If you are facing an asset forfeiture for a criminal act you have committed, don’t look to bankruptcy to take care of your problems. Under the well-established relation-back doctrine, the Government’s interest in forfeitable property vests at the time of the offense giving rise to the forfeiture, and the property subject to forfeiture is not estate property subject to the automatic stay.
Although the automatic stay in bankruptcy can eliminate one’s obligation on a host of financial responsibilities, any asset forfeiture related to a criminal case is not affected by the filing of bankruptcy. 11 U.S.C. 362(a)(1) says that the automatic stay does not affect “the commencement or continuation of a criminal action or proceeding against the debtor.” Further, because criminal asset forfeitures are brought by the government, the automatic stay also is inapplicable to them. A stay does not affect “the commencement or continuation of an action or proceeding by a governmental unit… to enforce such governmental unit’s… police and regulatory power.” 11 U.S.C. 362(b)(4).
In a criminal asset forfeiture case, the government’s interest in forfeitable property vests at the time of the offense that gave rise to the forfeiture, and the property subject to forfeiture is not estate property subject to the automatic stay. “All right, title, and interest in [forfeitable] property… vests in the United States upon the commission of the act giving rise to forfeiture under this section.” United States v. United States Currency, 895 F. 2d 908, 916 (2d Cir. 1990) Because “the forfeiture occurs when the crime is committed,” a defendant has no interest in forfeited property “as of that moment.” Therefore, the automatic stay of bankruptcy does not affect criminal forfeiture proceedings, which may continue unabated during the course of a bankruptcy.
Unfortunately, one of the tools state and federal legislatures are adopting is to create civil penalties for criminal behavior. One civil penalty used frequently in the war on drugs has become the Civil Asset Forfeiture which is commonly used to seize private property that has been used to facilitate violations of various drug laws.
One of many harsh outcomes of America’s over-enthusiastic war on drugs is that the protection of bankruptcy afforded Americans in the Constitution cannot protect property and assets from seizure when it has been involved in a drug forfeiture case.
- Policing for Profit: How The Good Guys Behave Badly (thecollegefix.com)
- Uncle Sam and State Governments: Looting Like Pirates in the Name of Fighting Crime (cafehayek.com)