by A debt is nondischargeable when it is incurred as part of a criminal sentence. Medical Lien Management, Inc. v. Dampier, No. 17-1160 (10th Cir. Feb. 14, 2018) (unpublished).
Billy Dampier was convicted of theft from his employer and, as part of his criminal sentencing, was ordered to make restitution. His efforts to discharge that debt failed in the bankruptcy court and before the BAP for the Tenth Circuit. On appeal to the Tenth Circuit the court addressed two issues: 1. Whether his former employer had standing to object to discharge of the debt, 2. Whether the debt was dischargeable under section 523(a)(7). Section 523(a)(7) provides for the nondischargeability of a debt which is “a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss.”
The circuit court rejected Mr. Dampier’s argument that because his former employer was not a governmental unit it lacked standing to object to discharge. The court noted that the issue involved statutory standing rather than Article III standing which could not be waived, and found that Mr. Dampier had forfeited the argument by failing to raise it in the courts below.
Turning to the applicability of section 523(a)(7), the court found that the fact that Mr. Dampier was making restitution directly to his former employer rather than the government did not remove it from the exception-to-discharge provision. The court relied primarily on Kelly v. Robinson, 479 U.S. 36 (1986) for the conclusion that “523(a)(7) preserves from discharge any condition a state criminal court imposes as part of a criminal sentence,” even where the restitution is being paid to the victim rather than the government. The court reasoned that because the purpose of the state’s criminal restitution provision was to rehabilitate and punish the criminal defendant, its primary purpose was to benefit society as a whole rather than to fully compensate the victim. The court therefore agreed with the lower courts that the debt was nondischargeable.