To Be (Held in Contempt) or Not To Be? That Is the (Bankruptcy) Question

December 12, 2019

Recently, the United States Supreme Court in Taggart v. Lorenzen set the legal standard that should be followed by bankruptcy courts when determining whether to hold a creditor in civil contempt for attempting to collect a debt in violation of a bankruptcy discharge order. The unanimous decision of the Supreme Court reconciled a split which had developed in lower courts as to the nature of the proper standard for evaluating whether to hold a creditor in contempt for violating a discharge order.

The primary goal of every individual debtor who files for bankruptcy is to obtain a discharge order at the conclusion of his or her bankruptcy proceeding. The discharge order is what releases the debtor from liability for most pre-bankruptcy debts and bars creditors from attempting to collect on any such debts. Specifically, Section 524(a)(2) of the Bankruptcy Code provides that the discharge “operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor.”

A creditor who attempts to collect on a debt that has been discharged pursuant to a discharge order runs the risk that it will be held in civil contempt by the bankruptcy court, and have money sanctions imposed upon it, pursuant to the court’s broad grant of authority under Section 105(a) of the Bankruptcy Code.

Reprinted with permission from Nassau Lawyer, Vol. 69, No. 4, A Long Island Business News publication. 

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