U.S. Supreme Court Hears Arguments About Debt Collection After Consumer Bankruptcy Discharge
Should debt collectors be punished if they continue to try to collect on debts that have been discharged in bankruptcy? Consumer protection advocates argue that they should, but courts across the country have not agreed about the answer to this question. Given that bankruptcy judges have reached different conclusions concerning “how easy it should be to punish debt collectors who pursue debt even after a person is no longer obligated to pay,” according to a recent article in The Wall Street Journal, the U.S. Supreme Court will now decide the issue.
We previously discussed this case, Taggart v. Lorenzen, after the U.S. Supreme Court agreed to hear the case. Now that the Supreme Court has heard arguments in the case, we have a better sense of the types of questions the Court focused on during oral arguments. We want to say more about how the Court approached the issues in the case, and to discuss possible outcomes.
Key Facts from Taggart v. Lorenzen
As a brief reminder about what is at stake in Taggart, we want to provide you with the basic facts of the case. In short, the debtor owed attorneys’ fees to his former business partners. The debtor filed for Chapter 7 bankruptcy, and his debts were discharged. The former partners continued trying to collect attorneys’ fees from the debtor despite the bankruptcy discharge, arguing that they subjectively believed the debtor was still responsible for paying the attorneys’ fees.
Under the law, when a creditor has been notified of a Chapter 7 bankruptcy discharge, that creditor can face significant fines, as well as being held in contempt of court, if it continues to make attempts to collect on the debt.
Controversial Bankruptcy Court Decisions Concerning the Law
The Taggart case is not the only bankruptcy case to raise questions about this type of issue. On one hand, some courts have concluded that creditors who violate the law are responsible only for fines, while others have held them fully accountable. On the other hand, some courts have concluded that the burden is on debt collectors or creditors to prove that they had reason to believe that the debtor was responsible for the specific debt in question despite a bankruptcy discharge. Others, still, emphasized that debt collectors were not responsible for violations because bankruptcy discharges are not always clear.
Accordingly, one of the major issues that exists in the Taggart case is “who is responsible for proving that collectors knew about a bankruptcy filing and who would pay for legal disputes over violations,” according to the article. In other words, who would have the burden of proof? Would creditors or debt collectors need to prove that there was a legitimate reason to believe that it was lawful to continue attempts to collect on the debt? Or would debtors have to prove that the creditor or debt collector knew that continued attempts to collect on the debt were unlawful? The former would be debtor-friendly, while the latter would be friendly to creditors and debt collectors.
At oral arguments, Justice Kagan “was totally stunned that it isn’t clear what standard applies.” Chief Justice Roberts said, “since allowing the creditors to proceed on debts that may or may not be dischargeable, it seems to me perfectly reasonable to have them bear the risk [and] have them make a careful choice.” The Court’s decision will have a significant impact on debtors who seek bankruptcy protection. As the article reflects, consumer advocates across the country are concerned that the Court’s ruling “could weaken protections for Americans that file for bankruptcy protection.”
Contact an Oak Park Bankruptcy Lawyer
Until the Court’s decision, debtors should continue to work with bankruptcy attorneys on complex cases. If you have questions about consumer bankruptcy, an Oak Park bankruptcy attorney can assist you. Contact the Emerson Law Firm for more information.
See Related Blog Posts:
Consumer Bankruptcy Law Needs Fixing, Advocates Say
Dealing With Tax Debt Collection
We previously discussed this case, Taggart v. Lorenzen, after the U.S. Supreme Court agreed to hear the case. Now that the Supreme Court has heard arguments in the case, we have a better sense of the types of questions the Court focused on during oral arguments. We want to say more about how the Court approached the issues in the case, and to discuss possible outcomes.
Key Facts from Taggart v. Lorenzen
As a brief reminder about what is at stake in Taggart, we want to provide you with the basic facts of the case. In short, the debtor owed attorneys’ fees to his former business partners. The debtor filed for Chapter 7 bankruptcy, and his debts were discharged. The former partners continued trying to collect attorneys’ fees from the debtor despite the bankruptcy discharge, arguing that they subjectively believed the debtor was still responsible for paying the attorneys’ fees.
Under the law, when a creditor has been notified of a Chapter 7 bankruptcy discharge, that creditor can face significant fines, as well as being held in contempt of court, if it continues to make attempts to collect on the debt.
Controversial Bankruptcy Court Decisions Concerning the Law
The Taggart case is not the only bankruptcy case to raise questions about this type of issue. On one hand, some courts have concluded that creditors who violate the law are responsible only for fines, while others have held them fully accountable. On the other hand, some courts have concluded that the burden is on debt collectors or creditors to prove that they had reason to believe that the debtor was responsible for the specific debt in question despite a bankruptcy discharge. Others, still, emphasized that debt collectors were not responsible for violations because bankruptcy discharges are not always clear.
Accordingly, one of the major issues that exists in the Taggart case is “who is responsible for proving that collectors knew about a bankruptcy filing and who would pay for legal disputes over violations,” according to the article. In other words, who would have the burden of proof? Would creditors or debt collectors need to prove that there was a legitimate reason to believe that it was lawful to continue attempts to collect on the debt? Or would debtors have to prove that the creditor or debt collector knew that continued attempts to collect on the debt were unlawful? The former would be debtor-friendly, while the latter would be friendly to creditors and debt collectors.
At oral arguments, Justice Kagan “was totally stunned that it isn’t clear what standard applies.” Chief Justice Roberts said, “since allowing the creditors to proceed on debts that may or may not be dischargeable, it seems to me perfectly reasonable to have them bear the risk [and] have them make a careful choice.” The Court’s decision will have a significant impact on debtors who seek bankruptcy protection. As the article reflects, consumer advocates across the country are concerned that the Court’s ruling “could weaken protections for Americans that file for bankruptcy protection.”
Contact an Oak Park Bankruptcy Lawyer
Until the Court’s decision, debtors should continue to work with bankruptcy attorneys on complex cases. If you have questions about consumer bankruptcy, an Oak Park bankruptcy attorney can assist you. Contact the Emerson Law Firm for more information.
See Related Blog Posts:
Consumer Bankruptcy Law Needs Fixing, Advocates Say
Dealing With Tax Debt Collection
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