Case Name: In re Charles C. HEINCY and Sharon L. Heincy, Debtors. SUPERIOR COURT OF the STATE OF CALIFORNIA, Appellant, v. Charles C. HEINCY and Sharon L. Heincy, Appellees
Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
Jurisdiction: United States
Decision Date: 1987-09-16
Citations: 78 B.R. 246
Docket Number: BAP No. SC 86-1467-VAsMo; Bankruptcy No. 84-04106-LM13; Adv. No. C85-0751-LM13
Parties: In re Charles C. HEINCY and Sharon L. Heincy, Debtors. SUPERIOR COURT OF the STATE OF CALIFORNIA, Appellant, v. Charles C. HEINCY and Sharon L. Heincy, Appellees.
Judges: Before: VOLINN, ASHLAND and MOOREMAN, Bankruptcy Judges.
Reporter: West's Bankruptcy Reporter
Volume: 78
Pages: 246–251

Head Matter:
In re Charles C. HEINCY and Sharon L. Heincy, Debtors. SUPERIOR COURT OF the STATE OF CALIFORNIA, Appellant, v. Charles C. HEINCY and Sharon L. Heincy, Appellees.
BAP No. SC 86-1467-VAsMo.
Bankruptcy No. 84-04106-LM13.
Adv. No. C85-0751-LM13.
United States Bankruptcy Appellate Panels of the Ninth Circuit.
Argued Oct. 29, 1986.
Submitted Nov. 12, 1986.
Decided Sept. 16, 1987.
Susan J. Boyle, Deputy Counsel, San Diego, Cal., for appellant.
Charles E. Duff, Jr., Dempsey, Dempsey & Duff, Vista, Cal., for appellees.
Before: VOLINN, ASHLAND and MOOREMAN, Bankruptcy Judges.

Opinion:
ASHLAND, Bankruptcy Judge:
The Superior Court of the State of California appeals from an order of the bankruptcy court enjoining the State's enforcement of a criminal restitution order against Chapter 13 debtor Charles C. Heincy.
This appeal concerns a question not specifically addressed in the United States Supreme Court's recent decision in Kelly v. Robinson, 479 U.S. -, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), a Chapter 7 case in which the Court held that 11 U.S.C. § 523(a)(7) "preserves from discharge any condition a state criminal court imposes as part of a criminal sentence." After reviewing the supplemental briefing from both parties on the impact of the Robinson decision, we conclude that the Court's rationale does not extend to Chapter 13 cases, and accordingly affirm the bankruptcy court.
FACTS
The following undisputed facts are derived from the bankruptcy court's memorandum of decision, published at 58 B.R. 930 (Bankr.S.D.Cal.1986).
In June 1983, Joseph and Trudi Boylan hired Charles Heincy to oversee completion of a home remodeling project. Boylan la ter discovered that Heincy had embezzled $7,500 that was supposed to have been paid over to a roofing contractor. When confronted, Heincy promised to repay Boylan the embezzled amount, plus a $5,700 loan, plus all money he had received for his services, if Boylan would not prosecute.
Attempts to negotiate a satisfactory repayment schedule failed, and Boylan lodged a criminal complaint in February 1984.
Heincy filed a Chapter 7 bankruptcy petition on March 23, 1984, listing Boylan, but not the State, as an unsecured creditor with a $13,000 claim. The Heincys received their Chapter 7 discharge on September 24, 1984 and on the same day filed the present Chapter 13 petition, listing Boy-lan as a creditor with a $7,250 claim.
In August 1984, Heincy was charged with, and pleaded guilty to, one count of grand theft. At the sentencing hearing on November 19, 1984 the Superior Court ordered suspension of Heincy's criminal sentence for five years, subject to the following conditions: (1) two days in custody, (2) thirty days of public service, and (3) payment of $17,250 (the total of all monies Boylan had paid to Heincy) in restitution at the rate of $400 per month, commencing January 1, 1985. Apparently, the monies paid to the State pursuant to this order were turned over by the State directly to Boylan without any deductions.
