Lawyer’s Debt to Client Protection Fund Not Dischargeable in Bankruptcy

A debt owed by a lawyer to a bar association client protection fund is not dischargeable in bankruptcy. See Virginia ex rel. Va. State Bar v. Young (In re Young), No. 2017 BL 306003 (Bankr. W.D. Va. Aug. 30, 2017).

The Virginia Supreme Court disbarred a lawyer for failing to return unearned fees. In the wake of the disbarment, the Virginia State Bar Association’s Client Protection Fund paid the lawyer’s injured clients and sued the lawyer to recover these payments. The lawyer filed for bankruptcy, and sought to have the debt that he owed to the Virginia State Bar discharged.

Under the Bankruptcy Code, 11 U.S.C. § 523(a)(7), a debtor cannot be discharged from “a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit.” The debt owed by Young was not dischargeable because it served not only to compensate the Virginia Client Protection fund, but also to penalize him for violating the state’s lawyer-coduct standards. Indeed, the debt was an “obligation [that] serves society’s broader rehabilitative and penal goals and cannot be viewed narrowly as merely representing compensation to the victims.” Id.

 

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