Bankruptcy Judge Denies Bankruptcy Relief

Bankruptcy Relief Denied

Last month a bankruptcy judge in Texas invoked a provision of the bankruptcy code to deny Chapter 13 bankruptcy relief to a man accused of statutory rape. bankruptcy relief
The Bankruptcy Filing Husband and wife, John and Linda Sinclair filed for Chapter 13 bankruptcy relief in 2011. Chapter 13 is a reorganization form of bankruptcy. It allows debtors who are earning a living wage to propose and then execute a plan for repaying a specified amount of their debts over a period of years. If the debtors receive approval of their plan and follow it, their remaining debts are discharged at the end of the plan. The Sinclairs obtained court approval of their Chapter 13 plan and over a period of years, complied with all of their obligations under it.

The Accusations

In 2013, approximately two years after the Sinclairs’ bankruptcy filing, Mr. Sinclair was accused of having sexual relations with a minor child. He was formally indicated for a second degree felony related to the accusations in 2014. A trial on the charges has not yet been held because Mr. Sinclair was found not competent to stand trial. The doctor that reached this determination also found that Mr. Sinclair could be “restored to competency in the foreseeable future” and noted that Mr. Sinclair might be “malingering his symptoms.”

The Bankruptcy Court’s Relief Ruling

In 2016, after complying with their Chapter 13 plan obligations, each of the Sinclairs filed a debtors certification and requested that the bankruptcy court enter an order of discharge, discharging their remaining debts. Typically, the entry of such an order after completion of the Chapter 13 plan would be readily granted. In the Sinclairs case, it was not.
The bankruptcy judge denied the request for discharge on the ground that the bankruptcy code prohibited him from granting it. The court relied primarily on the intersection of 11 USC § 1328(h)(2) and 11 USC § 522(q)(q)(B). § 1328(h)(2) states that a court can only grant a discharge if “there is no reasonable cause to believe that . . . there is pending any proceeding in which the debtor may be found . . . liable for a debt of the kind described in section 522(q)(1)(B).” § 522(q)(q)(B)(iv) is a list of types of debts including “a debt arising from . . . any criminal act . . . that caused serious physical injury or death to another individual in the preceding 5 years.” While there are some differences in bankruptcy relief laws between states, these sections are from the federal bankruptcy code and apply in all states, including Florida.
The court examined the charges and allegations against Mr. Sinclair and found that there was reasonable cause to believe that he could be liable for a debt based on his alleged criminal act and thus, discharge could not be granted. The court did not hesitate to find that sexual assault of a minor is a serious bodily injury under Texas law. It then pointed out that Mr. Sinclair, if found guilty, could face a fine for his violation and could be ordered to pay monetary restitution to the victim. The court reasoned that this analysis was not impacted by Mr. Sinclair’s present inability to stand trial because there is reasonable cause to believe that he will eventually be forced to stand trial.