Bankruptcy Appellate Panel for Eighth Circuit Reaffirms It Is Not the Forum for Debtors in Pending Bankruptcy Cases to Take Second Bite at the Apple

Last week, the United States Bankruptcy Appellate Panel for the Eighth Circuit (8th Circuit B.A.P.) reaffirmed that debtors in pending bankruptcy cases may not use the bankruptcy court as a forum for a second bite at the apple to attack criminal convictions. In Behrens v. United States (In re Behrens), the 8th Circuit B.A.P. upheld a bankruptcy court's dismissal of the debtor's attempt to avoid the government's restitution lien stemming from a criminal conviction. No. 13-6052, 2014 Bankr. LEXIS 565 (B.A.P. 8th Cir., Feb. 12, 2014). Bryan S. Behrens had been convicted of securities fraud, and sentenced in 2011 to jail time and $6.8 million in restitution, before filing for bankruptcy protection in 2013. In 2009, Behrens had agreed to a consent judgment with the Securities and Exchange Commission in the United States District Court for the District of Nebraska, which included a stay of all litigation and proceedings against him (with limited exceptions).

After filing for bankruptcy, Behrens contended that the government's attempts to collect on its 2011 restitution judgment violated both the District Court's 2009 litigation stay and the automatic stay under 11 U.S.C. § 362. On these grounds, he filed an adversary complaint seeking avoidance of the $6.8 million restitution judgment. The bankruptcy court dismissed the adversary complaint. Last week, the 8th Circuit B.A.P. affirmed, first noting that criminal judgments, including restitution awards and liens, are afforded special protection from bankruptcy discharge. Moreover, Behrens did not challenge the validity, priority or extent of the restitution lien, except to contend that it violated the District Court's 2009 litigation stay. Therefore, the court reasoned, Behrens failed to present any issues that the bankruptcy court could appropriately decide. Had he wanted to challenge the validity of the criminal judgment which gave rise to the restitution debt and lien, he would have been able to do so only in the court that had entered the judgment. Behrens would not be permitted to avail himself of the bankruptcy process for the purpose of mounting a collateral attack on a final criminal judgment.

Topics:  Behrens v. United States, Consumer Bankruptcy, Criminal Prosecution, SEC

Published In: Bankruptcy Updates, Civil Procedure Updates, Criminal Law Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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