Business Law
MVRA Overrides Bankruptcy Stay: Court Allows Enforcement of Restitution Lien Against Transferred Property Interest
SUMMARY
The United States Bankruptcy Court for the Middle District of North Carolina (the Court) recently held that enforcement of a restitution judgment is not subject to the automatic stay under the provisions of the Mandatory Victims Restitution Act (“MVRA”) even when the criminal defendant is the Debtor’s ex-spouse, not the Debtor, and had transferred his interest to the Debtor prepetition. In re Sinclair, 2026 WL 122308 (Bankr. M.D. N.C. January 14, 2026). To view the opinion, click here:
FACTS
The Debtor Chrystyna Hankewycz Sinclair filed a Chapter 13 petition on September 30, 2025. In Schedule A/B she listed real property located at 4305 Lillington Drive, Durham, N.C. (the “Real Property”) with a value of about $476, 000.00, showing herself as the sole owner. Schedule D listed a first trust deed of about $337,656 , a judgment lien held by American Express, and a disputed “criminal restitution debt against Debtor’s ex-spouse” in favor of the United States for the sum of $76,249. The criminal restitution debt was part of a judgment against Debtor’s ex-spouse, Louie George Sinclair, who was found guilty of wire fraud. On March 4, 2008, a lien in favor of the United States securing payment of the restitution judgment was recorded against all property he owned, including his interest in the Real Property, which was held by tenants by the entirety.
On August 7, 2025, before Debtor filed bankruptcy, the United States filed a complaint in the District Court, seeking to enforce its lien against an undivided one-half interest in the Real Property through a forced judicial sale of the entire Real Property. The complaint also named the Debtor as a defendant. The United States filed a motion in the bankruptcy court on October 17, 2025, asking the Court for a determination that its action was not subject to the automatic stay because the MVRA, 18 U.S.C. § 3613, overrides the provisions of § 362(a). The Court found the argument persuasive and granted the motion.
REASONING
Exceptions to the automatic stay are found at § 362(b) but also outside of title 11. Section 3613 of the MVRA provides that “[n]otwithstanding any other Federal law…, a judgment imposing a fine may be enforced against all property or rights to property of the person fined….” The Court had ruled in a prior case that the MVRA trumped the Bankruptcy Code in this context. The twist here is that prior to the bankruptcy, the ex-spouse had transferred his interest in the Real Property to the debtor. However, at the time the lien was imposed the ex-spouse did have an interest in the Real Property. His entireties interest did not protect the property from the lien, which remained effective notwithstanding his transfer of his interest to the Debtor.
Because the MVRA trumps the automatic stay and the lien remains against the ex-spouse’s one half interest in the property, the United States prevailed on its motion to enforce. This would allow the government to sell the entire property and award to the Debtor the net monetary value of her one-half interest in the Real Property.
AUTHOR’S COMMENT
Although this outcome seems harsh, it supports the policy behind the MVRA that a criminal defendant cannot escape his restitution judgment by transferring the property interest away. Presumably, the proceeds from the forced sale will be used to compensate a criminal victim. Even though the Debtor loses her home, she may be able to protect her one-half net interest with the applicable homestead exemption.
[The Commercial Finance Newsletter is written by an ad hoc group of lawyers in the Business Law Section of the California Lawyers Association. This review was written by the Hon. Meredith Jury, U.S. Bankruptcy Judge, Central District of California (Ret.), a member of the ad hoc group. The opinions contained herein are solely those of the author.]