INTRODUCTION
If there is one thing I know it is how to deal with a restitution order. A restitution order is often imposed in “white collar” criminal cases. Generally speaking, the legal purpose of restitution is to make the victims of a crime whole again by ordering a defendant to pay a certain amount back to them.
Understanding what this means and how it applies is critical if you are a defendant in this type of situation. If you don’t, there may be long term ramifications that can affect you, your family and your income for many years after a federal prison sentence is complete.
There are also some things that can be done now to help lessen the impact of a federal judgment concerning restitution long term. Where you put your assets and how it’s done while you are in custody or on probation can be important. There are also long-term ramifications to estate and retirement planning which should be considered.
What is a Restitution Order and How is the Amount Determined?
18 U.S.C. § 3663(A) mandates that restitution be made to victims in nearly all white collar cases. Under this statute, a victim is a person or entity that is “directly and proximately harmed as a result of the commission” of the offense.
The amount of the restitution in a case is determined by the Court. The method for determining the amount can be found in 18 U.S.C. § 3664 as well as in Fed. R. Crim. P. 32(c). Basically, these statute and rules direct the government, at least 60 days prior to sentencing, to consult with all identified victims in a case to obtain a restitution amount and to provide that information to the pre-trial probation officer.
Once the probation officer receives this information they must notify all the victims involved of the amount of restitution and the date of the sentencing hearing. After finishing its restitution investigation, probation must then submit a report to inform the court of the amount that is owed sufficiently to issue an order.
The report (either as part of the PSI/PSR or a separate document) must include an accounting of what is owed to each victim, provide copies of any agreement[s] that may exist concerning restitution and provide the court with information concerning the financial circumstances of the defendant.
It is important to note that the burden of establishing the restitution amount is on the government. The court may rely on the report submitted by the probation office or may take additional evidence either in writing or in a hearing concerning the amounts that should be included. In these situations, the Court will ultimately resolve any dispute which may arise by using a pre-ponderance of the evidence standard.
When/How is the Judgment entered and how long does it last?
After reaching a conclusion regarding the full amount of restitution, the court issues an order concerning those amounts. The order must contain the client’s identifying information, case number, restitution amount, schedule of payments, any modification and/or remission, a requirement that the client keep her address current with the U.S. Attorney’s Office and identification of the victims.
Once the order has been entered, the United States Attorney’s Office is required to file a lien against the defendant for the full amount of the restitution plus interest which will be accrued at the existing legal rate. It is important to know that a Federal Judgment is good for (1) twenty years from the date of the entry of the Judgment, or (2) 20 years after the release of the person fined or (3) after the death of the individual fined. [See 18 U.S.C. 3613(c)].
What is the Effect of the Lien?
Once the lien has been entered it the same as an IRS Lien. This means that it has the highest priority in terms of collection efforts by the Government. It also allows the Government to seize property or assets of any kind, without prior notice if they believe that it can help satisfy the judgment. The lien may also be enforced at any time including even while a person is in prison. Incarceration does not stop the process.
What most defendant’s don’t realize is that if they receive “substantial resources” from any source, including through inheritance, insurance settlement, life insurance as a beneficiary or any other windfall, that those funds must be applied to any restitution or fine which is outstanding.
Under 18 U.S.C. 3664(n), you are responsible to notify the government that while you are in prison, and the failure to do so can result in significant additional penalties.
How Does Federal Law Apply Concerning State Laws that Limit Collection of Certain Debts?
Many states have exemptions that keep a creditor from attaching or seizing personal assets or limiting how much can be taken. In the case of a federal Judgement, however, the state law exemptions will not apply. Under federal law, an order of restitution is enforceable through the procedures established in 18 U.S.C. § 3613.85 which expressly preempts state law. This extends to everything from homestead exemptions to retirement accounts.
What Happens When I’m on Supervised Release?
While you are on probation, the payment of restitution is a condition of your release. The failure to pay it can result in a revocation of your probation as well as other significant sanctions. Even then you are finished with supervised release, you still have a continuing obligation to pay on the judgment but the Government can’t put you back in prison for non-payment alone.
A few months prior to the expiration of your probation you will been contacted by someone from the Financial Litigation Unit, known as the FLU, which is part of the U.S. Attorney’s Office. They will require you to prepare a detailed financial statement about your income and assets and will determine what amount you are required to when your probation ends. The fact that you have a payment order in place is meaningless and the amounts may be adjusted up or down based on your income and ability to pay.
Generally, once an agreement has been reached with the FLU on an amount and the terms by which to pay, the Government will execute an agreement with you and will agree not to levy, garnish or take any other collection action against you if your payments are made as agreed.
If you fail to make those payments, the Government has the absolute right to take any collection action against you that they deem necessary, including garnishing your wages, levying against any property you may own and/or seizing bank accounts or other assets that may be in your name or in which you may have an ownership interest.
Is Bankruptcy an Option?
We receive many questions about filing bankruptcy after probation to avoid restitution. Many people mistakenly believe that after probation is complete, a Federal Judgment somehow becomes a civil debt which can be discharged in Bankruptcy. Nothing is farther from the truth.
Based on the current state of the law, a Federal Judgment cannot be discharged. There are dozens of legal cases on this point and it is also clearly specified under Section 523 of the United States Bankruptcy Code.
Can you Negotiate Restitution?
There are certain circumstances in which you can negotiate a settlement to your Federal Restitution. This is a very complicated matter that really requires professional assistance-just know that there is a way to do it. We encourage you to be proactive.
Please remember that there are ways to manage your restitution while you are in federal prison and there are ways to negotiate a compromised settlement to resolve it in full after you are released.
Conclusion
Restitution Orders in criminal cases have far reaching and long term effect on everything from seizure of assets to retirement and estate planning. Planning in advance can help mitigate the long term impact of these orders provided that you begin the process early enough.
The key when addressing them is to be proactive and address these financial issues as soon as possible prior to a sentence being imposed. Since the amount of restitution can also factor into the length of a sentence under the Federal Sentencing Guidelines, it is critical to address these matters early in the process.
If you have any questions about restitution, how it works, or what can be done to manage or attempt to compromise it, please schedule a call here.
Justin Paperny