The bankruptcy court confirmed Hein-cy's Chapter 13 plan on December 11, 1984. The plan provides for 100 percent repayment to creditors, including the scheduled amount of $7,250 denominated "restitution" payable to Boylan. Heincy's payments are $486 per month for 36 months.
The debtors found it financially impossible to make both the monthly $400 restitution payments and the $486 Chapter 13 plan payments. On July 11,1985 they filed a complaint, pursuant to 11 U.S.C. § 105(a), to enjoin the State from continuing to collect the restitution payments.
The bankruptcy court entered a temporary restraining order and preliminary injunction against the Superior Court, pending a hearing on the merits. At the hearing, Heincy apparently testified that he was unable to make both sets of payments, and that his Chapter 13 plan would fail if enforcement of the restitution order were not enjoined.
DISCUSSION
The issues here are twofold, first we must determine whether restitution is a "debt" as defined in 11 U.S.C. § 101 et seq. In doing so we must consider the effect of the Supreme Court decision in Kelly v. Robinson, 479 U.S. -, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), on a Chapter 13 bankruptcy case. We must determine whether the established policy that a bankruptcy court should not invalidate the results of a state criminal proceeding would preclude defining restitution as a dischargeable debt.
The Bankruptcy Code defines "debt" as liability on a claim. 11 U.S.C. § 101(11). "Claim" is defined as a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, etc. 11 U.S.C. § 101(4).
These terms are subject to a very broad interpretation. Section 101(4) was intended to give an even broader definition of "claim" than was found in the former debt- or rehabilitation chapters
By this broadest possible definition and the use of the term throughout Title 11 . the bill contemplates that all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case. It permits the broadest possible relief in the bankruptcy court.
H.R.Rep. No. 95-595, p. 309 (1977); S.Rep. No. 95-989, p. 22 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5808, 6266.
Many of the cases which held that restitution is not a debt have done so for two reasons; either because there was no "right to payment", See, e.g., In re Pellegrino, 42 B.R. 129, 132 (Bankr.Conn.1984), or for policy reasons that bankruptcy should not be a "haven for criminals" and a bankruptcy court should not interfere with criminal sanctions. See, Kratsch, Restitution vs. Debtor's Relief: An Update, Norton Bankruptcy Law Advisor, No. 8, August 1986. We find neither of these reasons compelling. The very language of the California statute under which the restitution order was imposed states, "A restitution fine shall be deemed a debt of the defendant owing to the state for the purposes of Sections 12418 and 12419.5 of the Government Code, excepting any amounts the defendant has paid to the victim as a result of the crime." California Government Code § 13967.5(b) (1988). The wording of the restitution statute has an effect on whether the restitution order creates a "right to payment". See, Kelly v. Robinson, 479 U.S. -, 107 S.Ct. 353, 365 n. 4, 93 L.Ed.2d 216 (1986) (Marshall, J., dissenting).
Furthermore, we do not believe that an interpretation of § 101(4) or § 101(11) should be altered by the policy to prevent bankruptcy from becoming a "haven for criminals" in the absence of this suggestion in the statute itself or in the legislative history. A court should not evaluate policy arguments that contradict the language of the statute, this should be done by a legislature. In re Hall, 752 F.2d 582, 590 (11th Cir.1985). Very strong evidence of explicit language from the legislative history is necessary to overcome the plain meaning naturally to be drawn from the language of a statute. In re Seidel, 752 F.2d 1382, 1385 (9th Cir.1985). On their face the definitions of "claim" and "debt" in the Bankruptcy Code encompass a restitution payment, and there is no legislative history which would suggest exclusion of restitution payments from these definitions. On the contrary, the legislative history, as indicated above, requires the "broadest possible" definition of a claim.
The Supreme Court in Ohio v. Kovacs, 469 U.S. 274, 105 S.Ct. 705, 83 L.Ed.2d 649 (1985), applied a broad definition to a "claim" under the Bankruptcy Code. (An obligation of the debtor to comply with a state court injunction requiring it to clean up a hazardous waste disposal site was a "debt" or "liability on a claim" subject to discharge under the Bankruptcy Code.) The Court stated, "it is apparent that Congress desired a broad definition of a 'claim' and knew how to limit the application of a provision . when it desired to do so." Id. at 279, 105 S.Ct. at 708.
