Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Daniel Gill
Sept. 14 — A Chapter 13 debtor who completed all the payments on his five year payment plan was denied a discharge of his remaining debts because he was indicted for statutory rape ( In re Sinclair, 2016 BL 291954, Bankr. S.D. Tex., No. 11-34564, 9/7/16 ).
Judge Jeff Bohm of the U.S. Bankruptcy Court for the Southern District of Texas Sept. 7 concluded that John W. Sinclair was not entitled to have his debts wiped out because of a seldom-referenced provision of the U.S. Bankruptcy Code.
The judge said the case presented a “challenging analysis” based on a provision added to the Bankruptcy Code in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
John Sinclair and his wife Linda L. Sinclair filed for Chapter 13 protection on May 31, 2011. Chapter 13 allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three to five year period.
After making their plan payments, the debtors are granted a discharge of most of their debts by the court (not all debts are dischargeable).
However, the court noted that Bankruptcy Code Section 1328(h)(2) “allows this Court to grant Mr. Sinclair a discharge only if this Court finds ‘that there is no reasonable cause to believe that . . . there is pending any proceeding in which [Mr. Sinclair] may be found . . . liable for a debt of the kind described in § 522(q)(1)(B).' The debts described in § 522(q)(1)(B)(iv) include ‘a debt arising from . . . any criminal act . . . that caused serious physical injury or death to another individual in the preceding 5 years.'”
Texas authorities indicted Mr. Sinclair in July 2014 with four counts of sexual assault on a child younger than 17. The court found that even though the indictment did not allege “serious physical injury” to the victim, the Fifth Circuit Court of Appeals has held that other crimes involving sexual contact with a child is “ per se a crime of violence.” The court concluded that the alleged crime “constitutes a criminal act that caused serious physical injury to that child.”
Then the court determined that it was reasonable that the criminal act would render the debtor liable for a debt, whether by an order of criminal restitution or by a claim of the victim.
The court noted that neither a conviction of the crime nor a finding of actual financial liability was a requirement to prevent the granting of a discharge; it was enough that the debtor had been indicted and the debt arising from the crime was reasonably possible.
The court did not comment on what would happen if the debtor, who has so far been found to be incompetent to stand trial for the alleged crimes, is ultimately found to be not guilty of the charges.
The court did grant a discharge to the wife co-debtor who was not implicated in the criminal charges.
Melissa Rae Lanier, Currin Wuest, Mielke, Paul & Knapp PLLC, Kingwood, Texas, represented the debtors. Chapter 13 trustee, David G. Peake, Houston, appeared pro se.
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Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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