Boaz, AL asked in Bankruptcy for Alabama

Q: In a 2011 Chapter 7 was a restitution order considered a priority debt?

I am a creditor in a bankruptcy that was in 2011. I alerted the Bankruptcy Court of a fraudulent (preferential) transfer in the case. This man and his son were both convicted of securities fraud in my case. The Bankruptcy Court obtained a consent judgment against the debtor's sister because of the fraudulent transfer. She recently died and the money came back into this case. It seems I remember reading somewhere that restitution involving a crime of fraud were considered a priority debt. I built an adversarial proceeding myself and remember reading that during my research. I know the civil claim will never be paid ($1M+). I guess what I am asking is between credit cards and a couple doctor bills, and of course, the administrative fees, how is the creditor payment plan figured in a case like this?

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1 Lawyer Answer
Rafael Gil III
Rafael Gil III
  • Bankruptcy Lawyer
  • Dothan, AL

A: Any debts obtained by fraud are NOT dischargeable in bankruptcy. Not that they're considered a priority debt, it's the nature of how the debt was incurred that makes it non dischargeable. Taxes, domestic support obligations, etc. are priority debts. You would have to file an AP and claim fraud and have a judge rule that it's not dischargeable in a bankruptcy.

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