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If someone served 7 years on a drug charge, the part that I would find morally reprehensible would probably be the incarceration. In my mind 7 years of prison is a lot worse than the $127k.
I am not a bankruptcy (or criminal) lawyer, but it may also be dischargeable in bankruptcy. What I see online says "punitive" charges are not dischargeable, but "reimbursement" based charges are and this seems related to reimbursing the state for the cost of the bed.
What on Earth???
That's why this whole thing doesn't apply. "Wrongful conviction" is a very narrow term.