Pay-To-Stay Debt Dischargeable

Posted by NCBRC - October 5, 2016

The Bankruptcy Appellate Panel for the Eighth Circuit affirmed that a prison inmate’s pay-to-stay debt was dischargeable in bankruptcy. County of Dakota v. Milan, No. 16-6012 (Sept. 22, 2016).

Section 523(a)(7) precludes discharge of a debt for a fine, penalty or forfeiture owing to a governmental unit unless it is compensation for actual pecuniary loss. While it is not necessary that the debt be explicitly stated to be in the nature of fine or penalty, key to the determination of dischargeability is whether the debt is tied to the debtor’s criminal conduct or whether it is tied to recoupment of the government’s actual expenses. Here, the Minnesota law establishing the pay-to-stay system was explicitly designed to help the county recoup some of its $100/day incarceration expenses. Other factors, while not dispositive in and of themselves, also supported a finding of dischargeability, including that the county had discretion to impose the fee or not depending upon the financial circumstances of the inmate and his family, and that the debt was treated through the county’s civil collection system.

The district court decision was blogged here.

Milan BAP 8th opinion Sept 2016


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