U.S. Supreme Court Will Consider Collection Actions Against a Bankruptcy Debtor
If an Oak Park resident files for consumer bankruptcy, as soon as the debtor files a bankruptcy petition, an automatic stay prevents creditors from continuing to attempt to collect on any debts that the debtor may owe. What happens to a creditor who continues to try to collect on debt even after learning that the debtor has filed for Chapter 7 or Chapter 13 bankruptcy? Similarly, what happens to a creditor that continues to make efforts to collect on a debt once a bankruptcy case has been closed and the debtor’s debts are discharged? Do the answers to those questions change if the creditor did not realize that the debtor filed for bankruptcy or that the debt(s) had been discharged in a bankruptcy?
These are the issues that the U.S. Supreme Court will be considering when it hears a case out of the Ninth Circuit Court of Appeals, Taggart v. Lorenzen. While the Ninth Circuit ruling can not yet impact debtors and creditors in Illinois, the U.S. Supreme Court’s decision in the case will become binding for all courts in Illinois. As such, it is important to understand the key facts of the case and what its outcome could mean for debtors and creditors alike across the country.
Getting the Facts of Taggart v. Lorenzen
The facts of the Taggart case are somewhat convoluted, but the following are the key facts for understanding the issue that will soon be before the U.S. Supreme Court: Taggart, the petitioner, owned interest in real estate prior to 2007. In 2007, Taggart transferred his interest in that real estate to his attorney. The respondents, also people with an interest in the real estate, filed a claim against Taggart, alleging that he was not allowed to make that transfer of property. Meanwhile, Taggart filed for Chapter 7 bankruptcy while the claim against him was pending in court.
Because Taggart filed for bankruptcy, the automatic stay preventing the claim against him from moving forward. Taggart received a bankruptcy discharge in 2010. Afterward, the respondents—creditors—moved forward with the claim and sought attorneys’ fees from Taggart that they had incurred after the date of his bankruptcy discharge, believing that Taggart had “returned to the fray” and therefore could be held accountable for attorneys’ fees after he received a bankruptcy discharge.
Can a Creditor’s Subjective Understanding of its Obligations After a Bankruptcy Affect the Creditor’s Liability for Violating a Bankruptcy Injunction?
Taggart alleged that the creditors “knowingly violated the discharge injunction,” which prohibits creditors from attempting to collect on debts discharged through bankruptcy. The case ended up in the Ninth Circuit Court of Appeals, where the court ruled that “the creditors did not knowingly violate the discharge injunction and thus could not be held in contempt because they had a subjective good-faith belief that the discharge injunction did not apply to their state-court claim for attorneys’ fees.”
Following the Ninth Circuit ruling, Taggart appealed to the U.S. Supreme Court. The key issue for the U.S. Supreme Court is, according to an article in Bloomberg, “whether a creditor’s subjective understanding that a collection action taken against a post-bankruptcy debt didn’t violate the injunction against such acts is sufficient to prevent that creditor from being penalized for violating the bankruptcy injunction.” In other words, are the penalties for violating a bankruptcy injunction based on the objective fact that a bankruptcy injunction exists, or the subjective belief of the creditor as to whether a bankruptcy injunction prohibits a particular action?
The outcome of the case could be significant in terms of either debtor’s rights or creditor’s rights, depending upon how the U.S. Supreme Court rules.
Contact an Oak Park Bankruptcy Attorney
If you have questions about your rights as a debtor during or after bankruptcy, an Oak Park bankruptcy lawyer can speak with you today. Contact the Emerson Law Firm for more information.
See Related Blog Posts:
New Illinois Legislation Addresses Debt Collection Lawsuits
New Article Profiles Sandra Emerson
These are the issues that the U.S. Supreme Court will be considering when it hears a case out of the Ninth Circuit Court of Appeals, Taggart v. Lorenzen. While the Ninth Circuit ruling can not yet impact debtors and creditors in Illinois, the U.S. Supreme Court’s decision in the case will become binding for all courts in Illinois. As such, it is important to understand the key facts of the case and what its outcome could mean for debtors and creditors alike across the country.
Getting the Facts of Taggart v. Lorenzen
The facts of the Taggart case are somewhat convoluted, but the following are the key facts for understanding the issue that will soon be before the U.S. Supreme Court: Taggart, the petitioner, owned interest in real estate prior to 2007. In 2007, Taggart transferred his interest in that real estate to his attorney. The respondents, also people with an interest in the real estate, filed a claim against Taggart, alleging that he was not allowed to make that transfer of property. Meanwhile, Taggart filed for Chapter 7 bankruptcy while the claim against him was pending in court.
Because Taggart filed for bankruptcy, the automatic stay preventing the claim against him from moving forward. Taggart received a bankruptcy discharge in 2010. Afterward, the respondents—creditors—moved forward with the claim and sought attorneys’ fees from Taggart that they had incurred after the date of his bankruptcy discharge, believing that Taggart had “returned to the fray” and therefore could be held accountable for attorneys’ fees after he received a bankruptcy discharge.
Can a Creditor’s Subjective Understanding of its Obligations After a Bankruptcy Affect the Creditor’s Liability for Violating a Bankruptcy Injunction?
Taggart alleged that the creditors “knowingly violated the discharge injunction,” which prohibits creditors from attempting to collect on debts discharged through bankruptcy. The case ended up in the Ninth Circuit Court of Appeals, where the court ruled that “the creditors did not knowingly violate the discharge injunction and thus could not be held in contempt because they had a subjective good-faith belief that the discharge injunction did not apply to their state-court claim for attorneys’ fees.”
Following the Ninth Circuit ruling, Taggart appealed to the U.S. Supreme Court. The key issue for the U.S. Supreme Court is, according to an article in Bloomberg, “whether a creditor’s subjective understanding that a collection action taken against a post-bankruptcy debt didn’t violate the injunction against such acts is sufficient to prevent that creditor from being penalized for violating the bankruptcy injunction.” In other words, are the penalties for violating a bankruptcy injunction based on the objective fact that a bankruptcy injunction exists, or the subjective belief of the creditor as to whether a bankruptcy injunction prohibits a particular action?
The outcome of the case could be significant in terms of either debtor’s rights or creditor’s rights, depending upon how the U.S. Supreme Court rules.
Contact an Oak Park Bankruptcy Attorney
If you have questions about your rights as a debtor during or after bankruptcy, an Oak Park bankruptcy lawyer can speak with you today. Contact the Emerson Law Firm for more information.
See Related Blog Posts:
New Illinois Legislation Addresses Debt Collection Lawsuits
New Article Profiles Sandra Emerson
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