Summary:
In In re Sinclair, the Judge Kahn held that the automatic stay in a Chapter 13 case does not prevent the United States from continuing a district-court civil action to enforce a criminal restitution lien against real property formerly owned as tenants by the entirety—even though the bankruptcy debtor herself was not the criminal defendant.
The debtor filed Chapter 13 and listed her Durham residence as estate property. Years earlier, her spouse (or ex-spouse, depending on which part of the record you read) had been convicted of wire fraud and ordered to pay restitution. Under the Mandatory Victims Restitution Act (MVRA), a restitution lien arose in 2008 and attached to all of the criminal defendant’s property and rights to property, including his undivided one-half interest in the entireties property. The government later filed a civil action seeking a forced sale of the entire property, with proceeds attributable to the criminal defendant’s former interest applied to restitution and the balance paid to the debtor.
After the bankruptcy filing, the debtor argued that the automatic stay barred continuation of the civil action because (1) she—not the criminal defendant—now owned the property, and (2) the property was now property of the bankruptcy estate. The court rejected both arguments and ruled that the stay never applied in the first place.
Holding:
Relying heavily on its earlier decision in In re Turner and the district court’s affirmance, the court held that:
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The MVRA’s enforcement provision, 18 U.S.C. § 3613(a), applies “[n]otwithstanding any other Federal law,” including the Bankruptcy Code and the automatic stay.
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Once a restitution lien validly attaches to a criminal defendant’s property or rights to property, that lien survives later transfers—including transfers to a spouse—and may be enforced through a judicial sale.
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The fact that the debtor is not the “person fined,” and that the property is now property of the bankruptcy estate under § 541, does not alter the analysis.
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Because the restitution lien attached when the criminal defendant held an interest, the government may proceed with enforcement notwithstanding § 362.
The court therefore entered an order declaring that the automatic stay does not apply to the pending district-court action and denied stay relief as unnecessary.
Commentary:
This is a sobering but unsurprising opinion, and one that bankruptcy lawyers in North Carolina need to have firmly on their radar.
The takeaway is simple and harsh: federal criminal restitution liens are nuclear-grade collection devices. Once they attach, they behave much like federal tax liens—and the MVRA makes explicit that Congress intended exactly that result. Entireties law, § 541 estate-vesting arguments, and the automatic stay all yield to the “notwithstanding any other Federal law” language of § 3613.
What makes Sinclair particularly painful is that the debtor herself was not the criminal wrongdoer. Yet the court correctly recognized that allowing a restitution debtor to neutralize enforcement simply by transferring property to a spouse—or by the spouse filing bankruptcy—would “eviscerate” the statute. Bankruptcy is powerful, but it is not a safe harbor from criminal restitution.
For consumer practitioners, this case is a reminder to ask hard questions early: Is there criminal restitution? Has a lien attached? When did it attach? And does the client understand that Chapter 13 cannot stop a forced sale when the United States is enforcing a restitution judgment tied to a spouse’s prior property interest?
For debtors, the result feels brutal. For Congress, it is exactly what was intended. And for the rest of us, Sinclair reinforces that when bankruptcy law collides with federal criminal enforcement, bankruptcy usually loses.
To read a copy of the transcript, please see:
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