SW Legal studies in Business

Criminal Restitution Payments Treated Like Payments to Ordinary Creditors

Appeals court held that when a criminal restitution payment is made within 90 days of the filing of bankruptcy, it is treated like other preferential payments, and the recipient of the payment must return the funds to the bankruptcy trustee.

Topic Bankruptcy
Key Words

Preferential Payments; Criminal Restitution; Recovery

C A S E   S U M M A R Y

The Silvermans owned and operated an electrical contracting company for which State Fund provided workers’ compensation insurance. The Silvermans engaged in fraud by underreporting payroll, underpaying premiums, and preventing injured workers from obtaining benefits under workers’ compensation. The state of California prosecuted the Silvermans for the fraud; they paid $101,533 in restitution to State Fund as part of the court-ordered sentence in the case. Right after making the restitution payment, the Silvermans filed for Chapter 7 bankruptcy. The bankruptcy trustee moved to recover the restitution payment for the bankrupt estate as a preferential payment made within 90 days of filing bankruptcy. The bankruptcy court and district court held that the criminal restitution payment was an avoidable preferential payment that State Fund must return. State Fund appealed.


Affirmed. State Fund was a creditor of the Silvermans and received payment shortly before they filed for bankruptcy. Criminal restitution payments, under the Bankruptcy Code, are subject to the rule regarding preferential payments made within 90 days of filing for bankruptcy; so the funds must be returned to the estate in bankruptcy. There would have to be a clear exception in the Bankruptcy Code for this not to be the result.

Citation In re Silverman, ---F.3d---(2010 WL 3169415, 9th Cir., 2010)

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