Prisoner Can Discharge Incarceration Costs in Bankruptcy

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By Diane Davis

Sept. 26 — A prisoner incarcerated in Minnesota for “various criminal convictions” can discharge his room and board costs — incarceration costs — in his Chapter 7 bankruptcy proceeding ( Cty. of Dakota v. Milan (In re Milan), 2016 BL 312159, B.A.P. 8th Cir., No. 16-6012, 9/22/16 ).

Judge Anita Louise Shodeen of the U.S. Bankruptcy Appellate Panel for the Eighth Circuit Sept. 22 concluded that incarceration costs are subject to discharge under Bankruptcy Code Section 523(a)(7).

The Bankruptcy Code precludes discharge of a debt for a fine, penalty or forfeiture owing to a governmental unit unless it is “pecuniary in nature,” the court said, citing Section 523(a)(7). The incarceration costs are not, however, identified as a fine or penalty, were not ordered by the state criminal court, and weren't a condition of debtor Jacob Jerome Milan's sentence, the court said.

When the debtor filed Chapter 7 bankruptcy, in which a debtor's nonexempt assets are liquidated by a trustee, and the proceeds are distributed to creditors, he included his incarceration costs as a non-priority unsecured debt.

The County of Dakota filed an adversary proceeding to have the debt in the amount of $3,500 excepted from discharge under Section 523(a)(7).

The bankruptcy court determined that the incarceration costs didn't meet the statutory requirements to be excepted from discharge. The County of Dakota appealed the bankruptcy court's judgment.

“To be excepted from discharge such a debt must be penal in nature, and must be shown directly through statutory or regulatory language that indicates an intent to punish a debtor,” the court said.

“The purpose of the incarceration costs is to allow Dakota County to ‘RECOUP A PORTION' of the costs of housing prisoners,” the court said. The “clear intent for” the incarceration costs is pecuniary in nature, the court concluded. As a result, they are subject to discharge, the court said.

In a recent ruling in the Ninth Circuit, a mother in California was able to discharge debt for her son's juvenile detention ( Rivera v. Orange Cty. Prob. Dep't (In re Rivera), 2015 BL 258187 (9th Cir. 2016) (28 BBLR 1052, 8/18/16).

Judges Barry S. Schermer and Charles L. Nail joined the opinion.

Jeffrey A. Timmerman, Dakota County Attorney's Office, Hastings, Minn., represented the plaintiff County of Dakota; Kenneth Corey-Edstrom, Larkin & Hoffman, Minneapolis, represented defendants/debtors Jacob Jerome Milan and Ashley Kaye Milan.

To contact the reporter on this story: Diane Davis in Washington at ddavis@bna.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bna.com

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