The Court in Kelly v. Robinson, supra, refrained from determining whether restitution is a "debt" within the meaning of § 101(11), although the Court expressed serious doubts whether Congress intended it to be a "debt". The Court ultimately held that the restitution was excepted from discharge pursuant to § 523(a)(7) of the Bankruptcy Code (this section excepts from discharge any debt, "to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for any actual pecuniary loss.") (emphasis added). Section 523(a) only applies to debts; if restitution were not a debt it would not be subject to any exception to discharge under § 523. Thus, the Kelly v. Robinson case is a good illustration of the reason to classify restitution as a debt. The Bankruptcy Code revolves around "debts" and "claims". See, H.R.Rep. No. 95-595, p. 309 (1977); S.Rep. No. 95-989, p. 22 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5808, 6266, ("use of the term throughout Title 11"). "The definition of 'debt' is intentionally broad not only to ensure the debtor a meaningful discharge but to guarantee as many creditors as possible the right to participate in the distribution of the property of the estate." Kelly v. Robinson, dissent, 107 S.Ct. at 365.
If Congress desired, for policy reasons, to preclude a state criminal defendant in bankruptcy from nonpayment of an order of restitution, it is unlikely that it would do so by limiting the definition of "claim" and "debt". A more effective means to this end would be achieved by altering the dis-chargeability provisions under the Code. An obvious example of this is alimony and child support. When Congress decided that one should not be able to escape these obligations in bankruptcy, it made these obligations nondischargeable under all chapters of the Code, it did not alter the definition of "debt" to exclude alimony and child support.
It should be noted that on July 24, 1987 the Senate passed S. 548 Title III. This title proposes an amendment to § 523(a) of the Bankruptcy Code to make any restitution debt arising from a violation of the state law nondischargeable in bankruptcy. This subsection of § 523 would then not be subject to discharge pursuant to § 1328(a) of the Code. See, Senate Report 100-119. This title would only apply to a case filed after June 23, 1987. As such, we must apply the law as written and hold that when the present case was filed a restitution debt was dischargeable in a Chapter 13 case.
The dissent concludes that in the spirit of federalism, the policy of federal court deference to state criminal judgments mandates an interpretation of the Bankruptcy Code provisions to prohibit the discharge of criminal sentences including restitution. However, we believe that equal consideration should be given to the concept of separation of powers which does not provide the judiciary with the power to legislate. As stated, Congress is aware of this problem and is acting to cure any defects in the Code. We believe that the alterations which are to take place should be done by Congress, not by a court in anticipation of how Congress would or should act.
Having found that restitution is a debt, we hold that such a debt is dischargeable in a Chapter 13 bankruptcy. Section 1328(a) of the Bankruptcy Code excepts from discharge only alimony, maintenance, and support pursuant to § 523(a)(5) and long-term debts pursuant to § 1322(b)(5). We recognize that the result, based upon Kelly v. Robinson, would be different in a Chapter 7, an individual Chapter 11, or a Chapter 12 bankruptcy case because § 523(a)(7) would apply in these cases to a debt of restitution. However, we hold that Kelly v. Robinson does not extend to a Chapter 13 proceeding. In re Johnson-Allen, 69 B.R. 461, 15 B.C.D. 638 (Bankr.E.D.Pa.1986), also held that Kelly v. Robinson does not extend to Chapter 13 cases. That court stated that the Supreme Court must have been aware that "its chosen basis for iis ruling did not extend the scope of its decision to Chapter 13 cases, as the dissent expressly points out that the Court's approach leaves this issue open. See, 107 S.Ct. at 366 n. 6." Johnson-Allen at 641.
We affirm the bankruptcy court's order. To the extent that the debt to Boylan was provided for in the debtor's Chapter 13 plan it shall be paid pursuant to the terms of the plan. However, to the extent that the debt to Boylan or the State remains it shall be treated as a dischargeable debt.