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A man who posted a $1 million bond for his son who was charged with murder and then failed to appear in court can discharge the debt in bankruptcy court since the debt was not incurred as a result of the man’s own wrongdoing, a federal judge has ruled. In In Re: Gi Nam, U.S. District Judge Stewart Dalzell upheld an opinion by U.S. Bankruptcy Judge Diane Weiss Sigmund who held that such surety bonds do not fall under an exception to dischargeability since they are civil, and not penal, in nature. Dalzell rejected an argument by the City of Philadelphia that such a ruling would violate public policy and irreparably harm the bail system. The city’s lawyer, Steven M. Schain, argued that if the courts allow a family member surety’s bail bond debt to be discharged in bankruptcy, they will effectively eliminate the financial incentives on the defendant and the surety. If the criminal defendant and the surety know that the liability for the bond will be erased if the surety enters bankruptcy, Schain said, there is much less reason for the defendant to appear, since his family member surety will be able to deflect the financial harm of forfeiture. And by the same logic, Schain said, there will be much less reason for the family member surety to refrain from assisting the defendant’s flight. As a result, Schain argued, an interpretation of Section 523(a)(7) of the Bankruptcy Code that frees family member bail bond sureties from their bond obligations after a petition for bankruptcy would impede the states’ ability successfully to prosecute criminal offenders, and would require states to deploy additional scarce law enforcement resources to finding and capturing fugitives. Making his argument more pointed, Schain argued that if Gi Nam is permitted to discharge his debt to the Commonwealth, his son, David Nam, will have little incentive to return to face the grave charges against him. But Judge Dalzell said, “We cannot, however, let these policy concerns determine the outcome here.” Dalzell found that the U.S. Supreme Court has only once addressed the question of the dischargeability under Section 523(a)(7) in Kelly v. Robinson in 1986. The Kelly court addressed the question of whether restitution paid as a condition of probation to the state probation department by a person convicted of larceny was a debt dischargeable in Chapter 7 bankruptcy. The court ultimately found that such a restitution payment was penal in nature, and that it therefore fell under the Section 523(a)(7) exception, even though the term “restitution” was not included in the statute. But Dalzell found that Kelly “does not necessarily foreclose the application of that provision to a bail bond surety’s debt.” Dalzell found that while Kelly repeatedly mentions the importance of not interfering with state criminal prosecutions, the court was specifically considering whether a payment of restitution made as a condition of probation by a woman convicted of the wrongful receipt of welfare benefits fell under the exception. The high court, he said, focused on the fact that the restitution was part of a criminal judgment against the woman and thus furthered the state’s interests in rehabilitation and punishment. “In light of this analytic process, it is not surprising that the Supreme Court stressed the need to avoid interfering with state criminal proceedings,” Dalzell wrote. The language in the opinion, Dalzell said, showed that the justices were “particularly concerned with interfering with a state’s punishment of a convict.” By contrast, Dalzell said, “while Gi Nam’s debt resulted from a judgment entered by the Criminal Division of the Court of Common Pleas, it was not in any meaningful sense of the word a ‘criminal judgment,’ and certainly did not result from any criminal conduct on Gi Nam’s part.” And even if the policy concerns expressed in Kelly do encompass the harms caused by the discharge of bail bond surety debts, Dalzell said, “it is unclear why the presence of these concerns would compel a result contrary to that which we have reached here.” Although Kelly directs lower courts to interpret Section 523(a)(7) in light of the concerns regarding the effect on the state criminal justice system, Dalzell said, “We equally cannot ignore the application of the canons of construction … which mandate that we look to the immediate context of the language at issue.” Dalzell concluded that Congress’ use of the term “forfeiture” in Section 523(a)(7) “encompasses only those forfeitures that are penal sanctions, and there is nothing in Kelly to suggest that the law enforcement policy concerns trump these time-honored canons of statutory construction.” The city’s policy argument, Dalzell said, is “difficult to quantify.” Even if such debts are dischargeable, he said, sureties lose the money they pay up front on the bond when the defendant fails to appear. “In this case, Gi Nam has lost the $100,000 — or 10 percent of the total bond value — that he paid at the execution of the bond, hardly a paltry sum. Moreover, entering bankruptcy is itself a far from costless event, with grave implications for the debtor’s credit,” Dalzell wrote. “While these costs do not eradicate the concerns created by discharging bail bond surety debts, their existence shows that the balancing of competing interests and policies here presents a difficult calculus for any court to perform with any hope of precision,” Dalzell wrote. In the end, Dalzell said he agreed with Judge Sigmund that “to the extent that these policy concerns should come to a different balance, it is for Congress, and not this court, to address them by amending the statute.” Gi Nam’s son, David Nam, was charged on Sept. 22, 1997, with various offenses, including murder, robbery and burglary following the shooting death of Anthony Schroeder during a robbery on March 5, 1997. Bail was set at $1 million, and Gi Nam agreed to serve as a surety. On March 12, 1998, David Nam failed to appear for a pre-trial status listing in the criminal case, and a judgment was entered against Gi Nam for the full amount of the bond plus costs. David Nam evidently remains a fugitive. When Gi Nam petitioned for bankruptcy, the city filed a complaint demanding that his surety debt not be discharged. But Judge Sigmund concluded that Congress only intended the exception in Section 523(a)(7) to go to obligations that were penal in nature — those imposed on the debtor as punishment for the debtor’s wrongdoing. After examining Pennsylvania law, Sigmund concluded that the obligation of a bail bond surety is civil, and not penal, in nature, and that therefore Gi Nam’s debt resulting from his suretyship on the bail bond was dischargeable.

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