner has a present legal right. See: State ex rel. Koster v. Cowin, 390 S.W.3d 239 (Mo. Ct. App. 2013).

The Court of Appeals affirmed the decision of the Bankruptcy Appellate Panel on September 25, 2013, citing the Rooker-Feldman doctrine – which prohibits lower federal courts from exercising appellate review of state-court judgments – and finding no violation of the Supremacy Clause. See: Smith v. Missouri, 530 Fed.Appx. 616 (8th Cir. 2013).

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